Green Plains Inc.
Q2 2013 Earnings Call Transcript

Published: 31 Jul 2013

[Operator:]

Please standby we’re about to begin. Good day everyone and welcome to the Green Plains Second Quarter 2013 Financial Results Conference Call. Today’s call is being recorded. And at this time, I’d like to turn the call over to Mr. Jim Stark. Please go ahead sir.

[Jim Stark:]

Thanks, Jamie. Good morning and welcome to our second quarter 2013 earnings conference call. On the call today are Todd Becker, President and CEO, Jerry Peters, our CFO, and Jeff Briggs, our Chief Operating Officer, along with Steve Bleyl, who is Executive Vice President of Ethanol Marketing. We are here to discuss our quarterly financial results and recent developments for Green Plains Renewable Energy. Our comments today will contain forward-looking statements which are any statements made that are not historical facts. These forward-looking statements are based on the current expectations of Green Plains’ management team, and there can be no assurance that such expectations will prove to be correct because forward-looking statements involves risk and uncertainties. Green Plains’ actual results could differ materially from management’s expectations. Please refer to our 10-K and other periodic SEC filings for information about factors that could cause different outcomes. The information presented today is time sensitive and is accurate only at this time. If any portion of this presentation is rebroadcast, retransmitted, or redistributed at a later date, Green Plains will not be reviewing, or updating this material. I’d like to turn the call over to Todd Becker now.

[Todd Becker:]

Thanks, Jim. And thanks for joining our call this morning. Green Plains as you know is a growing commodity processing business that manages $1 billion worth of assets in the fuel ethanol industry. Within our ethanol production segment we can produce 790 million gallons of ethanol which will consume nearly 8 million tons of corn. We also produce over 2 million tons of livestock feed and can extract over 165 million pounds of corn oil. We generated $805 million of revenue this quarter, operating income of $18.6 million and net income of $6 million or $0.19 a share. There was a $20 million improvement in operating income compared to a year ago in all business segments at a positive contribution to our profits this quarter. Our non-ethanol segment generated $17.3 million in operating income in the second quarter, and we have generated $38 million in the first six months of 2013. Jerry will talk more about our balance sheet but our multi-year focus on paying down debt continues to show solid progress. In 2013, we will pay more than $50 million in principal on our term debt. When you look forward, we expect to do the same in 2014. More importantly the stock price has been trading above described price and the convertible debt outstanding. And if we stay there, we’ll have another $90 million of debt fall off in 2015, not including other scheduled principal payments. We feel our goal of zero net term debt in three years is attainable, apps and additional growth opportunities that may arise. In our ethanol production segment, we generated $7 million of operating income on 172 million gallons of ethanol production in the second quarter, which is approximately 93% of our stated operating capacity. We anticipate running our nine legacy plants at a slightly higher level in the third quarter and last week we started producing ethanol at our plant in Atkinson, Nebraska. We bought the plant with the expectation, we can get it up and running very quickly, and we have achieved that with very little additional capital needed, the plant was a very familiar size and technologies where operators and engineers, corn oil extraction will be installed at this plant by the end of the year. Our ethanol yield in the quarter was 2.83 gallons of ethanol per bushel of corn. We had some scheduled maintenance in the quarter which had a slight impact on yields, our trailing 12-month average yield remains at 2.84. Corn oil production was 0.65 pounds per bushel in this quarter, and we have produced 151 million pounds over the last 12 months generating $30 million in operating income. Marketing and distribution segment had another solid quarter generating $9.2 in operating income. BlendStar terminals have performed through the year and we are seeing new opportunity take shape throughout our system. We are not only handling ethanol but have expanded to bio diesel, methanol and looking at other specialty liquid chemicals. We continue to focus on expanding our merchant trading programs and to date have hired 10 new employees to work in the trading and in and around our physicals flows and logistical assets. We expect to start ramping this opportunity up as new crop supplies will be much more abundant. Agro business generated, a small operating income as we continue to transition of our grain handling and storage business into the supply chain with our ethanol production segment. We purchased a small elevator in Argyle, Nebraska in June that had 200 bushels of upright storage and we are in process of adding an additional 1 million bushels of flat storage to this location. Including the 11 million bushels of storage at our ethanol plants, we now have 19 million bushels of storage, and with the expansion plans we have in place to be completed in the next several months, our total grain storage will be approximately 27 million bushels by this harvest. In all, we’re glad to see a steady improvement in the ethanol industry margin environment over the last 90 days. There is still work to do in the third quarter, I will talk more about the third and fourth quarter outlook in our call. I’d like to now turn the call over to Jerry, to run through the second quarter financial performance. And I’ll come back, add to the call with some company and industry comments.

