Green Plains Inc (GPRE) 2012 Q1 法說會逐字稿

Good day and welcome to the Green Plains first quarter 2012 financial results 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 first quarter 2012 earnings conference call. On the call this morning are Todd Becker, President and Chief Executive Officer; Jerry Peters, our Chief Financial Officer; Jeff Briggs, our Chief Operating Officer; and Steve Bleyl, who is our Executive Vice President of Ethanol Marketing are here on the call today to discuss our first quarter financial results and recent developments for Green Plains.

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's 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's actual results could differ materially from management's expectations. Please refer to page 2 of the 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 would like to turn the call over to Todd Becker.

Thanks, Jim, and thanks for taking the time to join our call this morning. We issued our earnings release yesterday after the market closed. We hope you all had a chance to read it as we discuss our results this morning.

Our revenues in the first quarter of 2012 were $775 million. We reported a net loss of $12.7 million or $0.39 a share. After 3 profitable tears of operation one negative quarter does not change our long-term outlook or view for the Company's prospects.

We had a one-time charge of approximately $2.4 million after-tax or $0.08 per share related to a legal settlement for litigation that was fully described in past filings. We felt it was in the best interest of our shareholders as the cost of a long protracted legal battle could have easily outweighed the settlement reached, which by the way was less than $0.10 on the dollar of the original claim. This charge was recorded in the Ethanol Production segment.

The first quarter of 2012 did prove to be challenging for the Company. Following a period of peak ethanol margins in the fourth quarter quarter of last year, margins compressed significantly and remained compressed throughout the quarter. As we indicated on our year-end conference call with you, we did slow down our ethanol production during the quarter. We produced 176 million gallons which was about 5% below our plant's full capacity. We sold 170 million gallons in the quarter and held the remainder as the market provided an opportunity to hold inventory and earn a return on storage.

Since the end of the quarter those returns have narrowed and we have begun to liquidate these higher inventory levels.

Our plants have 16 million gallons or 380,000 barrels of on-site storage and we took advantage of that, holding inventories off the market. In addition, we also had several long-term off-site storage agreements in place and used those as well. Our strong liquidity position allowed as to taking vantage of this opportunity.

Excluding the one-time settlement charge, which generated -- we generated $1.1 million of operating income before depreciation or about $0.01 per gallon in the Ethanol Production segment. This is certainly the low mark for profitability in this segment for us but considering there were about 10 days during the quarter where margins were at or breakeven EBITDA we feel that we took maximum advantage of what the market was offering. We saw some of the lowest spot margins the industry had experienced in recent history. We also came into the quarter with very little coverage for the margin.

There is a reason for that and I will discuss that later in the call.

We did experience a better yield in our Ethanol Production segment, reaching 2.84 gallons of ethanol per bushel of corn on average. Some of this was due to slowing down production and some was from recent capital projects. We are working on more projects to continue improving conversion rates and I will, again, comment more on this later in the call.

So diversification was important for us again this quarter as we generated $9 million of non-ethanol operating income from our corn oil production, agribusiness and Marketing and Distribution segments, all of which had positive operating income in the quarter. While this $9 million contribution was lower than the fourth quarter of last year, I'd like to remind you that our agribusiness is somewhat seasonal and traditionally has a lower first quarter compared to the remaining three quarters of the year.

In addition, the Marketing and Distribution segment had a lower than expected quarter; but we still remain and expect to be on track to equal or exceed last year with an excellent 2Q coming up, possibly a record quarter for that segment. We are very much on track to deliver $50 million of non-ethanol operating income in 2012.

As we mentioned in our earnings release yesterday, we redeployed a portion of our railcar asset in the first quarter for other uses and we are increasing that redeployment to about 11% of our tank car fleet of 180 railcars or 180 railcars. We currently run a fleet of over 2,200 railcars between tanks and hoppers.

Recently I have seen lease rates in tank cars increased due to increased demand for domestic oil production. While we certainly could have just leased cars to other counterparties, we saw the opportunity to use our strong financial position, expertise in trading and risk management, and our advantaged position in rail assets to launch a new initiative to capture more value for our shareholders by injecting ourselves as a counterparty in the movement of commodities.

As we slow down plants we are able to repurpose some of our fleet for this initiative and should start to see a greater financial contribution over the next several quarters in our Marketing and Distribution segment.

In addition, because of our ownership in nine blending terminals, we are positioned well to repurpose more cars for this initiative. We will continue to deploy these railcars in this matter as long as the opportunity is available.

Returning to ethanol margins, we believe the weakness experienced in the first four months of 2012 is attributable to a couple of things. Significant blending of ethanol in the fourth quarter of 2011 as blenders and refiners took advantage of the expiring tax credit and, number 2, lower overall gasoline demand. The combination of these two items and the ethanol industry producing at record rates during the peak margin environment in the fourth quarter of last year and continuing that production into this year had created an overhang depressing the market for ethanol.

The industry has lowered production rates over the last 120 days by 90,000 barrels per day which, put in perspective, is nearly equivalent to 1.5 billion gallons per year. But that number needs to go lower to bring supply and demand back into equilibrium.

We have seen overall US stock stabilize over the last several weeks and we need to start to see those come down over the next several months in order to see more reasonable margins, which could be helped as we approach summer driving season. We are encouraged by US ethanol exports totaling 151 million gallons for the first two months of 2012 which is actually ahead of exports by 29% for the same period from last year's record exports.

Ethanol continues to be the cheapest motor fuel in the world so this trend should continue for some time. We may see a drop in our exports during the Brazil ethanol season but we should have a strong last quarter as we believe the US would be the only major source for ethanol still as a significant discount to wholesale gasoline.

We continue to experience historically high basis levels for corn in the US, and the summer will be quite interesting as the farmer has a tight grip on stocks and the world needs for that corn to come to market. The structure of the US corn market is for this old crop corn to move before new crop. It is just a matter of what price incents that to happen.

Now I will turn the call over to Jerry to review our financials in more detail and I'll come back on the call and discuss forward ethanol margins, industry fundamentals, E15, and BioProcess Algae. Jerry?

Thank you, Todd. First, I will provide a quick review of the operating results and then spend a few minutes on our liquidity position and our balance sheet.

Our consolidated revenues for the first quarter were $775 million, down 4.5% compared to the first quarter of 2011. Total ethanol marketed dropped by 26.1 million gallons or about 9.4% and average realized ethanol prices dropped slightly as well between the periods. Lower ethanol margins affected volumes. We marketed for both third party and Company-owned ethanol plants.

Revenues were higher for both our Corn Oil Production segment and our Agribusiness segment. Corn oil production contributed $13.5 million in revenues on 33.5 million pounds of production compared to $4.3 million in revenues and 10.1 million pounds, respectively. We continue to see good values for our corn oil in the marketplace.

