Green Plains Inc (GPRE) 2016 Q3 法說會逐字稿

(technical difficulty) but we do expect that industry production run rates will move back into the million-barrel-per-day range, which we have previously expected these run rates to be in this range, that which we discussed in the past. It shouldn't be a surprise for anyone anymore.

As we have said before, we still believe that strong exports and the higher demand levels we are experiencing require higher inventory levels, which is why margins have firmed and expanded this quarter. Green Plains Partners continues to perform well. We have increased our utilization rates, increased our quarterly cash distribution once again for the fourth consecutive quarter to $0.42 a share with a very strong coverage ratio of 1.19 times, and we remain on track to meet our growth and distribution objectives.

Since the IPO of 16 months ago at $15 a share, our capacity has increased nearly 50%, matching growth with Green Plains Inc. We continue to remain committed to the long-term strategy of this entity, as it has put Green Plains Inc. in an advantaged position when looking at growth opportunities and we continue to seize the opportunities that the MLP structure has given us.

I'll come back on the call later to discuss in more detail the segment and what lies ahead for the rest of the year. In addition, I'll give you some updates on recent acquisitions we have announced as well.

Now I will turn the call over to Jerry to review both Green Plains Inc. and Green Plains Partners financial performance and then I will come back further in the call to discuss our outlook.

Thanks. Good morning, everyone. For Green Plains Inc. consolidated revenues were $842 million in the third quarter, which was up $99 million or 13% from a year ago, driven by higher volumes on products sold. Volumes of ethanol sold for the quarter were up nearly 14% to 336 million gallons, while the average realized price per gallon was 2.2% higher than last year's third quarter.

Our utilization rates for our ethanol production assets was approximately 92.5% for the third quarter of 2016, which was 8 percentage points better than the third quarter a year ago. Consolidated operating income for the quarter was $30.6 million versus $19.8 million a year ago.

This $11 million a year improvement is primarily because of better performance in our ethanol production, agribusiness and our partnership segments. As Todd mentioned, agribusiness results benefited from stronger cattle margins realized from sales during the third quarter of 2015.

Earnings before interest, income taxes, depreciation and amortization, or EBITDA, was up 35% over last year's third quarter at $49.1 million for the third quarter of 2016 compared to $36.3 million from last year. We ended the third quarter with total cash of $442 million, but it's worth noting that shortly after quarter end on October 3, we spent approximately $120 million of that cash to close the Fleishman's Vinegar acquisition, leaving about $320 million of cash going forward.

Total capital expenditures in the third quarter were about $7 million. Our estimate for full-year growth capital expenditures -- our forecast currently stands at about $50 million to $55 million.

Total debt stands at $923.5 million at the end of the third quarter. This balance includes $229.1 million on our commodity revolvers, which are secured by significant working capital positions. To fund the Abengoa ethanol plant acquisition and the Fleishman's Vinegar acquisition, we issued $170 million in convertible notes during August, which added about $130 million of debt on our balance sheet.

In addition, the partnership utilized its revolver to fund the $90 million acquisition of the Abengoa ethanol storage assets. That revolver now sits at $132 million drawn.

With acquisition activity and the variability in the ethanol crush, we have modified our leverage ratio included in this slide deck to pro forma the impacts of our acquisitions to a full-year period and utilize a midcycle consolidated crush margin, based on our actual experience over the last five years, which is about $0.20 per gallon.

This is in line with the metrics we used to manage the balance sheet and shows our conservative approach to managing our leverage, even as we have made nearly $500 million in acquisitions recently. Our leverage ratio on that basis is 2.6 times on our quarter end term debt balance before considering cash.

Adding the Fleishman's acquisition in financing, we are currently at 2.8 times on our term debt balance of $826 million as we sit today.

For Green Plains Partners, we reported adjusted EBITDA of $16.8 million, which was an increase of 28% from the third quarter of 2015, which was at $13.1 million, the primary driver being 36% higher throughput volumes on our ethanol storage essence. Green Plains Partners had 292 million gallons of throughput volume at our ethanol storage assets, which was approximately 77 million gallons more than the third quarter of last year. Distributable cash flow was $16.2 million or $3.4 million higher than the $12.8 million reported a year ago. Maintenance CapEx was about $77,000 in the third quarter of 2016, which is consistent with our expectations going forward.

You will note we ramped up our distribution by a full $0.01 from our previous rhythm of $0.005 this quarter. This was a result of our strong coverage ratio and expectations of additional ACF from the recent acquisition. The partnership's distribution of $0.42 per unit results in a coverage ratio of 1.19 for the third quarter and 1.11 on a combined basis for the four quarters and since the IPO.

