Green Plains Inc (GPRE) 2014 Q3 法說會逐字稿

Good day everyone and welcome to the Green Plains Third Quarter 2014 Financial Results Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Jim Stark. Please go ahead, sir.

Thanks, Deanna, and welcome to our Third Quarter 2014 Earnings Conference Call. On the call this morning are Todd Becker, President and Chief Executive Officer; Jerry Peters, our CFO; Jeff Briggs, our Chief Operating Officer and Steve Bleyl, who heads up as our Executive Vice President of Ethanol Marketing.

We are here to discuss our quarterly 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 gpreinc.com, on the Investor page under the Events & Presentations link.

Our comments today will contain forward-looking statements, which are any statements made that are not historical facts. These forward-looking statements are based on the current expectations of Green Plains' management team, and there can be no assurance that such expectations will prove to be correct. Because forward-looking statements involve risks and uncertainties, Green Plains' actual results could differ materially from management's expectations. Please refer to page 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.

I will now turn the call over to Todd Becker.

Thanks, Jim and good morning everybody and thanks for joining our call today. We produced solid financial results for the third quarter with net income of $41.7 million, or $1.03 per share. In the last four quarters we have generated record operating income of $263 million and $324 million of EBITDA. Our plants produced 933 million gallons of ethanol over the last 12 months. The size, scale and scope of the business we have built can produce substantial results and we continue to look at growth opportunities to expand our footprint across all segments of our operations.

For the third quarter, our ethanol production was a record 247 million gallons, or approximately 96% of our expected daily average production capacity. We also produced a record amount of distillers' grains close to 700,000 tons in the third quarter and also produced a record amount of corn oil at 63 million pounds. The statistics just mentioned, enable us to generate $84 million in total segment operating income before corporate costs. We continue to work on expanding our merchant activities and now can take advantage of market opportunities more regularly and the acquisition of our cattle feedlot was also slightly accretive in the third quarter earnings as well. We have completed 8 million bushels of our storage expansion bringing our grain storage total to 38 million bushels at our four elevators and 12 ethanol plants.

We are working to complete the storage projects at Obion to add additional 5 million bushels, which should be completed in early 2015. Once complete, we will have 43 million bushels of grain storage across our segments with a goal of exceeding 50 million bushels by next harvest and long-term aspirations with significantly more within our supply chain. Our continued reinvestment campaign is on track for this initiative.

Q3 was a strong quarter for Green Plains as expected and we continue to focus on risk management and operational excellence across the platform.

Now I'll turn the call over to Jerry to review our third quarter financial performance and I'll come back after that to discuss the outlook heading into 2015.

Thanks, Todd and good morning everyone. Our third quarter financial performance was the second best earnings quarter in the history of Green Plains. We reported net income of $41.7 million, or $1.03 per diluted share compared to $9.4 million or $0.28 per share last year. Consolidated revenues were $834 million in the third quarter, which was up 10% from a year ago.

Similar to last quarter, volumes sold for each of our primary commodities increased substantially, while average prices realized continue to decline. Volumes of ethanol sold increased 21% to 291 million gallons, while the average realized price per gallon was 14% lower than last year's third quarter.

The two ethanol plants added at the end of November 2013 accounted for the majority of the increase of 69 million gallons of ethanol production year-over-year and was also the driver for a 39% increase in distillers' grains production and a 50% increase in corn oil production compared to the third quarter of last year.

Our consolidated operating income for the quarter was $75.1 million versus $25.5 million a year ago, primarily as a result of the higher production levels I just discussed, and an overall better margin environment in the ethanol industry.

Now for a rundown of our segment results. The ethanol production segment generated $54.9 million of operating income for the third quarter compared to $17.9 million last year. Taking a look at slide 4 of the online presentation, you'll see that we generated operating income before depreciation and amortization in the ethanol segment of $0.27 per gallon, compared to $0.16 realized in the third quarter of 2013. And remember, that does not include corn oil production, which on a per ethanol gallon basis contributed nearly another $0.05 in the current quarter.

In addition, we had a positive intersegment elimination of approximately $6.8 million in the quarter, which was the remainder of the first quarter's deferred profits. Our ethanol inventory levels have stabilized during the third quarter, while the average margin per gallon realized by the ethanol production segment has gradually decreased. That resulted in a reduction in the cumulative deferred intersegment profits during the third quarter. This was partially offset by increased intersegment profits eliminated for corn oil and distillers grains that were in transit to customers at the end of the third quarter of 2014, which will be recognized in future periods.

We generated $22.2 million of non-ethanol operating income for the quarter, which was up $8 million from the third quarter of 2013. That was comprised of a $2 million increase in operating income for corn oil production, a $1 million increase in the agribusiness segment and a $5 million increase in the marketing and distribution segment year-over-year. Marketing and distributions better performance is primarily related to an increase in merchant trading activity in 2014 offset by a decline in income from crude oil transportation. We are very pleased with the performance of this segment reported $9.4 million in operating income for the third quarter.