Consolidated cost of goods sold decreased by $8.1 million, mainly due to the 9.4% decrease in ethanol volumes sold. This decrease is net of $23.7 million -- a $23.7 million increase in our Ethanol Production segment COGS. We consumed 1.5 million bushels more corn in the ethanol production to produce almost 4.7 million gallons more ethanol.

In terms of ethanol produced, the first-quarter volumes were higher, due to a full quarter of production from our Otter Tail plant which we acquired in early March last year, offset partially with the production slowdown as Todd mentioned.

Our average cost per bushel for corn increased by 4.5% in the first quarter compared to -- of 2012 compared to 2011. The increase in cost of goods sold for the Ethanol Production Segment also includes the one-time charge of a legal settlement recorded in the first quarter of 2012.

Our gross profit for the first quarter was $8.8 million, which was down $28.9 million when compared to the first quarter of 2011. We reported a consolidated operating loss for the quarter of $11.1 million or a decrease of just over $31 million from last year's first quarter.

As you can see on slide 4 of the deck, excluding the one-time charge taken for the legal settlement, we generated operating income before depreciation in our Ethanol Production segment of $0.01 per gallon in the first quarter of 2012.

Slide 4 also shows how severe the margin depression was in the context of the seven previous quarters with operating income before depreciation ranging from a low of $0.12 to a high of $0.25 per gallon. The income tax benefit for the first quarter was $8 million compared to an income tax expense of $4.4 million in the prior year quarter. Our effective tax rate increased slightly in the first quarter related to the Company establishing a presence in states where we had not done business previously. As a result, the tax rate for 2012 should be in the range of 38% to 39%.

Earnings before earnings before interest, taxes, depreciation, and amortization or EBITDA for the first quarter 2012 totaled approximately $1.5 million. Our trailing 12-month EBITDA for the period ending March 31 was $118 million. We ended the quarter with a strong liquidity position with total cash as of December 31 -- I'm sorry, as of March 31 -- of nearly $160 million on the balance sheet and we had $152 million available under committed loan agreements at our subsidiaries.

During the first quarter, we utilized about $13.1 million of cash for principal repayments on our long-term debt, about $7.5 million for capital expenditures and acquisitions, and utilized $10 million in cash in conjunction with our share repurchase. As we previously announced, we acquired 3.7 million shares from NTR for $37.2 million, issuing a note for $27.2 million for the remaining balance. We believe the shares were repurchased at an attractive value and the transaction will be accretive to 2012 results. Our book value per share now stands at $14.25, over $5.00 of which is comprised of cash.

Our strong liquidity position is providing us with more flexibility to run the business in the current margin environment and take advantage of opportunities that may arise. As of March 31, our total consolidated debt was approximately $740 million. It is important to recognize, however, that figure includes over $142 million in short-term working capital borrowings that are used to finance inventories and receivables in our agribusiness and marketing and distribution segments.

These balances fluctuates significantly during the year and are supported directly by current assets such as grain inventories of these two businesses.

Historically, usage is highest in the first quarter of the year due to significant inventory levels in our grain company. Ethanol debt was $445 million at the end of the quarter or $0.60 per gallon compared to $494 million in the prior year's first quarter or $0.67 per gallon. Overall, we believe the balance sheet and our liquidity position are in good shape to address the challenges and opportunities that lie ahead of us.

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

Thanks, Jerry. We continue to make positive strides on several projects for 2012. The construction of our 96 car unit train terminal in Birmingham, Alabama, is making good progress and is on schedule to generate revenue for us beginning in the fourth quarter of this year. We are in the process of selling out the capacity of the terminal and continue to believe this will be a very successful project.

BioProcess Algae's five acre production facility is making excellent progress. The project is on schedule to be completed in the third quarter of 2012 and our analysis continues to provide us with a path to profitability, and we believe that our co-location strategy is the best model to optimize the production of algae. The Company is in advanced talks with users of the product across several industries around food, feed and fuel as well as discussions with some large CO2 sources to provide a profitable solution to carbon mitigation.

There should be many updates over the next several months on the progress on all fronts for this business.

Now back to the ethanol industry. So for the past three years you have heard us say that there will be a quarter where we could lose money and that the dynamics of a commodity processing business will lead to periods of peak margins and then compressed margins. The Company just experienced that cycle in the last two quarters.

As I indicated in my opening remarks we went from the industry production and peak margins to a rapid trough-like environment. Part of our strategy over the last several years was to bulk up the balance sheet for just this event. We ended the quarter with a strong cash balance and possibly a better liquidity position than we have ever had.

We came into the quarter with very little coverage of forward margins. While on paper there may have been opportunities to lock margins away before we got to the quarter, securing the physical corn was the bottleneck. But a tighter balance sheet and the growth of on farm storage securing physical supply is critical. Blocking financial margins while in effect is shorting the US corn basis is just too risky. Typical farm marketing patterns will not apply until we have rebuilt the balance sheet and grown larger crops.

For example, we currently are able to lock margins away in Q4 of this year because we were able to buy physical corn around harvest. So at this point we are over 20% locked away at favorable levels, even to our last three years' average in Q4.

While some may criticize that we start to early when we see margins and we are able to secure physical supply we will start to lock them in. We have also locked away most of May and we are beginning to look at June.

While these margins are narrower than we typically like, we don't expect a repeat of the current quarter. Margins are still challenging but at least somewhat stable at this point. We believe that the strong incentives for blending ethanol remain. Ethanol remains a large discount to gasoline, even more interesting for you to think about is there is a change in the US ethanol market structured that the end users need to think about as well.

As discussed earlier in the call the value of rail cars have spiked higher. We have seen plans to lease their cars out and either focus more on truck markets or try to maximize fleet utilization by selling unit trains.

The effect on the single manifest market is starting to be seen. With such an incentive to blend, those markets have seen an uptick because the overall fleet has shrunk and some small markets are very tight.

We have seen this across many of our Blendstar facilities. It is interesting that the lack of takeaway capacity in the Bakken may drive out the marginal gallon of ethanol production, causing producers to lease their cars and make more money shutting down their plants down or selling trucks of ethanol. There is an insatiable demand for tank cars at this point with limited access capacity in the fleet overall.

E15 continues to make progress in the marketplace, even with all the challenges from big oil and big food. A significant number of plants are registered with the EPA and more are coming on every day. Our plants have all registered and we are waiting for approval to produce ethanol for E15 blending and sale.

We are making plans as well to switch all of our Company-owned stations and pumps in Iowa to sell E15. While this volume is small, going through the process and getting approved to sell will be a valuable exercise for our customers to emulate and get product to market.

One bottleneck has been the requirement to implement a national fuel survey. A fuel survey is required annually and will be collecting more than 7,500 samples each year as all gasolines available nationwide to ensure E15 meets the federal fueling standards. Their survey is now funded by a combination of growth energy members, RFA members, independent plants, and even a small number of blenders and even a refiner.