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

Thanks, Jerry. So six weeks ago we announced the completion of the acquisition of the three Abengoa ethanol plants, which I'm happy to report were successfully integrated into our platform already. I think it's important to point out the savings we generate when we acquire assets at Green Plains.

At these three locations on day one we were able to reduce annual expenses by $6 million on chemicals, insurance railcar leases and other items that our purchasing power brings to the table. Now that we have had the opportunity for our team to be at these plants, we are finding more opportunities to reduce costs and improve operational efficiencies.

The experience we have gained with our existing platform helps to realize further savings while driving operational improvements at these locations. We expect these plans to contribute nicely to the fourth-quarter results.

The current ethanol margin environment has us locking away very little on the forward curve as a spot where margin remains the best margin across our platform. We came into the quarter with approximately 18% hedged for the fourth-quarter production gallons and now have about 34% of the quarter hedged as of today, mainly because we are done with the first month.

We have not done any work beyond the current quarter.

Consolidated crush margins have averaged in the high teens to low 20s for the first part of the fourth quarter, yet the market remains highly inverted. So, if the rest of the quarter rolls off through the end of the year, the ethanol business will see the best quarter overall for 2015 and 2016.

I will talk about the Company overall expectations across the board in a few minutes.

Our thesis for 2017 remains intact. We expect gasoline demand in the range of 145 billion gallons to 146 billion gallons next year, leading to about 14.6 billion gallons of ethanol demand at the 10% level.

Exports next year should be approximately 1 billion gallons, and we continue to believe that E15 adds 200 million gallons, plus or minus, of incremental ethanol demand in the US. That totals 15.8 billion gallons of total demand for 2017, and year-to-date 2016 the annualized production rate for the industry was just under 15.1 billion gallons.

If the industry averages 1 million barrels per day next year, that's really only 15.3 billion gallons of production. Our belief that the dynamics of the world sugar market is that Brazil will produce less ethanol for export next year than they did in 2015.

So, with that math, you can see the world market could be structurally short product at different times of the year.

Distillers grains had its challenges over the last recent weeks and require watching for the rest of the year. Even with the weakness we have seen on relative value, the ethanol crush has compensated for this in some respect. We believe world demand for this quality livestock feed product will remain high.

As with the Chinese duty imposed a couple of months ago, distillers will continue to find a home in the global feed supply. Even with that said, China still continues to execute on sales and we have seen small parcels trade recently into the market.

Finally, with regard to corn supply, the harvest continues to prove large and plentiful. The Western corn basis is very weak and the Eastern basis is unusually strong. In fact, we are starting to [brake] trains over the gateways to address this issue.

Yields remain solid. And whether one bushel either way is the final number, we have a very high excess stocks of corn that will need to find a home.

As we look out in 2017, there is no end in sight for supplies, with Argentina and Brazil expected to increase production by at least 25 million tons of corn. So even with reduced next-year US planting acreage exportations and a possible drop in yield, our ending stocks for corn would actually grow, as there will be plenty of export corn competition with the US.

So, why am I talking about this? Because in an extended low corn price environment and a very stable and potentially stronger oil price environment, our molecule we produce will remain a very competitive blendstock globally.

I wanted to repeat a few comments for those who cannot join us a month ago or so on the Fleishman Vinegar call. As you know, we acquired the company for $250 million and remain extremely excited about the acquisition. The company is a nationwide supplier of concentrated and specialty vinegars with a network that spans across the United States as well as globally for some of their products.

We believe this acquisition takes advantage of our platform and our expertise that we have been building over the last eight years: the main link comes from one interesting fact, the primary raw material into distilled white vinegar production process is food-grade ethanol.

As we have spoken with you before, moving into adjacencies that leverage our core capabilities between distribution, transportation, logistics, production and risk management are part of our strategic roadmap. It also broadens our reach into food ingredients markets, building our higher-margin production capabilities, adding value to our end products which we have been working on over the last several years.

This addition brings opportunities for ongoing consolidation in the relatively flat, fragmenting global vinegar market. We also believe it supports our expansions into other developing markets' office platform, more specifically in food, pharma, food preservation and agriculture.

The value proposition for Green Plains has always been the same: reduce the volatility over the long term and give investors a stable and predictable earnings stream. The vinegar business is a non-cyclical end market which has allowed Fleishman's to maintain stable margins in volatile commodity markets.

We believe Fleishman's has above-average growth capabilities, mainly because of some of the on-trend products and other innovations that current leadership has developed over recent years.

The final and very exciting aspect of this is we have accelerated our plans to engineer and upgrade one of our plants to produce beverage-grade alcohol, hopefully within the next year or so. Now that we have York, Nebraska, we are selling B-grade industrial alcohols as well.