Interest expense increased approximately $2.7 million in the third quarter of 2014, due to a higher interest costs associated with the recent term loan B refinancing, as well as higher average debt balances outstanding.

Our income tax expense was $24.3 million for the quarter, which was approximately a 36.7% effective tax rate for the quarter. We anticipate our tax rate will continue to be around 37% or so for the remainder of 2014.

Earnings before interest, income taxes, depreciation and amortization or EBITDA was $91.4 million for the third quarter, and on a trailing 12-month basis, EBITDA totaled approximately $324 million.

On the balance sheet, we believe our goal to reach net term debt of zero by the end of 2015 is well within sight. In fact, our net term debt as of September 30 was approximately $81 million, which is almost $45 million less than one quarter ago. Obviously, our liquidity position is very strong with over $400 million of cash on the balance sheet and ample amounts of available credit on our various lines.

Our credit statistics included on page 7 of the slides show the financial power of our platform in this margin environment. Since the end of the third quarter last year to the end of the third quarter this year, we've reduced our term debt to total capitalization from 51% to 39%. We've reduced our term debt to EBITDA from 3.2 times to 1.5 times and lowered our required debt service from $0.08 per gallon to $0.05. Again, this is during the same time frame that we invested over $180 million in acquisitions and capital expenditures.

For 2014 year-to-date, we've invested $44 million in capital expenditures and approximately $24 million in acquisitions. We employ a disciplined approach to all of our acquisitions and capital expenditures and have positioned ourselves to be opportunistic, but patient. We'll be working through our strategic plans and budgets for 2015 with our Board in the coming weeks and we'll have more information to that on the next quarter call.

With that, I'll turn the call back over to Todd.

Thanks, Jerry. For the fourth quarter of 2014, we are approximately 65% hedged as of today, but remember, we are done with October already as an operating month. So those numbers include that. But this translates to about 50% open for the remainder of November and December on the crush. The locked away margins before the current correction, but we're starting to see those margins recover quite nicely and believe the rest of the quarter has excellent market fundamentals to build on.

Our current view is that ethanol weekly reported inventory should continue to draw through the quarter as exports are starting to have an effect on these levels and production levels have not kept pace with demand at this point. In fact, ethanol inventories reported this morning are the lowest since April, and the export program is certainly kicking in, in those numbers.

For Green Plains, approximately 15% of our Q4 ethanol production was sold into exports and we continue to see more interest every single day. We have volumes sold and destined to India, the Philippines, Brazil and other developing countries, along with our normal buyers like Canada and others. Interestingly enough, we're booking export sales into 2015 extending into the third quarter of next year. We typically have not seen export interests that far out in the future.

Ethanol remains a $0.45 to $0.65 a gallon or greater discount on the forward curve to wholesale gasoline providing blenders and refiners the economic incentive to blend both domestically and globally.

The industry continues to push E15 into the marketplace. There are now 92 stations across 14 states offering E15 to customers. We believe that E15 could generate an additional demand, as we approach the end of 2015; we also believe it could be the beginning of a steady growth of the expanded blends available to the consumer. The two main drivers, our economics of blending and the grants available to those independent and regional retailers who realize they are leaving money on the table for not offering E15 at the pump. At this point, there are significant change in the U.S., looking at broader role out of this fuel.

Rail service recovered in Q3 as we saw our fleet velocities improve, but as of last couple of weeks or so we have seen a significant degradation of service on several carriers. We do anticipate the Department of Transportation will come out with the ruling on retrofitted railcars before the end of 2014. The retrofit program probably does not begin until early 2015, but could have an effect on rail fleet velocities in the U.S. as well. This could create issues for ethanol inventories overall and cause dislocation opportunities for us to take advantage of similar to earlier this year.

In agribusiness we expect to come out of the harvest full of grain inventory in most storage locations, including all of our flat storage except the project we have not completed in Obion. So far the assumptions for returns against the space remain as expected. We were also pleased with the results we are experiencing at our Supreme Cattle Feeders operation; we continue to see good progress with the business and continue to increase the percentage of cattle on that feedlot. At the end of September, Green Plains owned approximately 50% of the 44,000 head of cattle on feed at Supreme.

For Algae, not a whole lot to report this quarter, we continue to focus on how the best to allocate capital to this business. We didn't make sure we can scale our technology and profitably produce products for feed and food. We have completed a set of fish feed trials designed to test whether our algae meals could displace fishmeal in California yellowtail diets. In the larger fish, we were able to completely displace fishmeal and as a result had higher growth rates and feed conversion rates compared to the reference diet, which is very optimistic for our products.

We also been able to produce high oleic oils over 70%, oleic rich powders and some EPA rich powders with a high percentage of omega-3 fatty acids. Besides the oil, we can produce all these products in Shenandoah. While we certainly can make lots of different products, we are determining whether we can make those profitably. We'll update you as we learn more every quarter.

