Green Plains Inc (GPRE) 2012 Q4 法說會逐字稿

Good day, everyone, and welcome to the Green Plains fourth quarter and fiscal year 2012 financial results conference call. Today's call is being recorded. At this time, I would like to turn the call over to Jim Stark. Please go ahead.

Thanks, Erin. Welcome to our fourth quarter and full year 2012 earnings conference call. On the call today are Todd Becker, President and CEO; Jerry Peters, our CFO; Jeff Briggs, our Chief Operating Officer; and Steve Bleyl, who is our Executive Vice President of Ethanol Marketing.

We are here to discuss our quarterly financial and fiscal year 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 that presentation on our website at 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 expectations. Please refer to page 2 of the website presentation, and our 10-K and other periodic SEC filings, for information about these 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.

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

Thanks, Jim, and thanks for joining the call.

I'm going to run down some of the highlights for the fourth quarter, and then discuss 2012 overall. I'm pleased with our operating performance and results for the quarter. We believe that generating operating income before depreciation of $0.14 per gallon in our ethanol production segment in the current environment reinforces with you that our risk management strategy works, and is a very effective practice for a commodity processing business like Green Plains. Keep in mind, this was without the additional corn oil operating income earned this quarter, as we break that out separately.

When you look at the chart on page 5 of the presentation online, you will see that the average daily spot platform crush was a negative $0.07 per gallon during the fourth quarter of 2012. Our team reacted quickly in late 2011 and early 2012 to take advantage of positive margins out on the forward curve. The difference between this year and the prior was that we originated physical bushels at the same time we would lock the financial margin away. This way, we reduced the volatility of that factor. Our non-ethanol segments generated $17.8 million in operating income, and combined with the operating income from the ethanol production and the $47 million gain on the sale of the Agribusiness assets, our total segment operating income was approximately $77 million in the fourth quarter before corporate expenses.

Revenues in the fourth quarter of 2012 were $884 million, and we reported the net income before the gain on the sale of the 12 grain elevators of $6.7 million, or $0.21 a share. We weren't just profitable in the fourth quarter, but combined with the third, we were profitable in the last half of 2012, probably one of the roughest patches in the history of this industry. We produced 168 million gallons of ethanol in the fourth quarter, which is approximately 91% of our stated operating capacity. All of our plants are running, and to contrast that to the ethanol industry, over 2 billion gallons of industry capacity is offline. Our ethanol yield in the quarter was 2.81 gallons of ethanol per bushel of corn, which was down mainly to new crop quality factors. We are seeing better yields as we move further away from these harvest bushels.

Our yield for corn oil production was 0.61 pounds per bushel in the quarter. We manage this closely, so as not to degradate our high-quality distillers grains that we sell to our customers. Both our internal technology that was installed and the ICM technology continued to perform very well. But again, we believe the yield should hold at least this level for 2013.

Our railcar redeployment to transport crude oil hit our target in the fourth quarter, with over 500 cars in service, and $4.3 million of operating income. We should see this run rate hold at least through the end of September, as we are working on extending this program through the end of 2013 and beyond. We began unloading unit trains at our new BlendStar Terminal in Birmingham, Alabama this quarter. Our initial customer response has been strong at this terminal, and we are evaluating similar opportunities at our other terminal locations.

So between corn oil production and our marketing and distribution segment, we expect non-ethanol operating income to remain at approximately $60 million in 2013. The Agribusiness segment will have a small operating income during the harvest quarter of '13 as well.

Selling our 12 grain elevators and the associated agronomy and petroleum business significantly improved our balance sheet, as we ended the year with $280 million in cash. The timing of the closing, and our decision to retain over $50 million of corn inventories at these elevators for our internal use, actually resulted in an increase in our grain revolver at the end of 2012. We are still holding corn purchased in the fall on our Agribusiness credit lines, even though we don't own the elevators anymore, and as we work through this inventory over the coming months at our ethanol plants, the revolver for the Agribusiness segment should be reduced throughout the quarter. I would note that our ethanol plant debt per gallon is at the lowest point it has been in our history, at $0.54 per gallon, and net debt per gallon is even much lower. At the end of 2008 we were at $0.90 per gallon of plant debt, to give you perspective.

Overall, 2012 did not start out in a positive manner for our Company or for the industry, but as we moved through the year, margin management, keeping costs low, operating our plant safely and efficiently, and finding other income-generating opportunities contributed to our ability to offset the negative trends in the ethanol industry.

Now I'm going to turn the call over to Jerry, to discuss our liquidity and financials in more detail. Then I'll come back later in the call.

Thanks, Todd. Good morning, everyone.