I don't think our detractors felt we would organize to get this done but we have and it takes us one step closer. We didn't just do a state or two. The industry paid for a national survey so that any market can sell the product. E15 is significant to our industry, and we will be working diligently to see this fuel plan introduced broadly into the marketplace.

We continue to work on improving our yield in ethanol in the Ethanol segment and going after the last 7% starch in the corn kernel that remains after the production progress. Improving our yield while operating our plants even more efficiently will result in improving our bottom line performance.

So, again, while margins are showing some improvement and we believe our second quarter will be better than our first quarter of 2012, the year again is shaping up to be a second half of the year story for the industry.

While we are frustrated that our valuation is suffering in the current market environment, we believe that some of our parts are naturally represented. We have a strong platform of assets. Our grain handling business has amassed almost 40 million bushels of first handled storage space and has doubled our earnings over the last two years. With current valuation being paid in recent public and private transactions, our agribusiness has grown significantly in value for our shareholders.

Our Birmingham terminal will represent a new era for our Blendstar business when completed. It will be one of the premier unit train receivers in the US with long-term value creation for our shareholders as well.

We are probably the largest producer of commodity grain grade corn oil for feed and biodiesel in the US at this point. I feel this has given our shareholders a very stable unencumbered cash flow during times of margin compression.

Our investment in BioProcess Algae is one of the exciting future value prospects of our Company with great progress with what we consider to be best in class algae technology.

Finally, we have several other growth initiatives in the hopper and we will keep you updated on in coming quarters.

In summary, we ended the quarter with a strong balance sheet, a positive outlook to the end of the year, and a company that will continue to focus on creating long-term shareholder value. I want to thank everybody for calling in today and now I will ask Matt to start the question-and-answer session.

(Operator Instructions). Farha Aslam with Stephens Inc.

Good morning. Todd, you mentioned that you anticipate that the ethanol market's production needs to go down further from current levels for the industry to get healthy. How much of a decline from current levels do you anticipate is required?

I think we'll know when we start to see the summer driving season and to see if we can get draws out of storage so we have taken it down from a high of about 970,000 a day to about 863,000 barrels a day as reported last week and saw a slight draw in inventory levels. So I think if we can continued to see that and get inventories down from the levels that they are at, then we will start to see margins improve. But we can reattain 863,000 and with 132 billion gallon demand run rate over the year for gasoline and the export number that we are expecting, we should at least to start seeing draws based on all of these numbers.

If we can get production a little more production out of the market as an industry, I think you'll start to see a good improvement in the ethanol margin because we are starting to see some tightness in some markets.

And then in terms of the export number and how much E15 you anticipate we will use this year?

We are still running that export number as we were saying between 500 million and 700 million gallons. It could be higher, I think you have to watch Brazil. While everybody thinks Brazil will be exporting a lot to the US as their ethanol season comes on, coming late in the third and all of the fourth, we are kind of the only game in town for the world.

And at the price spread that ethanol is trading, we expect some good strong demand at the end of the year, much -- possibly like we've seen last year. So our number, while it remains 500 million to 700 million, is running at a higher pace than that as we speak.

In terms of E15 I think we'll see some implementation of E15, whether it is going to be 20 million gallons or 200 million gallons or whatever the number is, any of it is going to be fine. I think we have challenges still, but we are getting closer to the retail level where we are starting to see a lot of interest from retailers understanding how do they sell it, how do they make sure that they are compliant with all the EPA regulations. Do they sticker their pumps, what their misfuel and mitigation plan, all of those types of things are all in the process of -- in the final stages of being worked out.

We are doing a lot of work around, what we want to do is lead the way. Even though we are a very small retailer in the state of Iowa, we want to lead the way by being the first one to or one of the first ones to make sure our pumps are compliant. We relabeled them. We are actually going to switch all of our stations from E10 to E15. We won't even sell E10 anymore. And we think that is in the next potentially 60 to 90 days.

Steve, you want to comment? Steve has been working on that. Comment on what you think Iowa will be and then possibly where you think them demand will be for the year.

I think we will start -- we start in Iowa to solve some of the problems that Todd alluded to to get it into the marketplace, and as you go further into the season you'll start to see the demand pick up as we go back into the fall driving season. You have people preparing more for a September 15 and beyond kickoff date to try and get it where they have the proper [RVP] for the winter driving season. So that is when you will start to see a true large demand pickup for it, if it is going to happen.

I think and finally, Fahra, we have seen some of our independent terminal owners start to get ready for the full switch to E15. I think that is very important as well.

So, it is really a function of where do you secure the base fuel stock from and then how do you get that to a market and then test the economics of the blend? But there is definitely economic reason to get to market. I think the faster we move as an industry the more we can get sold.

Thank you and my final question is around your rail initiative. I really don't understand the opportunities in terms of the size of opportunity, how long it will last, what are the dynamics and puts and takes? Could you flesh that out a little bit more and give us some more outlook on what that Marketing and Distribution segment can earn over the next few quarters? Because the earnings in this quarter were quite surprising to us.

Yes. Well, there's some of those timing issues which we'll -- [wouldn't] clarify. But so when we look at our fleet the first thing you have to look at is we have a fleet that averages a pretty low lease rate per month. And so, we run about 1,610 cars at this point. And so when we looked at our fleet we saw the market starting to tick up. Everybody knows at least with tank cars is that the market has ticked up from $800 to $1,000 to $1,200 to $1,500 to $2,000 even up to $3,000 a month being offered for some short-term basis because of the lack of takeaway capacity for all of the new crude oil coming online around the US. The best way to move it is in a tank car that the ethanol industry uses.

So while we look at that we said to ourselves -- okay, well, we can do one of two things. We can either lease the tank, just lease some of our tank cars out and make good money. You can actually make very good money doing that and if you are a marginal producer or a small producer you can actually lease your tank cars out and make more money doing that because the lease take rates right now -- the tank lease rates right now are about -- they are going to pay more like $0.14 a gallon more. You are not going to earn that on the margins.

So you could actually earn that by leasing your rail cars out and actually slowing or shutting your plants. So there is the potential that some plants will do that. So when we examined that we said -- well, that's interesting; but we are not really interested in just leasing cars out and we want to get more into the actual trade of the commodity.

So with our balance sheet and our capability and the size of our fleet, we started to dabble around in trying to at least move the commodity and get in the middle of the trade. And we have seen some opportunities to do that. We have about 180 cars right now running in service. It is a margin business but it is a long-term planning.

I mean, you can't just go up and start putting stuff in cars. It is a long-term. You have got to have -- you have got to know where the wells are. You have got to have terminal position and we are even looking at Blendstar assets up in some of these areas so we can have -- we can help with the takeaway capacity.