Let's talk a little bit about the fourth quarter, which -- so for the fourth quarter, we will have the first full quarter of Fleishman's earnings that will contribute to our profitability overall. Based on current markets and curves versus the third quarter, we expect topline growth, better earnings per share and overall EBITDA, which is tracking over 30% better in the fourth quarter than over the third for the total Company.

Keep in mind we have 66% open for the quarter at this point of the crush. So there could be plenty of volatility, but the fundamentals remain strong.

The numbers are bigger than ever as our production levels will be a record for the Company with the new plants added to these numbers. We will assess the situation very closely, yet even with the potential US demand starting to decrease with winter coming, we have seen a spike in export interest which has kept our markets firm.

We believe the industry has an interesting situation brewing as some of the plants across the US will have to slow towards the end of the quarter because they have reached their maximum RIN-generating capacity. We have seen some evidence of that and it could be a factor that keeps things interesting.

While deploying nearly $0.5 billion, as Jerry indicated earlier, of capital in acquisitions for a small company like Green Plains is very meaningful, we continue to look for additional opportunities to expand our Company, as our liquidity remains strong and our earnings power has yet to harness itself fully.

The [five] points of capital allocation remain the same. But growth is key for us and we want to take advantage of opportunities to add quality assets to our platform when those opportunities are available. As our history shows, those opportunities can be lumpy.

In closing, I wanted to leave a few metrics in everybody's mind. We ended the year with close to 1.5 billion gallons of ethanol production, 4 million tons of distillers' grain production. We used 50 BCF of natural gas in our process and we processed 15 million tons of corn across all of our plants with that equal to about 1/3 of all the corn being exported out of the United States.

We produced 363 million pounds of corn oil -- we will produce 363 million pounds of corn oil in 2017. And we expect to have somewhere in the range of 65 million to 70 million bushels of grain storage by the end of 2017.

We have 72,000 head of cattle on feed, and we expect to expand that to 80,000 head over the next six months.

We are now the largest producer of industrial vinegar in the world. We have an MLP worth $670 million market cap this morning. We ended the quarter with $440 million total cash with now around $320 million cash after the acquisition, so we are in a great liquidity position as well.

So, to close, I appreciate the hard work and dedication of our employees, who continue to meet the challenges of a growing business while maintaining a safe workplace for all of us. I appreciate the confidence of our shareholders and trusting us to be stewards of the capital invested in Green Plains as well. I'd like to thank everybody for joining the call today.

And I'll ask Jeff to start the question-and-answer session.

(Operator Instructions) Sandy Klugman, Vertical Research Partners.

Of the $1 billion in ethanol exports that you are anticipating for 2017, could you discuss what your expectations for China are?

Yes. China is in the number, but I think it's driven by really a weighted -- between countries like China and Brazil and Southeast Asia and Canada. So we haven't really put those numbers out in total, but we are starting to see a strong export pattern in Brazil all the way through March or April of next year. It is almost a $1 advantage on the arbitrage. It's open to about $1. So we expect Brazil to continue to take our volumes, which they have started to take this quarter.

And then we would expect some return from China as well next year, as we saw a strong first half from them, a little bit less in the last half. But they still have continued demand that they are going to need to buy.

So overall, they will contribute. We don't have an expectation, final expectation for next year but would expect it to be a couple hundred million gallons.

Okay, great, thank you. And then in the past you have mentioned that scale in ethanol is important, as it provides you an ability to run the plants and maximize margins. With the new capacity that you've either brought online or acquired over the past year, do you believe you are at a point now where you can achieve this goal? And if not, how much additional capacity would you anticipate needing to get there?

I think we are approaching scale. I think what we have now, even when we had plants, as I had just illustrated to you, the savings that we realize across our platform. And so I think we are approaching scale. I think we have still more to go.

I think scale in this industry is in excess of 2 billion-plus gallons. And obviously that has been a goal of ours as a minimum over the next couple of years.

So we continue to search for opportunities. And with scale, comes opportunities around corn buying, producer programs, the way we sell our ethanol and distribute our ethanol both domestically and globally, building the Jefferson export terminal and using that to leverage off of our production base and so on.

So we think, we believe that things like our corn oil production and distributing that globally can only happen the way we do it because of the size and scale of our platform being able to serve every market and every corner of every market, because of where we sit.

So I would say we are starting to approach scale. And it's also defensive. I mean, in a market where margins contract and the market knows that we're willing to slow down our production, when you can slow down a bigger production total capability, which would have a bigger impact overall, we think that that's also part of the scale equation as well.

Thank you very much.

Adam Samuelson, Goldman Sachs.

Maybe first, Todd, on the forward sales in that export, I just want to be clear. You said you didn't have much sold for November and December. So, should we interpret that that, while you're confident on the export opportunities for the industry, you actually don't have a lot of gallons committed to the export markets for late this year?

No. What I am saying is that we don't have a lot of crush for November and December. But we do have a significant portion of our production sold physically for November and December.