We're pleased to have finished 2012 with a solid performance in the fourth quarter. On a consolidated basis, our revenues were $884 million for the quarter, down about 4% when compared to the fourth quarter of 2011. The decrease is related to lower average prices for ethanol, as well as corn oil that was sold during the quarter; and a slight decrease in ethanol volumes sold compared to last year's fourth quarter. Sales of ethanol from our own production facilities decreased by about 7%, but that was largely offset by increased trading and rack volumes we completed. With better margins in the fourth quarter versus the third, we increased our production rate from approximately 87% to 91% of expected operating capacity in Q4. Currently, depending on forward margins, we expect to run our facilities at around 88% or 89% of operating capacity in the first quarter of 2013.

When you take a look at slide 4, again, we generated operating income before depreciation of $0.14 per gallon, compared to $0.18 per gallon realizing the fourth quarter of 2011. Using this measure, we have reported positive ethanol operating income before depreciation for each of the four quarters of 2012. And as Todd mentioned, it's important to note that these amounts do not include our operating income from corn oil, which has averaged almost $0.05 per ethanol gallon produced over this time period. We believe this demonstrates the effectiveness of our team's ability to manage production costs, as well as ethanol risks.

Corn oil production operating income was down about 20% from the fourth quarter of 2011, as average corn oil prices decreased 14%, and the segment's input costs increased due to higher distillers grain values, which are paid to our ethanol production business, anyway. Looking forward, we should see similar production levels and conversion rates for 2013, and prices for corn oil have firmed up some at the start of this year.

The fourth quarter for our Agribusiness segment was a transition quarter for us. Revenues were down $20 million, or 12% over last year, mainly due to completing the sale of the 12 grain elevators in early December. With the transaction, we chose to reduce our normal grain sales activity during the quarter and instead transfer inventories to the buyer at closing. These transfers, totalling about $110 million, were made at market value, but are not reported in our sales figures for the quarter. We also decided to retain nearly 7 million bushels of corn, or about $50 million, at our Tennessee locations, which is obviously not included in the inventory transfer figure I just mentioned. We plan to move these bushels into our Obion plant over the coming four or five months.

The marketing and distribution segment reported operating income for the fourth quarter of 2012 of $6.7 million, compared to $2.4 million last yet. The increase between the periods is mainly due to our railcar initiative, with a small contribution from the Birmingham unit train terminal, which began operations in December.

Our income tax expense rose to $26.1 million for the quarter. The effective tax rate increased for the quarter, which also impacted the tax rate for the full year, as a result of adjustments in state tax rates and state tax credits. With a lower business activity in Iowa going forward, we provided a valuation allowance against some Iowa investment tax credit carry-forwards. Our business activity, which is heavily driven by where our sales occur, has shifted to higher tax states, causing our rate to move up slightly going forward. We estimate a combined rate of 38.5% for 2013.

Earnings before interest, income taxes, depreciation and amortization, or EBITDA, was $80.8 million for the fourth quarter of 2012, compared to $45.2 million in the fourth quarter of last year. On a trailing 12-month basis, EBITDA totaled approximately $115.5 million. Our liquidity and overall balance sheet positions are the best they have been in our history. Total cash increased $120 million during the fourth quarter, to end at $280 million in 2012. Most of that was due to realizing net proceeds from the Agribusiness sale of about $118 million. In addition, the buyer assumed $27.8 million of term debt, and as I said earlier, we retained $50 million of inventory at these locations. So all totaled, once the retained inventory is realized, the sale resulted in nearly a $200 million swing on our balance sheet.

We also continued to repay our ethanol term debt, with $11.6 million of reductions in the quarter from our ongoing operations. As of December 31, our total ethanol debt was just under $400 million or, as Todd said, $0.54 per gallon. As a result of the progress we have made on our debt levels, we have pushed our total ethanol debt service down to about $0.09 per gallon from $0.10 previously. We're also working on a variety of new lending arrangements to improve our working capital funding and further enhance our capital structure going forward.

Capital expenditures were approximately $4.4 million for the fourth quarter, and totaled $28 million for the full year, with the Birmingham unit train project representing the most significant single project in that total. Currently, we're planning approximately $10 million to $12 million of capital expenditures for 2013, not including our strategic plans to expand grain storage capacity at our ethanol plants.

In summary, we're pleased to have closed out 2012 on a positive note, and believe we are well-positioned for what should be a very interesting 2013. Now I would like to turn the call back over to Todd.

Thanks, Jerry.

And as I mentioned earlier, there's a significant amount of capacity that's offline according to the latest EIA data. The gap in ethanol production versus the mandate has led to a better margin environment in early 2013, albeit still very much below historical levels. Brazil imports have impacted our market quite dramatically over the last several months. We are starting to see a slowing of the activity as of late. It is a situation we are watching closely, and this happens to be a loophole in renewable fuel standards that needs to be addressed.