So, it is a process that is evolving but we think it will add margin to the Marketing and Distribution segment in Q2, Q3, and Q4 as we continue to ramp up that program. While we have 180 cars running right now, we expect that we could potentially double that and before we actually have to look at the economics of the ethanol business just by [fine flexing] stuff around, using our Blendstar asset in the South to actually get better turn times on our overall fleet, and see if when we could make -- basically you are arbitraging the value of your railcar against the value -- against the margin of an ethanol plant and you are seeing if you can actually maximize that by getting involved into the actual trade of the commodity. And with the strong balance sheet that we have we are able to actually get into the trade of the commodity.

So it has been a process that we have been looking at for several months. It takes a long time to get started. You have to be very resilient because it is a hard business to get into. There is nothing easy about it.

But as we continue to knock down walls use all of our assets which include Blendstar assets, includes our rail assets and includes our trading risk management asset and our balance sheet, then you have something -- then you have an opportunity. So we've taken that opportunity. We think that next quarter you'll start to see that. You will normalize back even even within the marketing and distribution segment, and we believe that our market and distribution segment is still on track to earn what we typically have indicated that that segment is capable of and possibly even now more through the next several quarters. Can I keep you an exact amount that we will achieve? No.

But when we say we potentially could have a record quarter in Q2 and market and distribution it is definitely more than what you have seen in the past. And we'll keep you updated on it as we go along.

But we think there is a great opportunity at least during this time of margin compression to flex our fleets, do other things. If margins come back and they come back in a big way we could always pull it back and use those cars to do other things. But at this point, we are going to wait and see what happens. But just keep in mind that crude oil production in the US could drive the marginal gallon in ethanol. That is something that we are seeing right now.

Okay. Great. Thank you very much.

Michael Cox, Piper Jaffray.

I'd like to dig into this railcar strategy a little bit more if we could. Because of the time it takes to get involved and you talked about the difficulty in this but yet you have a more optimistic view on where margins, production margins will be and even what you are locking away.

How long are these lease terms on these cars and what --? It seems like sort of a short-term oriented strategy against the backdrop of what could be much better Ethanol Production margins in just a few months' time. Could you maybe walk me through the rationale behind it?

If margins got better in a few months' time, we would still be able to run both programs. It would just be a function of if we use any more of our fleet over and above 300 cars. Because we could find efficiencies to better utilize our cars.

This is not a three-month program though. When you look at -- and the numbers are out there. When you look at takeaway capacity out of all this new crude oil production and you look at the need for tank cars in the US you can see that this is not a three-month, four-month, five-month deal. This is a multiple -- this is a potentially multi-year deal until tank car production catches up with current needs.

But you kind of go a couple of years down the line, you say -- okay, tank car catches up with today's needs, but it is not going to catch up with tomorrow's needs as you see more and more production coming out of the ground. So while today it may be the Bakken, for example, produces 600,000 barrels a day but is expected to go to 1.5 million barrels a day. You look at what everybody is doing which is gearing up whether you are a US pipeline or a US carrier, rail carrier, they are gearing up for that number to happen.

This tank car thing could be on for many years and that is why you are starting to see --. You have oil refiners buying 1,000 tank cars at a time and it is a 2013-2014 delivery. In the meantime, they lack takeaway capacity here and that is just based on today's expectation of what is coming out of the ground.

So it'll be very interesting on what that does to ethanol. Because when you have a single manifest market that everybody wants to run unit trains which, by the way, leads into a very positive disposition for our Birmingham terminal because it is a terminal that can take 96 car unit trains and turn very quickly. When you look at the future of that and you say -- okay, if we go down to 860,000 barrels a day of production, we see any pop in demand and we see any draw from stocks and we are flexing as an industry our fleet to other places, we are not the only ones.

We might be one of the only ones that actually are trading in the physical commodity. But their are a lot of plans that are lacing their cars just for the rate and when you look at that overall you can end up and it is not happening today, Michael, so it's not like right now this is like the whole story. But you could end up down the road with a potential shortage of rail capacity in a market that needs product because it is significantly cheaper than the alternative and it would be a very interesting time.

So, could that shape up like that. Yes. Is that like that today? No. But we are taking advantage of what we call a rail arbitrage between these two worlds coming together.

That's interesting. The infrastructure you talk about and the difficulty in processing, it seems like E15 could present a challenge in and of itself. There's obviously been a lot of talk about the labeling side.

But you had mentioned that some of the independent terminals are starting to gear up for that. Do you feel like the channel is prepared for E15 given that price disparity between ethanol and conventional gasoline today?

I think the channel is appearing for E15. So I think like markets that can roll out E15 the quickest are preparing as we speak. So like some of the Pennsylvania markets, some of the Northeast markets. Iowa, we are going to figure out where we get the blendstock from or the fuel stock below RVP gas. But we will bring that in if we have to because the economics are so compelling.

So, yes, I think some markets are gearing. Some aren't even thinking about it yet. But overall, you have the independent refiner, the independent terminal and the ethanol industry and the independent retailer all are trying to do this. We are definitely getting pushback from the big oil. We are getting pushback from even some of the maybe bigger terminal systems in the US yet, because they are so driven by profitability of that other side of the industry that -- but in general we are definitely winning some of the battles and making progress in a lot of markets.

Steve, you want to just comment anymore on what you know?

It is being driven by some of the retailers. It is see the spread and they are the ones that are pushing and pushing back up to the terminaling companies to be registered and certified, and capable of dispensing E15. That is where it is going to come from. They will get the retail asset in line so that they can dispense the E15 and then they push back upstream to their supplier, to their terminal, to their suppliers to supply blend stock and the ability to blend. So that is where it comes from. It is the retailer receives the spread right now.

My last question -- and I would be interested in your thoughts on production levels at your facilities here as we look at 2Q and I guess into the third quarter. Do you expect to ramp up closer to your run rate capacity or will you still continue to run at this more curtailed level?

We've started to ramp up a little bit but not very much. I expect that Q2 will be similar to Q1. But we probably won't see the same opportunity around the ability to store and earn money. If you -- which is interesting because in the middle of Q1, it's a downside. At probably the bottom of the cycle we were starting to see to $0.02 a month even a little bit more to actually store ethanol, which if you look at it we have 380,000 barrels of storage in our own plants and you earn $0.02 a month your interest carry is about $0.06 per month.

So there is definitely return on space that we were earning. We don't see that same return on space so that the real question is why. And so is the question why because inventories are trying to come down and we are starting to see production come down? And so the market is saying we are not going to [essentially] to carry it and maybe something underlying the market is changing and we are looking at that closely.

But in general, we expect at this point we are going to run very similar in Q2 that we did to Q1. One thing that shows there are a few benefits. When you run a little bit -- so you have to -- and in markets where margins are narrow you have to examine your cost of -- or your slowdown cost versus your yield gain. And these are really like someone -- when margins are good you run full out and you might lose a little bit of yield, but that pays. You're being paid for to do that because margins are so good like $0.18 and $0.20 and $0.30 a gallon you run full out, and you don't have to focus on yield as much because you are earning so much of the marginal profit.