In fact, our ability to sell much more in the export markets, I would say, is somewhat limited. It probably will be a strong quarter for our export sales total, overall, as we're starting to see more and more interest and we are starting to convert sales that we had domestically into the export markets on all grades which we can produce.

And so I would -- to clarify, we don't have a lot of crush on for the rest of the year, but we do have a lot of physical sales on, and a lot of that is targeted at the export markets.

Great, that's helpful. And then, just thinking on 2017, and you illustrated some of this in your closing remarks, but can you talk about the projects that you have underway today that -- the Port Jefferson terminal, the food grade ethanol, some of the organic debottlenecks at your existing plants, things that you have underway today that are not yet contributing to the base, and just remind us of the timing and how much of that rolls over into 2017?

Yes. So when we start with the Jefferson terminal we expect the first production to be online there mid-2017 this July, August, somewhere in that range. We have finalized tank designs, we have started to let out certain contracts. We started to move dirt. And we expect that project to contribute to the last half of 2017.

Food grade ethanol would be, at earliest, in the last quarter of 2017, probably takes us a year to retrofit and/or build out new capacity, depending on what our final decision is, although we are going through engineering of both situations right now. If people remember in the industry, York used to make beverage grade. We don't know if that's where we will put it or we will put it at one of our other plants, depending on not just the needs of Fleishman's but also logistical needs of other customers globally that have come to us for more B grade and more beverage grade alcohols.

Some of the organic projects that we are working on -- a lot of that has come online already this year and is in our production capacity. We still have some final projects yet to finish out.

But in general, most of what you are seeing in our 1.5 billion gallons would be a lot of the organic projects that came online already. So you will see that contribution in an expanded margin environment, potential expanded margin environment through 2017. So a lot of what we completed -- you are starting to see the benefit of those, whether it's in yield with corn oil, whether it's in corn oil as well and the things that we are doing there.

So our CapEx spend right now -- Jerry, do you want to comment on that in terms of where we are at?

Yes. I would say, for 2017, we really haven't rolled out the numbers and done our final budget estimates. But I think it should be somewhere about in the same category, same order of magnitude as this year, probably around $30 million or so on our base business plus about $25 million to $30 million for the Jefferson terminal. So I would say, all totaled, a reasonable number right now for expansion CapEx is about $50 million for the Company.

That's helpful. And then just one final one from me -- on the slides on the liquidity and capital structure side, this pro forma EBITDA that you have introduced with the $0.20 a gallon crush margin, I just wanted to hear. That's your ethanol crush EBITDA, or that's a consolidated EBITDA or includes agribusiness marketing and distribution?

I just want to make sure what's in and what's not, in that number.

Yes, that's the consolidated crush EBITDA.

Exclusive of the other segments?

Well, then what we do is we add in the other segments on a trailing 12 basis.

Okay, that's very helpful. I appreciate it.

Farha Aslam, Stephens Inc.

Just a clarification -- you mentioned the low teens/high 20s crush margin. Was that you've achieved, what you are achieving in the fourth quarter? Could you just give us more detail on crush margins that you are seeing in the fourth quarter?

Yes. So quarter to date we have seen high teens/low 20s across our platform for the month of October. The month of November is rolling out to similar levels but is highly inverted. So if you go to December it's about a $0.10 inverse from there, if not more, based on the current market. And that's how we started out.

When we did October at $0.20 a gallon, roughly, let's just say in between high teens and low 20s -- I just used an average -- November was a $0.10 inverse and December was a $0.10 inverse. So it was $0.10 and then negative when we were locking away October.

Now that we're in November, the crush has rolled up to similar levels. But we will have to wait and see how full November rolls out. There's a lot of volatility, but it looks like it's trending our way to at least maintain those same levels.

And then December still remains at least $0.10 to the spot market, if not more on some days. So hopefully, that will clarify it for you.

That's helpful. And so the December inverse. Is that to do with DDGs and the fact that we are going to have more restricted DDG markets because Vietnam might be out of the market for US DDGs?

No. DDGs are already fully priced into the curve between November and December already, and the market is pretty well flat for that. It's all driven by the ethanol inverse. And the difference there is when you look at the market you've got a Nov-Dec futures inverse right now showing $0.07 and Nov-Jan futures inverse showing $0.125.

So it's really driven by the fact that corn is flat to a carry, as it always typically has been, and ethanol is flat to an inverse, that it always typically has been. So the market doesn't reward you beyond 30 to 60 days right now, but even though it has continued to roll off for several years except for a few quarters where we see some oversupply. So it's really driven by the ethanol curve in total.

That's helpful. And what do you think your projection in the fourth quarter for ethanol will be and out into next year, what should we model production for (inaudible)?

