Green Plains Inc (GPRE) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, welcome to the fourth-quarter and year-end 2009 financial results conference call.

At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder this conference is being recorded.

I would now like to introduce your host for today's conference, Mr. Jim Stark. Sir, please go ahead.

Good morning and welcome to our 2009 fourth-quarter and full-year earnings call. Today on the call is Todd Becker, our President and Chief Executive Officer; Jerry Peters, our Chief Financial Officer; and Steve Bleyl, who heads up our Ethanol Marketing as the Executive Vice President, will be available for questions and answers later in the call.

We are here to discuss our fourth-quarter and full-year 2009 financial results and the near-term outlook for Green Plains Renewable Energy. Please remember that a number of forward-looking statements will be made during this presentation. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on the current expectations of Green Plains' management and there can be no assurance that such expectations will prove to be correct.

Because forward-looking statements involve risks and uncertainties Green Plains' actual results could differ materially from management's expectations. Information about these risk factors that could cause such differences can be found in this morning's earnings press release on page two and in our 10-K and other periodic SEC filings.

The information presented today is time sensitive and is accurate only at this time. If any portion of this presentation is rebroadcast, retransmitted, or redistributed at a later date, Green Plains will not be reviewing or updating this material.

Now I would like to turn the call over to Todd Becker.

Thank you, Jim. Good morning and welcome to our call; we are glad you could join us today. We issued very positive fourth-quarter and full-year results this morning before the market opened. The performance of our diversified platform was strong at the end of the year and we are excited about the opportunities going forward for our business.

Let me clue give a quick run through the numbers. Our consolidated revenues for the fourth quarter were $437 million. We reported a net income of $23 million or $0.91 per share for the quarter.

We produced 122 million gallons of ethanol during the quarter which is better than our expected production capacity. All six of our plants ran and performed well as we continue to look for ways to improve the efficiencies of our plants and increase volumes. We believe we have an opportunity to further increase our production in 2010 above our expected annual operating capacity of 480 million gallons with minimal incremental capital costs.

Our plants performed better than our expectations due to our continued focus on data driven metrics, continuous improvement, and debottlenecking the production process. The agribusiness segment also had a solid contribution in the quarter as a result of the strong harvest season. We expect to see this business continue to grow its grain volumes and its agronomy business in 2010.

Segment operating income, which is total operating income before corporate expenses, was $34.8 million for the fourth quarter. The positive trend for margins continued through the fourth quarter.

Our ethanol production segment generated $28.7 million of operating income for the quarter. On a cash flow basis if you add back depreciation and amortization for this segment of $7.9 million, the result is $36.6 million on a nearly 122 million gallons of ethanol sold.

In all our strong fourth-quarter performance lead to positive results for the full year of 2009. We generated $1.3 billion in total revenues and $19.8 million of net income or $0.79 per share in earnings for 2009.

We believe our industry is on solid ground. We received some positive news earlier this month from the federal government concerning the renewable fuel standards, or RFS2, for 2010 and beyond. In short, the EPA and the Departments of Agriculture, Energy, and Interior are working together and have formulated a feasible plan for our industry. There are some items that will continue to be refined but we see that RFSs validated corn-based ethanol as a permanent part of our quest for energy independence.

All of our plants are eligible for grandfathering from the 20% greenhouse gas reduction threshold in RFS2 and we believe if indirect land use is removed from the calculations our reductions are much greater. We look forward to working with the EPA on the E15 initiative underway as this will allow for more job creation and further penetration into the fuel supply.

With what we have locked in at the end of the quarter combined with the current margin environment, as a low-cost producer we believe we can continue to achieve positive results at these margin levels. This margin environment coupled with the current favorable blending economics and the increased mandate for 2010 of 12 billion gallons has us excited about our prospect and earnings capability of our platform.

While industry fundamentals have shown marked improvement over the past year, I believe Green Plains is particularly well-positioned within the industry. We had a very exciting and challenging year in 2009 on a number of fronts. We started the year as a new company coming off the merger with VBV in the fourth quarter of 2008. This transaction occurred during one of the most challenging environments in recent industry history.

Our approach to risk management enabled us to weather this downturn and meet all of our financial obligations in a very tight credit market. We were successful in expanding our ethanol production by 45% in July of last year with the addition of the two plants in Nebraska. We have also added two plants during the course of 2009 for which we have provided ethanol marketing services.