For 2015, once again, the forward curve does not give us good margin visibility, but in spite of that we have had six straight profitable years. The long-term fundamentals remain intact and in fact are very much in our favor for 2015 as of this call, as we can aggressively compete globally as a molecule. We firmly believe that we have significant growth opportunities in our future; we can add ethanol capacity, grain storage, merchant trading, downstream [terminaling], cattle feedlots and become a bigger platform than we are today.

We continue to work on our operating efficiencies by improving yield, streamlining our processes and lowering our costs. We have never been financially stronger than we are today. Our capital allocation strategy consists of growing our businesses either through acquisitions or organic expansions, dividend growth and share buybacks. We continue to focus everyday on creating value for our shareholders.

With that, I want to thank everybody for joining the call today and I'll ask the moderator to start the question-and-answer session.

Thank you. (Operator Instructions) Brett Wong, Piper Jaffray.

Hello?

Hi, Brett.

Hi, gentlemen, thanks for taking the questions. First, I was wondering if you could talk about the basis that you see in your footprint and the impact that might have to margins in the fourth quarter.

Ethanol basis or corn basis or both?

Corn and ethanol, if you won't mind discussing about.

In our locations where harvest is fully underway, we are seeing defensive basis levels over our dumps that were in progress. So in some of our plants we're definitely below historical levels, but then where we haven't seen a basis start or the farmer hasn't or -- we haven't seen harvest start and the farmer is slow to get his corn out of the field those basis levels are still historically high. So it's a bit of a diversity across our platform, in the East, we remain firm, but in some of our Western Nebraska plants we definitely remain defensive and as well as Minnesota.

In terms of the ethanol basis, even more interesting than (inaudible), I would say, we seen now a return of very high basis levels in several of our markets in terms of seeing Chicago well bid at seven to nine over for product, as we're trading as high as 21 over the other day, the [Rule 011] trains which is the highest we've ever seen historically, which I think goes back to the tightness we saw this morning in the stocks report and New York Harbor needing to source gallons.

And so what we've seen is that, while we've have built inventories in Q3, that I think the market got a little nervous about, we really have seen a rapid reduction now as the export program kicks in, in fact, the numbers this week implied over 90 million gallons of monthly exports, and we're very confident that will continue to at least be part of the story for the next couple of months going into the next couple of quarters.

So it's kind of a tale of two different markets, we've got strong ethanol basis and a weaker corn basis, but in some areas, corn still needs to get harvested and we'll have wait for those areas to see if they weaken.

Excellent, thanks for the color on that, Todd. Looking at exports, so obviously with [Rousseff] back in office that likely way on the sugarcane industry down there, and it should be positive for exports, but still yet to be seen how production is. But wondering if Brazil demand for U.S. imports falls off, where this incremental demand come from?

Well, I think Brazil is just steady, I don't think actually there is anything a remarkable of what they're buying from us. I think other parts of the world have picked up where Brazil has left off, and in fact, I would say, they haven't been a biggest part of our program. Countries like India have remained very active, Philippines are very active, much more than we have ever seen. I think they are allocating tank space to ethanol in the imports, and we're seeing that market become a very robust destination for our products all along with Canada continuing to be a strong market. So Brazil actually kicks in the levels we've seen in the past will actually increase exports from here, but I would say, Brazil is not being a large player so far in our export sales books.

We're going to have to wait and see what their internal structure looks like, what the sugar market looks like, we'll see if the blends go up down there, which people are talking about. And we think all of those fundamentals are still in our favor today, but that is a bit of a wait and see for what Brazil is going to do, but in general, they haven't been impactful yet to our export program. Is that correct, Steve?

Correct.

Okay.

Great, thanks a lot. I'll hop back in queue.

Thanks.

Farha Aslam, Stephens.

Hi, good morning.

Good Morning. Hi.

Hi. The first question again on exports, what do you expect fourth quarter exports should be? And how does that compare to last year?

Well, I think --

For the [entire] industry not just for GPRE?

Yeah, I mean, our thinking of exports for the fourth quarter are probably going to be somewhere in that 200 million to 300 million gallon range or more, I'd say somewhere in the middle of that. I'd have to go back and look at fourth quarter of last year. So it's 200 million, so we would expect a stronger program this year than last year for exports. Our export program last year started kicking in Q1 of last year -- Q1 of this year, after that quarter was over. So we're definitely starting to see earlier movement of our product globally, which is why we're seeing strong demand out on the curve as well.

Awesome. That's helpful. And then you had mentioned that you've started to lock some of your margins in. What's the reasonable expectations of what EBITDA margins we can look for, for the fiscal fourth quarter?

Well, we don't give specific guidance necessarily on what you should look for, but I would say, if you look at the spot margins are our over $0.30 something gallon today and looks like they've expanded a bit here this morning again. But that doesn't include some other factors (inaudible) strong spot basis, but I would say that has been down from the high that we saw during the quarter -- during last quarter for the fourth quarter before the margins got defensive, but I think we're starting to see a nice expansion back and we'll have to wait and see. But I would say right now margins in the nearby markets are tracking over $0.30 a gallon.

Great. And then my final question is about cash flow and your priorities for cash flow, and notably, how is your M&A pipeline?

