Green Plains Inc (GPRE) 2011 Q4 法說會逐字稿

Good day and welcome to the Green Plains Renewable Energy, Inc. fourth quarter and full year 2011 financial results conference call. Today's call is being recorded. At this time for opening remarks, I will turn the call over to Jim Stark. Please go ahead.

Thanks, Matt. Welcome to our fourth quarter 2011 earnings call. On the call today are Todd Becker, President and Chief Executive Officer; Jerry Peters, Chief Financial Officer; Jeff Briggs, our Chief Operating Officer; and Steve Bleyl, Executive Vice President of the Ethanol Marketing.

We are here to discuss our fourth quarter 2011 financial results and recent developments for Green Plains Renewable Energy. There is a slide presentation for you to follow along with as we go through our comments today. You can find this presentation on our website at www.gpreinc.com on the Investor page under the Events and Presentations link.

Our comments today will contain forward-looking statements which are any statements made that are not historical facts. These forward-looking statements are based on the current expectations of Green Plains' management team 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.

Please refer to page two of our website presentation, and our 10-K and other periodic SEC filings for information about factors that could cause different outcomes. 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'd like to turn the call over to Todd Becker.

Thanks, Jim, and thanks for everybody joining our call this morning. In a short period of time, we have built a large diversified enterprise. Our success includes generating 11 consecutive quarters of profitability and we owe this accomplishment to the execution of our strategy for risk management, operational excellence, and running our facilities in a safe manner. These are the fundamental reasons we continue to produce the results that we do.

Over the last three years, we have generated in total over $345 million in EBITDA and have grown our Company from 330 million gallons of production at the start of 2009 to 740 million gallons of capacity by the end of 2011. One of the benefits of this performance is a stronger balance sheet with cash reserves and lower debt levels per gallon which gives our stakeholders comfort in our ability to sustain ourselves during times of margin compression.

Jerry will talk later in the call specifically on our balance sheet, but we ended the year with an average of $0.60 per gallon of debt or plant-related subsidiary debt compared to just over three years ago when we built our plant with nearly $1.00 per gallon worth of debt. Our financial results for 2011 were strong.

From an EBITDA standpoint, the Company generated nearly $150 million for the year. We had a significant contribution from non-ethanol operating income again this quarter, accounting for 48% or $19.1 million of our total segment operating profit. This was a result of our effort that we outlined for you as we had focused on building other income streams. As you can see from our results, we have achieved our goal of a $50 million annual run rate on non-ethanol operating income.

We indicated that the results in the fourth quarter would be better than the third and the company delivered on this as well. Part of this was driven by our agribusiness segment, which show a 76% increase in operating income in the fourth quarter of 2011 versus 2010. This segment delivered a strong full-year result, as well, more than doubling it's operating income from 2011.

The growth in agribusiness operating income can be attributed mainly to increasing our storage capacity to 39 million bushels over the last three years. We still believe we can continue to grow this business. We have very good assets and great locations, and this business has been built from scratch to now operating in four states and handle more than two million tons of a combination of wheat, corn, and soybeans.

In Tennessee, assets performed exceptionally well this year. We were able to capitalize on the wheat carries and the soft wheat market earlier in the year and capture the last part of the corn inverses as Tennessee has one of the earliest harvest cycles. This year was especially made for these assets.

Our investment in corn oil production continues to provides excellent returns, generating another $9 million in operating income in the fourth quarter. We produced $27 million of operating income for all of 2011 from corn oil production, but it really wasn't until the third quarter before all the plants were up and running with the extraction equipment.

For 2011, our ethanol production segment produced a record 722 million gallons of ethanol, an increase of 33% over 2010. We were successful in generating slightly better ethanol production margins in the fourth quarter of 2011 compared to the third quarter. Operating income before depreciation in the fourth quarter was $0.18 per gallon, which was $0.01 per gallon improvement over the third quarter.

The high basis levels for corn we experienced in the third quarter continued into the fourth quarter and are still impacting margins in the current quarter. As you know, we started to lock the fourth quarter margins away late in 2010, almost a year ahead of time. While the industry has experienced a peak margin environment during the quarter, margins also were very volatile, especially when the inverse broke in December.

You may remember during the first half of the year, margins were very soft, but our consistent focus on forward hedging allowed the Company to outperform the spot market. In the fourth quarter, this was not the case, but predicting spot margins was never our business strategy. I will provide some color on forward ethanol margins a little later in the call.

Overall, we feel that our performance for 2011 was solid as we expanded our ethanol production and our agribusiness operation, completed the implementation of corn oil technology at nine plants, successfully completed phase two of our algae project, refinanced our agribusiness segment, and continue to derisk our value chain.

Now, I'd like to turn the call over to Jerry to review our financials in more detail.

Thanks, Todd. Good morning, everyone. First, I'd like to run through a brief comparison of our financial results for the fourth quarter of 2011 compared to 2010.

Our consolidated revenues for the fourth quarter were $923 million, up 22% compared to 2010. The increase is mainly due to an increase of ethanol we produced at our own plants, which was 19 million gallons, or about 12% higher than last year's fourth quarter, as well as an overall increase in ethanol and distiller's grain prices.