[Jerry Peters:]

Thanks Todd, and good morning everyone. On a consolidated basis, for the second quarter we reported revenues of $805 million which was down 8% from a year ago, primarily as a result of lower grain and agronomy sales and lower ethanol volumes sold. Partially offset by higher average prices for ethanol and distillers grains. Our operating income for the quarter was $18.6 million, which was a significant improvement compared to a year ago and all business segments had a positive contribution to the quarter. Our ethanol production segment generated $18 million more in operating income versus the second quarter of 2012. And if we take a look at the slide presentation on page four, you’ll see that we generated operating income before depreciation in the ethanol segment of $0.10 per gallon compared to break-even on a per-gallon basis realized in the second quarter of 2012. We had another solid performance from each of our other segments as our non-ethanol operating income for the quarter was up 18% versus the second quarter of 2012. For the first six months of 2013, it is up 62% over last year and that’s after selling a significant component of our agro business segment late in 2012. Operating income from corn oil production was $7.8 million in the second quarter, which was $1.5 million lower than what we reported in the second quarter of 2012. The lower operating income in this segment was a result of higher cost to goods sold which is due to higher prices we pay for our ethanol production segment for our distillers grains that are inputs to this process. Corn oil production continues to contribute approximately $0.05 per gallon, per ethanol gallon produced. Second quarter revenues for our Agro business segment saw revenues increase by $34 million or 24% over last year. This increase was due to realignment of our grain operations with our ethanol production segment where we sold 25 million bushels of corn or about 93% of the segment’s total volume. That compares to 6.1 million bushels of corn sold in our company or approximately 40% of the segment’s grain volumes last year. As a result, gross margin in this segment are down as we charge a nominal fee for direct grain origination into our ethanol plants. We reported about $248,000 in operating income in this segment, but it is important to note that we are in a transition period for this segment, while we construct additional grain storage capacity. Operating income in the marketing and distribution segment was $9.2 million for the second quarter of 2013 compared to $2.9 million last year. And more to the first quarter of 2013, the increase between the two periods is mainly due to our railcar initiative, a strong contribution from the Birmingham unit train terminal which began operation in December of 2012 and increased trading and logistics activities. Interest expense declined approximately $2.1 million in the second quarter of 2013 compared to a year ago, due to lower average debt balances versus last year. Our income tax expense was $4.3 million for the quarter, which works out to an effective tax rate of about 41.8%. Now we had a discreet adjustment that took place in the second quarter that affected that effective tax rate and as a result we expect to be back down to about 38.5% effective tax rate for the balance of this year. So, overall, net income improved by $13.5 million from a year ago, coming in at $6 million or $0.19 per diluted share. Earnings before interest income taxes, depreciation and amortization or EBITDA, was $30.5 million for the second quarter of 2013 compared to $11.4 million in the second quarter of last year. On a trailing 12 basis, EBITDA totaled approximately $158 million including a $47 million gain on the sale of certain grain elevators in the fourth quarter of 2012. I want to take you to slide, I believe it’s slide seven, liquidity and capital structure in the online presentation to highlight the progress we’ve made on further strengthening our balance sheet. From June 30, 2012 to June 30, 2013, we have reduced gross debt by over $100 million to end the quarter at $572 million. At the same time, we’ve increased cash by $90 million to a current total of approximately $227 million. So, that’s a reduction in net term debt of nearly $200 million over the past four quarters, resulting in the $241 million net term debt balance at the end of second quarter of 2013. In addition, during this time period, we paid approximately $15 million for the purchase of the Atkinson ethanol plant and we completed an $18 million unit train terminal in Birmingham. Now, we accomplish this in part due to the sale of 12 grain elevators late last year, but also during one of the toughest periods for our industry. In short, we’ve continued to invest in growing our business and at the same time strengthen our balance sheet. Our expectations for capital expenditure for 2013 remain at the $20 million level. Year-to-date capital expenditures are approximately $5 million not including acquisitions. Our remaining $15 million in CapEx over the rest of 2013 will include our grain storage expansions around our ethanol plants, the addition of corn oil extraction at the Atkinson plant and installing selective milling technology or fine grind at our third plant in the fourth quarter. To summarize, we reported another improved quarter of financial performance both compared with a year ago and on a sequential basis. We will continue to execute on our growth strategies and fine tune our financing capabilities to move our company forward. With that, I’ll turn the call back over to Todd.