Yeah, we're definitely focused on growing the business first, and so our cash that we look at absolutely in terms of our capital allocation strategy, we want to grow the business. And so, we continue to focus on M&A, things are expensive, as we mentioned in last quarter. So we just need to be a little bit more patient, and find the right opportunities. But I would say in every one of our segments we're looking to expand our capacity both organically and through acquisitions, and while you may not have seen much lately that doesn't mean that we're not actively seeking to grow the company through acquisitions.

After that, I mean the rest of capital allocation strategy will revolve around our dividend program and our buyback program, but much of that will be over, that's a long-term strategy, much different than how we're thinking about growing the company now. So that's the order of how we're thinking about capital allocation and with our cash flows, I mean, we continue to build -- we still continue to have -- obviously have a large debt balances but we have that offset with large cash balances, but I'm not sure that we're necessarily ready to make significant changes to how we've behaved in the past.

Great. Thank you very much.

Thank you.

Laurence Alexander, Jefferies.

Hi, Todd. What's your prospective currently on (inaudible) discipline. That is if industry margins were to come under pressure, how fast you think would take both our capacity to start being taken off the market?

Well, I think the market is very disciplined and I actually think that there is times when you're going to produce for yield and there is times you're going to produce for volume. And I think the industry is more disciplined than we've ever seen them in the past, especially since the drought here. And so, I would only say that, if margins got defensive and people definitively took advantage of that to take down times when you saw production decrease. You don't have to run as hard, and then you run a little bit more for yield.

So I think the market move very fast, I don't think there's any incentive at this point to slow down production, but I also think you can't get rolled into the fact that we can produce 950,000 barrels a day as an industry every single day, every single week and I think we've shown that as we've averaged over the last 12 months some more in that 910,000 to 915,000 barrels and if you look at the current demand out there it exceeds that almost on a daily basis.

So we've got plenty of room before the -- the market has to think about slowing down and I think the market gets too caught up in a weekly number that shows 950,000, so I don't think that's repeatable on a weekly basis.

Then, how this business with the cattle lots? How should we think about the EBITDA contribution and potential next year or is it going to be a sort of a lumpier business for you?

Yeah, we're not giving any guidance on that. It's in our agribusiness segment. We think it will be accretive to earnings. But it is definitely lumpy, I mean, there is definitely opportunities. And as we're building inventories, you're not seeing the full benefit of those inventories and we'll start to see that more in the first quarter and we started to market our cattle, because under the current situation we bought a feedlot that had all customer [cattle's], we were just earning return on that, but we are putting our own cattle into it. So it takes time for that cattle to realize into a margin. And we'll start to see some of that in the first quarter and second quarter of next year and really it just becomes a margin business and as we continue to grow our inventories, we'll give you better guidance on the contribution to that in the forward quarters.

Thank you.

Thank you.

Matt Farwell, Imperial Capital.

Hi, good morning.

Good morning.

On the export market, how much do you think that the gasoline price and oil prices are affecting the export markets for ethanol or are they more policy driven?

I don't think the drop in global oil prices or gasoline prices have affected us very much. I think it's a combination of new policies that are going to affect globally. But also the fact that, if there's an economic incentive to extend their fuel supplies as well. So it's a combination of both. But so far we haven't seen a slowdown of interest that $80 oil on a global basis for our product at all.

Okay. And then, do you have a view on what the floor for corn could be next year?

I think when you look at corn, you have to look over the soy complex to figure out where that's going to go first, because we have to compete -- continue to compete as a -- for plantings at the farm level in the U.S. and globally. So I think what you've seen so far of those recent lows are probably going to hold for a while until we figure out the soybean situation, and once we figure that out, we can determine where we really need to go. I mean, I think the interesting thing about the structure, the corn market today is the fact that we've rallied $0.50 and we're at 85% of full carry and that hasn't changed at all.

And so, I would tell you there's plenty of corn out there and this rally is not necessarily driven by demand, because it certainly is not a demand rally. And I think you're going to see the farmer continue to sell into this rally and ultimately if we can figure out the soybean situation, corn really doesn't need to be here from a price perspective. But I don't know that we'll be able to break $3 very easily anytime soon.

And margins have moved around recently and then we've seen production come down but that could mainly be due to maintenance issues and due to issues that individual plants. Where do you think supply could go that today's numbers are much higher, where do you think it could head in the fourth quarter?

In terms of daily production or --?

Yes, daily production.

I think when you produce 930 a day, 940 a day, we haven't been able to sustain that for four weeks in a row yet. You'll probably push those levels but you need -- right now, the demand is telling you, you need to produce 940 a day just to kind of breakeven against the current domestic and export demand. And I don't think we have the capability to do that on a every week basis. And so, when you look at that, it looks like supply and demand are at least an equilibrium, if not, favorable to the demand equation much more than the supply equation.