We acquired the Otter Tail plant in March of 2011, which accounts for most of the volume increase between the periods. Corn oil production contributed $14.5 million to revenues and $9 million to operating income in the fourth quarter based on 32 million pounds of production. Total cost of goods sold increased by $165 million mainly due to increased production volumes, as well as higher corn costs.

Ethanol production experienced a 28% increase in the average cost of corn per bushel in the fourth quarter of 2011 compared to 2010. We generated $52 million of gross profit for the fourth quarter, which was about a 1% increase over the fourth quarter of last year.

As Todd mentioned, our agribusiness segment turned in a sizeable increase, generating $7.8 million of operating income on $170 million of revenues in the fourth quarter of 2011, compared to $4.4 million of operating income on $167 million of revenues in the fourth quarter of 2010. This improved performance comes from higher unit margins for grains and fertilizer offset by some slight decreases in volume sold for these products.

Again, our Tennessee assets did turn in a very good performance and overall margin for corn were higher across the agribusiness platform. Consolidated selling, general and administrative expenses increased $973,000 in the quarter, or approximately 5% quarter-over-quarter, which is the result of the growth of our business. Our consolidated operating income decreased slightly by $538,000, or about 1.6% in the fourth quarter 2011 compared to last year.

As you can see on slide five of the slide deck, we generated operating income before depreciation of $0.18 per gallon, compared to $0.25 per gallon realized in the fourth quarter of 2010. A decline in ethanol profits for the quarter was largely offset by the significant increase in contributions from non-ethanol segments.

Interest expense was higher by $500,000 due to higher debt levels as a result of acquiring Otter Tail earlier in 2011, and a full quarter of interest from the convertible notes issued late last year. Our effective tax rate increased in the fourth quarter as a result of adjusting the full year's tax rate to just over 38%. As a result, income tax expense for the fourth quarter increased $1.6 million compared to last year's fourth quarter.

We expect our effective tax rate going forward to be around the 38% level for the foreseeable future. Now, this was a significant jump from the 27% effective tax rate we had during all of 2010, mainly due to a reduction in valuation allowances against deferred tax assets that were recognized in 2010. But, it's important to point out that nearly all of our income tax expense is noncash.

With our growth, we've generated significant amounts of tax depreciation that should limit the amount of cash taxes we pay in the next few years. EBITDA for the fourth quarter of 2011 totaled approximately $45.2 million, an increase of $1.3 million over last year's fourth quarter. So our liquidity position remains very strong with total cash as of December 31st of approximately $195 million on the balance sheet.

As we experienced last year, we generally build liquidity in our agribusiness segment in the fourth quarter to meet significant grain payments for early there January, as many of our grain customers defer cash receipt against their contracts until the new tax year.

During the quarter, we also put in place a new credit facility at the grain company with $195 million in capacity. We believe this facility will provide significant flexibility dealing with volatile commodity prices, as well as position this business for further growth in the future.

During the fourth quarter, we utilized about just over $18 million of cash for principal payments on our long-term debt, about $7 million for capital expenditures, and another $14 million to finish the payments on the share buyback we had with NTR. As you can see, we still managed to increase our cash balance by $40 million. It was a very strong quarter from a cash flow standpoint.

As of December 31, our total ethanol plant debt was $443 million, or $0.60 per gallon, which puts us in our best leverage position on a per gallon basis for ethanol production assets since our inception. As shown on page nine of the slide deck, our consolidated debt to total capital was just under 53% at year end, which was a nice improvement over the last year.

Total debt to EBITDA improved over the past year from 4.8 times in 2010 to 3.8 times in 2011, which, given the diversification of our business and considering our substantial cash reserves, is a solid leverage position for a growing business. Overall, we made great progress growing our Company last year while, at the same time, we strengthened our liquidity and our capital structure.

Now, I'd like to turn the call back over to Todd.

Thanks, Jerry. Profitable growth will continue to be our focus for 2012. Some of that growth will come from our marketing and distribution segment, the construction of a 96-car unit train terminal in Birmingham, Alabama on the BNSF Railway is underway.

The terminal will have 160,000 barrels of ethanol storage that is significantly larger in capacity than any of our existing blending terminals today. We expect the terminal to come on-line in the fourth quarter of 2012. We expect this project will have a positive contribution to our bottom line. We also recently completed expanding our Collins, Mississippi terminal biodiesel storage and distribution capabilities, which will become an injection point for biodiesel on the Kinder Morgan Plantation pipeline. We are currently looking at other terminals for the same opportunity.

Agribusiness also remains a focus for growth, as we just recently completed the acquisition of an elevator located in St. Edward, Nebraska. The location is in a great area for producing grain and we continue to look in Nebraska for other opportunities to expand. We believe as US farmers continue to produce larger crops, grain handling, storage, and merchandising will be an area where we can earn solid returns on our investment.

Over the last three years, we have grown our grain storage capacity to approximately 40 million bushels once the expansion to the St. Edward elevator is completed in the third quarter of this year, which does not include our corn storage at each of our ethanol plants. The business should handle over two million tons of grain in 2012.

We are now at day 40 in the US ethanol industry with no blenders credit. While margins are compressed, there is still a great incentive to blend ethanol as it remains a very large discount to gasoline. Margins currently are a function of excess inventories and production as a result of peak margins during the fourth quarter.