We are a much bigger company today than a year ago but our priorities remain the same -- margin management is priority one. When opportunities present themselves we move quickly to lock in margins for our production. For example, at December 31 we locked in forward margins of 72 million gallons of production, most of which is weighted towards the first half of 2010.

We are a commodity processing business that requires a disciplined approach every day, day in and day out. We will continue to effectively utilize our proprietary risk management system to generate more stable results for our ethanol segment.

Safety is a priority. Providing our employees a safe and quality place to work is important to all of us. We take safety seriously and had no major safety incidents during the year.

Operational excellence remains a focus; improving our process can increase our bottom line. We can do this by higher yields and more production output across our ethanol production platform. This is one of the key reasons we brought in Jeff Briggs as our COO to keenly bring focus on improving our processes at our plants and leverage our vast operating knowledge.

In our agribusiness segment we can increase our grain origination to yield a higher utilization and better return on our assets. We believe this business segment has a strong potential going forward as corn production in the areas we serve will continue to grow to meet the needs of ethanol producers as well as grain processors.

Expanding our platform is another priority for the future. Blendstar has become a more strategic to us as proven recently by the opening of Collins, Mississippi, facility which created a direct market for ethanol out of our Obion, Tennessee, plant. We also recently added Bossier City, Louisiana, to the network and we will continue to find underserved biofuel markets and creative new blending opportunities for our Blendstar customers.

We want to expand our agribusiness segment. We continue to search for opportunities to expand this business as this is core and strategic to our growth plans. Adding ethanol production is also on our roadmap as we will look to acquire more assets.

Our platform is now right for growth. We are looking for opportunities to bring in production assets that lower our overall cost of production and provide a path to liquidity for shareholders of locally-owned plants. We have a unique opportunity as we have continued to prove the capability of our platform and its ability to drive shareholder value back to our investors.

We continually look to add more third-party marketing plants as well. Our critical mass and customer base has given the plants we market for the ability to manage risk better as we provide them complete transparency to the marketplace. A key point is, we do what they do. It is all in our best interest to be successful as we believe marketing ethanol for third parties is a partnership.

This is very different from our competitors in this part of the space. We have a vested interest in our customers doing well. It means the industry will be stronger which benefits our shareholders and all shareholders of the industry.

We want to grow bigger and better along all parts of our diversified platform. Growth, though, will not come at the expense of our top priorities or just for the sake of growth. Right location, right valuation, right technology, and right time all play a key role in our decision to expand. Our goal is to be the low-cost producer in the industry, continue to build cash, produce solid results that will reward our shareholders for their faith in our approach to the business.

Now we would like to turn the call over to Jerry to review our financials in more detail.

Thanks, Todd. Good morning, everybody. For the fourth quarter of 2009 our comparison of results will be year-over-year as the fourth quarter of 2008 was close to a full quarter of operations.

A quick reminder, the VBV merger took place October 15, 2008, so that fourth quarter is a couple of weeks short of a full period for some of our businesses, which includes our Shenandoah and Superior ethanol plants as well as our agribusiness segment; in addition, the Obion plant was brought online in November of last year. Then in 2009 we ramped up our third-party marketing activities and acquired Blendstar early in the year.

Finally, we acquired the Ord and Central City plants in July of 2009. So needless to say there are a number of factors to keep in mind that caused the significant change in our operating results between the periods.

We reported revenues of $437 million for the fourth quarter of 2009. That is a $254 million increase over the fourth quarter of 2008 revenues of $183 million. For the full year 2009 revenues totaled $1.3 billion.

Consolidated gross profit was $44.3 million for the quarter, which is a $29 million improvement over the fourth quarter of 2008. The increase is attributable to significantly higher ethanol production volumes from the factors I mentioned previously and improved margins on that production.

Total selling, general, and administrative expenses were $14.5 million in the fourth quarter which was roughly the same as the fourth quarter of 2008. Now accounting for approximately $2.7 million in merger costs that we had included in the fourth quarter of 2008 we do show a modest increase considering the overall change in the scope of our operations. However, I believe it was a reasonable and modest increase between the two periods.