So, as we've said, we are way -- we said and we indicated to you on the last call that the export program was slow in the third quarter, we thought stocks would build, anticipating a very large export program in the fourth quarter where stocks would draw even against the current production, and domestic demand is good as well. So, while you might see a 940 a day pace, it doesn't necessarily mean that any stocks building mode at all, especially with what we're loading offshore. And really the fundamentals and what we're seeing in the domestic ethanol markets in terms of the values that we're seeing would dictate that there is not enough production to service all of the demand that's out there today.

Great. Thanks for answering my questions.

Okay.

Ed Westlake, Credit Suisse.

Hi, this is [Mohib] on behalf of Ed Westlake. A quick question on the EBITDA per gallon. In the quarter, you mentioned it's $0.27, is it comparable to the adjusted number you disclosed in the last two quarters of $0.25, $0.26? And then I have a follow-up.

Yeah, Todd I'll take that one. Yeah, it is comparable, I mean, we've laid it out here as we have in the past as broken between Q1, Q2, Q3 and we show the number for the ethanol segment. What we did was, because of the intersegment profit eliminations between Q1 and Q2, we've combined those two, and I think we come up with a number of around $0.25 or $0.26 somewhere in there. So relatively speaking, it's comparable when you're going to take that noise that of the intersegment eliminations.

It makes sense, thanks. And just looking at your hedging strategy, right now you mentioned that 60% hedged in the Q4. Have you mentioned anything about Q1 or what you do you -- are looking for hedging for the next year?

Yeah, so what we said is, 65% for Q1 in total -- I'm sorry, Q4 in total, but still at least 50% open for the rest of the quarter (inaudible). So we remain more open than we typically have been during a quarter. Q1, we really don't have a forward hedging program on at this point, the curve showing a full carry on corn and a inverse on ethanol, that has to play out and we continue to see the front end of the curve roll up to be the place you want to be and when that rolls up enough in our next quarter we'll start a hedging program. But at this point, there is absolutely no reason for us to start any kind of forward hedging program basis to forward curve against the spot market with the current fundamentals in place, we think that the back end of that curve will need to do a bunch of work and we think that work will get done. As it has really for the last six years.

Thanks. And last question on my side. You started looking at exports of roughly 800 million to 1 billion gallons this year. What are your expectations for next year? And based on the comments on E15 adoption, what do you think E15 demand could be in U.S. next year? Thanks.

Yeah, I think, exports will be structurally similar, some of it depends on some of the Brazilian weather that we're seeing, but I just can't see them competing with their price of sugar versus the price of corn anytime in the next 12 months with us globally, unless we have some weather event next summer around planting or around growing season in the U.S. So I think next year could be structurally similar to this year.

In terms of E15, I think that's a number under development, but any gallon that we blend through E15 is another gallon that continues to trend in our favor and with the 92 or so or 90 gas station or so that are offering it today and we think there will be 100's more offering it next year. That's a small slice of the tens of thousands of gasoline stations that are out there. But we do see big initiatives by very large retail chains to get this product into the pipeline and make those ships over into from the asset perspective at their fuel stations. So, I think it's a slow progress, but we're starting to see some real traction around that progress, I can't give you a real number, but every million gallons is important.

Thanks for taking my question.

Craig Irwin, ROTH Capital Partners.

Good morning and thank you for taking my question. Todd, can you update us on the gallons that you expect to export in the fourth quarter -- Green Plains export gallons and whether or not you have any commitments on for the first quarter?

And then, as a second part to that question, when I think three trade missions to-date to -- well, where we would expect there would be some progress pushing exports of ethanol globally. So you said repetitively over the years, it's the cheapest molecule, obviously still is. Do you have any specific updates from those different trade missions that took place? And is there anything else you can share with us that you learned from them?

Okay. To give you an idea in terms of export gallons, what we said is, we're at a minimum 15% sold for Q4, we could flex that higher. So when you look at the gallons against 250 million gallons roughly of production it's somewhere between 37 million and 42 million gallons of our capacity. In Q1, to give you some guidance around our export program, right now we have somewhere between 7% and 14% sold, depending how those gallons flex, we would expect those to flex on to those higher levels, domestic versus export. And then if that looking out even to Q2, we have almost 7% of our gallons sold, today in Q3, we have gallons sold as well.

So we have a bigger forward export book at this time throughout Q3 of next year than we ever have had in the history of our Company. Those forward gallons are getting book to places like India and the Philippines and Canada and places like that, where we've done a lot of work as an industry over the last several years.

I'll let Steve comment more on kind of some of the trade missions and the results that we've seen in some more that are going to be happening.

The ones that we've been to, we're starting to see improvements still and we do have some scheduled for next year, you've got Southeast Asia scheduled for this December, and you have one leaving this week actually going for Peru and South America. So you're starting to see progress into those but it's a long process, but they already taken what they can, now it's a matter of building out the infrastructure to continue to grow that business.

Great, thank you. That was really helpful. So my next question, I guess also relates to the international markets but there has been a lot of chatter coming from Brazilian ethanol producers that Dilma Rousseff would be a strong supporter of increasing the blend rate in Brazil to 27.5% from the current blend rate of 25%. What do you see is our send out capacity that actually meet demand in Brazil, if they're not able to produce at a level in the short-term to meet their internal demand? Well, do you have an update for us around this subject?