Peak margins brought on peak production and we are starting to see slowing down as witnessed in the recent EIA report and have heard many instances of slow downs and possible shutdowns in the industry. One thing that is very different in the ethanol industry and other users of corn is that we can slow production very quickly while the animal feeding sector cannot move that fast.

When you have a demand base for corn like ethanol, which is the single largest consumer of a single commodity just about anywhere in the world, there is a misconception about the industry's capability to ration production. It takes about 72 hours to slow a plant 30% and a few days longer to go into full idle mode. In fact, two of our plants have slowed down 30% and we continually analyze production levels versus the current margin environment to make the determination of whether to slow or not.

Over the last week, we have seen a margin expansion albeit from trough-type levels, which we believe is based on the industry slowing down and being very disciplined. We have a long way to go from here, but it is a great start. From a Company perspective, we wanted to make sure we first placed our gallons for the first quarter so we were not selling physical in the spot and we were able to do that. It's still subject to spot margin pricings.

When the opportunity presents itself, we will still lock away production margins on an expansion. We will not deviate from our risk management programs. While it was frustrating to see expanded margins in Q4 when we were locked away already, we can look back at the first half of the year and know our strategy is intact as we outperformed the spot market during that time. In the 10-K that will be filed next week, we have added our ethanol storage capabilities by plant and we are fully taking advantage of the current carry structure in the ethanol market that allows us to earn a return on space much like the grain business.

We continue to manage the volatility around our markets and we are at a time in the cycle where patience will provide positive returns for our Company. While our visibility on ethanol margins is not where we think margins will end up in the near future, we are well-positioned to manage through sustained cyclical downturns with our strong cash balance and the growth in non-ethanol operating income.

We are optimistic that over time, near-term inventories of ethanol are reduced and margins will improve and long-term fundamentals for ethanol are very solid. Our confidence relies on what we believe are the demand drivers for our industry. And, again, I will repeat those for you on this call.

The mandate is 13.2 billion gallons, 600 million more than 2011. Export markets should remain active. We believe the US ethanol industry could still export over 500 million gallons of ethanol in 2012, but obviously down from a record one billion gallons exported in the first 11 months of 2011.

CBOB volumes remain strong as more refiners continue to produce the subgrade 84 octane gasoline and are a few markets must still have the oxygenate blended in to comply with the Clean Air Act. US ethanol remains one of the most economical and best sources of octane and oxygenate for our fuel supply. We believe that E15 fuel certification is going to happen over the next couple of months.

There are large gasoline markets like New Jersey, New York, Dallas, Atlanta, and Kansas City that could rapidly introduce E15 after certification. That's not even including Iowa, which is gearing up, as well. The ethanol curve in 2012 remains at a large discount to gasoline.

Blenders and refiners have a strong economic incentive to blend as ethanol currently sells at a greater discount to wholesale gasoline than the blender's credit provided to them all of last year. Last week, we announced the groundbreaking on five-acre algae project at our ethanol plant in Shenandoah. The five-acre should be completed early in the third quarter of this year and we are excited by the steady progress bioprocess algae is making in the development of its grower harvest for technology.

The venture partners have funded the capital needs for bioprocess algae for 2012, and we believe what we have could be revolutionary in the algae marketplace. There are a number of companies in a variety of industries that are interested in the strategic partnerships and offtake agreements for the algae that we will be produced from these five acres. We are hopeful to have these in place by the time the algae is growing and harvesting.

The focus for bioprocess algae remains on feed, food, and the nutraceutical markets, as well as carbon mitigation. We continue to search for M&A opportunities and ways to grow our Company internally. We want to grow all segments of our business, but will not rush to add if the price or location fit are not right for Green Plains. We have built a great collection of great assets along the value chain that we are very proud of.

It is not easy to buy good plants in good locations as the owners of such plants are in very good financial, especially from the last six months. In fact, the cheapest and best ethanol asset we have bought was our own stock and it remains this way today relative to market transactions that have taken place recently on specific ethanol plants.

The foundation our Company is built on is solid, including the great employees that come in everyday and work as a team to make this a great company. We plan to continue to manage the business in the same manner that we have assembled it, remaining a low-cost producer managing commodity risks inherent to our business and finding ways to increase efficiencies at all of our facilities are the areas that we will continue to focus on.

I want to thank everybody for calling in today, and I would like to ask Matt to start the question-and-answer session.

Thank you very much. (Operator Instructions). We'll pause for just a moment to assemble the queue. And the first question today will be from Patrick Jobin with Credit Suisse. Please go ahead.

Thanks for taking my questions this morning.

Hey, Patrick.

I was hoping to get maybe just a bit more color on the ethanol margin outlook maybe by quarter for 2012. I know it's difficult, but you've locked some away. Maybe just if you could walk through what's been locked in and what kind of margins you are getting.

Basically, when you look out on the curve in the second and third quarter today, we are not ready to place any of our volumes yet, as those margins are not at levels that we would become active today. The most active that we have been over the last six months has been in the fourth quarter of 2012, where we saw margins into kind of mid teens to low 20s. And every time we saw that opportunity, we would lock a little bit away. Hard to get a lot of volume off out there, but that was one of our focuses early on, again, as we saw some of those margins expand late last year.