Production should be over 330 million gallons or so for the fourth quarter. And we would use somewhere between, depending on utilization rates, somewhere between 1.42 to 1.475, probably just space and utilization.

But depending on what we do on organic, it could go higher than that, but in general pushing toward the 1.5 billion gallons.

But if you want to be a little conservative you could use, depending on shutdowns and maintenance issues, you could use 92% to 94% of that. And exports -- you have to remember that we could push hard. If we don't export we would run full out hard. But when we export we have to slow down our plans. So when we make certain specs, the reason we don't -- in a big export year, if we are a big participant in that we won't run our platform to 1.5 billion gallons because we have to slow down to make all the different specs.

We get paid for that in the margin, but we won't push as hard on the asset.

That's helpful. My final question, Jerry -- interest expense with the convert for the fourth quarter and into next year?

Interest expense for the fourth quarter should be somewhere around $15 million. And that would be a reasonable run rate going forward.

Great, thank you very much.

Brett Wong, Piper Jaffray.

First, I just wanted to dig into a comment you had, Todd, and based on your initial outlook into next year. You talked about the potential to be short product. Is that exacerbated by the RIN generation capability limitation?

No. No, I don't think so. We just plug in 1 million barrels a day. I think that's got basically the RIN-generating capability of the industry next year, plus or minus a couple hundred million gallons, maybe. But that can go for export.

It's really what -- if you are pushing hard and you [can't] make exports back and you have reached your RIN limit, and there are plants that cannot make exports back today out there then you have to slow down.

But in general, we just took all that into consideration and plug in 1 million barrels a day for 2017, which is 15.3 billion gallons. That's the starting point, and then from there you can take all the other demand numbers and see that the math doesn't work very well.

And so then, following up on that, do you think that there's going to be some appetite for building out as margins improve with that kind of a structure?

No. Building on more capacity?

Yes, yes.

There's that one plant -- there's maybe one plant or so that's on the board that is being built right now across the board. But I don't think, in general, people have big plans to add lots of capacity from building new plants.

There's rumors of stuff going on, but in general I'm not sure that the appetite at the banks could finance those type of projects as well on one-offs. And so our view is that we should be pretty steady at 1 million barrels a day without a significant plus or minus based on any new capacity.

Okay. And would you guys be considering building new capacity? Or are you going to stick looking at Brownfield and M&A opportunities?

Yes, zero consideration of building new capacity, greenfield capacity, at all in the United States.

Okay. And then just one last one, on the mandate. I know ethanol demand is driven by octane, so really the mandate doesn't matter. But obviously there's a [rough] perception to it.

Just wondering your thoughts as we should be getting some determination, or maybe not, given the election, around the 2017 [RVO] final.

Any thoughts there? And impact if we potentially see a decline to what that expectation would be.

I think we have a commitment from both candidates that -- our view is there's still volatility around -- that the mandate will continue to move forward. Obviously, what that number is, is still driven by what we are seeing is around gas demand plus some E15 demand, so our view is that it will remain steady.

And so from a RIN standpoint, there is no shortage brewing. There's all this RIN noise that's out there is really driven by the haves and the have-nots, who has RINs and who doesn't have RINs, and they're all in the same industry.

So there's inconsistency even within their industry about whether you want to change the program or not, where half of the refining industry says, don't change it because I've got downstream capabilities to generate a RIN, and half the refining industry says, change it, because they don't have it. And it's truly a zero sum game.

It is very interesting to watch this play out as they in-fight with each other and don't fight with us at this point. So I think that's a fascinating thing to watch in our industry play out.

So our view is that we will have a number that makes sense for next year based on what the calculations have been around true demand for the product. Whether that pushes 15 billion gallons or not, we have no say in that.

But we were not unhappy with the last result and I don't believe we will be happy with the next result.

Very good, thank you.

Craig Irwin, ROTH Capital Partners.

Todd, over the last couple years you've evolved the platform at Green Plains really significantly, right -- MLP formation, the increased scale, some of the other new initiatives that you've stepped into.

I wanted to inquire a little bit more about how this has evolved your M&A strategy and your thinking on M&A looking forward. So in your comments earlier on the call, you mentioned 2 billion gallons as a scale you wanted to reach over the next couple of years.

But, maybe, can you talk a little bit about whether or not you see a ceiling on potential ethanol market participation for Green Plains in the US? And then, can you maybe help us understand your thinking about the balance between pursuing stable, profitable businesses like Fleischmann, things that don't have the traditional volatility like the ethanol business, and the focus on extracting the synergies of the partnership to help grow your footprint in the ethanol markets?

Yes. So it has been our strategy really, if you go back, of generating non-ethanol operating income to smooth out the results of the volatility of the ethanol platform, which really has all the earnings, real earnings upside power.