[Todd Becker:]

Thanks Jerry. While we saw a steady improvement in ethanol margins from the first quarter to the second quarter, the third quarter is still developing and margins have been quite volatile recently. The corn basis moves alone have not been for the faint of heart. As we have discussed, we were now willing to hedge the crush without actual corn ownership this year. Those two do not always line up. I’m happy to report though that our corn needs are now covered through August and most of September, between plant downtime and the beginning of harvest, we’re in very good shape to finish the crop year. We will take maintenance downtime at all of our plants in late August and September. We usually break this out throughout the year but wanted to take advantage of the end of the crop year to slow production a bit during the line-down of old crop corn supplies. With that said, the margins for late August and September are still developing and will continue to be a work in progress until we see some further expansions. Overall the current and margin environment for the fourth quarter of 2013 is much improved over a year ago. Ethanol margins in the fourth quarter are favorable and we are positively encouraged about the potential. We are being patient to allow the quarter to become more defined in relation to corn supply and ethanol demand. We currently have approximately 25% of our margins for the fourth quarter locked away. That matches up well with our corn purchases today. In Eastern corn belt, we are starting to see more aggressive forward sales of physical harvest corn at all of those plants. The West is still a bit stingy but we are seeing some movement in Minnesota of new crop corn as well. We also closely monitor idle ethanol plants in the U.S. and potential ethanol imports as they could both have an impact in the last quarter of 2013. As we indicated in our earnings release, we anticipate better second half of 2013 than the first, and we continue to lock away the best margins available to us. How we break this down between quarters, it’s still yet to be determined. But on paper, this is what the markets are indicating and we are moving to capture this with our fourth quarter program. This year’s corn crop appears to be in good shape heading into the month of August, the crop has a potential to be the largest crop ever harvested. We are making solid progress in our growth initiatives, as Jerry mentioned earlier on the call, we will continue to invest in our business throughout the year. Our grain storage expansions are on track and timing is excellent considering the size of the potential crop this fall harvest. We continue to work on further development plans in our Agro business segment as grain storage and handling is essential to the operation of our business. I’d like to mention our railcar program had a second solid quarter or solid second quarter but we are anticipating this opportunity will start to pull back from the first half of 2013 levels when the third and fourth quarters of the year. Yet all-in-all, we still expect $30 million of non-ethanol operating income in the second half of 2013. As we told you in the last call, Bioprocess Algae was awarded a $6.4 million grant from the U.S. Department of Energy. This does not take away or from our focus or our end game of converting carbon to a value added product derived from corn. Let me give you an update on our progress. At this time, we are recuperating our grown median, all the reactors that are operating. We found that the UV rays, the greater the ability to hold our media firm over time. When this is done, we will see more consistent production in our reactors. This is a bottle-neck that was not anticipated but has been solved at very little cost. What I would like to share with you is the ability of our platform. We now have the turnkey ability to grow inoculums in a laboratory and move through our seed reactors, grow it up on the media and our growth reactors, harvest that Algae, dewater the algae, convert it to solid through this process and dry it to biomass. This all happens in a seamless process in Shenandoah today. We have a drier now installed on site, which is a change from the last time we discussed