Green Plains Inc (GPRE) 2015 Q3 法說會逐字稿

Good day, everyone, and welcome to the Green Plains third-quarter 2015 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, Jay. Welcome to our combined third-quarter 2015 earnings call for both Green Plains Inc. and Green Plains Partners. Participants on today's call are Todd Becker, President and Chief Executive Officer; Jerry Peters, our Chief Financial Officer; and Jeff Briggs, our Chief Operating Officer.

We have posted a slide presentation for you to follow along and you can find this presentation on the investor page under the events and presentations link on both corporate websites.

During this call we will be making forward-looking statements which are predictions, projections and other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in yesterday's earnings press releases and the comments made during this conference call and in the risk factors section of the Form 10-Q, 10-K and other reports and filings with the Securities and Exchange Commission.

You may also refer to page 2 of the website presentations for information about factors that could cause different outcomes. We do not undertake any duty to update any forward-looking statement.

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

Thanks, Jim, and good morning everybody and welcome to our joint conference call this morning for Green Plains Inc. and Green Plains Partners.

Let's get right to it. So first off, I would like to discuss our ethanol production run rate for the third quarter. We made a conscious choice to run slower due to a combination of factors including running for yield, planned and unplanned downtime, producing 21% of the quarter's ethanol gallons for export markets and a weaker margin structure in mid July. We produced 215.6 million gallons of ethanol in the quarter. We slowed approximately 15,000 to 20,000 barrels per day during late July and through August but have ramped up our production back to normal in September.

We have seen stocks tighten in EIA data to 18.3 million barrels this week which has lent a positive slant to spot margins. We improved our ethanol yield during the quarter which was 2.85 gallons per bushel of corn for the third quarter compared to 2.81 gallons per bushel for the third quarter of 2014. In fact if we adjust for the export gallons produced in the quarter, our yield was 2.86 which is a record for Green Plains.

We have some plants that pushed close to 2.9 gallons per bushel as many of our capital improvements are paying off.

For Green Plains Partners, we did exceed the minimum volume commitment of 212.5 million gallons for the quarter and with the current production pace, we expect to increase volumes that are put through the partnership in the fourth quarter.

Because this is mainly a volume driven business at this point, I will let Jerry cover more of the financial data with you at the end of the call. And at the end of the call, I will cover some strategic points.

We are completing approximately 35 million gallons of our Phase 1 expansion projects this quarter which will take our production capacity to 2.89 million gallons per day. We anticipate producing at approximately 95% of total capacity or 251 million gallons this quarter which will be the highest ethanol production quarter in our history.

Remember these new gallons do not come up all at once and we are ramping up throughout the whole quarter, yet we remain on budget and on time with these initial gallons.

For the third quarter, Green Plains reported net income of $6.2 million or $0.16 a share and we generated $36.3 million of EBITDA for the third quarter.

As you saw in our earnings release yesterday, we have made some changes in how we will report segments to you. Jerry will review that in a few minutes. As a result, we are now providing a consolidated ethanol crush margin which is operating income before depreciation and amortization from the ethanol production segment including corn oil production plus the Green Plains Partner storage and transportation fees. This number is intended to give you a comparative measure of our ethanol production margins versus others in the industry.

For the third quarter of 2015, all of these added together were $34.9 million or $0.16 a gallon. Obviously the payment to GPP is publicly available but we wanted to give you a wholesale look into the crush.

By now you have seen the acquisition announcements we have made over the last several weeks. We will finalize the purchase of the plant located in Hereford, Texas within the next couple of weeks. The plant is running today and we expect a smooth transition to our platform from this location. Murphy USA did a great job of finishing this construction and upgrading that plant.

While we often said the destination model was really not in our plans, this plant is a bit of a different animal. The facility has performed well since the upgrades were completed and we believe it will rank overall in the middle of the range of all of our plants for profitability standpoint and we believe we can enhance its profitability in many ways.

First, we will sever all third-party agreements. Second, we believe we can increase many of the operational metrics because of our investment in 12 other plants and the experience we have. And finally, this will be an excellent location to bring in shuttle trains of corn and distiller's grains to distribute locally by using the great infrastructure of the plant. Not many other plants in the US have this opportunity with the amount of feed demand in a 50-mile radius.

Our team is also working diligently to make improvements of the Hopewell, Virginia plant. I know this may sound crazy to some of you but we believe we can improve this plant's economics by more than $0.40 a gallon. So how are we going to do this? I will give you some of the biggest examples today. The plant sells a low-quality distillers grain somewhere around 25% below the market. By spending a mere $500,000 on upgrading the system, we will improve the plant's overall economics by $0.10 a gallon. In addition, we will better the SG&A and labor by almost $0.20 a gallon even after maintaining the same local workforce. And between corn oil production being installed and various other things like chemicals and water, we will add another $0.10 or so.

We believe the investment we are making will significantly improve the operating cost on a per gallon basis and expect this all to be completed by the second quarter of 2016.

Lastly, we will use this site as a transload for distillers grains to containers and more importantly we believe we can ship ethanol in from our other plants and distribute into local markets enhancing not only the ethanol plant economics but it also has the potential to enhance the Green Plains Partners business.

In all, we will add 160 million gallons of annual capacity and when combined with the expansion gallons added, we will start 2016 with 12 million tons of corn processing capacity, 1.2 billion gallons of ethanol production, 3.4 million tons of livestock feed, and 290 pounds of corn oil production.

So what about the five points of capital allocation which we have discussed with you? We are investing $112 million growing our business to the two announced acquisitions related to our current group of assets. Since the inception of the organic expansion project, we invested $19.6 million as part of Phase 1 organic ethanol expansion and since the beginning of 2015.

We invested $10.2 million on a grain storage expansion and now have over 50 million bushels of grain storage at our 12 ethanol plants. We increased the quarterly cash dividend to $0.12 per share which is a 50% increase from the previous dividend and a second annual increase in the cash dividend paid to shareholders.

Since the dividend was initiated in August of 2013, the Company has returned $22 million to shareholders.

During the third quarter, we reduced our term debt by $5 million and finally, we repurchased 191,700 common shares for approximately $4 million.