Concerning our business segments; first, the ethanol production segment. We reported revenues of $236 million for the fourth quarter of 2009. That was a significant increase over the $131 million reported for the fourth quarter of 2008. Again, the increase is driven primarily by producing 60 million gallons more in 2009 compared to 2008. This is mainly attributable to the addition of the two Nebraska plants in the middle of 2009 as well as the startup of the Obion plant in November of 2008.

Operating income for the ethanol production segment was $28.7 million for the current quarter versus about breakeven for the fourth quarter of 2008. Obviously the increase in production volumes was a major factor, but as Todd mentioned our margins in the current period were much improved over the tough environment we saw in late 2008.

Our agribusiness segment generated $71.1 million of revenue for the quarter compared to $68.8 million for the fourth quarter in 2008. We did not see any significant effects of the late harvest for our agribusiness segment other than a compressed harvest season, more grain drying, and as a result some long hours for our people.

Operating income for the segment was down slightly compared to a very strong fourth quarter of 2008 and also mainly due to higher administrative costs in various categories.

Marketing and distribution segment revenues were $368.6 million for the fourth quarter 2009 compared to $71 million for the fourth quarter of 2008. Our third-party marketing activities were launched in the first quarter of 2009 and we added two ethanol plants during the course of the year bringing our expected third-party marketing gallons to 360 million gallons on an annual basis.

Of course, we also saw volume increases as a result of our own production increases. In total the segment sold nearly 187 million gallons of ethanol during the fourth quarter of which 122 million gallons were produced by Green Plains. That compares to approximately 62 million gallons marketed in the fourth quarter of 2008.

Segment operating income or total operating income before corporate selling, general, and administrative expenses was $34.8 million in the fourth quarter of 2009 compared to $5.2 million in the fourth quarter of 2008. For the full-year of 2009 segment operating income was nearly $51 million.

We watch our corporate SG&A pretty closely and I believe that that $700,000 increase for the current quarter up to about $5 million over 2008 really reflects that. Our business activities expanded dramatically in 2009 on with a modest increase in our corporate staffing.

So consolidated income before income taxes was $23.6 million for the fourth quarter 2009. Income tax expense was minimal at about $300,000 during the quarter. Now income tax for the current period reflected a tax benefit for the reversal of a valuation allowance carried against our deferred tax assets. We expect to realize further reductions in future periods as the remainder of our valuation allowance of about $5.1 million is available to reduce our future effective tax rate.

The fourth-quarter results were strong as our net income attributable to Green Plains was $23.1 million or $0.91 per share on a diluted basis compared to a loss of $1.8 million or $0.08 a share in the fourth quarter a year ago. The full-ear 2009 results were net income attributable to Green Plains of $19.8 million or $0.79 per diluted share.

Turning to EBITDA, during the quarter our earnings before interest, income taxes, non-controlling interest, depreciation, and amortization, or EBITDA, was $37.8 million which was a $31 million improvement over the same quarter of 2008. EBITDA for all of 2009 was $67.7 million.

Quick reminder, EBITDA is a non-GAAP financial measure and I would direct your attention to information included in the news release including reconciliation to our GAAP net income.

So our liquidity position remains very strong with $102 million in cash at the end of the quarter and $36.4 million available under committed loan agreements bringing our total available liquidity to about $138.7 million at the end of the year.

Now I would like to turn the call back over to Todd for his closing comments.

Thanks, Jerry. Before we open up the call for questions I wanted to provide a brief update on our algae project. We continue to see good progress in our BioProcessAlgae Grower harvester pilot project at Shenandoah. We are finalizing the scope of the work for Phase II of the pilot project and when we have completed all of the analysis of Phase I we will let everyone know the results of our findings.

I have to say that we are pleased with the progress we are making and the verification of bringing this technology from the lab to a commercial-sized application. Remember, we are concentrating our focus on growing and harvesting a high-quality feedstock efficiently and capturing carbon dioxide while doing so. We own 25% of this business with great partners all focused on the same thing.

BioProcessAlgae owns the worldwide technology rights for the Grower Harvester technology. We are optimistic that this technology may have applications across several industries. Our focus at Shenandoah is to determine scalability in an industrial environment while creating a better carbon footprint than before.

Finally, I have to say that I am proud of the way our employees came together to expand this business and put up a strong financial performance to finish 2009. All of our employees and shareholders know that we are not done. We believe we are just getting started with the opportunity of our diversified platform to create long-term shareholder value.