The current margin environment remains sluggish, but we are seeing slightly positive margins in the first quarter for our platform, and improving margins in the fourth quarter of 2013. We currently have minimal forward margins locked away for the rest of the year. Because of the volatility of the US corn basis, it is difficult to make a decision to lock the financial crush away without real bushels in the mix. Ethanol currently is at a $0.60 to $0.70 per gallon discount to wholesale gasoline through all of 2013, and our belief remains that there is no better, more economical source of octane or oxygenate available than ethanol. Growth Energy, our trade organization, has a long list of retailers that are in process to add E15 to the fuel mix over the next year.

We have multiple growth initiatives for the next two years that I wanted to discuss today. The first is to update you on BioProcess Algae, and our progress on the build and product development. We embarked on a 5-acre build of what we called Phase III. While finalizing that project, we decided only to build two of those acres, which include two 200-foot reactors and two 400-foot reactors. That was a good decision, as current offtake demand exceeded Phase III, so we needed to start on Phase IV to meet those needs. We have decided to expand the footprint in Phase IV and build 10 additional 400-foot reactors, which are in final engineering and procurement phase, and expected completion of those will be later this year. When completed, our total capacity will be between 350 and 400 tons of dried wholesale algae, or approximately 1 ton per day. We will transition to processing on-site as well, instead of [toll] processing, for some of our needs.

We have multiple initiatives underway with various large strategic oil and feed companies. We have joint development agreements both in place and under development. One of these is focused on growing material for testing of various extraction technologies. In addition, we are working on high-value protein replacements for animal feed, along several different verticals, expanding on our testing from last year at the University of Illinois. We also have several continuing initiatives within the nutraceutical sectors.

Finally, we have aquaculture trials under way, as we feel this is our fastest path to market for high-value commodities into insatiable demand sectors, which would lead to profitability of our farms. BioProcess Algae continues to work on expanding strategic relationships, and if Phase IV continues to meet our expectations, we may begin the next build-out of 40 to 50 acres in Shenandoah late this year or early next.

The next major initiative was shared in our earnings release. We have started to expand our grain storage at or near our ethanol plants by 5 million to 10 million bushels per year, for at least the next two years. We believe that with a minimal capital investment at these locations, we can benefit by purchasing corn directly out of the farmer's field. We currently have 11 million bushels of storage at our ethanol plants, and 6 million bushels of storage at three grain elevators. With the addition of this within the Green Plains grain business structure, we believe we can recreate the earnings stream at a fraction of the cost of what we recently divested.

Let's take just a few minutes to give you an overview of what we're doing. Currently, Green Plains processes approximately 7 million tons of corn at our nine plants. Last year, we tested a strategy at three of our locations, where we added 1 million bushels each in Indiana, Michigan, and Minnesota. This was a great success, as we originated first handle harvest bushels that we were able to segregate and capture what normally is reserved for commercial grain companies, at a much lower operating cost, by the way. In addition, we did that at well below $1 per bushel of capital cost, and leveraged off the plant's infrastructure of road, scales, and people. We now plan to roll this out broadly across the platform.

To give you an example, by harvest of this year, we hope to add an additional 10 million bushels at multiple locations. This will be broken out separately within the Agribusiness segment. In some of our locations, we will use this additional storage to potentially service non-Company demand when applicable. We are excited about this program and feel we can create great value while using our internal demand to go further upstream or on all of our plants.

Finally, another major initiative that we embarked on has been discussed over the last several years. We have started to finally monetize our trade flows in and out of our ethanol plants. We plan on hiring between 10 and 20 physical cross-country grain-traders and marketers to leverage our logistics infrastructure. We currently have several new traders in place, and have seen good returns for what motivated us to grow faster. The risk profile is very low, and the balance sheet impact is minimal. So as an example, we dump a thousand trucks of corn every day on average across our platform, and load out 45,000 trucks of distillers grains per year. Up until now, we never focused on when the truck becomes empty on either side, and use that freight to our advantage, which is really the key point going forward under this new initiative.

So in summary, we have major initiatives to continue to de-risk the ethanol segment, much like we have done over the last several years, as we have grown non-ethanol operating income to over $60 million. This is a continuation of the strategy, and we feel like we can control more pieces of the value chain, and lots of other companies make money around the businesses that we own and would operate. Our operations have never been better, whether it is for mechanical improvements like fine grind or trialing new enzymes. We know that every 0.01 improvement in yield generates an additional $5 million of operating income annually.

Other initiatives we have for the coming year are around continuing to lower our energy usage per gallon of production, and increase our yields on distillers grains. We certainly are not sitting idle waiting for better times in the industry. We are focused on continuous improvement in processing the raw commodities we handle, and driving more income to the bottom line. We continue to work on ways to unlock the value of the assets of the Company. As we have demonstrated in the fourth quarter of 2012 with the sale of the grain elevators, we are not shy about making bold moves that benefit shareholder value. And with this sale, we now have generated four profitable years in a row. The sale has put us in a strong liquidity position to start 2013, and I feel that we are in a solid position to grow and create more value for our shareholders and stakeholders.