the project. The way we go from here, once the retro-fill is complete, we can then focus on actual yields at a steady state to determine a long-term economic capability of this platform. We will focus on all products along the value chain and start to more aggressively focus on end-use markets. It is now about maximizing yields, lowering capital costs and developing relationship with customers to give them a solution for their feed and food needs around protein and omega 3s. We still have a lot of work to do, but now with our focus on yield versus value, and we can start to make plans for the potential roll-out of this platform. I think the most important point of all of this is that our partnership yielded results. Now without challenges, at a cost multiple times less than the peer group, our core location strategy with our plants along with all the expertise in all three of the partner’s organizations, has been the reason we have made progress today. We will keep you updated throughout the year. I wanted to share some brief comments on the Renewable Fuel Standard and RINs. As I’m sure everyone is aware, there is a lot of conversations taking place in the Renewable Fuel Standard or RFS. What we know is there is a mandate in place for first generation bio-fuels or corn ethanol. We don’t believe there will be any significant legislation to repeal the mandate that will have adequate votes in Congress. We also believe the EPA has the ability to waive required usage of fuels that don’t exist today, and they will use that authority if needed. But again, this is not the case with first generation corn based ethanol. The E15 waver has provided a pathway to comply with the standard and we are seeing good traction at the retail level for a more coordinated roll-out of this fuel blend over the next few years. It is hard to ignore the economic to blending ethanol as wholesale ethanol is as much as a $0.90 discount to our barb ethylene out on the forward curve. If you haven’t looked lately, New Auto is coming off the assembly line from Ford and GM, have gas cabs that say E15-OK. Next I’ll quickly address their end market. As I discussed in the last call, we believe our end-prices are still a result of a short squeeze for major oil companies, who are making merchant refiners to pay up for their RINS. The theory was certainly validated over the last week as recently even as yesterday. A publicly traded merchant refiner admitted that high RINS prices were not affecting major oil companies but was limited to their sector. Yesterday a major global oil company’s CEO commented that a “net long RINs”. As we have said, the merchant refiner with limited distribution is shortened by their own design, and the major oil companies are long RINs and that to the consumer is a zero impact on gas prices. So, high RIN prices are not adding to the cost of gasoline from – for some of the largest market participants, but it is realistic to think that merchant refiners have enough pricing power to increase gasoline prices to cover their RIN cost. Bottom line, we don’t believe that higher priced RINs have any effect on the price of gasoline at the pump. It seems like our opposition is becoming more and more creative in their logic, twists and turns. Best we heard last week, with now the RINs have broken back in price, a large Northeast retailer can resume importing Nigeria and gasoline, thank goodness for that. In the end, we believe, we have the support of the EPA, the DOEs, the U.S. Senate and the current administration to keep the RFS intact. I would add that we believe that whatever may happen with the RFS that as an efficient producer, Green Plains is and will be in a position to continue to take advantage of the opportunities in the industry. In summary, we continue to be flexible and execute on our business strategy. We have great employees that throughout our company continue to perform very well. We remain focused on being the low cost producer, we firmly believe that we have established our place in the industry to be a long-term player. And we believe that ethanol is and will remain a permanent part of the world’s fuel supply. Thanks for joining in the call today. Now, I’ll ask Jamie to start the Q&A session.