Again, I would like to thank you for calling in today. Now I will ask Karen to start the question-and-answer session.

(Operator Instructions) Matt Farwell, Imperial Capital.

Good morning and congratulations on a successful quarter. I am curious about on the ethanol production side corn consumption was around 2.77 gallons of ethanol per bushel. And I am wondering in 2010 if you see that number going up?

We are focused on yield all the time. We think we have a good opportunity to continue to increase that. We were a little concerned with the lower test weight of the US corn crop this year, but what we have seen is the starch has held pretty well in tact and yields for us have held in tact very well.

So as that is continually our focus we think there is some opportunity for some upside to that yield but we will just kind of have to wait and see how the crop plays out. But so far what we have seen is kind of what we like.

Could you provide any commentary on the mix of revenues within the ethanol segment?

Matt, I think the revenue disclosure will be coming out in our 10-K here in the next few days, but let me just flip to that. Well, I take it back I guess in terms of the -- within the segment we are not disclosing the mix of revenues inside the ethanol segment. We are disclosing total consolidated revenues. And of our $1.3 billion in revenues for the year about $1 billion of that is from ethanol and about $145 million, $155 million of that is from distiller's grain.

So you would have to be thinking of that in terms of the combination of the production segment as well as the marketing and distribution segment.

Okay, good. Now I noticed you had Steve Bleyl on the call and I was wondering if you could discuss the ethanol demand environment now with ethanol trading at $0.40 below gasoline. It seems kind of at odds with the increased mandates. And I am wondering if seasonality in the gasoline market will become more of a factor with ethanol going forward.

You are seeing with the blended [contracts] right now you are seeing good incremental blending into new marketplaces and this is the winter blending where there is periods right now that will blend now but don't in the summer. So the biggest factor is probably the gasoline demand, but the elasticity for ethanol blending is still there. It's still very strong.

Okay. My last question is there was an acquisition announced in January -- Kinder Morgan acquired three ethanol terminals for around $200 million -- and I thought this really validates your strategy to capture value in the downstream.

These terminals had a large amount of storage and handling capacity. They also appear to handle some other fuels besides ethanol. But could you comment on how these assets compare to Blendstar and how this affects your growth plans for the marketing business?

They are a little bit different. Those are a lot of storage, big footprints. Blendstar is low storage, low footprint, but high velocity. We are focused on moving a lot of volume through a smaller footprint and we are able to turn our volumes or turn our assets several times during the year, much more than a bigger terminal would.

In addition, those are big destination terminals in big destination markets. We are focused on niche markets.

We like the transaction; don't get us wrong. We thought that did validate some of what we are looking for that we are continuing to build out our destination marketing platform as well as making sure that we get close to the consumer. But it's a much different business model than a high velocity, low storage, high input terminal that we are building.

But we are able to really achieve what we want to with the Blendstar terminals, which is getting closer to niche markets that are underserved that we can find an advantage site, which is what happened down at Collins. Here is a market that before we got down there was blending very little -- 300,000, 400,000 gallons a month. We think that market was a 4 million to 5 million gallon a month market and it's going to come directly -- a lot of that volume is going to come directly out of our Obion terminal.

So we are going to continue to look for markets like that, open them up, have our footprint small, investment low, and getting a high throughput and high turn volume of those assets.

Well, good. Congratulations again.

Ian Horowitz, Rafferty Capital Markets.

Congratulations on a great quarter. A couple of questions for I guess all of you. Jerry, is there any -- I think you have time kind of commented in the past that from an SG&A standpoint we should look at roughly $0.11 a gallon. And I think if you look at '09 on average we are a little bit higher than that, more closer to $0.12 than we are to $0.11.

Is that $0.11 to $0.12 range still kind of what you are thinking going forward?

No. Ian, actually the thing that we focus on is corporate SG&A and I think the guidance we have given on that is we are focused on holding that to about $0.03 a gallon. I think our Q4 was slightly above that but on a full-year basis $0.03 a gallon corporate SG&A is kind of what we would expect.

The SG&A at the plant level should be pretty consistent. And that will just be driven by if we acquire additional assets you would see the plant level SG&A go up.