Thanks for calling in today. I'll ask Erin if she wants to start the question-and-answer session.

(Operator Instructions)

We'll go first to Farha Aslam of Stephens Inc.

Hi, good morning.

Good morning, Farha.

Can you comment on the supply/demand dynamics in the ethanol industry? We've heard a lot of plants being taken offline. How long do you think it's going to take for that inventory of ethanol to be worked down?

Well, yesterday's EIA report showed inventory coming down a little bit, with production somewhat steady. But the big part of yesterday's report was Brazilian imports were down to zero last week. We hadn't seen that for a while, we will have to wait and see if that is a trend or if that is a one-week event. With that said, we are starting to see margins come up a little bit in the first quarter to positive EBITDA levels, low to mid-single digits, and -- but we also are starting to hear plants thinking about coming back online. So it's going to be one of those interesting times where you look out on the curve, and it doesn't give you a lot of reasons to bring up a lot of capacity, but the spot market might give a reason for guys to try and take advantage opportunistically of what the margin is, even though it's still much lower than historical. But I think the key thing we're going to continue to watch are the weekly stocks, until we get stock straws, and that will kind of -- that should at that point tell us whether this is a sustainable upturn or whether we're kind of -- done what we needed to do for a little while, to at least deal with the fact that we're producing significantly below the mandate.

Thanks. And the second question is on Brazilian increase in blend. How do you think that increase in the Brazilian blend rate impacts imports and US ethanol?

I think it's great. I think at least through what will be their next harvest, if we can get some of their excess capacity to go into the increased blends there, we think that's favorable as well. There is still going to be a need for the -- for their gallons against some of the advanced mandate needs, but in general we would view that as a positive, overall. Again, we need to see that happen, but from what I'm hearing the odds are very high.

Okay, and the final question is really on basis. We've heard basis levels are up considerably year over year. Could you just give us kind of what your basis inflation is that you've been experiencing, and kind of your ability to lock in basis going on to the rest of the year, and if you're able to lock in any margin for the fourth quarter?

Yes. So basis levels in general across the platform, I would say are marginally higher than last year. The interesting thing is if you take Nebraska at 30 or 35 over, there's still a positive EBITDA margin associated with that. So I think relatively speaking, we are seeing some basis inflation. The Eastern corn belt though, necessarily, we don't see that up a lot. Indiana, somewhat steady the last year. Tennessee is somewhat steady the last year. And Iowa in the mid-15 to 20 over type market is not that dissimilar as well, as the basis rallied as we came into this time last year.

When you look at our ability to lock or purchase basis corn, we're obviously coming into the second quarter, where the farmers are going to plant some corn. We would like to get -- we have been working on coverage there. We don't discuss necessarily what we have on, but needless to say, we don't believe we'll have any large impact to production from inability to originate corn at this point. When we go out to the fourth quarter, if you look at the fourth quarter today, basis levels are very undefined. If we do grow a big crop and we can get back down to historical basis levels -- and we have bought some down there, margins are in the mid-to-low teens. So we are obviously trying to get some corn basis on us out in the fourth quarter to lock margins away, but that is proving to be more elusive than some years. I think the farmer's waiting to see what he plants, or to get the acres in, does he grow a crop, and then at that point I think we'll see some movement. We're obviously setting ourselves up, though, with the additional 10 million space that we're expecting we'll see movement at. Whether historical levels or above historical levels, we definitely want to get control of more corn than we typically would have in our system, especially with being divested from our grain assets.

Thank you. Appreciate the added color.

Thank you.

We'll go next to Laurence Alexander of Jefferies.

Hi. This is Jeff Schnell on for Laurence.

Hi, Jeff.

I know you briefly mentioned CapEx. Can you talk about your CapEx plans maybe for the next couple of years? Do you expect them to stay relatively steady, and how do you intend to allocate it? And also, are the costs of the Agribusiness assets increasing?

Well, in terms of CapEx, you know, we talked a little bit about what our normal CapEx is. Jerry had talked about that, it was about $0.01, $0.015 a gallon. And then -- and that's -- a lot of that still is around continuous improvement, and what we do trying to get more out of the corn kernel, more yields, low energy costs, those type of things. Additional CapEx around the grain assets, we expect that will be, as we said 5 million to 10 million bushels per year, and I think if you equate sub-$1 pre bushel of that as we build the internal storage, I think that's a good number. In terms of grain storage overall, we don't believe that we'll see any big opportunities to acquire outside storage, as levels -- as we just sold some. So obviously we don't anticipate we're going to get right back into buying a bunch of grain elevators at the levels that we sold at. So in general, though, we should be somewhat steady from these numbers. Typical is $0.01 to $0.015 on average yearly needs, and then after that it just depends on what we buy or what we build.