Right now in Q1, we're still subject to more of a spot margin environment, but we've seen an increase in those margins over the last week. With what we think are starting to see reduced production run times, we saw the EIA data and a move from the peak production of about 960 days down to 925. We view that as a positive and we think that that will continue to decrease as we continue as an industry to take production, either reduce it or take it offline. That has then somewhat firmed up the ethanol market nearby and we've kind of seen the slide stop, albeit we still have some work to do around the margin structure.

So kind of through the first quarter, we're still subject to some of the day-to-day volatilities. We had some opportunities to lock some stuff away, but we're still focused on when we see the margins expand to continue to place some more gallons. So we're bit more subject this year to the spot than we typically have been, but when we see opportunities, we'll take of advantage of them.

Okay, then just a quick follow up. You mentioned two plants have slowed down by about 30%. Is that -- do you expect that to continue for the next quarter or two or is there additional slowdowns planned?Maybe just your color on what capacity you're going to have online.

What we do is we do the analysis every day based on every one of our plants. And so we've slowed down two of our plants 30%. It's really more of our most inefficient plants that we have and so -- we will reevaluate that every day. We are still kind of in that range where we are going to keep them slowed down and see if we can get maybe in combination with kind of the broader industry slowdown, we'll see if that can help margins at all. But if we see an opportunity where it doesn't make sense to do that or it makes sense to slow other plants down, we'll do that, as well.

Again, we focus on it daily. We run the analysis daily against variable costs and it's only justified right now to slow two of our plants because relative to the other locations where we're at, we continue to run those plants. The interesting thing about slowing down a plant is that there is some offset to that slowdown because we've seen an increase in yield in those plants. So there is some benefit from that that you pick up but, overall, the margin structure today isn't telling us that we should start increasing those volumes right now. We assess it daily. If it turns out that we need to increase, we can do that quickly, as well.

Okay. Then lastly before I hop back in queue. You've hit your target for non-ethanol production operating income, is there a new internal target you're striving for, or -- I mean, you mentioned some good opportunities to grow in the agribusiness in additional areas. Is there a new target you're willing to put out there?

Not just yet. We're looking at several opportunities in the agribusiness space, downstream opportunities around some of our transportation assets and our terminal assets, as well as corn oil is very steady right from a pricing perspective. So just in general, I think we've hit those targets that we outlined and we'll have to wait and see where our next growth comes from there. But we're looking at lots of different opportunities.

Great. Thank you.

Okay, thanks.

Moving forward, we will hear from Matt Farwell with Imperial Capital.

Good morning.

Good morning, Matt.

On gas, I was sort of looking at demand drivers trying to understand why ethanol is in over supply. Here's the gasoline demand, it's increased sluggish this year, especially given the warm weather. I would have expected it to be higher. I'm wondering did you attribute that to the reduction in demand for ethanol or would it be blend issues or could it be that refiners are simply leveraging excess [rens] carried over from prior years?

So I guess demand has been somewhat problematic in January. We're starting to see slight increases; we saw that last week. It is somewhat unexplainable the drop in gas demand in January, and the question is if that will get revised at some point based on kind of some of the anecdotal data that is out there.

I don't think that refiners are leveraging rens because I think that when you look at the CBOB component in the fuel supply today, it's such a large component that in order to leave a terminal, you have to have the ethanol anyways. I think this is really an overhang from peak production and peak margins, and we're going to have to deal with that for a while. When you took an industry up to 960,000 barrels a day, you're going to build inventories, and that's what we've done as an industry and now we've got to work through that and get back down to the 860,000 range again.

Down to 920,000 is a good start, and I think there's enough anecdotal data in the industry that it does say that it is slowing down and I think we'll continue to see that on a weekly basis for a couple -- for at least a couple more weeks on the EIA data. So from that standpoint, I don't feel like that's the case at all.

Do you think that ethanol production peaked in December?Do you think that the 14.8 billion gallon per year run rate, does that represent peak capacity of the industry?

No, I mean, I don't think that -- I think there is more available. There is a couple plants still under construction that -- I am not sure when they would get started, but I think there is going to be a key point here, which will be certification of E15. If we can get that done, I think at that point we have an interesting situation where you have several markets that could include this into their fuel supply and the economic incentive is great.

And then the real question is when do those plants come on. But I think more interesting is that the industry's ability to slow down. Again, you don't have to -- this isn't like feeding animals where you have a cycle that you're running through. It is a very quick process to slow down an industry like this. And when you are growing five billion bushels of corn, you have to respect that. And so to slow down this industry 10% is literally a two-day occurrence and you can be down significantly. And we are starting to hear widespread initiatives to reduce production.

So we'll wait and see how that flows through the numbers, but we've got to do some work as an industry to take production offline. And the current margin structure's what told you that. and we've seen a little bit of a bounce in the margin structure, but I think that's moredriven by nervousness of the demand base saying if this industry slows down, one, where am I going to get my feed, which is the DDGs and DDG markets are very firm right now from that perspective. As a percentage of corn, they're solidly 80%. Where am I going to get my corn oil, as corn oil has kind of imbedded itself into both the biodiesel market, as well as the feed market.

And then the other thing is we have a lot of demand interest for Q2, so I think the industry is not ready to say I am going to be running and at what level until we get a little bit closer and I think it's making everybody just a little bit nervous around supply side issues, and we'll have to wait. Again, it's a wait and see to play it out. We've been here before.