At $0.11 a gallon if you reference a lot, Ian, is typically our debt service, what it takes to service our debt from an EBITDA standpoint.

Right. And then any outlook on either D&A or CapEx?

The CapEx for full year was about $13 million during 2009 and that is going to spread out all over the different business segments. D&A, again, should hold in there fairly consistent with what we are currently reporting.

And do you expect similar CapEx spend for 2010?

It depends a lot on growth projects. As we mentioned, we are really focused on debottlenecking the plants, looking for those opportunities to increase production on a very efficient basis. So we would like to find those projects and probably ramp up our CapEx to some extent, but it should pretty immediately contribute to higher volumes in the segment.

Right, okay. Jerry, have you -- is there a way that we can figure out the agribusiness segment going forward? I know it's so early in the performance of the group from a modeling standpoint it's kind of hard to tell how to look at this on a quarterly basis. Is there anything you can give us to help us kind of look at this segment in terms of its contribution to the overall income statement?

Again, I think we have guided that there is a significant amount of seasonality to the business and so you typically have the planting and the harvest quarters are the strong quarters. The other two quarters in the year generally are breakeven to slightly positive.

I think in terms of metrics we disclosed the bushels of grain sold during the quarter. It was about 10.5 million bushels as well as the fertilizer sales at [22,800] tons. Those are kind of the metrics that are going to at a high level move the needle, but of course we also have application income and grain handling income. For example, in the fourth quarter we had very strong drying revenue.

There is just so many different services and sources of revenue that it's difficult to really guide you to one metric that is going to really, really change the outlook of the business.

Todd, a couple questions for you. On the forward sales Jerry mentioned -- I think it was Jerry -- that you guys did (technical difficulty) 2 million gallons December 31 kind of the first half 2010. When you were writing those was that -- did you see things more occurring in the first quarter? Would you say the majority of that is first quarter locked up or is it kind of spread throughout the first half?

I would say that is more heavily weighted towards the first quarter. If you think about how we run our business, we have continued to lock margins in since the beginning of the year as well. So some of the 72 million gallons have been realized already in January and we never stopped selling.

So we are pretty well done for the first quarter and we are now focusing on the second quarter.

Has the appetite for forward sales changed at all since the end of the year?

Yes, we are still able to sell second quarter. We were never really able to sell third and fourth quarter with any volume, especially with the structure of the commodity curve with carrying the corn market and the flat ethanol market. So we have been -- we kind of focus on one to two quarters out. The third and the fourth quarter we don't really focus on until we get closer there as the margins aren't really favorable out there and we just waste.

I think -- and that is a structure issue of the market that gets addressed as the markets move through the quarters. So we are focused on the second quarter now. We are not seeing much opportunity in the third just yet, but right now that is where our focus stands.

Okay. And the last time, one of the last times we spoke you had yet to see the vomitoxin or mycotoxin issues in distiller grains. [Is that] kind of still the case?

There were some toxin issues on the East Coast this year. The facility that was most affected in our platform was really only one of them, which is Bluffton. But what we do is we actually discount that corn and then we sell the DDGs at a similar discount. So from the standpoint of big impact to our financials we haven't really seen it.

I think that is the key of having a platform spread across many geographies. When something hits the East it typically doesn't hit the West or the South or something like that so we like having a diversified geographic platform as well. But overall we have been able to work through the one plant that had the issues and we really haven't seen that affect us too much.

And then last question and I will get back in queue, how is the -- looking at new alliance partners or new marketing partners, what is kind of the new environment there both in terms of people that have the appetite to switch marketing relationships and kind of the economics that you are going to have here or having to compete against? Just can you give us any update on where that business is right now?

I think it's still -- you have got the environment right now where people realize to go to the marketplace they need the relationships and they need a bigger platform to go to the market because of what they are selling into, the energy industry. So from that perspective that hasn't changed.

There is people looking all the time looking to change relationships and maybe a new way to sell or a new platform to sell into or with. And that is kind of the ones that we concentrate on, the ones that look at the marketplace similarly to we do. There are those individual marketers out there that still -- or individual plants that still look for that type of a new marketing agreement.

Great. But has it become more price sensitive recently or stayed the same?

The RFA, the National Ethanol convention was last weekend and that was a topic that there was a little bit of change going on in that part of it, yes.

I would assume on a lower price basis, right?