Appreciate it. Thanks.

Sure.

And we'll go to Brett Wong of Piper Jaffray.

Thanks for taking my question. Given some discussions about increased blending in other international markets, could you just talk about how you see that impacting the North American market?

Yes, I will tell you we've seen a rise in inquiries for our product to be exported out of the US, much more than we saw probably for the last six months. Steve, do you want to comment a little bit on that, what you're seeing?

Across the world, different markets, Far East-type markets are actually looking at increased blending rates.

Okay.

So we are seeing that piece and the European piece. What we're trying to look at is the piece into Brazil still, is that going to play out as it goes forward? And then the increased areas, mostly foreign still.

I think what's going to be interesting, Brett, is that when you look at the curve for ethanol in the US, it's discounted as we go out on the curve. If you look at the curve for ethanol in Brazil, it's at a carry as we go out on the curve. So that's diverging into third quarter, where we will have the cheap product in the world. Ethanol -- or Brazil could have the high-priced product in the world, and how that translates into different trade flows should at least be somewhat positive to the third quarter, depending on really what our run rates are in the US, and I think that's something we're going to watch very closely. There is an opportunity that we return as a pretty heavy exporter kind of late second quarter, early third quarter, to the world.

Thanks.

Thank you.

And just with the prolonged weak margin environment, are you seeing any increase in willing sellers for ethanol (inaudible) or--?

Interestingly enough, no. You know, when you came out of the fourth quarter of 2011, anybody that was in the spot market bought themselves a lot of time, because the spot market was so robust. And they would see -- while they would see cash burn in the first half of '12, it was easily not -- it was not as much as the cash earn in 2011 late. What we saw recently, our two sales that we saw made, private sales, one that we estimate in the $1.10 a gallon range and one that we estimate greater than $1.25 a gallon. When you -- there's definitely a disconnect between the private and public market valuations for ethanol plants, and the main reason for that is that we're seeing -- obviously the one-off plans are trading at pretty, pretty good levels, and what's driving that I think is really the unavailability of good plants and good locations with good technology.

If you look at the two plants that traded, one was a 50 million gallon Fagen/ICM plant, and one was 110 million or 120 million gallon Fagen/ICM plant. Those were great plants in good locations, and that's why they trade at good prices. If you want to buy the opposite end of the spectrum, you could buy all you want at significantly cheaper prices. But if you want to buy good plants at good locations, like ours or like anybody else's, they are really not for sale, and those go at a higher level. So today, we are not actively seeing at any reduced prices good plants in good locations, but you can certainly buy the other end of the spectrum.

Makes a lot of sense. All right. Thanks a lot for your color.

Thank you.

(Operator Instructions)

We'll go to Patrick Jobin of Credit Suisse.

Thanks for taking the question, and congrats on the strong performance in the quarter.

Thanks, Patrick.

So I guess just looking at demand for 2013, I guess on one side the mandate's increasing, but on the other side you have some potential excess wins from carry-forward ability. I guess how much of the margin improvement outlook is predicated on exports returning, or is it more of a function of blenders seeing the relative discount of ethanol and the need for octane?

Yes, I think it's a little bit of everything that you just mentioned. So exports, we continue to see good -- we continue to see demand for our product. We're producing at about a 12.2-ish run rate or lower against a 13.8 mandate. We expect Brazilian imports to be somewhere around 500 million to 600 million gallons, and then there's the [ren] balance that can either take care of the rest or we can make more ethanol or both. And we saw increased in rens here recently, which then has jogged people to think about the value of the D5 versus the D6 ren against each other, and whether they should use corn-based ethanol or they should buy the D6 ren or D5, the sugar ren, and use corn-based ethanol.

And so all of those are playing into -- a little bit playing into a better environment, but I think the big thing is really when you look at the EIA data from last week, we're producing at a [7.74] rate per day against a 13.8 mandate with no exports, and, and a bit of a stock straw, and I think that's really the key factor. I think the rens market has been quite interesting. It ran up from basically $0.05 to $0.35 at the highs or so for the corn-based ren. That's certainly interesting, but you can make more money blending ethanol. So that's why we've kind of seen the demand pick up as well for ethanol, and guys that shouldn't really be buying a corn-based ren, they should just buy the product.

And I guess do you think that has encouraged more adoption of E15, or is that -- I know the relative discount was the bottleneck for a certain period of time. Has that changed? And then just a housekeeping item on Q1 utilization? Sorry, I didn't catch that in the script.