So if we can get through the volatile downsides of this market, we will position ourselves very well for events that happen, and we have seen them happen several times over the last eight or so years. And so if we address, first, the capacity that we have in the ethanol segment of 1.5 billion gallons with aspirations to get bigger in the business, we believe long term this business is very solid and it's well beyond, now, just producing ethanol.

The amount of corn oil that we produce and distribute globally has significant impacts as non-trend veg oil or veg diets happen in animal sectors, moving away from feeding animals to animals. We think we are a direct beneficiary of that in the world today by the vegetable oils we produce as an industry, in total. It's not just as Green Plains.

When you have a base $0.05 a gallon of corn oil in your crush, that is a pretty good starting point that we didn't have eight years ago.

So, when we talk about extracting all the synergies, I don't believe we are done in doing that. I think there's still upside opportunities and moving up the value chain, just in the things that we produce.

But in general, when you look at the earnings power of our platform right now, if the crush moves every penny now over a 12-month period, it means $15 million of earnings capacity. Obviously, if it goes down, it's the opposite.

But it has significant scale. It's the law of large numbers, which we have been basically saying since about 700 million gallons, to wash [a lot] of large numbers. And now we are at 1.5 billion gallons and it becomes very meaningful very quickly on very small moves that can generate lots of free cash for our shareholders.

So, we like the business. We believe in the long-term viability of the business. It has been around for eight years in the modern form, or 10 years now. It's not going away. The industry is extremely healthy, debt-free, in a very good competitive situation against the other molecules that are out there.

And we solve the world's ability to be -- while we solve the world's shortage of any agricultural products through technology of the corn plant. So, we are going to be flush with our raw material for years to come, and there's only one place in the world to get rid of it. And that's in the ethanol industry and potentially through expanded blends.

So we believe that this is a great business to be in. It starts out with 15 million tons of processing capacity, equivalent to 1/3 of all the US exports out of the United States through the world of corn. And that's just our Company alone. And so just think about that across our industry. So we believe that. We want to continue to acquire assets there.

But on the other side, so is there a ceiling? I won't say there's a ceiling to what we want to do, but obviously it's always hard to buy healthy industry assets and good ones, and they don't come up for sale very often.

So you've got to be somewhat -- have the ability, then, to buy things that maybe some others don't want but you can fix them. And we have been able to do that. So we have developed a nice portfolio of assets across multiple sizes and multiple technologies that just seem to work for us overall as a portfolio.

So then you go on to the non-ethanol operating income, which we have been focusing on. Our first goal was $100 million. I would say that our goal is significantly higher than that at this point. So we've reached $100 million, and obviously -- we've changed around segments a little bit, but we reach $100 million two years ago.

And now with Fleischmann's I think we will surpass that and move into possibly higher goals and aspirations to non-ethanol. So all of that, again, plays out very well.

When you start out with a nickel a gallon corn oil, before you even add any value to that and you add in another $100 million or potentially $200 million, which is a possibility, of non-ethanol, that's a great base place to start before you even get in ethanol margin over and above that.

So -- and we have aspirations to grow both sides. Our aspirations have typically been bigger than our balance sheet in the past, but we continue to find ways to bootstrap our way into acquisitions, continue to focus on debt repayment, continue to focus on allocation of capital. And that model has worked very well and the markets have given us opportunities to do that.

So it's all the same as it was five years ago. It's just in bigger numbers now.

A long answer to a short question, I think.

But a good answer, thank you. So my second question is about the hedging strategy. So, 1.5 billion gallons is very different than 1 billion gallons when you start thinking about potential margin calls, implications on your underhedged positions and some of the balance sheet management issues that you have to handle to facilitate your hedging program.

With the increased scale that you have seen in the last year, do you foresee potentially changing your strategy around hedging volatility out of the P&L? Do you see this maybe impacting your value at risk? Can you maybe discuss this a little bit more broadly?

I'd like to go back all the way when we had 330 million gallons and we were worried about margin calls so -- and we also had a lot of that cash on the balance sheet. So when we look at it today, yes, we have to be a little bit more nimble in how we think about hedging out gallons and be very thoughtful about that approach.

So we probably can't hedge today a half a year of production and be responsible if the market would blow out, $0.25 a gallon from our hedges and have to make margin calls and put the company at risk, we'll never do that. So while it adds more complexity, I'll tell you it adds more opportunity.

So we will be hedgers. We will have to select our points now where we see the best opportunity to hedge, but we will also not be able to, as a percentage, walk into a year at this point and hedge it as big of a percentage as we might have been able to do in the past, just because of the need to manage the balance sheet in an expanding margin environment.