We have the capital to continue to grow our platform and we will be smart managers of our balance sheet and be opportunistic with the execution of our capital allocation strategy. While we are paying cash for the assets, we expect to replenish our balance sheet through free cash flow generation, increased financing for the new assets and payments from GPP on the drop downs when they occur. We expect to offer the new plants transportation and distribution assets to Green Plains Partners sometime during the fourth quarter.

Now I'm going to turn the call over to Jerry to review both Green Plains Inc. and Green Plains Partners financial performance and I will come back later to discuss the outlook for the remainder of the year.

Thanks, Todd. First I will do a quick overview of Green Plains Inc. and then discuss Green Plains Partners. As we now have two companies to discuss and many operating and strategic developments to review, I will not complete a line by line review of our operating results but instead provide a high-level overview of results and focus on providing additional clarity on unusual items.

For Green Plains Inc., consolidated revenues were $743 million in the third quarter which was down $91 million or about 11% from a year ago. That change was driven by lower production volumes and lower commodity pricing.

Volumes of ethanol sold for the quarter were up 1% to 294 million gallons while the average realized price per gallons was 22% lower than last year's third quarter.

Our consolidated operating income for the quarter was $19.8 million versus $75.1 million a year ago primarily as a result of the weaker ethanol margin environment and lower production volumes in the third quarter of 2015 compared to a year ago.

We realized an income tax benefit of $604,000 for the three months ended September 30, 2015 compared to an expense of $24.3 million for the same period in 2014. On a year-to-date basis, our effective tax rate was 13%. While the formation of the partnership should provide a benefit of a lower effective tax rate, going forward we do not expect our full-year rate to hold at this level. In fact, we expect our tax expense in the fourth quarter to push our full-year rate up closer to a normal corporate rate level.

Earnings before interest, income taxes, depreciation and amortization, or EBITDA, were $36.3 million for the third quarter of 2015 compared to $91.9 million for last year. As Todd mentioned, we have changed our reporting segments during the quarter. We have combined the corn oil production activities into our ethanol production segment as most of our peer group reports these businesses on a combined basis.

We also added Green Plains Partners as a new segment for obvious reasons.

We closed September with total cash of over $512 million. The proceeds to Green Plains of the partnership's IPO were $155 million and we paid $39 million of income taxes on the tax gain during the third quarter.

Total capital expenditures in the quarter were $14 million and as Todd mentioned, we repurchased $4 million of common stock, paid $5 million in cash dividends and reduced long-term debt by $5 million.

So we closed the third quarter with $448 million of term debt down from $495 million a year ago. Our net term debt is a negative $64.6 million at the end of the third quarter, which means we could pay off all of our term debt and have $65 million of cash on hand.

Now for a quick run through of Green Plains Partners performance. This is the first quarter of operations and full financial reporting for the partnership which along with GAAP requirements makes for comparisons to prior periods a little challenging. Our historical comparisons reflect a GAAP requirement to show prior periods as if the Partnership owned the storage and transportation assets even prior to the time the contractual arrangements with Green Plains became effective. As a result for the prior periods, the Partnership shows all of the expenses of the contributed operations including significant railcar lease expenses with none of the related revenues from those assets.

Our S-1 filed as a part of the IPO included our forecast of financial results for the first several quarters so I will use that as a basis of comparison for the Partnership.

Adjusted EBITDA for the Partnership was $13.1 million, down about 8% from the S-1 estimate of $14.2 million. This is a result of Green Plains lower ethanol production during the quarter which resulted in 23 million gallons or about 9% lower throughput than the S-1 estimate. Distributable cash flow, or DCF, was $12.9 million when compared to the S-1 filing, down $1.1 million.

As Todd mentioned earlier in the call, throughput gallons from Green Plains Inc. did exceed the minimum funding commitments of 212 million gallons which is the same for each quarter during the year. However, the slowdown in productions did affect our comparisons for Partners to this earlier forecast.

As Green Plains ethanol production rate returns to approximately the 95% range that Todd mentioned for the fourth quarter, Partners should see throughput gallons in the range of just over 250 million to 254 million gallons. This would not include volumes and related revenues expected from a drop-down transaction related to certain assets at the two plants Green Plains is acquiring currently.

We expect the storage and transportation assets from these plants to be transferred to the Partnership late in Q4 which should add up to 160 million gallons per year of throughput to the Partnership beginning next year.

As we announced on October 22, the Partnership declared its first distribution in the third quarter of $0.40 per unit. The distribution coverage ratio is 0.99 for the third quarter and we fully expect to see this ratio move back into our target range of 1.1 times coverage measured on an annual basis.

With the progress we've made on capacity expansions and acquisitions, we are confident in our ability to grow the Partnership's distributions.

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

Thanks, Jerry. So let me give everyone some other brief business highlights since we have so much to talk about today.

First, or corn oil business now part of the ethanol production segment benefited during the third quarter and now in the fourth quarter from our export program. While a year ago was much slower, our vegetable oil trading team sold significant volumes offshore. In fact we sold enough to cover all of our volumes we produced through the rest of the year. This team was part of the initiative to build our merchant business but as you can see, there's also a positive impact to our production platform. This is consistent with the plan with all the teams we have in our different trading businesses.

The price of corn oil has firmed a bit as we see some traditional biodiesel companies coming in for coverage. The increase in feed demand, good export business and the fact that about 5% of all the corn oil produced at ethanol plants is now being upgraded to food grade in many countries. We have also seen to return for soy oil from the US which is indirectly helping our product we produce.

The marketing and distribution segment had a solid quarter of trade flows. This was driven from our energy trading group and natural gas and ethanol and our veg oil activities. The agribusiness group was slightly weak for the quarter as we were gearing up for harvest. We expect a strong fourth quarter as we made a concerted effort to fill our space as much as we could prior to harvest.

We completed the Obion Grain Storage building and filled the total space this year and now you can see a picture of this project on our website when you open up our homepage which is up live now. This one of the largest of its kind in the US capable of holding 5.5 million bushels in covered flat storage. We believe we have changed the trade flows in the area with that opening of the building and most of it was filled with farm origination. We are also looking to add another storage expansion down there as well.