When margins are tight then you say to yourself -- okay, if I can go, I'll slow down but then I get a lot more yield out of it. And between the initiatives of slowing down and some of the other initiatives we put into place going after yield, that really paid off during the quarter and we should see some of -- when we are seeing the benefit of that in the second quarter.

And then when you look at the third quarter, it is not dissimilar to last year. We didn't see any visibility in the third quarter until about June 20. That is when we started to see the third quarter shape up. We wouldn't sell any -- and we won't sell any ethanol in the third quarter today. If you want to buy our physical ethanol you are not going to buy it from us just like last year. Making a determination of the number one where are you going to get the corn from during that 45-day window of potential real tightness in the corn market and number 2, where are you going to get the ethanol from?

So it has got to be a wait-and-see for the third quarter but the third quarter looks almost carbon copy of what the the third quarter looked like last year at this time which we have no visibility at all. So, but at this point we are running everything like we were last quarter.

Margins are better than last quarter and have been consistently at least positive from an EBITDA standpoint. And so we are just running like we were last quarter. We haven't increased anything.

I think you have to look at last quarter and you have got the lows of double-digit negative EBITDA income margins at some point in this industry last quarter. And we saw the lowest margins we have actually ever seen for spot. It didn't last very long but it got down to double-digit negative EBITDA, which we never thought was possible but it certainly got there.

Okay. Well, nice work managing through this tough environment.

Thanks, Michael.

Matt Farwell, Imperial Capital.

Could you just reaffirm what your debt service cost is per gallon this year?

It's at $0.10 per gallon. It has remained right at that level.

Okay. So some of the schedule principle repayments are related to revolvers and cash flow sweeps?

Right, the $0.10 per gallon doesn't include cash flow sweeps which would come from cash flows and well in excess of $0.10.

Okay. So then when you are locking in margins for the second half, are you still using debt service coverage as a criteria or are you locking in margins below that level?

For the second half of the year we're not. You don't -- second-half of the year, especially last three or four months of the year you are in high teens, low 20s. So you don't have to use any of that thought process when we are locking margins away. So that is how we are kind of thinking of that. That is historically better than our three-year average. We are seeing the opportunity to do it. We will only do it when we secure physical corn and the farmer has started to let go of some physical corn for new crop as he is coming out of the field.

It's weird to say that, but coming out in the field in April with a corn crop fully planted even coming out of the field in March with the corn crop fully planted, they started to let go of corn. So it is just one of those things that as the farmer gets more comfortable that he has the acre then and he feels like he is off to a good start, we will seek more corn go.

I think what people have to understand is that on June 1 -- or on June 1 going into that summer season, even though we are point to end the year at 800 million bushels there's still 3.8 billion bushels or so on June 1 with 1 billion bushels of demand per month. So there's still plenty of corn out there but the farmer is going to control those stocks, and as he comes out in the field we will start to see him selling, potentially selling more new crops.

Now don't get me wrong, the demand is robust. But as he comes out of the field and he is selling he is selling new crop -- or old crop -- he is actually considering his new crop numbers as well. So and we are just using that as a proxy to lock margins away. But we are not doing anything beyond, not much beyond, like we normally would lock beyond our physical purchases we would not be afraid to do that except that we won't do that anymore for a while. We will lock away what we buy from physical corn standpoint. We have seen too much -- there's actually sometimes more volatility in the basis than there is in the underlying.

What's your expectation for the basis? Do you think it could break in June or do you think that we will see and, also, is it moving higher from where it was in the first quarter? And do you think it could break in June or would we have to wait until new crop?

We see nothing right now that is going to say that this domestic basis has any fundamental reason to go down. So is it higher than the first quarter? Yes. It is higher than the first quarter but the spreads are very different too so you have major corn spread that is inverted instead of at a carry. So it just changes [you guys], not a single question that you can answer.

We do see actually, even with a higher corn basis, we do see better margins. So it's and part of that is DDG returns have gone up a little bit as well, so, and natural gas has come down. So net, net we have seen overall better margin structure with a higher corn basis.

So you can't just look at -- you can never just look at the corn basis and say that that is going to impact your ethanol margin. Because if you look at last year, we had record high corn basis during a peak margin environment. So but it does have -- definitely has an impact on the way that we think about the market.

Got it. And just big picture, looking at E15 you are suggesting that big oil is pushing back on rolling it out. But when I look at 2013 it seems like there you can back into kind of a required amount of E15 in the market around 10 billion gallons if you believe the mandate, if you believe the mandate will be fulfilled of 13.8 billion gallons next year. So how do you reconcile the two? What could happen?

What you are looking at is the 13.8 on the [RFS] for 2013.

Right.

Right. And if you look at it based on demand and where it is it is a higher percentage than 10% of what the US ethanol demand is probably going to be.

Yes, so that you will get reconciled through 3 -- potentially [315] for through potentially if there is a waiver. But I don't think the US is set up to do --. I mean they are set up to blend more ethanol and so that will have to get reconciled some way, shape or form.

Now I don't think anybody is calling for higher gas demand next year. So that is not going to come from there. So E15 is really the only way to get there. That is what we are working so hard on doing it. That is why they are working so hard on not having it. Because it just takes away from more, more and more of typical enormous gas-based business if we blend more ethanol. So every gallon of ethanol that gets blended is a gallon of gasoline that doesn't over and above the 10%.

So it is a battle and we have to be very well prepared to fight the battle.

I mean, you have seen in gasoline demand, exports are comprising larger source of demand than they have in previous years. Are those exported gasoline gallons they blended with ethanol?

Some are and some are not. The numbers kind of vary on what they are going offshore with it right now. The majority of what you saw leaving was unblended ethanol -- was unblended gasoline.

What you've seen though, you could actually put up and still not be a blended gallon. Steve, correct me if I'm wrong you put about 1%.

Yes.

1% in of ethanol and still have it be qualified as an export gasoline without being a blended gallon. And we do see people doing that because the economics are favorable. So that is not also in kind of -- it might be in the overall export number but it is something that people miss.

I see. Okay, well, thanks a lot for answering my questions.

Patrick Jobin with Credit Suisse.

Good morning and thanks for taking the question. Some exciting opportunities with the railcars. I guess just turning back to ethanol briefly, I wanted to touch on the comments you made about yield improvements locking that 7% starch and how much do you think is obtainable and what should we expect? Investments to be made or is that something that could hit 2012 or 2013? Just some sense around that would be helpful.

Yes. I'll just do a little comment; I will let Jeff kind of follow up. We have done, we have been working several years on accretion yields at our plants. Some is slower than other -- some have gone slower than others. We have seen -- it is going to come either biologically or mechanically.

So, we have been working more on the mechanical side of it to see where and how we get more while companies like [Novasigns and Genencorp] work on the biology side of it and they are making improvements as well. So and the combination of both of those as well as continuing to even a variety of corn makes a difference, as well.