Okay. First of all, in terms of E15, we are seeing a lot of retailers, you know, more independent, 1, 2, 3-off type guys, maybe 10-store guys that are willing to look at it as the discount widens. I think a key factor will be is if we grow a crop in the US, and you could see the pressure on new crop corn, and the discount widened to gasoline, if we actually grow a crop on large acres with large yield, and that discount continues to widen and corn continues to go down, you'll see an economic incentive that people will have to seriously look at increasing blends, because at $0.30 or $0.40 it's not that interesting at a discount to gasoline. But at $1 and $1.20, it becomes much more interesting. We're seeing a lot of retailers gearing up for -- it's interesting how gasoline retailers start to think about corn harvests now, and gearing up around large corn harvests, large discount to gasoline, and taking advantage the $1 to $1.20 potential discount to gasoline in the forward markets if we can grow our corn crop. But the housekeeping item in terms of capacity utilization, we expect it to be very similar to 2012 Q4.

Okay. At a low-digit margin, or what was the color on the --?

We didn't give any guidance, except to say that margins -- margins, here let me give you a perspective. The daily average -- we always talk about kind of the daily average crush. The daily average crush quarter-to-date during the quarter is like minus $0.07 a gallon. That's daily average, even though we've seen the crush come up for February and March. The February and March crush now are in low-single digits to mid-single digits depending on the plant, and the March crush reflects that as well. But if you kind of locked in January in the spot, you obviously locked that in potentially at negative margins, and then you start to lock in February and March a little bit more positive. Overall, I think we have a chance to return to a positive EBITDA environment. We're just making sure that we can originate all the corn and take care of all the crush, and put the rest on. But in general, in relative terms, it's not as good as Q4 '13 -- '12 because we locked it all away early, but it looks like it's getting better than any other time last year.

Okay. Thank you.

We'll take the next question from Brent Rystrom of Feltl and Company.

Good morning, thank you.

Hi, Brent.

Quick follow-up, Todd, on the sugar cane, or Brazilian sugar cane crop as a topic. [Buggy] came out today and said they think there is kind of a beginning of a four, five-year cycle based on the new planting of sugar cane production rebounding, and eventually surpassing the record from a few years back. How do you think about that from the perspective of your business, particularly when you look at the price of sugar, which is going to favor a lot of ethanol production, probably a bigger shift the change in the -- or the blend there will require? Your thoughts on that?

Yes, we're starting to see in Brazil plants shift when they can, if they can do it early, shift from the 60/40 sugar/ethanol blend to the 60/40 ethanol/sugar blend. If they can do it, they are certainly getting paid to do that. The 25%, obviously the increase in gas prices should lead to the increase in the mandate for ethanol, and hopefully at least for the next kind of 12 to 18 months, that excess sugar should take care of their own internal demand over the short-term. Over the long-term, when we look at it, and we look at the ren balances, and the potential negative ren balance at the end of '14 -- by the end of '14, then you look at kind of increasing mandates, if we -- we need to get E15 implementation kind of rolling here late '13 and '14, because when you kind of look at what the mandate is against E10, and potentially if you get to E11, E12, we'll actually need some excess sugar cane in here, and still have negative ren balances.

So I think what we're focused on is kind of next 12 to 18 months. Longer-term than that, if Brazil continues to raise big sugar crops, and we continue to raise big corn crops, if we can kind of get back in that cycle as well, I think both those would move in tandem, and I don't necessarily know the spread would change very much on the go-forward. What's interesting now is the spread is actually changing up more in favor of corn in the fourth quarter, as the corn market price and the sugar markets remain somewhat steady.

All right. Thank you. That was very helpful. Two quick follow-ups -- or two separate questions but both on kind of the same topic. Can you help us how to think constructively on how the grain storage facilities, how that might flow through the income statement? And then the same thing on the trucking. If you're looking to kind of backfill these trucks, I'm assuming that's part of what you're talking about?

Yes.

How might we think about that from a model perspective? Thanks.

So our goal is to build 25 million bushels of storage over the next couple years, additional storage. We believe that CapEx will be sub-$1 per gallon, the way that we've designed it.

Per bushel.

I'm sorry. Per bushel, per gallon is too high -- too low, actually, I'm not sure. (Laughing) Sub-$1 per bushel. We have the designs ready to go, construction has started at some of our plants, and we're in deep design stages. We think we can get it done over a couple-year period. We believe the first [half], the grain margin is somewhere, $0.35 to $0.40 a bushel, kind of across the platform, which we can realize. And if we can get that on 25 million bushels over two to three-year period growth, we would then recreate that type of cash flows. The great thing about those income streams is that they come with a very low operating cost in relation to what we used to have at Green Plains Grain, which was employing hundreds of people -- or over a hundred people to do some of the same volume.

So low operating costs, low CapEx costs. We think we'll be a low-cost operator in the industry. We'll bulk up a little bit around origination and farmer programs, and really go after that first handle margin. If that experiment continues to work, which we think it will, we might expand even further and faster. But we think that's the opportunity around the space over the next couple of years, as we grow 5 million to 10 million bushels per year of space.