Overall besides Bluffton and Riga, which has lower crops this year, we expect to fill all of our grain storage which as mentioned now has over 50 million bushels of capacity company-wide. Of that, 22 million bushels is new grain storage at our ethanol plants of which is almost 90% full at this time.

Our cattle operations are starting to see a recovery in margins. Cattle going into a feedlot today are seeing somewhere between $50 and $100 a head margins for only October placements. Cattle should contribute nicely to the fourth quarter as well as we hedged most of our placed cattle earlier in the year before the break in prices and came out of this cycle basically unscathed.

Finally as we continue to roll out our farmer direct programs, we bought over 55% of the corn in the fourth quarter from local producers as our new customer relationship software is starting to benefit in our supply chain.

For the remainder of the call I will discuss ethanol production fundamentals a bit more and then a bit more on Green Plains Partners.

This past week we finally saw a bigger draw of ethanol inventories down to 18.3 million barrels as some of the export volumes we have been watching finally hit the numbers. We believe exports will still come in between 800 million and 1 billion gallons for the year and gasoline demand in the US remains strong. We believe there has been China business done as our inquiries squarely center around this demand.

At this point we are scheduled to ship 10% of our production volume for export in the fourth quarter but expect that number to go higher as we have a flurry of potential business. Besides that, domestic demand is also at a record weekly pace. We are running 2.4% above the total last year on demand as gasoline demand is almost up 4%.

Our blend rate nationally is still only 9.4% even at a record pace so you can see we still have room to gain share. China and India gas demand is up 10% year to date and we expect the same for 2016, which we believe will also keep ethanol demand firm for that part of the world.

While ethanol is a slight premium to wholesale gasoline nearby and that spread has been narrowing, we continue to see usage remain high around the world as the forward curve beyond April is still a discount to gasoline. Ethanol still trades $0.25 to $0.50 a gallon under all octane and oxygenate substitutes. We have done very little work on the forward ethanol curve as the best margins are in the nearby or for the next 30 days. Those ethanol margins continue to be in the low to mid-teens EBITDA per gallon but remember that includes corn oil which is now how we are going to report the crush to you on a gross wholesale crush also including the put through fees that we pay down to the Partnership.

One thing to remember with the Partnership is the fact that while it is $0.05 a gallon put through, GPRE still owns approximately 62% of GPP, so we get the benefit of about that much back to Green Plains shareholders at Green Plains Inc.

Even with this margin outlook, we will continue to expand ethanol production and acquire ethanol plants. To us it's very simple. It's about continuing to add to the base of operations we started with seven years ago. We believe the billion dollars or so we have invested in this Company allows us to acquire and make better all types of plants if they meet our requirements. Green Plains Partners also allows us to grow the Company using a very competitive cost of capital as compared to much larger companies we compete with.

Finally, Green Plains Partners is a serious growth platform. We will offer the two new assets we've acquired, continue to search for bolt-on terminal businesses and organically grow the terminal volumes we have today. We are just getting started with this opportunity.

We were one of the last MLPs to go public but even more importantly, we are the only ethanol-centric MLP on the market today and believe our first mover advantage in our distribution will suit all of our shareholders well in the future. I will say it again, scale has its advantages in a commodity processing business like ours and we certainly believe ethanol continues to remain a permanent and expanding part of the world's fuel supply and plan to continue to grow into one of the largest suppliers of this high octane fuel additive.

Yes, we are still seriously looking for other opportunities to diversify our core business as well, but with our history and the MLP now in place we can continue to be a consolidator across the industry.

As I pointed out earlier, or five main legs of capital allocation remain the same, acquisitive growth, organic growth, debt paydown, dividend growth and share buyback. We have the balance sheet and the employees to be successful in executing our strategy.

So with that I want to thank everybody for joining the call today and I will ask Jay to start the question-and-answer session.

Thank you, sir. (Operator Instructions). Theresa Chen, Barclays Capital.

Good morning. My first question with relation to the Partnership, in regards to the potential drop down in the fourth quarter given the persistent headwinds across the MLP sector, what are your thoughts on valuation for the drop-down and how are you planning to fund it? Will you be relying primarily on your revolver?

So specifically in terms of the headwinds, look, I think from our standpoint we literally less than 60 or 90 days ago during those headwinds that I think are very similar to today dropped all of our assets and had a valuation and we believe at this point the new drop down will be consistent with those valuations that we saw earlier on.

In the terms of funding, Jerry, I will you comment on that.

Yes, in terms of funding we do have our $100 million revolver that's fully available to us, completely undrawn. So we would intend to fund the acquisition with withdraws under the revolver.

Got it. And given that you are going to be continuing your expansion program which will provide excess cash flows for the Partnership along with the acquisition, what are your thoughts arou0nd how to balance distribution growth versus coverage in the short term when you have these excess cash flows come on?

Well, as I said, we are targeting about a 1.1 times coverage ratio measured on an annual basis and so we don't want to get out ahead of ourselves on increasing the distribution but obviously the pace of drop downs and other opportunities that might become available to us will really drive the overall growth rate. So we want to maintain that 1.1 times coverage and then grow as our business grows proportionally.

Great. Thank you very much.

Adam Samuelson, Goldman Sachs.

Good morning, everyone. Maybe first Todd on the ethanol margin outlook. I want to make sure I was clear on what you said in the prepared remarks that you expected ethanol -- the equivalent of the new crush margin disclosure to be low- to mid-teens in the fourth quarter and it was $0.16 in 3Q. Did I hear that right? I just want to make sure it apples to apples.

Yes, so when you add up, when you take the ethanol crush plus corn oil which includes then still before we take out the nickel going out to GPP, that all added up to $0.16 a gallon. When we are looking at the fourth quarter today in the spot market and its inverted into December, so December margins aren't as good as spot, spot today remains somewhere between $0.15 and $0.17 a gallon including the $0.045 for corn oil.

So the spot before in the previous way that we would have reported it prior to distribution to GPP, spot margins are somewhere between $0.13 and $0.15 going home last night. So when you look at that and add corn oil you are going to get into that $0.16 to $0.18 a gallon range with corn oil in the spot market.

The December market right now is really only showing $0.05 to $0.07 a gallon before you add in corn oil. So that gets you up to $0.11 or so to $0.12 a gallon and that's also before you take out GPP.