[Operator:]

Thank you, sir. (Operator Instructions). And we’re going to take our first question from Laurence Alexander with Jefferies.

[Laurence Alexander:]

Good morning.

[Todd Becker:]

Good morning Laurence.

[Laurence Alexander:]

I guess the first question, just on the Bioprocess Algae side. Can you give an update on the research you’ve been doing about market adoption of the product and sort of how you’re seeing the demand fall at this point?

[Todd Becker:]

Yeah, I mean, we’re confident that as we continue to kick our product out to the market, we’re doing a lot of test in a lot of different channels. And all-in-all, because we’re actually able to give them product, we’re finding use and applications. I mean, our focus is really along the full value chain, everything from kind of high value Omega 3s into the fishmeal market, where all different stages of testing and trials in a lot of different segments. But we feel like once we get into a steady state, we start to get to our goal of 1 ton per day with a next round of CapEx, we won’t have any problem selling that product. So, from the standpoint of what we’re producing, which is either a dried biomass that can be applied in multiple different beach channels or a paste that can be used and extracted in many different ways. And we feel like there is plenty of uses for the product.

[Laurence Alexander:]

And then secondly, has the ethanol industry – I mean, do you have a position to be able to find alternative structure for RINs or the proposed one that is less volatile for the different players and but still gets the same incentives in place or is the conversation through well beyond that?

[Todd Becker:]

Well, we haven’t proposed anything from that standpoint. I mean, basically what we said at the balance sheet of RINs that are out there today are adequate to certainly take us quite a bit down the road. What you’re seeing in the market today on a very – you got to remember RINs are impacting a very small part of the overall production, it’s really kind of the different – it’s really the difference between the mandate and actual usage on a daily basis. And if there is a spread between that that’s kind of where – that is basically where the RINs are getting the value or not. So, what you’re seeing is we believe that your balance sheet is adequate for the RINs, we believe that what’s happening is the miss-alignment of the merchant refiner with distribution by design, has caused RIN values to go up. But if you look at the way some of the latest reports on retailers and large global oil companies, they are basically coming out saying we’re long RIN, we’re getting gains from RINs, and you can kind of see where these some gains comes in place. I think when that resonates well into Washington, I think their story of RINs impacting gas prices will weaken, I don’t believe that any structural change will need to take place in the next year or so. So, we’re going to – it’s a wait and see, and basically if you look at it, we will start to see some roll-out of E15 and E15 starts to take care of that actually the RIN values and any kind of coordinated role out of E15 and expanded blending is really what’s going to solve this issue in the long-term.

[Laurence Alexander:]

And then lastly, could you give an update or a little bit more detail on the progress you made on productivity in terms and how far you think you can take your net ethanol production per bushel of corn?

[Todd Becker:]

Yeah, so, basically what we’ve learned last year, by slowing down, we can increase yield. And as we started to push and push the volumes back up, we saw a slight drop in yield and so now we basically have a yield versus matrix and a locked right at the best opportunity versus profitability on the curve. The deployment of our – the fine-grind technology what we’re starting to see is now by a small capital expenditure, we can start to push our productivity higher while maintaining higher yields. And that’s kind of the first step in kind of maintaining, basically maintaining that 284, 285 levels and starting to push that higher. And once we know that we can use this technology to keep our yield high at high levels and we’ll focus on the next steps. We have some plants today that produce over 2.9 gallons per bushel of corn. We have some plants that are still in the high 2.7s close to 2.8 bushels per corn at an average that you are seeing. So we have – still have room to go. We think fine-grind applications will do that. There is some enzymatic and chemical processes out there that we’re looking at. But we chose fine-grind first because we felt that the capital – since we have available capital, we can get the same result with a one-time spend versus using enzymes at average single day spend. And so, we chose to capital out the start. Now once we deploy that technology across all of our plants which is our intent over the next year or so, or two years, because it’s a coordinated roll-out much like corn oil. Then at that point we’ll come back and we’ll look at where is, the growth coming from in the enzymes mark, in the enzymatic opportunities. But from our standpoint, we’re maybe a little bit different because we have available capital to spend to go after the one-time spend first versus the everyday spend on additional chemicals and enzymes and then we’ll come back and look at that and see what improvements are made then. But we will continue to focus on that. We think over the long term, we will continue to move higher in our yield. Obviously we have to deal with the fourth quarter this year which is always typically a lower quarter because it comes off, when harvest comes off you have to adjust to the current quality and moisture and all those other things that you have to figure out, how does it grind and then we readjust back-up. So, overall we’ll make a lot of progress on stable, long-term yields that you’re starting to see and we think from there we can push our volumes higher and maintain higher yields.

[Laurence Alexander:]

Okay, thank you.

[Todd Becker:]

Thank you Laurence.

[Operator:]

And we’ll take our next question from Brett Wong with Piper Jaffray.

[Brett Wong:]

Hi, thanks for taking my question.

[Todd Becker:]

Hi Brett.

[Brett Wong:]

Just on the fine-grind that you just were talking about, what’s your expectations for CapEx for that complete deployment?

[Todd Becker:]

Jerry.