Yes.

All right, guys. Congratulations again. I will get back in queue.

Jinming Liu, Ardor Capital.

My first question is on the [market] level. How do you -- mentioned that you are looking at acquiring more [ethanol] assets, but I know that they -- currently the industry is not only seeing the old big [culture] companies but also big petroleum companies. What is your strategy to compete with those players in terms of acquiring new assets?

First of all, with what we have as a platform we think it's very attractive. What it allows investors to do at local plants is -- really we provide a path to liquidity. We provide a little different path than say the people you have talked to where we are a little more heavily weighted towards ethanol as an asset structure.

So if you have a local ethanol plant that is looking for a pass-through liquidity it's not just because they want to exit the space. It maybe because they want to get out a part of their investment but stay invested in ethanol. So that is what we provide them.

If we can use our stock and cash in an acquisition strategy it allows for some of these individual plants that don't want to maintain exposure into the market but want to have some liquidity, it allows them to continue to maintain the exposure more heavily weighted towards ethanol instead of taking stock from maybe a bigger agricultural or energy company where that weighting would be much lower. And so that is what I think we provide them.

In addition, I think we are just a good destination. We are looking for plants that are in the right location with the right technology and that is very important to us. When we find that plant we certainly understand the valuations of those plants and what is important, how to get a deal done with partners across the table. So that is basically what we focus on.

Okay. My next question is related to your cash management. It was a very strong quarter so far in past quarters and it looks like this trend will continue at least for the next two quarters. My question there is whether or what is your strategy if you use cash, whether you will use it to acquire more assets or to restructure some of (inaudible)?

Our cash position has continued to grow. We feel fortunate that we are in this position, but it is a commodity business in a cyclical environment and so we look at our cash from a defensive standpoint today. We want to continue to have a strong balance sheet.

Right now at $102 million of cash and cash equivalents it's almost two years of debt service. That gets us comfortable and then what we do is we will focus on using stock and a combination of stock and cash in acquisition strategies. And so we are very fortunate that we have the ability to do that.

But we have been in a cash build mode and we wanted to do that all year while we have a strong platform of our platform. We just want to make sure that we have a strong balance sheet going forward and we will make the best decision at the time whether we use cash or stock as an expansion strategy.

Okay.

Today I don't see us in any kind of debt restructure. Jerry maybe just talked a little bit about it, but the structure of our debt we think is very favorable.

That is right. All of our debt is non-recourse to the parent with amortizing term loans and so we would expect to just keep making those [S] payments as they come due and stay in a very, very liquid position.

Good. My last question is related to your agribusiness. It looks like the revenue for that segment increased year over year but the operating income decreased. You mentioned that -- Jerry mentioned early -- it may be due to some increase in administrative costs but your overall G&A expense stayed flat. Can you give me more color on that?

Like I said, there were a number of categories throughout the income statement that caused that roughly $700,000 decrease in our operating income from agribusiness. We had strong drying income and service revenues offset by slightly lower margins on corn and soybean that were realized, and sometimes during harvest the margins aren't fully set at that point.

But then in terms of the operating expenses, I think probably the thing that hit us the hardest was the fact that with the compressed harvest we had more overtime. So our personnel costs were up maybe about $400,000 and then just other operating expenses, our depreciation was slightly higher, slightly higher insurance costs. All-in about a $700,000 change in operating income between the two quarters.

Okay, thanks a lot.

(Operator Instructions) Ben Kallo, Baird.

Good morning, nice quarter. Based on the timeline of some of your previous acquisitions are we likely to see 2010 numbers be affected by some of the targets you are looking at now or is it more likely a 2011 event?

We won't comment on any specific acquisitions or the timeline that might result from that, but we do have a pretty full set of deals that we are looking at at any point in time, all the time. I would say that there is always a possibility that we can have acquisitions close during 2010 and actually contributing in 2010.

We are early enough that we have shown the ability to announce and close acquisitions fairly rapidly. So I wouldn't rule it out for 2010 that we wouldn't have any affect from acquisitions, but again I wouldn't comment on any specific deals.

Great, thank you.

Paul Resnik, Olympia Capital Markets Group.

Good morning. Great quarter. A couple of questions; some specific, a couple of general ones.