So from a gross crush perspective, the spot is somewhat similar to what we saw last quarter but we are going to have to work through that but the fundamentals look like they are in our favor at least to continue that through the quarter.

Okay. That's very helpful clarification. And then when you think about -- can you talk about farmer selling. You certainly talked about filling up most of your grain storage but how are you seeing farmers selling and the availability of corn as you look out three, six months? We are hearing a lot about farmer retention and farmers really tightly holding onto their grain and how that impacts maybe your Western versus your Eastern plants?

So we made a very concerted effort prior to harvest because you had an opportunity to buy bushels at the end of last year's crop to start filling our space one before the farmer started harvesting his corn. So we came in the harvest somewhere around 60% full on our space even before even harvest even started, which allowed us then to take advantage of what's happening today and filled almost the whole remainder of that space.

With that said, we've seen a significant uptick in basis levels across the West and the East over the last two weeks. Farmer retention is high. Eastern markets, especially Indiana and Ohio, have seen the firmest corn basis. It's hard to buy corn from the farmer. We are looking at bringing Western bushels to the East this year. I think that's going to happen. It's starting to happen right now which we haven't seen since 2012. But that doesn't mean there isn't enough corn. It just means most of the corn is in the West and it's going to have to move to some of the deficit markets.

But farmer retention remains high. The crop is almost harvested. I think that nobody in general got their fill and demand remains very good every day. The ethanoler continues to grind every single day. You have cattle feeding margins. You've got other margins across the industry and if you are a grain handler, you are competing with a really voracious appetite for daily domestic demand.

But on the other hand, Adam, export demand is terrible out of the US for corn. We are not priced competitively in the world and the weekly sales are awful and that's kind of allowing at least to temper the enthusiasm to make massive highs because -- or make new highs in the corn basis mainly because you just don't have the additional extra export demand that we would have seen in previous years.

That's helpful color. Then maybe just finally on the Texas plant acquisition, can you talk about timing to maybe execute on some of the DDG sale opportunities and logistics opportunities that you were targeting?

Yes, so that's a great opportunity for us down there. Besides running the plant, we expect we will be shipping in trains of corn and potentially distillers grains down there. We have some capital improvements to make so we could have very efficient load outs. But when you look at what the infrastructure that we bought down there, it could easily handle the importing of corn and distillers grains from the Midwest in a very deep market of demand in the Hereford market, which is quoted every day.

So we expect once we close, we will move very quickly to also enhance the profitability of that asset and I would say within 30 to 60 days we will be in business with our logistic assets being able to load out into the market. Maybe it takes a little bit longer than that but overall we will immediately make capital investments to start to become a more of a destination terminal as well.

All right, great. That's helpful. I will pass the line.

Farha Aslam, Stephens.

Hi, good morning. When you look at the outlook for ethanol going into next year, would you anticipate ethanol margins improving from current levels? Could you just give us a bit of a longer-term perspective on how you see the ethanol markets developing into next year?

Yes, we anticipate that in order for this demand to get the volumes that it needs, it needs to incent the producer to keep running at maximum levels. And so when you look at the forward curve today when you have corn at a carry and ethanol flat, once again we are staring at a curve that has been similar to the last seven years besides one or two instances where the best margins are in the spot and most of the time we have seen these ethanol margins roll forward.

Whether that will be a $0.15 to $0.18 margin or an $0.08 to $0.10 margin I can't -- or $0.30 to $0.40 margins I can't predict today except to tell you that we believe in order to incent production in Q1 and Q2 against the demand that we see against cheaper gasoline prices and excellent export demand, you are going to have to continue to incent the ethanol producer to run at the pace of 940 to 960 each day. And so we believe ethanol margins will roll forward to some extent it will be hard to say whether they roll forward at higher levels or lower levels but they will roll forward.

Okay, so when you think about in your new context of fresh margins per gallon, what would be your normal kind of level that you would say is a normal level that you anticipate operating at?

Well, so our view always was a mid-cycle margin was $0.15 to $0.18 a gallon before corn oil and when you add corn oil to that, it is somewhere between $0.19 and $0.22, $0.23 a gallon. So today right now as we had indicated, we are kind of in that $0.16 a gallon to $0.17 a gallon with corn oil. So we are a little bit below mid-cycle margins but we also continue to like to see stocks draws out of the EIA data with the ramped up export program that we believe is going to happen for the next couple of months.

So our view is still it's a $0.15 to $0.18 mid-cycle margins and add corn oil on top of that now and that would give you the new math in terms of how we are thinking about and how we are presenting the gross crush margin to you.

And so that doesn't change with the addition of your two new facilities? You anticipate those two new facilities to run at that same level?

Yes, so when you look at mid-cycle industry margins and as well as ours, we believe we are kind of a cross-section of the industry yet you can see that we are performing right with what everybody else is reporting as well around these numbers.

The Hereford plant is right in the middle of the range of -- it will be a little bit better or a little bit worse depending on the quarter than our middle of the range plant and we will wait and see where Virginia comes up. Virginia is going to be a bit of work in progress. We think initially it will benefit GPP as you mentioned but we also believe there is other opportunities to enhance our profitability and be accretive to GPRE shareholders both ways.

So these plants -- Virginia just went down, so that's been in the EIA data and Hereford is running. So we are not bringing on new volumes that aren't really in the market up through a month ago or even some of it through today. So these aren't new volumes that's come in the markets. We are adding any new capacity with these acquisitions.

Helpful. And then my final question is on your tax rate. In the quarter it was positive and so how did taxes go positive? And then how do we expect that to flow into next quarter? Can you give us a more color on the tax rate, please?

Sure. The way the taxes are calculated, they are calculated on a cumulative year to date basis and it gets really dynamic when excluding the MLP on a year-to-date basis you are pretty close to break even.

The other thing that comes into play in our tax rate is something called a Section 199 deduction, which depending on the profitability of ethanol we receive additional tax benefits and it lowers our tax rate. So as you kind of swing from one level of profitability on a year-to-date basis to another, it changes your effective tax rate and it all kind of drops out in that quarter.

So frankly the $604,000 benefit was a little bit of a surprise to us as we were calculating our taxes and as I said, when you step back and look at it on a full-year basis and try to predict where we going to come out for the rest of the year I think we will return on a full-year basis back up close to the 35% level.