[Jerry Peters:]

I mean, for the one plant it’s less than about $2.5 million.

[Brett Wong:]

And I’m sure you’re still doing the engineering work but would that be similar for the other facilities as well?

[Todd Becker:]

Jeff’s here, he can comment on kind of what he thinks over the…

[Jeff Briggs:]

Yeah, kind of total-total would $15 million ballpark in terms of spend for the remaining plants and via strategy where we would roll it out very much like the corn oil systems Todd mentioned earlier, really kind of tuck them in where you get the most bank for the buck. And so we’re working on that project as we speak and that’s something that we do anticipate as kind of the major capital item over the next 12 to 18 months.

[Todd Becker:]

Let me kind of give you just a bit of color. So, when we rolled it out, we said, let go to our worst yielding plant first and see what happens. And now let’s go to our best yielding plant next. And with by rolling about in both those places, the results were adequate enough and good enough for us to say now we can deploy it in all the ones in between, is that correct?

[Jeff Briggs:]

Yes, that’s correct.

[Brett Wong:]

Just speaking with that a little bit, you mentioned that you have some really strong yields with some of your plants, would you not look at putting the technology in and some of that 2.9 plus yields?

[Jeff Briggs:]

No, we actually think it will apply everywhere. And in fact, some of the enzyme solutions that Todd talked about, the next step after we go, the technology that we’ve discussed to see if and that’s added up with the enzymes. Because as long as you can keep making a nick amount of improvements in just final expenditures, we’ll keep looking to push that out our envelope. So, certainly the first cost to the capital solution, because that’s the biggest part of the apple that keeps staying year after year once you make that first investment. But then the other technologies will continue to see if they are added up. And such kind of a roadmap that we have as far as our yield enhancement project over time. And then I’d also add to that in addition to this the ethanol yields enhancements, we do continue to see and watch the coil on enhancements in terms of yields as well, which is why you’ve seen roughly an improving upward trend line in our corn oil yields at our platform as well.

[Todd Becker:]

Yeah, our latest increase to yield last month took us over 0.7 pounds per bushel of corn, so we’ll see if that’s something that is sustainable over time.

[Brett Wong:]

Okay, thanks. And just wondering what your thoughts are around current production levels in the industry and as we move into the lower fuel demand months when you guys are seeing there in terms of production for the industry?

[Todd Becker:]

So, yeah, it came out this morning and EIA seems to be the number – the EIA data seemed the immediate number that everybody is watching. We saw a stock straw against a production decline. And based on this current market structure, we don’t anticipate a very large increase in production through the end of the crop year, which is step one through step 31. We are, as I indicated, we’re planning on taking downtime as at all of our plants, this quarter, most happening in late August and the rest all did in September. That I think might be a common thing, more common thing around the industry but again we haven’t checked with everybody. But if you’re going to take downtime you want to take it this quarter, from our perspective, if you can push it forward from the fourth quarter, if your plants allow you to do that. When you look out forward, I still don’t know that you have a rapid increase in production, I mean, with the industry has been pushing to the upper limits of our capabilities, not quite as high as 2011, at the end of the mandate. But in general, more towards that 850,000 to 900,000 a day. And we think that’s probably where it will stay for a while even through the end of the year. So, from a standpoint of market, it’s pretty tight on stocks. We expect through the end of the summer depending on if Brazilians ramp up a program or not, which we feel like what’s on the books and the books – and the program doesn’t actually have a rapid ability to ramp up what they’re going – anything greater than what they have on the books today. So, if you look at that, we could remain tight and get tighter through the summer. We’ll take time to rebuilt some harvest. Fuel demand in general while may decrease a bit, we still think we’ll be strong through the end of the year, lending is strong, and where export program is strong. You even see our exports to Canada up 24% year-over-year. So, when you look at the equilibrium between imports and exports which should be a net export number this year or at least even, then you just have to run production against stocks, against RINs. And we think throughout the end of the year, we will still remain tight. The interesting thing is that we are learning, it is literally a week-to-week margin structure. Last week when we saw a build in inventories, the margins got went under pressure. This week with the draw, which we expected because we saw a large – lot of people miss-understand the inventory numbers, we saw large build in the Gulf inventory as what we thought was in transit before it move out of the United States. Well, that happened or not, we saw that all come back out this week and production go down. So, what you’re seeing is a rapid – though the market has a bit of a misunderstanding on a weekly basis but is using the EIA data to drive margins literally on a weekly basis because of the sensitivity of the tighter stocks. And so today, basically what happened was stocks came down, production came down, and the margins went up. So, that’s how sensitive this environment is at this point.