Yeah. So I think there's always a lot of questions, can you meet expanded export demand with the infrastructure at the ports that we have today? And I can only remind you that a couple years ago, we did 1.2 billion gallons or higher -- actually it's 1.2 billion gallons and run at 800 million to 1 billion pace this year, so I would tell you that the infrastructure for exporting those gallons is fully in place and in fact we've seen an increase in that infrastructure over the last couple of years in a multitude of products that you can push through port terminals.

So I would say that if Brazil needs the gallons, and wants them, we can export them. It just maybe a matter of what our price structure would do if they came in aggressively to buy 200 million or 300 million or 400 million gallons. It would definitely change our overall price structure. So, again, we're watching the weather for sugar and coffee, it's very important to our markets that down in Brazil. And if those don't go -- doesn't swing their way, I think an expanded blend down there would be in our favor and I think we have the capacity to get the gallons loaded on boats. But I don't know if we have the additional capacity to actually produce enough for all the demand that would come up without really a stressing our overall inventories -- weekly inventory levels back down into that 15 range like we saw earlier in the year.

So we'll see what happens, crossing our fingers and we'll see if we can get some of that Brazilian demand become aggressively back up here, we work on it every day.

Great. And then last question if I may. Within a couple [putative] future producers of ethanol and actually one current producer looking at things like use of carbon dioxide or sequestration of carbon dioxide is a pathway to allow them to increase capacity. Do you have any evaluations going on now whether or not that's available to Green Plains? And do you expect this to be a broad theme across the industry?

I'm not sure carbon sequestration is the pathways you're going to try and get to expand the production, I think there is other opportunities to do that. I think people have -- still can expand production just based on their current registered rates that they have with the government, if they want to put that CapEx in there. But we think the industry is going slow on that thought process. While everybody is certainly going to try and get more out of their current platform, you don't want to over produce and I think everybody is sensitive to that. So I'm not sure that we're not necessarily focused on sequestration when we look at those opportunities, I think there is other things that we can look at first.

The other thing is, just back to your question on exports, I think what's interesting is, when we push -- start pushing 1 billion to 1.2 billion exports, we don't produce full out from a Company standpoint, because with the specs that we have to produce for a lot of these export markets actually we run slower. And I think that's a very interesting offset that you can think about is, the higher the export demand, they're actually slower that we would run overall as a Company to produce a gallons for that export demand. I don't think people think about the inverse relationship with that, but there is definitely an inverse relationship to that because of the water spec that we have to produce.

Great. Thanks again for taking my questions.

Okay.

Aakash Doshi, Citi.

Hi guys. Todd and everyone, thanks for having the call. Couple of quick questions, one is regarding blending economics, on a spot basis, RBOB and ethanol have tightened quite dramatically. So are you concerned at all or you getting any push back from refiners as far as using ethanol as a [blender] net import and what your outlook on that for next year, are you expecting a record year of domestic disappearance across the industry?

No, I don't think at $0.40 a gallon, up from a low of right around $1 a gallon, we're having significant ideas around changing the blend. $0.40 a gallon is still a good place to be from a blend standpoint and looking out on the curve until the last half of next year we're over $0.70 a gallon, all the way out on the curve. So we started here at $0.40 and can go all the way up to $0.70 and in between there's plenty of opportunities.

I think the one thing to keep in mind is that, if we're in November already a lot of the gallons have been priced in terms of buying gallons for the blend. So I don't think they argue that the $0.41 might be for a portion of what you're seeing out there, but other blenders have those margins blocked in a lot better than -- we saw a lot of RBOB deals from our demands standpoint that people wanted to buy as a differential to RBOB and lock those wider margins away. So we see that when the margins are when the RBOB differential to ethanol gets very, very wide. We actually -- our end-use demand buys against the RBOB instead of buying ethanol outright and that's where they have locked those spreads away but are having to take the spot price risk and all just hedged in RBOB as a company.

So I think that's the first point. And then the second point -- what was your second question actually?

Do you have just a generic number on disappearance for [cal '15] maybe or how high you think that domestic disappearance could be on a gallons basis?

Well, if we keep selling the amount of SUVs that we're going to sell, I would expect that domestic disappearance next year will be a record as long as the economy holds and gas demand is doing what it's doing. But I don't think from our standpoint, we believe there will be a significant drop at all in domestic demand and in fact hopefully if we see at least steady to an increase overall with the expansion of E15 as part of the program and even more [ED5] being put into the market. So overall, we would expect another very strong year in '15 for domestic disappearance.

Okay. Specific to the exports, so agreed that oilseed complex in soy meal in particular driving the grains market right now. Do you have any concerns about rail and congestion issues to shift barrels out of PADD II out to the coastal export hubs or consuming hubs? Do you think that could be a risk, potentially? I know you say the infrastructure is there in the past for 1 billion, 1.2 billion gallons of ethanol exports. But since that time the U.S. has grown its crude production by several million barrels a day and you're currently seeing a lot of competition in the railcar space and obviously that's what driving soy meal and oilseeds right now. Are you concerned at all that ethanol could be at risk of seeing delays getting it out to port and potentially being a headwind to that very robust export sales figure that we're expecting?