So we have plants right now that are pushing [294] yield and we have some plants that are lagging behind still in the [270s] but overall from the average we're at [284]. And so we just need to get those laggards, continue to get those improving and those I think we will see that over time. I think that is where the USDA just doesn't have a good understanding of what our yields are as an industry using 271 in their numbers for the balance sheet. So, Jeff, you want to comment a little more on what we're doing?

Yes. It revolves a lot around the enzymes that we're using, the rate, some of the processing and writing processes that we do use. And when we look at everything in total also some of the -- around the technology. One of the things that we've learned is that our Delta-T plans can actually be pretty yield animals compared to some of the previous ones that we thought.

And so, after operating for two years that has become a very good platform for us from a yield Guild standpoint. The opportunities in the nearby certainly give us some insight into what we add in terms of our chemicals; our chemistry rates; the grind rates -- all of those things really brought down to the bottom line. Very focused on chemical use as well.

And without disclosing a lot of details around that process, chemicals in terms of our actual usage, in terms of our pricing, strategy, everything has really gone to the bottom line in the first quarter and that has become a big help for us. So, continue to look at projects technology wise, ICM and others, and so there's been quite a bit around that for benefits.

Okay, thanks. And then lastly could you go back and maybe quantify some of the margins that you have been able to lock away for May and going into early June and then what you have seen in Q4? Just you mentioned it's positive and it is better than Q1, but any color on the magnitude would be helpful. Thanks.

So what we've been able to see is we saw margins at the trough of the whole move, we saw Q2 margins, negative EBITDA as well. So as we have moved into the kind of the positive numbers with the impact of yield improvement we are mid- to high single digit depending on the plant. Some are lower, some are higher. We haven't locked everything away. It is volatile. I mean we are seeing first standard deviation moves on the margins everyday.

It is really -- that is how volatile this is. So we are trying to lock what we can away. We can always go to the best margins on the board. So I mean I can say second quarter is not -- is still going to be a challenge. It will be better than the first quarter. We do not expect a repeat. And then as we get out to late third, early fourth, we have margins in kind of mid- to high teens to low 20s depending on the plants.

We have our early Tennessee plant has the best margins in August and September and those are in mid to high 20s. But the rest of the platform we wouldn't lock in any other July August September, at all. So it's just it is kind of plant specific. It is kind of time specific, kind of corn basis specific. I mean all and any of the above.

So, second quarter is still going to be a bit tougher than we would like. But overall, the improvement in the curve in the second quarter is definitely better than the first and so we have just got to wait and see how that all impacts. When you kind of combine with some of our other initiatives in place, good corn oil -- corn oil prices have done very well with bean oil rallying as well as heating oil and some additional demand from the feeders and the biodiesel guys.

Overall it is going to be a better quarter. But it is still -- we are still in a challenging environment.

And you made one comment so I have one last question here. You made a comment in your prepared remarks about some exciting growth initiatives potentially above and beyond the railcar asset utilization. Are there other things you are looking at as far as expanding capacity? Or how should we frame those comments?

Well, I think we are looking at when you look at, we started our ethanol plant and I know we have our grain company but you look at the ethanol plant and first handle opportunities. We haven't ever taken advantage of the first handle opportunity at the ethanol structures. We are looking at, are there things we can do to get that first bushel from the farmer at our ethanol plants in places like Indiana, Michigan where that's key to get the first bushel. And so whether we put the flex storage up at our ethanol plants, we will get those opportunities to get more and more of that early bushel at the better prices. We are looking to allocate capital which we think will widen out our margins over the long term and have a better supply structure.

It could happen within the grain business or outside of the grain business, but we see the opportunity there. We see the opportunity in what Jeff is doing in Operations. We are seeing great improvements by deploying some of these early yield improvements initiatives that if we can continue to push up from 284 and every point of yield is meaningful to us and it does and your cost of that improvement is your best return on capital that we have today.

So we spent a lot of time on that. We have debottlenecked our corn oil and we continue to debottleneck our corn oil extraction. We actually got so good at it we had to push it back to make sure that we don't degrade the quality of the feed. And so we know, we manage it very closely to make sure our end use customers get the very best product that we can make for them and without degrading the quality by taking too much of the oil out. So we have reached kind of some capacity there. Other plants have a way to go. We think we will see you'll improvement there.

We have got we are looking for our next big Blendstar project. We think that there's some opportunities there as well to be in, (technical difficulty) railroad has been a great partner with us but we also think that up in where takeaway capacity is lacking around other liquid fuels our Blendstar terminal plays very nicely there. And then as well as the grain business we are looking at opportunities for growth there and whether it's buying more assets or moving more corn or having a bigger harvest year. I mean, we have got to make sure that we see the opportunity there and then BioProcess Algae is making great strides so I think you'll hear some good positive things out of there.

The five acres are going to come online. We have lots of parties that want the product and we have lots of parties that want to look at furthering the technology, not just for making food, feed, or fuel but also for carbon mitigation.

So we have a lot of good things happening. Obviously, we have to fight through the ethanol margin. That's the biggest and single most important thing that we work on every day to make sure that we try to get as much as we can out of the margin especially in times of compression. But I think overall when you look at where we are at, we will come out of this quarter and, hopefully, better times are ahead.

Laurence Alexander, Jefferies.

Good morning. This is Lucy on for Laurence today. Couple of questions on algae. Have you seen any delays at all in client user testing for the food, feed, and fuel applications?

No. Not at all. Actually we get more calls every day for our product. What's unique is that we actually have product. And that's -- and we can give the people that want to test it, we can give them dry wholesale flakes or we can give them -- the BioProcess Algae company can give them more of a toothpaste liquid form, depending on what they want.

We are being tested in a wide variety of applications right now from food, nutraceuticals and even household pets' applications and things like soap and shampoos and things that people want. We don't want to make any of that. We just want to sell them their -- what they need to get themselves. If you are a company that needs algae to put it into a product we will just sell you the algae. We don't want to own the IP. We don't want to own the company's IP. We just want to sell algae at a profitable -- in a profitable way.

So we have got the project that is being operated right now. We have got the five acres coming online. Those five acres will end up in some consumer product whether it is a nutraceutical or a food product. We have several opportunities that we are looking at and those ASPs, those average selling prices, are very high.

We will contribute a lot to our bottom line, not necessarily because they are still developing cost and our next step is we want to look at how do we rapidly grow from five acres to -- you know whether it is 100 acres or 500 acres. Is there a demand for it, which we think there is, how do we rapidly grow to put out a product of commodity-based kind of high-value algae flake? But we are in many, many tests right now and talking to a lot of larger carbon emitters as well as food, feed, and fuel companies.

And you touched on this a little bit during the prepared remarks but what is your current interest in share buybacks at this level?

You know what? We liked it at 8, and we liked it at 10 and you know what we always look at it for our shareholders to say what is the best thing to do. I think what we did even though at this point it might not be as appealing to some, what we did is we bought back a very large portion of the Company at an average of about $9 a share. And so we like the stock, we like the ownership there.