So the fourth quarter is at 35%?

No, on a full-year basis. So the fourth quarter could even be -- I think when you back through that, the fourth quarter could even be above 35% just that quarter alone.

Okay. And then into next year we use 35%?

Yes, I think on a long-term full-year basis, the 35% may be a little lower than that because of the MLP benefit should be a reasonable estimate to use. Maybe in the 30% range on a long-term go forward basis. But again, it's a very dynamic calculation with the Section 199 deduction and other things going on in our tax rates.

That's helpful. Thank you.

Craig Irwin, ROTH Capital Partners.

Good morning. Thank you for taking my question. Todd, can you talk a little bit about the pace of industry-wide de-bottlenecking whether or not you think that the constrained margins that we seen this year impact that rate and what you think will influence that over the next few quarters?

Yes, so I think you've seen the benefit of de-bottlenecking already this year when you are running at 960 to 970 pace consistently even up to 980. I think that includes most of the de-bottlenecking that has been done and getting up to people's RIN limits.

So what a lot of us to go after this first 100 million gallons as we've mentioned is the fact that we had RIN capacity and we did not have to go after the efficient producer pathway on any of that capacity and so that's what we went after first. We are in process of doing that.

But we had very major projects to do so for example Lakota was a 20 million gallon plus project because they had that much RIN capacity. Some plants we couldn't do any more de-bottlenecking because we didn't have RIN capacity. So there's a lot of plants out there that once you de-bottleneck up to a certain point you have to make the decision do you want to take the risk of producing over your RIN capacity and having to buy a RIN when they are $0.30 or $0.40 or $0.50 a gallon.

And so we think a lot of the de-bottlenecking has been done. We think you are seeing that in the numbers and while you will see capacity creep every year I don't believe necessarily you will see it as fast of a pace as you've seen over the last 12 to 18 months.

Great. Thank you. My second question is about mycotoxins. So there's been increased discussion out there about mycotoxins, some speculation that this current forecast could include a greater prevalence of some of the fungi that have harmful effects when feeding DDGs at greater rates.

Can you discuss with us how you handle typical pricing for your DDGs whether or not it includes consideration for mycotoxins and whether or not you are seeing the harmful fungi and other contaminants in feedstocks that could potentially result in this being an issue?

Craig, we haven't seen this year. We test all the time across our dump and I will let Jeff comment a little bit but we haven't seen with new crop corn this year any relevant mycotoxin, aflatoxin, any kind of toxins come across our dump that would have any effect on pricing of our feed product.

Jeff, do you want to comment on that?

Yes, we do, especially on new crop, we typically test for vomi, vomitoxin and aflatoxin at the beginning of new crop. It's prevalent in certain areas depending on weather, depending on the harvest timing, so we do make sure we do watch the product and the interesting thing what you find is eventually what the farmers do is they adjust their feed ration to make sure they feed the appropriate levels consistent with any levels that are out there. So in certain marketplaces there are values and there are levels that are out there that the farmers just modify. Any pricing impacts tend to be short-lived and then based on their adjustment of their feed and inclusion rates they adjust pretty much down as far as what the components of the new feed there.

So it's not something we are worried about. It's not something we've seen. The weather has been very conducive. It's been a very dry harvest. Typically we see those issues at a very wet harvest, so at this point for the year it's not a concern that we have.

Great. Thank you for that. And then last question if I may, 21% exports in the quarter. That's a nice number, nice to see those items go overseas. I don't think you showed this in your prepared comments but is there a number maybe you can share with us for the fourth quarter and the first quarter as far as commitments you've already made?

Yes, so what we said is we had prior to the call 10% of our quarter's production sold but we have significant inquiries and we believe that number will go up for the rest of the quarter and potentially push up towards the number that we saw in the third quarter.

The fourth quarter is to shaping up. We do have very good interest as well in the first quarter. We are starting to see new entrants come in. We believe the China business has been done and is being done as we speak. We think there's a program on. We haven't done any direct business but we believe some of the sales we have sold are for that business. We remain very optimistic for the China and the India business to kick in in 2016 with the amount of gas and gas demand that they see increases.

So overall, we continue to see good strong export activity and we will be a part of that. Almost all of our plants can make the product needed and we could shipping in volume with the critical mass that we have so when players come in we can sell the volume and we have been doing that. We did a nice train package for early December which bumped up our volumes a bit more.

And so we are there every day aggressively trying to price export gallons as we focus continually getting more of this product offshore.

Thanks again for taking my questions.

Tyler Etten, Piper Jaffray.

Thanks for taking my questions. Looking at your acquisitions, it seems like they are a little bit outside of your previous footprint. I was wondering if this was a strategy change that we could see in the future, or this was just an opportunity that came in at the right price?

Both of these were opportunities that came in at the right price. We had not been focusing at all on those markets in our acquisition strategy and again, we continue to look for other acquisitions and continue to focus on acquisitions within our normal geographic footprint and we are looking and working on those as well.

But I would tell you that those came on very quickly. They were interesting, Virginia for the points that we talked about and Texas for the points that we talked about as well. And so -- and the ability to move and close very quickly allows us to get these plants bought and allows the seller to execute their strategy of selling non-core assets. And so it was more of the right place, right price, right time, right location for us.

The interesting thing about what people don't know is the interesting thing about Hereford is the fact that Lakota is also a [lergy]/ICM plant. So we have experience running a plant like that so that is not outside of our wheelhouse. We understand how they run and that is a plant we believe that we can move in very quickly and improve some of the operations but also enhance profitability by doing all the other things we talked about.

We are not focused on those other destination markets at this point but those were just two plants that were opportunistically not that far out from the wheelhouse from what we operate today.

Excellent. That's good to know going forward. My second question would be how do you guys think about forecasting DDGs going forward? Obviously they've faced some pressure towards the end of this year and just wondering how we should think about modeling that?

With China, the distillers market is much firmer in the US and without China we kind of go back to that 80% to 90% possibly 100% to price of corn. All that's in the model right now when we talk about forward margins, they include the current market value for distillers grains which is somewhere between 85% and 90% across our system. Sometimes we get a little more than that.