[Brett Wong:]

Thanks, thank you.

[Todd Becker:]

Long answer for a short question.

[Brett Wong:]

No, no, it’s a lot of great comments. Thanks a lot. I guess just touching on one point in there, you mentioned sugarcane ethanol, maybe elaborate a little bit more what you’re seeing in that dynamic and your expectations for increased imports?

[Todd Becker:]

We believe the window is not open for a substantial increase in the program. And with a lot higher blends in Brazil potentially, we think whatever the program is at this time of the year it is, and if we see any kind of bump it will be temporary. And in general that window has been basically economically closed. But if we had the program on the books already and you had your RIN barred against the program, then you want to make sure you bring those gallons in. It may take a little bit just to satisfy some California needs, but in general if you look at the world price of ethanol against U.S. versus Brazil versus freight, right now the window from our – in our mind is economically not an advantage to put a big program on.

[Brett Wong:]

Great. Thanks a lot Todd.

[Todd Becker:]

Thank you.

[Operator:]

And we’ll take our next question from Patrick Jobin with Credit Suisse.

[Patrick Jobin:]

Hi, good morning, thanks for taking the question.

[Todd Becker:]

Thanks.

[Patrick Jobin:]

I just want to touch on, I guess some of the approaches to potentially address the Blend Wall, the E10 Blend Wall. I guess, what are you seeing as the bottlenecks E15 today E85 even just getting more the fuel pool into 14 and 15. I guess, you referring a letting of things from different constituents? I just want to get your thoughts.

[Todd Becker:]

So, on E85 we’ve seen actually better numbers lately than we’ve seen in the few years mainly because of not only the discount to gasoline but the retailer has – the non-obligator party blender has – if you can buy clear gas, you can control the RIN and hold the RIN and actually the price that we see, some markets with the price of E85, the dollar less than the price of E10. Some market they try to keep more of the profit. So, we’ve seen a bit of a growth there which always helps in a small way the blend. And then when you look at E15, what’s happening is 10% of the fleet this year by the end of ‘13 and end of ‘14 will be E15 from the standpoint of new car with a cap on it. We believe that will be the case. Not inclusive of the fact that the EPA has approved 2001 in newer vehicles. Now, the opposition has come out with false advertising saying that automakers will void your warranty but I would challenge them to find very many auto makers that said we will void your warranty because by the way if you have a 2001 or 2005 vehicle you probably don’t have a warranty anyways. So, when you kind of look at that overall, we believe there are change, and we are working with chains as an industry broadly in different geographics to help them make the switch on their grade to gasoline to E15 along hundreds of stores across different geographics. We are making great progress, we as an industry are willing to help chains, convenient store chains as a trade organization as well as an industry not somewhat as an industry, we are willing to help chains make the transition if it takes a financial contribution to do that – I would tell you that the industry is standing there willing to contribute. So, we are going to incent convenient stores chains the best we can to make the switch. We think there is great economics in making the switch when you look at the price of ethanol relative to gasoline. And while it certainly is not going to be all fall in 2013 or ‘14, as you start to see more people not ignoring the economics, you’ll start to see more people roll-out E15 or more chains roll-out E15. And ultimately E15 could potentially become the standard. But again, we have the capability as an industry to provide about E11 or E12 in terms of a national blend. So, I don’t think that E15 will be a national blend but I think E15 will be an available blend.

[Patrick Jobin:]

Okay. And two quick follow-up, I appreciate that. Firstly, just remind us on the EPA’s authority to do a waver and if there is any burden of proof either on economic harm or if it’s as you pointed out availability of supply or what we could see from a near-term reaction from them?