The levels that we see today aren't much different than the levels we saw in June of last year now. They were lower at some point, but then it reacted very quickly. This might take a little bit longer with the stocks build, but, in general, I think the discipline of the industry will show itself very quickly.

Fourth quarter, it seems like your shipments were a little light. Does that imply that you had inventoried some gallons or had you begun the slow down of the two plants early?

No. Actually, four million gallons of that was related to an unanticipated plant shutdown that we took and that was really the single driver of our lower shipment at that point. We took around a 10-day -- 12-day shutdown at one of our biggest plants for a fix that needed to happen and we just couldn't wait any longer.

It's hard to shut down in a peak margin environment, but we had to do that. So that was a bit impactful. Our run rates going forward are, beside the 30% that we reduced at those two plants, are solid and we are -- but we have built inventories to capture the carry in the ethanol market at $0.02 to $0.025 a month that we've been able to see. So we're fully taking advantage of our storage capabilities on ethanol, as well.

All right. Well, last question is on your total debt. It seems like it has come down quite substantially quarter-over-quarter. Is that related to the excess cash flow sweeps on the term loan?

No, Matt, it's related more to the revolvers. When you look at a total debt number, that would include amounts outstanding under our grain revolver, as well as our trade group revolver that finances receivables. We pulled those amounts down and, as a matter of fact, had less liquidity needs, particularly on the grain side in Q4 just simply because we didn't have as many grain settlements happening, again, the deferral phenomenon that occurs.

Okay, great. Thanks a lot.

Thanks, Matt.

(Operator Instructions). Moving forward, we will hear from Lawrence Alexander from Jefferies.

Good morning.

Good morning, Lawrence.

I guess the first question I have is just as you think about your role in the industry taking volume off the market, should we expect going forward that some of the Green Plains acts as a bit of a flywheel and takes more capacity off than the overall industry?Because you seem to be a little bit more nibble in reacting to circumstances than some of your smaller competitors.

No, I don't think we want to be the flywheel for the industry, but I think the smaller competitors have also become much more cognizant of margin structures and it's a more broad anecdotal indication they are slowing down from a 50 million gallon plant in Iowa or Minnesota, farmer owned, all the way up to some of the bigger players. We'll have to wait and see how it flows through.

But I think the important thing is that there's still a percentage of the industry that gets their January ethanol number in February. And so they don't know their January results fully until they see those numbers. Our marketing plants get their numbers every day. They're very well aware of their ethanol margin. But there's still a percentage of the industry that sells through a marketer that doesn't give them a number until the first 10 days of February, so they don't really know their full financial results until they get that number.

Now, we started to see that number come out and people realize how January turned out at some of these smaller plants and we're starting to see them considering slowing down, as well. So no, I don't think we're the flywheel, but I think the industry is much better than it was two, three, and four years ago to understand the economics in the spot market and to slow down.

I think the other reason that you'd argue against saying GPRE is the flywheel would just be the efficiency of the plants. We think our plants as a total platform are somewhat more efficient than the average ethanol plant.

And secondly, as you look at your two to three year plans, any sense for what you think your run rate CapEx level and what you would be comfortable with as the normalized leverage rates going forward.

In terms of CapEx, I think we will continue on the ethanol side of the business to be around the $0.01 to possibly as high as $0.015 a gallon of capacity for maintenance CapEx as well as some modest operational improvements. Of course, this year, we have the Birmingham terminal that's in our CapEx plans and then going beyond that would just be some further build out of grain storage and then obviously on top of that would be M&A activity. So all totaled, i think it's somewhere probably somewhere in the $30 million to $40 million across the total platform would be a reasonable CapEx level going forward, absent some significant growth projects or M&A projects.

Yeah, we have a lot of -- I think what the focus is we have a lot of yield improvement projects that we're looking at. Our yield in 2011 was 282 across the platform, 2.82 gallons per bushel, which was up from the prior year from 2.78, and we continue to focus on that. We thought this year's -- the first month of this year's corn crop was a little bit problematic from the standpoint of the moisture difference this year versus last year, but we started to, with all the initiatives we put in place, we have seen a little bit of a yield drop but nothing that is dramatically different than last year. So that's a huge improvement over the long-term that will pay dividends.

In addition, we focus on now how to take from the 2.80 to 2.82 level higher than that and we have several initiatives around yield improvement. When any of those hit, we will make sure we let you guys know, but that is a huge initiative for us at this point. The only thing is when you run full out, yield somewhat suffers, but when you start to slow down, you start to get maximization of yield, so you have to kind of do that -- do the math of yield optimization versus production optimization.

And then lastly on the algae side, could you give a little more color on the status with respect to feed trials and also I believe you were doing some preliminary work exploring, possibly co-locating assets with refinery to take away their CO2 streams. Could you give us updates on that initiative.

I think what is interesting, Lawrence, is that we now have real product in a lot of demand streams that are looking for algae. Whether it's on the food side and application in that industry, the feed side and application there as well as kind of high value nutraceuticals and then especially Omega-3s. What's interesting is that the word we get is that while algae is kind of a widespread story, getting actual dried wholesale flakes or in a form they could start running their trials in any of those sectors on has been a little bit more problematic and this is really some of the first times they've been able to see bigger volumes from a company.