I think what's interesting is even though China has dropped out of the market, we still see them occasionally come in for volume but we still have seen the other parts of the world or other countries near in that part of the world step up for continued volumes out of the US in container quantities. We have as a company a year or two ago, we would have said we sell no containers direct offshore and this quarter alone in the fourth quarter, we are going to ship over 5000 direct containers. That is still a small player in the container business but we are not allowing others to get in between our business anymore so we can earn a larger percentage against the price of corn. And that's what's very interesting about Hopewell, which is the fact that we believe we can ship distillers from our plants into Hopewell, load them into containers on our own site and ship them out of the East Coast.

And so when we look at opportunities like at Hopewell, when we look at opportunities like a Texas plant like that, where are the things that we can add value with the things that we doing in our supply chain? So when we look across the supply chain whether it's in natural gas or whether it's in our corn oil business which then has selling offshore as well, or now whether it's in distillers grain to add 3% to 5% value on at least that amount of distillers that we sell offshore, those are all things we are doing because we brought teams of merchants in to build out our third-party distribution platforms and trading businesses while enhancing the overall margin structure.

So overall by doing some of these things we can enhance it but in general we are seeing good inclusion rates in the domestic demand for distillers grains even with China out of the business and I think we kind of gotten to a base level where we would do without China.

Great. Thanks for taking my questions.

Laurence Alexander, Jefferies.

Good morning. So two quick ones. You may have covered these already. Did you disclose the amount of EBITDA you are transferring to the MLP? And secondly, the acquisition multiples that you are paying would be lower than they were historically. Can you just talk a little bit about what prompted that, whether you see this as a new run rate going forward?

I will answer the second question first. The acquisition multiples were based on certain factors on how we value plants like that. But again, you can't purchase a Midwestern plant like most of our other plants at those values today. So we are working on other acquisition opportunities. Whether we get them done or not in the Midwest, which I would say are higher than the values we are paying to date at a higher multiple than the values we are paying today but we are looking at those also as we get into kind of an overall blended rate of how we are making acquisitions.

So as I said, Virginia was a plant because we have $1 billion invested we were able to walk in there and look at what we needed to do but that's only because if we went in individually as an individual owner, that would have been a harder plant to own but because we have the platform we can go in and buy it.

And Texas just fit well into our platform. Murphy wanted to close quickly. We could close quickly and we were able to do that. So overall though, I would say the multiples for a Midwestern ethanol plant of the right vintage with the right technology would trade higher than the multiples we are paying today.

Jerry, do you want to talk about the EBITDA for --?

In terms of the EBITDA transferred if you will to the MLP, I will just kind of walk you through how to arrive at that. We didn't specifically disclose that number separately but if you just look at our volume activity, about 215.6 million gallons produced during the quarter, that all would have flowed through the tanks at $0.05 a gallon, so that works out to about $11 million gross.

And then the railcar activity is probably another $1.5 million and then BlendStar on top of that for another couple million. So that's about $14.5 million of total EBITDA and of course the Partnership reported $13.1 million so the difference would be expenses. So that's kind of a long way to answer your question but that's how you can get to the EBITDA that slips over to the MLP now.

I think one thing that's really important for people to understand about this relationship is the fact that -- and I will say it again -- is Green Plains almost owns two-thirds of the MLP stock. So while we transfer a nickel a gallon or so of cash flow into the MLP, we then get dividend back or distributed back 62% of those back to GPRE. So it's really a net couple cent a gallon cost off of the EBITDA per gallon because GPRE still retains significant ownership of the MLP. And I think that's where we can really drive lots and lots of value for both sets of shareholders.

Okay. Thank you.

Ed Westlake, Credit Suisse.

Good morning. (inaudible) on behalf of Ed Westlake here. On the acquisitions, could you talk about if you had to compete with other players for those acquisitions? And are you seeing any other assets available today or in the future for more M&A in US?

We compete on every acquisition we make. So we competed in Virginia. We competed in -- again, I don't know how the whole process is working in either of those but I am assuming there are other people that were looking at the assets but some of the characteristics we brought to the table I think were unique.

So in terms of, yes, there are other people looking at assets in the market today. We believe there will be other assets that come to market whether it's one-off farmer owned or multiple owner assets, multiple owned assets by one owner. I still think that there's still consolidation to happen in the industry. We are focused on that. We continue to search for opportunities and we believe that we will continue to grow our business through acquisitions in the future.

And can't really give you a direct line into specifically what's out there but each and every day there's something that we are possibly working on and again whether they get to a close, it's hard to say but we continually work very hard to grow all parts of the business.

And I would just add to that that what we bring to the table in these one-off deals in particular is the ability to close quickly with cash and so people aren't concerned about our ability to rapidly get it to a close and our ability to finance it since we have cash on the balance sheet to make the acquisition.

Makes sense, thanks. And as a follow-up, given the acquisitions, how should we think about your capacity utilization in Q4 and in 2016? And then I have a follow-up.

Yes, so what we said in Q4 is we will run somewhere between 95%, 96% of total capacity which will give us around a 250 million gallon run rate. Jerry, you mentioned about maybe 254 million and that will run through the MLP so you could see the volume that will come up from 215 million last quarter to 250 million this quarter, which will be beneficial to the GPP distribution as well as you will see that from a GPRE standpoint, we are starting to see those capacities come up as we bring more of the organic expansion online during the quarter.

For next year it depends on the margin structure. As you see, we are absolutely willing to lower our run rate based on margin structures and we would be willing to do that again.

Now that we have the size, scope and scale, we believe that at this point if margins narrow up, we will narrow up our production capacity and if they expand, we will look to see where we can take out and have opportunities to expand our production capacity.

So we believe overall the fundamentals remain solid for the next 12 to 18 months. It's just a matter of will we see him the margins roll through and what will happen with all the four commodities that we trade.

And just looking for demand, do you still expect export markets to stay at that 800 million to 1 billion gallon for next year, or is it too early to get into that right now?

Well, we expect that. We actually would say that our expectation is that export demand remains between 800 million and 1 billion gallons next year. Now I would say that one thing to watch is the sugar market. Sugar market is hitting $0.15 now in March, April, May and above that and when you look at that and you say where does it compete in the world against $3.75 corn, even with the real, even with some of the other factors, ethanol still remains out of the US the cheapest delivered molecule in the world today.