I think when you take a look at looking at the pieces of what we do and you start with the Agribusiness segment and you look at a recent transaction in an 8 to 10 multiple of EBITDA, and you equate that to our equity value of $30 million of term debt against that asset roughly you can see that that is not really represented fully in our price. When you look at the $430 million of debt against 740 million gallons of production you look at our delevering that has taken place and you look at the equity value that's less than those assets versus the current market, which we have seen in asset trade as high as $1.29 a gallon. A very good ICM asset, not at -- not 100 but even a smaller one traded in that high $1.20 range.

I mean, you look at the equity value of those assets and we think we have pent-up value there. When you look at our cash balance and you look at even our Blendstar business and a multiple of a terminal business, we think we have value there. So but we have to make money. And it comes down to that ethanol EBITDA and that is still our driving force.

But we think the overall base platform value is a reason why we looked at buying our stock back at an average of about $9 a share because we felt for our shareholders after we generated over $350 million of EBITDA over the last three years, we felt that we had cash available to do that and really get that shareholding consolidated among kind of investors, our institutional sponsorship, and then our retail partnership.

Craig Irwin, Wedbush Securities.

Good morning. Thank you for taking my question. There has been quite a lot of press coverage out there, a number of different people saying that we are most likely going to have a challenging time meeting the mandate levels for the year, the RFS2 mandates could potentially see a shortfall.

How do you see this playing out for the industry? Do you think this is something where we could create more significant demands in 13 as far as compliance and the potential for E15 to play? Or do you think that there are other alternatives that will make this less of an issue for the obligated parties?

I think this year when you look at on the mandate of 132 billion against what kind of tracking that 132 billion, 133 billion gallon gas demand range and with a production run level that went up to bid for teens meeting the mandate will not be a problem in 2012. And in fact we have taken our production down actually act an 860 rate that production run is rate I think it's about a 131 billion production run rate anyways.

So from a production run rate we are actually producing below mandate levels but you have got enough inventory to make up the difference over the monthly demand. But then, it exports kicking you won't have enough and you -- or if E15 kicks in, you won't have enough and you will have to either get production up or just potentially earn better margins.

So I don't think this year will be the problem. Next year with -- even if we have produce if demand is 133 billion again and the industry the mandate is 138 billion then that will be more interesting time and that is what we talked about earlier where E15 may kick in and alleviate that problem as well.

But in general, we shouldn't have any trouble meeting the mandate. It is a function of how do we get more ethanol in the market using the E15 as the component.

Great. So my next question is, you mentioned in previous comments that you are seeing assets trade for $1.20 a gallon. Obviously you are buying your own plants but what are the industry participants that are taking out assets at $1.20 a gallon, seeing that's not visible to the equity investors that are obviously valuing Green Plains at a significant discount to that?

That is the hundreds of millions of dollars question. It is a great question. And that is what we have been trying to figure out which -- because when we bought our shares back at $9 a share we put the value in that mid $0.70 to $0.80 a gallon range per gallon. And that is what incented us to do that when it takes us -- it really truly does take us $1.20 a gallon to buy a good ICM plant in the middle of Iowa. Minimum. You might not be even be able to IF there actually because there's plants that have been bid higher than that that haven't traded.

And so, what the -- somebody who wants to own a plant is seeing versus somebody who wants to own equity is seeing is something that we have been trying to figure out. And so, if I wanted to go and buy one of my ICM plants today a similar plant in the state of Iowa. Number 1, I don't know if I could actually find one for sale and number 2, I don't know that I actually could buy it for less than $1.30 a gallon right now. If you are a farmer on plant with very little debt.

And so and Steve, we have seen that several times. We have seen actually farmer on plant turn down bids. And is it the big oil guys stepping in again or the big refiner? No actually it is just trading among participants that have cash that say -- at this price, we have seen good enough returns over the last several years that we can justify that over the long term.

So there is definitely a disconnect. We try to -- the reason we bought our stocks back at $9 a share is the cause of that disconnect and again that will reconcile itself at some point. It's just it will probably just take time to do that.

Great. And last question if I may. In the past, you have been very opportunistic about acquisitions, obviously, recently buying your own stock. Would you consider further acquisitions to increase your overall participation in the ethanol market? Or are you more likely to deploy capital in alternative investments?

Well, I mean at this point we don't have anything that we can buy in ethanol that is even -- we are not going to look at anything and there is nothing very appealing out there. So I would never say never about ethanol. I mean at this point I think we are in it, and so, if there was a plant that came up and it was interesting and it was a good value, we would have to look at it. We believe in the long-term story. Believe in E15. We believe and some would believe this is a good motor fuel. It is not the end-all be-all but it is a good motor fuel. It is the biggest replacement of gasoline ever in the history of motor fuel.

So I think you have to respect that. And I think that over the long term if you believe the margin will be there, I think that then you have to look at those opportunities. But we also look at growing our Agribusiness segment, growing our terminal business, looking at other opportunities, deploying capital and, ultimately, we will have to determine if we don't have any other places to do that.

You know, there's two ways to work on that. You either continue to pay down debt or give it back to your shareholder. So we'd have to examine that but we are not at that point right now.

Could you share with us how you would prioritize those different investments, please?

Really it just depends on what comes forward. If it's an Agribusiness asset that is appealing. They are all something we are looking at. So I wouldn't today say that I would choose any over the other except that we are looking at the ends more than we look at the middle. We are looking at the handling and the beginning and the handling on the end of the chain more than we look at the middle of the chain because the middle of the chain doesn't have any opportunity today -- for us to buy anything at a reasonable price. Again (multiple speakers) disconnect between public equity and private purchases.

Understood. Thank you for taking my questions.

Brent Rystrom, Feltl and Company.

Good morning. Just a couple of quick questions. Could you give us a little more insight into the fertilizer? The tons sold is down. Does this have any implications for the season or is it just timing as far as seeing lighter inventory now and running the through more of the system closer to the application time?

Fertilizer in the first quarter is typically down anyways. We saw some early applications in Iowa but we are really a second-quarter fertilizer company. Right, Jerry? (multiple speakers)

Todd, you are right. 2.357 million tons sold this year versus 3.108 million last year. So I'm assuming you are just shallower on inventory and you are going to ship more times or more at the application time.

Yes, I think (multiple speakers). You are not implying this season is down 20% I guess is what I am saying from what you (multiple speakers)

No. Not at all. It's just -- it is a very low three-month period overall for us and we do 60,000 tons fertilizer or so per year maybe 70,000 tons. Something like that. And so the first quarter is not an indication of anything.

We had a good strong second quarter. We have seen a good investment in from the farmer in making sure that that corn, that corn crop gets off well and so overall we don't see that as anything that you should view as a pattern.