So we have it in a lot of people's hands, as well exploring carbon mitigation with either power-type utilities or refineries and even beyond that, looking at fuel as the byproduct, oil -- fuel as the byproduct where we would get back to high value oils. So we have a lot of initiatives, we have a lot of people looking at product. The five acres, there's a lot of interest in the product from the five acres, indication that some what the whole supply, which we're not quite willing to give right now, and others that want a piece of the five acres to start to run much more wider product uses or trials.

So we're very optimistic on all of our initiatives around all of those sectors and I think -- and you'll see more of that in the future and then the five acres will really be a point where we have larger volumes of dried wholesale algae for uses in any of those chains. More interesting for us is the reason that people are attracted to what we can do is one, we can give them product today; two, we're not interested in controlling downstream IP. So we just want to sell them dried wholesale algae at a good market price and whatever they do with it is what they do with it, the end user.

So if somebody's interested in a food application, we don't care -- we don't need to be involved in their IP process. They can just buy the algae from us or a long-term contract. So ours is a bit unique and our focus is not around fuels today. It's much more around feed, food, and nutraceuticals. So we're very excited about all that and we think that some of the future stuff coming down the pipe is very interested.

Thank you.

Thanks.

Next question in queue will be from Farha Aslam with Stephens, Inc. Please go ahead.

Hi, good morning.

Good morning.

Your agribusiness sector did really quite well in the quarter. Could you just share with us a little bit more color?I understand that your Tennessee assets benefited from early corn harvest, but do you run those assets differently? Are you doing something that it's improving the results in that segment quite a bit here?

No, I mean, basically, what the first benefit to that segment in the fourth quarter was the fact that we continued to earn very good wheat carries on the wheat that we brought in during harvest in Tennessee, so that was the first thing. Last year, which is more kind of our first real year -- first year in business, we didn't have the wheat crop last year to carry in 2010 where 2011, we had a very good wheat harvest in Tennessee and the carries were very good.

That's the first thing. So we're still benefiting from the large carries in the wheat market. Secondly, also, is that Tennessee is an interesting area from a swing between old crop and new crop, and we benefited from that, as well, wherewe bring in corn very early in the crop cycle but we benefited from a very high basis level that were kind of waiting for the Iowa and northern crops to come in. So we were able to benefit from that. We handled more corn typically than we would have down there and then we were able to sell the carry.

In the deferred markets for the Tennessee corn, as well, are very, very good. So it's in a unique geographic location where at times you are able to buy corn at very reasonable levels and then sell the carry against it and earn very good returns on space. The Iowa assets performed well. We are still working on improving our origination up there, and we still think we have upside from that standpoint. Our fertilizer group had a good quarter. We were just basically steady from that perspective and, again, we're focused on maximizing the margin opportunities in retail fertilizer without taking a lot of risk.

Look, this is the culmination of 40 -- a three-year program with building a grain business with 40 million bushels of space, which really is unheard of in the United States to build something that fast of the highest quality that we have. So we think we have a very nice, very good asset that we can now grow from here and with high expectations for returns in the future.

Thanks for that color. And just a few more on that, do you expect that wheat carry to continue into 2012 and at kind of the same level?

You know, they have come in a little bit. We hope that they do. There is good demand for soft wheat, but at the end of the day, the market is set up to and is structured to carry wheat. If there's plenty of wheat in the world today, we would have high expectations that carries will be good. I don't know if they will be as good as the last year, but we still have expectations that they will be.

We have a very good crop in Tennessee coming on. Acres were steady to up from last year, and so farthe growing season has been great. So if that's the case along the whole. We have a very small microcosm in soft wheat in Tennessee, but if that's the case along the rest of the wheat growing areas,then we expect that margins will still be good. You still have to deal with high delivery stocks in soft wheat and those are going to have incentive to be carried, so I don't think anybody wants to start loading out soft wheat delivery stocks anytime soon.

And then when you look at corn and sugar harvest around the world and basic levels, here in the US, we currently have really high basis levels for corn. How is that affecting you and how does that affect you as 2012 progresses?Does that impact your costs --?

Yeah, yeah, I mean, basically, look, we would like to go back to historical levels, but I think that the interesting thing is that the pattern of US grain marketing has changed,especially in the last two years with the onslaught of on-farm storage. And so it's much more flat price oriented than it is going to be basis oriented, so the commercial is going to get his share, but the farmer's going to get -- keep a lot more on-farm than they had ever kept on-farm in the past. And that drives then more volatility in the basis.

So it's not going to be always easy to predict where the basis is going to be because the farmer has price targets in mind and they may not be consistent with the current flat price of the futures market and you may have to get that out of storage with the basis. I think what will happen, though, is that if we do get -- I think the rest of the year will remain volatile and on the firm side until we get crop planted, get the farmer out of the field, and get the weather that we need and realize that we're going to grow a big crop. When that happens then the on-farm storage, which was fully utilized this year, will need some relief and then more will go into commercial storage.

We really did see commercial stocks go down at the end of the year last year from the year earlier levels really across the board. Ours were actually level, but the bigger commercial players saw some stock reductions in terms of what they were carrying into 2012 versus a year earlier. To finalize my thought here, if you had a 94 million, 95 million acre corn number and you do get the growing season, I think you could get more towards historical basis levels in 2013 than we have seen over the last 12 or 18 months.