And so the Brazilian has a lot of demand. They are taking most of their excess capacity locally. They don't have a lot of export capacity excess and whatever they do they are getting -- whatever they export they are going to need to import on the other side.

So our view is that with the very or the potential bullish case in sugar that is shaping up in the market today, with corn sitting where it's at today and the resilience of the US farmer to grow a big crop. we believe we will continue to remain the most competitive octane molecule in the world out of the US.

Thanks for that.

Sandy Klugman, Vertical Research Partners.

Good morning. A follow-up question on ethanol exports. How do you size the opportunity for exports over the long-term and how critical do you think the development of offshore markets is to keep the domestic supply/demand balance tight?

So there's a couple of factors there. We believe that exports will continue as global demand for gasoline continues to grow. Again, we said China is up 10%. India is up 10%. Other countries are up and a lot of these countries are now focusing on octane and clean air, especially what we are seeing out of these initial stages from China.

Whether that continues into 2016 we will have to wait and see but we believe with some of the policies they have in place and some of the areas that we are hearing phasing out some MTBE, ethanol is a logical replacement. We will continue to focus globally on other markets. We believe that will continue to take some of the excess capacity that we have in the US versus domestic demand but we are making significant progress on E15 as well and we have stations and chains that are rolling out E15 across the United States and we believe that the E15 demand growth in 2016 will keep domestic demand continuing to grow in 2017 as well, which we think will be the big roll out of the E15 year.

We remain a discount to gasoline out on the curve albeit we are a slight premium nearby but that is not stopping anybody from an octane value and blending ethanol and you can see that from our weekly demand numbers. Even at a premium to gasoline, we are blending at maximum levels.

So our view is between 18 million and 19 million barrels. You are not in a tight environment but you are not necessarily in a loose stocks environment. We like to see those numbers below 18 million barrels and then if it runs above 20 million, we will have work to do in terms of keeping capacity in check. But overall everything we are seeing should keep stocks within these range 20 million barrels.

Great, thank you. And then the EPA is expected to release its final rule for the 2014, 2016 RVOs pretty soon. Are you anticipating any significant changes from the proposed rule from June?

I don't think we are going to see a significant change. There is a possibility we could see a bigger number based on some of the winds that are blowing but again I don't have very good insight to what the number is going to be except the fact that while people complain that it was the 14 billion for 2016 was below the mandate by law -- and really by law they don't have the ability to change that number -- the law is the law. But if they do go to 14 billion, that is still not a bad number for our industry in terms of a mandate. We didn't complain about that number as a company and we believe that should be -- it's adequate enough to keep good-based demand in the US for 2016.

Thank you very much.

Pavel Molchanov, Raymond James.

Thanks for taking the question. Two higher level ones if I may. First on the futures curve for ethanol on the fee bought is actually in backwardation downward sloping even though gasoline and crude oil are both trending up. And I'm curious why you think that is?

Well nobody really -- for the last seven years, the market does not extend coverage beyond -- much beyond the spot market and so this is not an uncommon curve that we are used to seeing. All the way up through September we are basically flat or within $0.03 to $0.05 a gallon of today's price. And so oil will add a carry because of the amount of stocks they have in the world. Gasoline fundamentals are not necessarily great in gas and don't forget you make the change from different driving seasons which then changes gasoline prices up and down and the curve changes.

So ethanol is just flat and will probably remain flat. Stocks are tight enough to keep us inverted but they are not loose enough to put us back into any kind of carry market or contango market. So it's a very common curve that we are seeing while corn continually stays at a carry.

Okay. And secondly, we are now about year away from the US election and obviously candidates are spending a lot of time in corn country. Now they do have different opinions about the RFS, so I am curious what your related thoughts are about any prospect of legislative reform either before November 2016 or more likely after November 2016?

Yes, I think depending on again the man who wins the White House and depending on who the next president will be, they all have different views. I think we are solid on the Democratic side in terms of the front runners support for ethanol. On the Republican side, the two or three top front runners support ethanol in one way, shape or form or another. You've seen that come out. You saw a little bit of a flip-flop but I'm not sure that we are going to take that to heart just yet. And then I think from there -- I don't think the program costs the consumer very much money. While it's a mandate it's not a -- there's no reduction in the fuel excise tax. It doesn't cost the consumer anything in terms of any direct costs.

The value of the octane keeps gas prices down so overall I think we've been able to tell our story to the larger pool of candidates. I would say that the bottom tier candidates on the Republican side, they are all questionable and we will just have to wait to see what happens.

Great. Appreciate it, guys.

Heather Jones, BB&T Capital Markets.

Good afternoon. Had a few quick questions. First on the margin structure, was wondering for a while now, ECB has tended to be better than Western Corn Belt but given the weather issues we saw in the Eastern Corn Belt this year, was wondering if you expect that to flip over the next year as far as the margin structure for ethanol?

Yes, so what we (technical difficulty) and so when we look out even now with the corn basis as it is, we are still seeing some of the stronger margins in the East so buying continues to remain -- Tennessee continues to remain our strongest margin structure. But I would tell you that coming on quickly are some Nebraska margins and the spread is narrowing and the Northwest Iowa margins as well as some of our Southwest Iowa margins.

So we are starting to see some of the places in the West close the gap. Even in terms of Bluffton with the high corn basis in Indiana, those margins are probably going to be more suspect than they have been in the past. But overall on the average, we think the Western margins will compensate.

So, yes, overall besides Obion, the West is definitely coming up on the East and we expect that to continue to happen. You are correct where we believe that will transfer back to the West this year.

Okay. And I think you made some comments about corn oil about 5% of production now being further refined into foodgrade. Did you say that is being done in export markets, or is it being done here domestically?

It is not being done domestically today. It is being done in export markets that we are seeing. We believe about 5% of what goes off -- of what we produce in the US, of which then goes offshore is being converted into foodgrade using different processes that are not uncommon around the world today.

Is that something that could be added here because there's about a 10% to 15% -- $0.15 per pound differential in the cost, so is that technology that could be added to the US plants?