From the standpoint concern, yes, we always have a concern that you could just completely get backlog, but I think what we've seen is, people get their fleets back from the Bakken and now at least have some right sized fleets like we had last year where even with the significantly worst winter, then I think we're experiencing at beginning of this winter season, we were not at any time constrained by our fleet and our ability to move cars and what I would say is probably a worse rail situation last year than we anticipated this year.

With that being said though, supply dislocations provide opportunities. I think we will get the adequate barrels we need to get to support the export program. The market runs a lot more unit trains than they ever have run in the past and those unit trains move more efficiently than the market had done in the past. So overall, while congestion is always a concern of ours, it's also an opportunity as well, but I don't think it'll provide headwinds to the amount of exports that we're doing, because at 800 million to 1 billion gallons and even higher than that the capacity is there from the port perspective.

We really don't have significant trouble finding that capacity and even with the increase in crude and other things that move on the rails, we're still able to move our product pretty well, albeit we definitely have seen some slowdown as of late.

Okay, thanks. And just real briefly on the E15. I think others have touched upon that. Can you just give us more rough medium-term kind of outlook there? I know 92 stations in the U.S. small amount, but you're saying grow in the hundreds next year. Can you just kind of maybe give a medium-term outlook, not holding you to it but just where do you see that is the final pool in the U.S. as far as ethanol take down? I mean, it's very nascent right now, obviously you're bullish on it. But can you put some numbers into that and kind of the medium-term structural outlook there?

Yeah. So right now we have under a 100 I think by the end of next year we'll have several hundred, if not multiple, over 200 to 300 more stations get added next year, just slowly but surely. If those stations -- our first goal is to get a 100 million gallons, I'm not sure how best we can do that, and then after that, we can get to multiple hundreds and millions of gallons.

So, we have very large metropolitan areas that are also considering E15 as a blend. We need to see those through as well. I can't give you specific guidance on any numbers except to say that any of its good for our domestic disappearance and we're aggressively working as an industry to get more E15 into the marketplace. It's a stay tuned kind of thing as we see what they are really means, but what we've seen though is the stations that offer E15, they are the cheapest price on the street and they're draining their tanks all of the time of that product. And so, we know the product get sold when that's available to the consumer and it's just a matter of getting it rolled out as quickly as possible.

Thank you guys very much. Appreciate it.

Thank you.

Gary Hu, Silver Point Capital.

Thanks for the call. I had a question just on the M&A, I think you had mentioned before that you guys are out there looking and it's a capital allocation focus. When you had said things are richer, what is exactly that mean? What metrics are you focused on? And then as part of that question, where do you see the sort of size that Green Plains could be -- what sort of capable if you're sort of close to 1 billion gallons now? What could you see yourself over the next couple of years?

Yeah. So in terms of evaluations, then we've seen some stuff traded between $1.60 and $1.80 a gallon. And from a standpoint of where we purchased most of our assets under $1 a gallon. We feel like we can be patient at those numbers and really don't want to pay much of a premium over even the public market comps that are out there today, albeit some have different metrics out there.

So, to buy a 110 million or 120 million gallon plant at $1.60 a gallon, you pay it a $192 million for that plant. Those are some pretty big numbers to own the capacity except to say that it's still (inaudible) refining capacity in the world that you can buy today.

So in a margin environment where you're earning $0.30 or $0.40 a gallon, the multiples look interesting and in a margin environment where you earn $0.20 a gallon that might not be as interesting. It's a long-term view when you look at these evaluations except to say that we've done so well buying gallons under $1 a gallon that I think we can be patient to find the right opportunity, if we really want to buy a plant, we can buy plant, it's just a matter of how far do we want to reach to this point.

Our platform is really set up to expand to say that we can -- we have a goal of 2 billion gallons or 3 billion gallons it's hard to put a number out there, but we always have a goal of growing our production volumes. We definitely don't want to stop at 1 billion gallons and we think we are a great opportunity to continue to be one of the players that are consolidates when the opportunities are there.

We want to grow our grain storage, 50 million bushels is nice, but we think 100 million bushels is better. We want to grow our terminal capacity, all we have nine terminals today with one large terminal. We definitely want to look at other big opportunities around there. And then every -- all the adjacent opportunities around that. So we have high aspirations to continue to grow the business, if we were happy with the 1 billion gallons today, I would say that that's probably not where we want to be as a Company or a shareholder base. But I think we're in great shape to expand the business and when the right opportunity presents itself, we'll either be there to organically expand or to buy different parts of where we can grow.

Thanks, that's helpful. And can you also give me a sense for, I think you had said that half of November, December is locked in terms of ethanol margins. At what rate are those locked in, at what margin?