That's helpful. And then my final question is on sugar harvest in Brazil. When do you think Brazil will come back in the market for US ethanol and kind of what do you see their demand level for US ethanol in 2012?

You know, they are still working through excess stocks that they brought down at the end of 2011 in the Brazil market, so they've got a way to go to absorb that. I think they imported somewhere in the 250 million range, and I'm not sure that they'll be back anytime soon. But they're not -- there's others that are very interested in our ethanol, especially as it relates to world price of fuels.

So today, we still have interest but I don't think that Brazil will be the large driver for quite a while. It might be till the -- the window might no open until the third or fourth quarter, and then we'll see what happens with their sugar harvest. So, in general, that's why when you look at the number, you were at a billion last year or so gallons, which 250 million of that was Brazil. But what we see around the rest of the world, there still should be good demand for our product, especially at the price spreads.

Okay, thank you.

Thank you.

Next question will be from Craig Irwin with Wedbush Securities.

Good morning, gentlemen.

Good morning.

I wanted to ask if maybe you could give us more global discussion of E15, how you see this potentially unfolding? And as we look into 2013, do you see a few hundred million gallons potential incremental demand from E15?I guess to back up on that, how do you see the rollout at retail actually happening? And could we potentially enter into a scenario where the discount that ethanol typically sees to gasoline could close quite significantly given the incremental demand?

Yeah, I'll talk a little bit about maybe more the certification of E15 and what our thoughts are and let Steve talk a little bit about kind of the basic demand markets that will go first and then kind of the total demand base that's there, and I think that will validate some of the things that you're thinking. All of our data is into the EPA to certify E15 from a health effects testing. We are waiting for them to give us the final analysis or do the final analysis and give us the results, which we expect could be positive and will then certify the fuel.

Once you certify the fuel, there's other things that have to happen but, in general, once that happens, you can start to think about the rollout of E15. That could happen in two days, two weeks, or two months, but everything is there. Then there's the surveys that have to take place of the obligated parties and then there's also things that you have to do locally as a store owner. So there will be some training that has to take place. We are optimistic that a certification of E15 will happen, and then it's going to be the market's job to pull that through. And we think that -- with the current economics, we went from a lot of station owners that we know saying "No way, no how. It's not going to happen. We're not going to pull it through," to looking at the current economic saying "we won't have a choice" to accept a pull through demand of E15.

And if it happens any time soon, the certification, we think that demand will start to come online. And there are certain markets that will go first and then there are certain circles around that base fuel stock that will expand a little bit into markets that traditionally don't have the ability to blend the E15 because of the basic fuel stock. I will let Steve talk about those basic markets and maybe some of the technicalities around base fuel stock and why certain markets will go faster than others. Steve, you want to talk briefly on that?

Sure. I think Todd is right. It's being driven by the economics with the spread to gasoline right now. So there are people that are now doing the surveys so they're prepared, they at least have the optionality to look at the E15 when it is finalized. There will be certain markets, you've seen Iowa try to position itself from several different standpoints. Iowa may have different hurdles, but thosepockets, maybe East Coast reformulated gasoline markets, Houston's reformulated markets, where you'll have more opportunity to potentially blend E15 quicker than others. What those are are G markets.

What it takes right now is the retailer, which we know some are looking at with the storage and the tankage they have to be able to accommodate the products. And that's what's going on right now. So there's people in the marketplace that are preparing for it and looking at it, but again, it's being driven 100% by the economics. They know that -- about the spread to their gasoline and this is what is driving them to be prepared for it.

So if you take a look at kind of the base markets and drawing now 200 million to 300 million more gallons, that won't be a very hard thing to do, and that could -- if you get this approved this year, Steve, is that a possibility that --?

It is. It's the reformulated markets are some of your larger. It's the East Coast markets, it'll be that New Jersey could be looking at it, up and down the eastern seaboard. So it's where the larger demand is, too. You need retailers that can accommodation additional storage or tankage to be able to carry the E15 product.

So it will be a fight kind of between the discount to gasoline, the demand pull from E15, the stock situation could be drawn down, and any and all of the above could be positive, but what we don't need is a rapid return to even ethanol to gasoline where there's no incentive to go to E15. So it will be a very fluid market, but, in general, we're optimistic that we'll get the decision out of the EPA shortly and that decision could be positive. And if it's positive, then from there we'll see a potential rapid rollout based on current economics. Current economics are going to drive the decision-making and at $0.80 under gasoline in the middle of the summer, at the peak of the summer driving season, we believe that the economics will pull through some demand.

Great, thank you. Second question I had and this will be, I guess, a briefer one probably. Can you update us on any discussions or conversations you might be having with the EPA regarding your algae and whether or not that could potentially allow you to certify plants for production of ethanol as an advanced biofuel?

We're, at this point, not having any direct discussions with EPA on that. We are focused on building out the value could come in the future, but, again, there's still that "corn discrimination clause" where over 15 -- it cannot qualify as an advance, so something has to change from that perspective. So while that will be a nice result of us commercializing algae and rolling it out to our plants and mitigating our CO2, that is not the driver for making the decision to continue to grow.

The driver for making the decision to grow this platform is because we believe that we can scale up quickly, we believe the demand is there, and we believe it's a profitable return on capital. So if we get some event in the future where corn ethanol, because we mitigate carbon, it qualifies for an advance, that's the bonus. But today, we don't view that as one of our factors that drives our decision-making.