We can see that nitrogen is doing well by what is going on with prices. You had in the last 2 days Mosaic come out and say that they see strong demand and then potash yesterday came out and said they see weak demand for potash. Any thoughts on what you are seeing? For potash or fertilizer itself?

No, our demand is pretty summer to last year. I mean where we sell it there's not a lot of change in rotation. So I mean we are probably planting a little more corn but in general there's not a lot of change in rotation. So from our standpoint everything is pretty steady. So nationally, no, I haven't seen -- I haven't seen -- I mean, nitrogen is obviously showing its colors because of the price. But in general the farmers investing in this crop this year for sure and he is planting a lot of corn and it is going in early and it is going in well.

[Bungee] this morning just on their call updated their sugarcane harvest and they tightened the amount toward the low end of the range, talking upwards of 21 million metric tons now they are 16 to 17. [Unica] just said the other day they only see sugarcane harvest in center (inaudible) going up 3 to 4%. I would actually think that this would suggest that exports to the US from Brazil are pretty much unlikely until mid part of next year. As opposed to even a risk. I think you said earlier today that you might see some later this year that you know if sugarcane production is just up 3% to 4% of its summer sell, I don't see statistically how they could even export off this year's crop.

Except that they have this window where it all comes in and they make all their ethanol. And so, during that window there is excess that has to move. So, it just depends on what the government does. If the government allows it and they let it go, it'll come here. If they don't allow it and they say -- no, you are not exporting to the US it won't come here. So I think it is a window, and it doesn't matter necessarily what the sugar crop is in that window and then after that window closes, we won't -- we probably won't see them after that until next sugarcane artist.

Steve, you have any comments on that?

Well, I think the rule in California (inaudible) will be more valuable. So you are starting to see something by the (inaudible).

Yes. So that is something that is why it is coming in. And then to Florida as well you will see some bare. But it is really just isolated to that time period and then just to take advantage maybe the D5 are in arbitrage. Other than that it is good news if Bungee thinks that.

It is and I don't think you'll see anymore allocated. I think it was just pulled the part of barrels over to California is all it will do.

Okay. I have got just a couple 3 quick more questions than I'll let you get done here.

Railcar leases. My observation would be, having grown up in the Bakken all the pipelines going in, there is a window of about two years before those pipelines really start to hit. Is that kind of what you guys are looking at from the railcar leasing perspective?

Steve has some take on that and I will finish up on that as well.

Then Jeff could add to it. I don't think you'll see that even with the capacity increase on the rail on the pipelines you still have excess capacity that still has to be made by rail. You are still seeing infrastructure investments being made by [BN] and other railroads up there because the rail are the pipeline capacity will not be able to handle all the increased production.

Yes some of it depends politically what happened with Keystone and follow-on pipelines there. So I think there's some political risks surrounding that from the administration. And it all depends on what the projections and the outputs are in the Bakken. You know we have heard numbers up to 1 million a day fairly quickly but there are some people that are projecting 1.5 million a day within the next two years.

So if the estimates continue to be conservative versus the actuals you know our growth rate has been significantly beyond what was projected a year ago if you look at a year forward. That is going to mean that there is a continued haul of pipeline takeaway capacity from that area.

So we have to study this hard, Brent, because it will definitely affect the marginal barrel in ethanol. And so that is why when we answer these questions, you see that we have spent a lot of time thinking about tank cars and the impact it will have on the industry by taking that excess capacity or even some of the needed capacity by the industry of tank cars and the impacts that it could have over on the next couple of years in the US ethanol market. It could really change things because I don't think that the railcar companies can roll them off fast enough versus the need to takeaway capacity.

So we have to really look at that. And I don't actually think that is a negative risk for us. I think it is actually potentially we look at it as a potential positive risk. It is kind of like what we say, we hope companies that -- so I'll take a step back.

So when we look at that and we say if it could change the way the US ethanol potentially trades then it has to be potentially positive for the margin and if you can earn more money with your assets doing something else it is potentially positive. Potentially positive. It just has to still play out.

So it is kind of the any and all about strategy. But we have to be very cognizant that [somebody] wants our railcars and there aren't enough coming off and there's the demand that $3,000 a car you think about an ethanol plant and you put 30,000 gallons in a car, $0.10 a gallon right there that you have got to pay for cars in at the low end of the range we leased them for $250 a car 3 years ago. So that is a big change to ethanol economics that if you all of a sudden can't move ethanol, where are you going to get it from?

You are going to have pay more for it. And you can see that. I mean there's more to pay because it's spread between gas and ethanol. So why there's -- they cam pay more for ethanol. It is just a function of the supply demand equilibrium getting out of whack.

Final question I have for you is looking at some of the activity up in Canada with (inaudible) your neighbors in town there and the rumors about Mitsubishi possibly buying them. Are you seeing larger entity interest in the what I would call the agriculture infrastructure that you are building up across obviously the ethanol obviously the [Romley] centers, the whole thing. Are you seeing acquisition interests of you?

Well we like those transactions, because I think you can put at least a print to understand why we have done what we've done. So we generated -- we doubled our EBITDA last year in that segment to in the range of $15 million of EBITDA and we have seen multiples in transactions trade in 8 to 10 and that was an 11 multiple on the first one you talked about of EBITDA. And so we like to see those prints. And that is how we look at it. We built it up and I am not actively marketing our grain business at this point.

It has a lot of value. You can't go by -- I cannot go repeat what I have done very quickly now. We built 40 million bushels as a company of storage in terms of acquisitions and some organic growth, and when you look at that business, replacement cost alone to do that is a significant opportunity; and it takes you a year, it'll take you a couple of years to do that. The value of the assets versus the multiples being paid versus the crops coming in the world and the US still being the residual supplier to the world.

We are very happy with what we have done in our Agribusiness segment. And it is not repeatable very quickly and to buy a 40 million bushel grain business in the US today at any reasonable value is near impossible.

So we have seen many transactions that we like and what we have seen eventually we believe it will get reflected in our value.

That is all the time that we have for questions. At this time I'll turn things back to over to Todd Becker for any additional or closing remarks.

I want to thank everybody for coming on today. Obviously, it wasn't the greatest quarter. We think we have a lot of positives coming out of the quarter albeit we are still -- we still have a challenge out there ahead of us for a little while but we are locking in margins for the second quarter and looking out on the curve.

We think what we've built up over last several years after 11 profitable quarters, $300 million plus of EBITDA, positive met income on the bottom line for three years in a row prepare us for this time. We have -- we are in a better situation from a balance sheet to withstand a cyclical downturn than we would've been in three years ago and that is all just a function of what we have been able to do over the last couple of years.

We are going to generate over $50 million of non-ethanol operating income from our three segments which we think is a very big advantage for us and we continue to be committed to what we do and our structure and our strategy that we have laid a few over the last couple of years and we appreciate your continued support. Thank you very much.

Again, ladies and gentlemen, this does conclude today's conference call. Thank you all for your participation. You may now disconnect.