We are working hard on exploring that option today.

Okay. And then finally, your -- ADM as well as you guys have had really constructive comments on Chinese ethanol demand today and their fuel demand has been pretty strong for years now. What do you think is triggering their increased demand for ethanol at this point in time and what gives you comfort into having good visibility and that extending beyond like the next few months?

So they have the Olympics I think in 2022 or sometime in the next four to six years and they know in certain parts of the country they have an MTBE issue in terms of tailpipe emissions. And so they have a concerted effort -- and we have said this about a year to two years ago -- that while they were first working on their food problem and food issues there, the next place they are going to have to work on is the clean air issues.

And so I think they have discovered the fact that ethanol is a cleaner burning fuel and could displace MTBE in their fuel supply. If you think about it, their demand is up 10% this year and they were about a 30 billion gallon demand market as compared to the US at 140 billion gallons. They could really -- and they have a 10% mandate in their country which they are not fulfilling. They have a really insatiable demand for the world export gallons that we produce in terms of excess capacity. They could clear it if they wanted to. I don't think they will but I would say that they are definitely starting to see the benefit of the value of the octane that we bring, the ability to extend their fuel supply. India is doing it. The Philippines are doing it and China is a new entrant. We will see if it continues.

I am always suspect of China programs because we've seen it in distillers grains, we've seen it in corn, soybean meal and just about every other commodity that we export there where eventually if prices go down against what they buy, they often find ways not to come back to the market.

But in our case, we are already at low prices so we believe at least we are going to get some traction on the program. They are looking at that as a long-term value and we will see if the program continues. I think they started with test loads last year and we are starting to see larger volumes take shape and if that catches some traction, I think that will be a nice tailwind for us.

So overall, I think they are waking up to the overall value between clean air and octane that they get from ethanol.

And do you think the value is such given were the US ethanol is priced, is the value such that it would not make sense for them to invest the capital domestically because it's well-known that they have massive stores of corn, some of which is not even useful for feed any longer. Is the price disparity such that it doesn't make sense for them to put the capital on the ground and just try to build up their own domestic ethanol industry?

They have a domestic ethanol industry today and they are going to put some more money into their domestic ethanol industry. But more so, they have very high price of domestic corn and so while we have $3.75 corn, their price of domestic corn is $8 to $9. So you are not going to be able to compete from a molecule standpoint -- even with the stocks that they have, we know that the domestic price of corn continues to remain high in China. So from that standpoint, they would not be competitive today to say what's their long-term view on domestic prices, they can't seem to get those prices down so investing capital with even a long-term view of $6 to $8 corn domestically in China you still won't compete with the world price of corn.

So overall, I think you'll see some investment but the world has a little bit of excess capacity right now. I think one thing that they always thought was Brazilian ethanol was cheaper than US ethanol and if you went into China, that was the first thing they would say. How could we ever buy US ethanol because Brazilian is cheaper when they've now been shown that US ethanol continues to be the cheapest molecule on a delivered basis into their country or at least competes very well with South America and now they are waking up to the fact that they can buy it out of the US as well.

Okay, thank you.

[Ajhit Khan], [Cerebellum Capital].

Hi, guys. Most of my questions have been asked. But congrats, Todd, on managing through a very difficult environment.

Thank you. Appreciate it.

It sounds like you are fairly constructive on exports and from your comments given where the EPA is currently on its numbers which imply a big step up into next year, I am wondering -- you've had some use or needs for cash this year. As some of this CapEx rolls off, what does your pipeline look like in terms of deals that you are looking at into next year? And if it's not very full, I was wondering how are you thinking about potentially being more aggressive on the buyback authorization that you already have?

I think the last time we talked at a conference we were talking somewhere between $200 million and $400 million of deals that we were in discussions on, possibly even higher. So we continue to focus on potential acquisitions and completed $100 million of that. Again, don't know if we are going to get to the rest of it but we continue to focus on it and one of the reasons we've been able to achieve good value is our ability to write the check and close very quickly with no financing contingencies and so we like to have that optionality. We've been looking at terminal businesses. We've been looking at ethanol plants. We've been looking at other opportunities along the supply chain.

And so if we feel like those opportunities dry up and we have no other place to deploy capital, we will continue to focus on the five layers of our capital allocation. There's not a lot of organic left to do. There is another $100 million to spend, we believe in terms of -- or 100 million gallons to go after which will be a little higher than the first 100 million based on efficient producer and all the other things that we talked about.

So we want to make sure we have dry powder to pay cash for that but we also are now generating free cash flows again in the fourth quarter, so we will again focus on the other three components of dividends, debt pay downs and stock buybacks.

I think we've started our program; we still have the authorization in place and again, we are not unwilling to buy our shares back but we want to make sure that we have lots of dry powder to continue to grow the business because those are just as accretive as buying our shares.

So again if we run out of other options, having the cash -- once we replenish the cash if there's nothing else to do with that cash, we will look to those other three pillars including stock buybacks again.

And I'm going to say that -- and we are not done with that program either so we have plenty of room in the buyback program again to start to look at this quarter as well.

So to the extent that you don't have a lot of needs for the cash, given where you've bought back stock this last quarter, is it fair to assume that if the stock is cheap to book value you guys can be potentially more aggressive in the market all else equal?

All else equal, yes. Our view is that it is a good value when the stock goes below book value. Part of our issue is always some of the time our window is closed. We don't have a 10b program in place because we want to make sure we had the optionality to do things but we always watch one of windows are open and windows is closed. But, yes, we believe -- we stepped in below book value this quarter and that is always -- when we are looking at the long-term use of capital for our shareholders, we believe for our shareholders stepping in below book value is a good time to do that.

Sounds great. Keep up the good work. Thanks.

That does conclude today's question-and-answer session. I'd like to turn the conference back over to Mr. Todd Becker for closing remarks.

Thanks, everybody for coming on the call and helping us make it an efficient call somewhat similar to the amount of time we spent almost every other quarter, so we hope we've given you some good insights to the different businesses that we have including Green Plains Partners, which helping us get through our first conference call there. We appreciate that.

We are looking forward to talking to you next quarter and remain optimistic about our overall business. Thanks for coming on the call today and we will talk to you soon.

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