So yes, you are correct. But I think it also brings opportunities as well that have great earnings power capabilities. And we can manage the downside. So if we can get to that 100 million to 200 million gallons -- $200 million consistently on non-ethanol and we could add $0.05 a gallon, should we do that, that becomes $75 million a year on corn oil, roughly, in the capability there.

And you add all that together, and you start that as your basing point, with another $300 million to $400 million of cash on the balance sheet -- I think we have ability to hedge. We may not get to those large percentages, as we have in the past, but we will be selective on where we really feel like we can get the best bang for our buck.

But our value at risk certainly is increasing overall as a portfolio. We call that the natural position value at risk, only because of the size and scope of our Company at this point, not because we are putting more risk on.

Great, thank you for that. My last question is around exports. So also on this call you said that export gallons tend to be a little bit more profitable than domestic gallons. Can you maybe give us a little bit of color there?

And the second part of the question is -- 12% this quarter, you had healthy numbers over the last several quarters. Do you see -- well, maybe can you share with us an approximate range where Green Plains could achieve, as far as a percentage of gallons of export volumes in any individual quarter, given the potential for much greater demand overseas?

Jeff, if you can comment first on how many of our plants in 2017 can make exports back then, and I'll comment on what our capability is.

Yes. Most of the Delta-T plants, actually all the Delta-T plants can make a variety of export specs. Canadian, European, A&PE, Philippines spec. And so roughly just under half of our existing fleet can do that. And even some of our existing ITM fleets can make some of the specs but not all.

And so, one of the things that we have been doing is trying to make our fleet more robust to give us more optionality around the export spec opportunities that are out there. And when we look at quoting opportunities, it's logistical in terms of destination, origination, as well as the local basis numbers that we have to have to make that switch or the reduced run rate that Todd talked about earlier.

Yes. So how we look at it is that our production breakout last quarter, we produced, of the 292 million gallons that we reported, we were able to produce roughly 45 million gallons or so of export spec in all different shapes and sizes.

So when we produce, right now, about 10% of the nation's ethanol in our platform and we have exported more than that, which would tell you that we have the capability to do more, we can take half of our fleet, which is Delta-T, roughly Delta-Ts or [Vogel Bush] as well -- they all have capabilities to produce a lot of exports. So we could produce a significant portion of what's needed out of the United States. But obviously we have competition to do that.

So when somebody wants our product -- so, for example, this quarter, when we only exported 12% of our production, with margins expanding we were not willing to sell this spread because we felt that margins would expand through the need to slow down. And we wouldn't earn enough return on that investment to make the slowdown.

Even looking forward in this quarter that we are in today, people call it -- buyers are calling us today and not bidding enough for us to slow down. Now, whether they can go get it somewhere else, that's up to them, or they have to call us back and pay us more, and we will slow down. So whether it's a $0.3 premium, $0.05 premium or $0.10 premium, which is all in the range of what you get for all these different specs, you want to be able to get paid for slowing down.

Otherwise, losing the efficiency of running at full rate and that full quantities is not worth $0.005 or $0.01 here and there. So you have to be really committed to making sure that you get paid enough to not risk the efficiency of slowing down the whole machine because when the machine slows down you lose other efficiencies as well.

And so, we watch that very closely but we are still focused on disappearing volumes out of the United States. So we are always an aggressive seller. But I would say we are very sensitive to the value that we get. And so it's hard to quantify in any given quarter what the market is going to do.

Great. Thank you very much for taking our questions.

Laurence Alexander, Jefferies.

This is Dan Rizzo on for Laurence. Just in terms of ethanol production as you look into the fourth quarter of next year, do you expect any downtime in your facilities or in the industry?

In the fourth quarter of this year?

Yes, and into 2017.

Yes. So we are just finishing up our production downtimes for maintenance turnaround, and the industry is still in the middle of some of that going on. We will still be turning around plants all the way through December as we push the maintenance off from the third quarter into the fourth quarter of it, mainly driven by the inverted margin structure that we saw. But we are still going to produce in that 330 million gallon plus range for the quarter with a big maintenance turnaround quarter.

I think the industry on its own is in the middle of maintenance turnarounds, which is why we are not producing 1 million barrels a day. But we will probably pop back up to 1 million barrels a day quite quickly.

The industry typically, historically, has run in that 92% to 93% run rate across the whole industry. So what's that driven by? It's driven by unpredicted downtimes as well as maintenance turnarounds as well as some slowdowns due to market conditions at any given time during the year. So I think that will stay consistent throughout the year.

Thank you very much.

Ethan Bellamy, Baird.

A few questions -- on the Jefferson terminal, what is the latest thought on the timing of dropping that down to the MLP?

Yes, so we are in a marketing right now of the Jefferson terminal, and between ourselves and our partner. Once it's determined that we have good long-term contracts in place, at that point I would anticipate we would offer that to the MLP for a drop-down, so somewhere in between now and completion, I think, we will have the opportunity at the MLP to look at that asset and make a determination as well as, at Green Plains, to offer that asset to the MLP.