We don't specifically give that, expect we did give guidance in the call that we had locked margins away, it's a little bit higher than where the break had occurred. So, we didn't get the highest highs, but we also comfortable that where we're at and the least that half is within the range of the current market.

Okay. Thanks very much.

Paul Carpenter, Standard General Investments.

Hi, thanks for taking the question. I had some follow-up questions on some of the previous comments about capacity and then the answer to the last question about growing organically. Sort of two-part question. My understanding is that most ICM plants are over build on the back end, and as such should be able to increase their capacity quite meaningfully because that's something you're planning on doing or something you're seeing occurring elsewhere.

And then secondarily, at a recent investment conference which you presented, I believe you said that you thought that no new capacity would be built in the U.S. unless it was for the export market, because it wouldn't be able to get RIN's. However, it's my understanding that some of these new projects like Dakota Spirit, et cetera, as long as they're below -- a certain level below the baseline EPA levels. So they'll still be able to get RIN, so that basically any new plant built with and ICM design will be able to get RIN. So can you clarify as to why you would have made -- the second part of this question why you would have made that comment, and if I'm not understanding it correctly? Thank you.

Yes. So the back end of ICM plant isn't the only place where you had expansion opportunities but we've done a lot of that already as an industry. We all have debottlenecked these plants to a point where there's not much left to do as an industry. So I think what we're producing today, you would have to put out some major capital expenditures around hammer mills and around fermentation and distillation to actually expand plants much further than what the industry is operating at today. We all try to get that next gallon or the next part of the (inaudible). But in general, that happened already. And so, we don't anticipate a significant creep from the back end of an ICM -- current ICM plant today.

With regard to no new capacity in the U.S., I mean, there is a few projects that people are looking at and seeing if they can find a pathway to get approved with other technologies around (inaudible) burners or things like that, you have to have a pathway that can get approved to build a gallon, a new plant and new capacity to get a RIN, is that correct Jeff and Steve?

And so, they've laid those out, the EPA has laid those out and if you can get your pathway approved, which some people believe they can -- you can build a new plant. And then the question really is, how long will take to do and at what price? Our intelligence tells us to build a new plant today, it would be over $2 a gallon and it would take somewhere in the range of 18 months to 2 years because of labor shortages and material shortages.

And so, I'm not sure I'm going to change necessarily my view. If you can find a pathway and you feel like you want to build a plant, you can always do that. There may be a RIN-less gallon, you may find a pathway to a RIN gallon. But at this point, I'm not sure that there is any direct path to do that. But again, you can't stop people from building. And if they feel like the margin structure will continually be greater than the RIN value, then certainly build the plants see what happens and try and get your pathway approved.

Thanks for that. But I guess just maybe for clarification, my understanding is that this Dakota Spirit project looks like it's going to get RIN. So looks like they are well below on their pathway. So I just wonder what will do?

I don't know specifically about the project, it might be a steam part of the pathway that maybe next to a power plant. I just -- again, I'm not up to speed on that project.

Okay, thank you.

Okay.

George Noble, Noble Partners.

Perfect quarter guys. I had a question, (Technical Difficulty).

Hey, George, we can't understand anything you're saying, George.

Can you hear me now?

Yes, much better.

(Technical Difficulty).

You're (inaudible), George.

(Technical Difficulty) share repurchase. I appreciate you (Technical Difficulty) just for earnings release. But I'm just curious, how do you think about stock buybacks (Technical Difficulty) in place and in particular, relating that to (Technical Difficulty). I mean, you're probably down close to $1 a gallon. So under what traditions or what price are you looking out to be able (Technical Difficulty) we had a nice 40% offshore recently (Technical Difficulty).

We're not going to comment specifically on the details of our program as it's literally just been announced. And so, we'll continue to give you updates as we execute the program and it's a long-term capital allocation strategy that we're not going to necessarily get to caught up in the short-term issues here. So we really don't have too much to comment on that today. Okay? All right, thank you.

Chen Lin, Lin Asset Management.

Yes, hi. Most of my questions has been answered. I just like you to comment on that recent DDG price and then your outlook for next year?

Yes. The DDG prices have fallen throughout the last quarter but we've seen an uptick recently as some soy meal prices have rallied significantly and we're seeing very good substitution of our products, both domestically and plenty of global markets. While China has exited the 400,000 tons a month market, and we went over relative to -- or went down relative to corn prices, the contribution is still very good to the margin and the margin certainly rallied right through that. So overall our DDG prices are steady.

Okay. Thank you.

Okay. Thank you.

Thank you. With no further questions, I'd like to turn the conference back over for any additional or closing remarks.

Just want to thank everybody for coming on today and being patients through all the questions. Obviously, we ought to cover and we're very excited about our future. We think the fundamentals are great for our business today. Obviously, we've been growing our business and you can kind of see the result of that in terms of the numbers that we put up, but we think there's still great places to expand our business and grow our earnings over time. We appreciate you coming on the call today and we'll talk to you next quarter. Thanks.

Thank you for your participation. That does conclude today's conference.