In terms of the trucking opportunity, we believe that we can grow that into a $10 million to $20 million opportunity for our Company. I wouldn't mark it to the bottom line just yet, but that's the kind of opportunity we see. We see the ability to leverage our transportation flows that we never have in the past and other companies have. With the amount of trucks we have flowing around the US, we believe that we can take advantage of that. We've got traders in place today. We've got programs in place, and we're actively seeking more and more programs. We think what we offer is very unique, because we have all of this flow that we've never taken advantage of, and all of this demand that we can key off of. So, you know, that will all start to flow through marketing and distribution over the Agribusiness segment, we think, over the next couple of years. But when you look at it, Brent, I think what's important is we're up to around $60 million non-ethanol operating income. If we can get up to $80 million of non-ethanol operating income, which is our goal here, then we could service all of our debt at a zero ethanol margin, and that's kind of what we've always focused on.

Great. And the $10 million to $20 million, would that be basically pretty close to the operating contribution, is what you're saying, or would that be the revenue amount?

That would be the operating contribution.

All right. And then looking at --?

That's our goal of the business, that's our goal of the business. Again, we're in the very early stages of it. So it will take a few years.

Then on the grain storage side, you would be talking another $10 million of operating profit, that would be --?

That would be our goal. That's our goal of that segment, that is correct, you are right on.

Thank you very much.

Thank you, Brent.

And we'll go to Ellen Mo of Imperial Capital.

Hi, guys. I'm in for Matt today.

Hi, Ellen.

Just a question on the cash. The $280 million, does most of that reside outside of the ethanol operating companies?

Yes, right now, over $100 million is sitting outside. We still have cash to repatriate that's sitting in the grain company. We haven't repatriated all the money yet, because we're using that to help finance some of the -- to have the ability to draw on the old lines. Once we work through our ethanol inventory, we're reworking our Agribusiness lines as we speak, and we'll be able to repatriate a large amount of that cash back to corporate. We expect corporate cash to raise then to $150 million, $160 million, Jerry, is that right?

Right, right. Today we're at about $100 million at corporate, and we expect another $50 million to $60 million coming from the grain company.

Right, and then the rest will be either in our trade group, or marketing and distribution, we have cash sitting there, which really at the end of the day supports the revolvers that we have, but could be repatriated if needed at some point in the future, and then the rest sit at ethanol plants. At the end of the quarter, we had $50 million or so of cash sitting in our ethanol plants, is that right, Jerry?

Yes, probably a little bit more.

Yes.

All right, thanks.

Thank you.

We'll go to AJ Strasser of Cooper Creek Partners.

Hi, AJ. Hi, guys. Good morning, good afternoon.

Good morning.

So first off, great quarter, excellent execution. I wanted to maybe dig in a little bit to -- in your, as your outlook on, you know, EBITDA per gallon margins for the ethanol industry, you know, kind of beginning of '13. You guys mentioned you're seeing I think for the industry low-single-digit, mid-single-digit type EBITDA margins. Is that for the industry?

We don't know really what the rest of the industry is seeing. We have some plants that are still negative, and we have some plants that are positive, and in general, they all average into that rate. So I don't -- it depends on where your plant is, what the location is, where the corn basis is. So in general, we're starting to see some of those numbers. But it falls off again quickly into April and May, back into negative EBITDA margins, so we have to wait and see the curve develop. We're talking about a 30-day, 60-day kind of thing. April, we're starting to see some positive directional trade, and we'll wait and see -- but we haven't locked anything in really past, past kind of March 10th or so. So we're kind of locked in through February, and then part of March, and we're continuing to lock in March as we speak.

Obviously, if it keeps going, we'll kick ourselves, but you know that one thing that the Company has always said is when we see a positive margin, and especially in the environment that we came off of, deep negative margin environments, we're happy to start there. And if we miss it by a month as margin break out, that's something we're not unhappy to explain to you. But no, in terms of curve, the curve isn't developed yet. The curve is -- second and third quarter aren't developed, fourth quarter is developed, developing, if you can originate the corn.

And I appreciate -- are you seeing any double-digit EBITDA margin opportunities?

As we said earlier in the call, we see double-digit margin opportunities in the fourth quarter, if you can originate the corn.

Right. I just -- I guess my question is, I understand the need to be conservative here, and you certainly did a great job in Q4, and you don't want to get ahead of yourself in Q1 and Q2. But I think people are kind of under-appreciating what you guys are able to do, even in this environment. So if I look at what you guys came into Q4 with, in terms of what you were locked forward, I think you said it was about 60% at mid-teens margins, is that correct?

If I recall, yes, we were 60%, up in the mid-teens to high teens.

Okay. And I think if I go back to Q2, it was 40%, or it was 40% or so, was locked in for Q4. So my point is, you guys did 14% EBITDA margins in the quarter, so clearly, November, December, whatever you were locking in on a spot basis, this actually looks like it may have actually been double-digit, maybe even teens. So unless I -- I mean, the math could be faulty. That would be the implication, if you only had 60% covered going in on your last call?