Jerry, anything else on that?

No, that's exactly right.

Okay, that's helpful. And then regarding the RIN compliance issue at the refiners, doing understand it correctly that you guys are completely indifferent to where the point of compliance is? Or are you better off or is the ethanol demand market better off if the status quo prevails?

No, we are not indifferent, I can tell you that. And I have everybody at the table around me making sure that I say that. Steve, do you want to comment on where we are headed with that?

We just went out -- Growth in Energy just put out a letter on it to the EPA, and they are stating that we were looking at -- the point is to remain where it is with the original RFS right now. That's our stance on it.

And what were the downside be if it shifted?

The opening of the RFS.

It's opening up the whole regulation. So at this point we feel like it's worked so far. The zero-sum game that we're talking about -- as we said, it's the haves and the have-nots. The have-nots are complaining about it, and the haves are not. And the haves are very big oil refining and distribution companies. So those are all business decisions.

The last time this RIN thing happened as well, we pointed out those were business decisions made to get out of the distribution and/or retail business. And if you made that decision, they worked expecting that this would be the market that they would make the decision in. So the companies that made the decision to expand in those are the beneficiaries of that, and the two of them are trading with each other. And there's a winner and there's a loser. But I don't think that we have to be -- we are not going to be the gatekeeper on that.

Okay. And then lastly, perhaps somewhat related, are there any specific risks or opportunities around the election for you?

I don't think so. Obviously, both candidates have made a commitment to support the renewable fuel standard. And we're going to take them for their word. I think that, depending on how Congress goes, obviously there's always things that we watch there closely. At times this is a Republican program and at times this is a Democrat program. It all depends which way the winds are blowing. But in general I still think we have enough support to continue on with the program.

So, while we certainly are going to watch Ted Cruz's antics when he returns back into real life, I think that other than that there will be the people that try to fight this renewable fuel standard. But I still believe we have enough support for our program going forward.

And Steve is going to comment one other thing.

One other thing on the point of obligation we are talking about I think worth considering and mentioning is, remember, there has been investments by a lot of retailers now to what the point of obligation is for E15. So they have gone forward with incremental blending. So to change the point of obligation cuts the legs out from under those guys at this point, too.

Understood, thank you.

Selman Akyol, Stifel.

Most have been asked and answered, but just going back to the Jefferson terminal, would you say your outlook now is better than it was when you first started to make the JV? Or is it just about the same?

It's about the same. All of the assumptions we made are still intact. Obviously, world demand continues to increase for our product. And we think it will be a highly efficient, the most efficient and best utilized terminal in the Gulf for our product, both inbound and outbound, because of the multiple modes of transportation that can hit that terminal. We have a lot of interest during the open market season for it. And with that said, I think we are on track with all of this is the assumptions that we made. So I wouldn't say better or worse, I would just say on track.

Okay, fair enough. And then just going back to the acquisition, do you see any additional plants coming for sale as you look out into 2017? Could there be another meaningful acquisition for you out there in terms of being able to pick up several plants at a time?

I still think there are plants that will trade. We don't know which ones they are going to be or who is going to decide it's the right time to go market a plant. We continue to talk to lots of potential acquisition targets, and anybody who knows us knows that we are focused on growing the business.

But it's lumpy. We can go a year and not get anything and all of a sudden get five. And that's what happened just here recently. But we are focused on acquisitions and continually looking for opportunities, and we are starting to see a few here and there start to at least test the waters again. And we will have to wait and see what happens.

All right, thank you very much.

Pavel Molchanov, Raymond James.

Just one from me, a regulatory issue -- you have 1.5 billion gallons of capacity. You talked about targeting 2 billion. At some point is there a risk that you might get into, an antitrust issue with having a larger than usual chunk of the industry's capacity?

No, not a few billion gallons, in fact, a report just came out that our industry became less competitive than more competitive as of late because of the size of the growth of it, getting the 15 billion gallons so we have a long way to go before anybody reaches a point that anybody gets too worried about too much of -- too much production in one company's hands. And with all of us sitting around, 1.5 billion to 1.7 billion as the largest, there isn't much worry from our standpoint of any issue there at all.

Appreciate it.

And it appears there are no further questions at this time. Mr. Todd Becker, I'd like to turn the conference back to you for any additional or closing remarks.

Thank you and thank everybody for coming on the call today. Obviously, lots going on at the Company. We have some really exciting things happening. Looking forward to talking more at the end of Q4 and then we'll catch up with you then. Thanks for calling in today and have a good week.

This concludes today's call. Thank you for your participation. You may now disconnect.

(Editor: Transcript will be posted in entirety when audio is available.)