Great. And the next question I had was timing for the next phase at BioProcess Algae. What are we looking for to make the decision to put in the first 100-acres and when do you expect that decision to most likely be made?

With the rollout of the five acres and the successful partnerships that -- if we can put some successful partnerships together on supply and product, that will drive our decision on how quickly to move on 100 to 200 acre sites at each of our plants. Our view is that we can move very quickly in 2012 to make the decision to move to a bigger footprint. What we're going to find out in our five acres is really cost estimates for the 100 acres, and those will continue to get driven down per acre as we continue to scale up.

We're working with a very large EPC contractor that is doing all of our civil work in Shenandoah and they are also going to do the cost work on the 100 acre modules. What we're going to do is really focus on 50 to 100 acre modules that can be placed very quickly at any carbon source whether it's ethanol or some other carbon source and rollout very quickly a widespread construction project, if obviously we can grow and harvest efficiently and effectively and sell it profitably. So that is all happening concurrently. It could happen -- we could have a discussion on the 100 acres pre the opening of the five, but we will probably wait until after the opening of five to make our final determination.

The interesting thing is you can build very, very quickly. Building the reactors will not be the -- is not something that will hold you up. Our processing building is a little bit more technical from that aspect. We have great capabilities (inaudible) now because our partners are in the water filtration business and so we've figured out how to take a 99% liquid into a 20% solid, all the way down to a dried wholesale algae very effectively and very cost effectively, and then as well as looking at drying capabilities, as well.

So it could be a very and process but we really want to kind of get a little bit more through the five acres and then definitely make our decision. But we're not -- I can tell you this with certainty that none of the partners in the venture are building the five acres with the intent that's the biggest we are going to be.

Great. If we could return to the subject of E15. If we assume that E15 is approved this year and there is a retail rollout and there's visibility on significant growth actually from E15 in the back end of 2012 and in 2013, it's logical to see the blenders being well-motivated given the historic discount of ethanol to gasoline to adopt the fuel. What sort of return on capital would you be looking for for potential plant expansions? And would you consider submitting capital to additional ethanol capacity to serve the growth of E15?

If we see an E15 broad rollout with broad acceptance and a pull through from the demand, you can always look at that. Our first view is to continue to grow our asset base and if we see acquisition opportunities, we continue to look for those everyday and we think there will be some opportunities in the next 12 to 18 months to continue to consolidate within the industry. If there's a very compelling story and a demand base is solid and we have another 7.5 billion gallons of demand for ethanol, there will be opportunities for the industry to expand and it won't be hard to do that.

You could add fermentation capability and distillation and you some (inaudible) capability and then you've got -- you have yourself an expanded ethanol plant to start with. If you need a big expansion, you have the footprint to do it on. I think the interesting thing is that the rail capacity is there, the tanks are there, most of the infrastructure is there that your expansion per gallon won't look the same as your build per gallon.

So it just really depends on what kind of expansion you'd want to do. At this point, I'm not calling for anybody to start expanding or adding onto ethanol plants. I think we've got a ways to go for that. But it is something that in the back of your mind if you get widespread pull through of 7.5 billion gallons more of ethanol, you could have an interesting opportunity at hand, but I think we're a ways from that.

Great. Thank you for that, and thanks again for taking my questions.

Thank you very much.

At this time, we will go to Paul Resnick with Resnick Asset Management.

Good morning.

Good morning, Paul.

With regard to E15, I mean there's always the political question on ethanol,and see there is some sort of legislation in the House directing National Academy of Sciences to perform additional testing on E15. Are we at the point where there is just a lot of political noise but E15 doesn't really have any significant roadblocks, it's just a question of the gradual rollout?

Yeah, I mean, the Science Committee, which is led by congressmen from districts that have big poultry production and congressmen that have districts that have big oil production, and so they're going to come out of committee with this recommendation. Again, you have to get it through the House, through the Senate, and through the President.

And so from that standpoint, that could be more of a challenge as we have -- we still have good support in alternative fuel in the United States, it's just now that the tax credit is going away, there are still people out there that would like to have the whole thing go away. But I don't know that that's going to get much traction.

So from that standpoint, I think we just have to hope that the certification comes through on a fuel that has the largest testing ever in the history of the United States on a fuel change, which is what's happened with E15, that that science will hold very well and that those test results will hold very well. So at this point, we're optimistic that the EPA will come out with certification and then from there, we'll look at the gradual rollout.

Great. My other questions have been asked and answered. Thank you.

Thank you, Paul.

This will conclude the question-and-answer session. At this time, I will turn things back over to Todd Becker for closing remarks.

I just want to thank everybody for coming on the call. We are very proud of the results that our Company and our employees achieved in 2011. We are optimistic with the future from several perspectives. We are dealing with a time of margin compression, but we've set ourselves up over the last couple of years to make sure that our balance sheet is strong, our capability to withstand cyclical downturns is strong, we built other businesses around our ethanol businesses, as well, and we've talked about our diversification strategy for now for several years and started to achieve some of those results, which we've talked to, so I think that is a solid indication for the future for our Company. Again, we're very thankful for your support and hopefully we get to see these markets improve a little bit. Thanks for coming on the call and we'll talk to you soon.

And, again, this does conclude today's conference call. Thank you all for your participation.