Yes, there's lots of other things around yield improvements, yield and other types of lower operating costs, some efficiencies that we get. We're able to do some things around our plants. As we tell people, using our balance sheet to use the options market to technically crush, but in general, you know, there are moments in time where we saw some opportunities that we were able to lock some stuff away, and buy better corn basis maybe during some of the -- during some of the harvest spots, accumulate some corn basis, pre-that quarter. And so in general, overall, we were able to maximize the opportunity.

And just qualitatively speaking, how is the beginning of '13 looking versus the November and December months?

December -- November/December months realized or November/December act -- spot crush?

Spot crush.

Well, the spot crush is better than the spot crush in November and December. But as we said, we didn't have a lot coming into the quarter, so we don't have the luxury of having a bunch of high-crush type barrels on us.

Right. It's fair to say that in this environment, you are seeing some opportunities for double-digit type EBITDA?

No, we're not seeing any opportunity for double-digit EBITDA in this environment.

Okay. All right. Thank you for taking my question.

Thank you.

And our next question comes from Ian Clark of Fertilemind Capital.

Hi, this actually Aram Fuchs from Fertilemind Capital. I just want to go back to your overview of the M&A landscape. You mentioned of course the bad plants in bad areas are priced less than the good plants in good areas. But it seems like you're implying there's some sort of -- that there's an IRR difference, right? That even though the good plants -- even though the bad plants in bad areas are cheaper, they are still not -- wouldn't give you the IRR that a good plant would, even -- is that true?

That is absolutely true. You can't -- when you have a plant in a -- it doesn't matter what you pay for the plant in some areas, if you're going to -- even if you pay $0.10 a gallon in a negative margin environment, it's much more negative there, and you'll just burn cash. So, you know, while -- in a good margin environment, you can make it work. In a poor margin environment, it's just a cash hog. So I mean, the IRRs in general, though -- and those plants, typically origination costs are higher, operating costs are higher. I mean, you're talking about a significantly different type of structure.

Got it.

Than what we were going -- than what we have today.

Yes, even if you quantify it, if you look at $0.05, $0.06 a gallon in operating cost difference, and maybe $0.05, $0.06 a gallon in basis difference for a certain plant, I mean you lose $0.10 a gallon in the crush and it's gone. I mean, there's no way to generate a positive IRR on that in this environment.

And doesn't that imply that those plants are probably going away? I mean, if no one -- even if --

No, I don't think going away. I think what is, is you can use them as a peaker plant, very similar to what we see in refining, where you'll buy them, and margins pop and pop hard, you try and run them and make it peaker plant, and when they are low you shut it down, and have a low cost structure, and lay off your workforce, I suppose. But that's not our model. Not our model at all. We don't -- we wouldn't put excess cash in just to have a peaker plant. We have plenty of better things to do with our money. But when you look at the plants that were traded recently, like those two that we discussed, those plants probably never really ever needed -- maybe at one point would have looked to shut down, but in general -- especially the big plant, that plant would never have needed to shut down. Through the whole cycle.

Got it. And then on the algae business, you mentioned that the fish being -- showing the greatest potential. Can you just dig into why that is? Is it just the mixture of the product, it gets the Omega 3s there more efficiently than the current competition? Or why would that be?

It's more efficient. It's potentially cheaper, at the higher value oil stuff, higher value oil prices. What you're looking at is a very good fish meal replacement, a very efficient fish meal replacement. There is no other -- there's not a lot of other alternatives around the world to replace fish meal, it's an insatiable demand market. It's not the highest value market by far that we could sell algae into, but it's the market that we could scale into. So we still will always focus first on the highest value, either high protein replacements or high oil replacements, or high-value Omega 3s, but we can't build our business around those over the long-term. We believe that you have to be competitive into the commodity markets, albeit fish meal is a very good and high-priced commodity market. So we're heavily focused on that. As we grow out the acres, as people do development around the use of algae and the higher value products, you'll have to be able to sell dried wholesale algae into these commodity markets first. We take a different view. While we appreciate the high-value markets, if you can't be competitive at the commodity, then it's not worth doing from our standpoint.

Great. Thanks a lot, then.

Okay. Thank you.

And that concludes our question-and-answer session. I would like to turn things back over to Mr. Todd Becker for closing statements.

Yes, thanks, everybody, for coming on the call. Obviously, we're really excited about the future of the Company. We're in the best financial position we've ever been in, in the history of the Company. We believe we're in a great opportunity to grow value for our shareholders with all these different initiatives that we're looking at, and we believe that the platform that we have and the investments we've made, and the debt we've paid down, will all accrue to the benefit of our shareholders over the long-term. So we appreciate everybody coming on today. Thank you.

And once again, that concludes our conference. Thank you all for joining.