On the ethanol margins, ethanol prices seem to have been weaker than gas prices recently. Do you think that is because producers are busy locking in in advance and that has created -- that has brought some of the selling near term? Or how does one kind of justify, or explain would be better, the narrowing difference between -- or excuse me, the expanding difference between ethanol and gasoline prices?

What we have really seen is that while gasoline is more volatile, ethanol prices were pretty sticky or very sticky during 2009. And so -- and there were times when ethanol was over gas and there were times when ethanol was under gas. It's more the volatility of the gas market than it really is the ethanol market.

Ethanol margins where they were -- was more related to the crush between corn ethanol gas, natural gas, and distillers grain than it was the absolute value of RBOB. And so we have seen that range from basically where we are at today at 30 or 40 under to five to 10 over and we have kind of seen that range. And some markets, some destination markets were even 20 over at certain times of 2009.

So I would say that there is not always a direct correlation between ethanol and gasoline except to say that ethanol prices were much more sticky.

And couple of industry questions. What is your view regarding renewal or the prospects for renewal on [VTEC] and the tariff and the decision on the waiver to 15%?

Well, the waiver of 15% we are working very closely, having a positive EPA, Department of Ag, and federal government review of the corn-based ethanol plants as well as the ethanol industry in general, and focusing on expanding capacity over the next several years. That really the big commitment from government to help do that I think bodes well for our chances to get the waiver for expanded blending.

So I think we are very optimistic about that. We work everyday between all of our industry organizations to make sure that we are focused on the [VTEC] and continuing to get the tax credit. Remember it's a credit; it's not a direct payment to the industry. It's a reduction in the federal income tax, excise tax, at the fuel pump.

And so if you think about the benefit that this industry has given in tax revenue in reduction and direct payments to farmers and so on, you would see that the [VTEC] is a very small piece of that. And net-net to government it's a net savings overall to have this industry profitable and active, and I think that we should see positive results from the [VTEC].

Thank you.

Matt Farwell, Imperial Capital.

I just wanted to ask about the 2010/2011 harvest. I know you have some insights through the agribusiness. USDA is projecting a slight increase in harvested acreage and a slight decrease in yields to around 160 bushels per acre and overall a reduction in stocks. I am wondering how does that compare with what you are seeing.

Do you think that those estimates should increase or should decrease over the next few months when the planting season becomes more evident?

We are actually more optimistic on the estimate than what you are seeing. We think planted acres could expand towards 90 million. If you go to just to kind of a trend of 161, we would see an expanding environment for (inaudible) stocks next year. I think we are going to have a stocks to use ratio somewhere between 14% and 15% this year and we think it could expand 16% to 18% next year.

If we take a look at even 161 yield and you could see the potential versus this year's 165-ish, you can see that even from the numbers that are published we have good potential for the US corn crop next year. I think we will see expanded acres and I think we could see expanded yields, so overall we are not -- we are actually very happy about what we are seeing from the farmers and the producers.

We had a -- I think everybody in the industry have seen good applications for the spring planting season and I think people are still focused on planting corn.

One other question on ethanol marketing. It doesn't appear you are marketing the full 360 third-party gallons. It appears that Lincolnway and Bushmills are operating at full capacity. What is the limitation there? Is it a particular plant or a particular market? Could you just provide some more guidance on how we should model that this year?

I think there us two points here. Number one, some of the plants weren't with us in the beginning of the year versus the end of the year. I think as well as you probably read (inaudible) did some major improvements in one of the plants that we market for in North Dakota. Did some major improvements to make sure that their drying capacity is much more consistent.

Now that plant is running very well and that should bring us back in line, back into our 360 million gallons for 2010.

Okay, thank you very much.

There are no further questions in queue. I will turn things back to Todd Becker for any concluding remarks.

Thank you everyone for calling in today. We are obviously very happy with the quarter that we just finished and the year. I think it's very important we turned in a strong financial finish to become both profitable for the quarter and profitable for the year.

If you think back to the beginning of the year it would be a big challenge to have said this would have happened. We are optimistic about the future of ethanol. We like what is coming out of the federal government. We think the industry is on solid footing. We have seen good interest in strategic players coming in and making an investment as well.

Overall, we are just very optimistic about our future and we are looking forward to 2010. Thanks for calling today.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may now disconnect. Everyone have a good week. Thank you.