[Todd Becker:]

Well, I mean, when you look at, there is no waver being asked for today anyways. And so, the last time the waver was asked for, they had to prove economic harm and there was an ethanol doing economic hard as the drought which is kind of basically they came out and said. And now we’re going to stare at the largest corn crop in history with corn prices pushing into the mid-forward with two and half year lows. So, it’s the right decision for them not to issue a waver as the market has corrected itself from a world agricultural supply standpoint. When you look at their authority, they have the authority to look at the mandate, especially when it comes to advance in sale asset and make adjustments that they deem necessary to do that based on available supply in the market. And so, when you take a bio diesel capabilities and you take some small amounts of sale asset and a little bit of an advance. Overall it’s our expectation that they will use that authority to adjust of those advance and sale asset mandate appropriately while leaving the corn ethanol mandate alone because there is a tool to and a program to comply with that mandate. And certainly an adequate amount of RINs in the market, that’s even after the price squeeze to take care of people’s obligation.

[Patrick Jobin:]

Okay.

[Todd Becker:]

So, overall, we believe that when you look at $0.80 or $0.90 discount on ethanol to gasoline, that’s a $10 billion savings to the consumer versus a potential maybe $300 million cost to the refining industry overall that there is no economic harm being done by ethanol today.

[Patrick Jobin:]

Okay. And then, just one question on the numbers, switching little bit here. I just want to make sure I heard correctly, you’re targeting $30 million of non-ethanol operating income for the remainder of the year, first half was $38 million and the $8 million delta is primarily from the railcar initiative. Is that how I should understand it?

[Todd Becker:]

Well, we had a strong first quarter in marketing and distribution which we said you should not annualize in that between all of that, we’re back to what we had indicated earlier in the year which is $60 million from non-ethanol operating that’s without a large contribution from Agro business.

[Patrick Jobin:]

Okay. Thank you very much.

[Todd Becker:]

Thank you.

[Operator:]

And we’ll go to our next caller, Nathan Weiss with Unit Economics.

[Nathan Weiss:]

Good morning.

[Todd Becker:]

Good morning.

[Nathan Weiss:]

I think you mentioned earlier that you have August and into September covered on the physical corn side?

[Todd Becker:]

That is correct, we are done with August and have a large portion of our September covered at this point.

[Nathan Weiss:]

We’re starting to see, what looks like elevator prices and physical corn come down pretty significantly over the last week or so. How do you think about your purchases and will you be timing to take advantage of that decline? And then I guess, more importantly, assuming ethanol prices stay constant if we see $1 to $1.50 decline in physical corn prices. What stops that from hitting your bottom line and kind of what are the risks that you see over the next few months particularly in Q4 that margins don’t go to something crazy like $1?

[Todd Becker:]

Well, we would like them to go to $1 but. So, let’s talk about the corn bases. I mean, obviously we extended coverage over the last week. So, it is timely with the call, market broke back. We are starting to see some of those markets start to recover to back to somewhere in between the high and the low over last two weeks. So we took the advantage of when corn wanted to move, we took advantage of and we felt like where the current margin structure was, those were good opportunities for us. And now we’re starting to see a bit of a expansion back on the margin structure based on EIA data. So the timing was good. But we’re just not willing to go real short this end of the crop year basis, because we’ve seen the volatility of $0.75 in a day, $0.30 the next day up and it’s just too much. And the way that we manage risk, we felt like that was a good time to cover, we are locked in for part of August in terms of the crush, we’re done with July obviously, because July we’re done. And so, we’re trying to match up well. But now we have a little extra corn now that when margins pop on days like today, we can now move very quickly to lock them away or at least have an opinion on what to do here. So, in general we don’t feel like that is going to be that’s all positive relative to where we sit in the quarter. Again, September really is not giving you any visibility at all. But I think the between – I don’t know that Southern harvest will give you enough corn as an industry to feel very confident big huge basis breaks throughout September. When we look at the fourth quarter, depending on where you think corn is going to go, obviously a $4.70 and you think $1.50 that’s $3.20, I’m not sure that we’re quite that perished just yet. But I would tell you that with the corn crop we have and with the fact that we’re still need to come down on price against the world competition in corn. Overall, we think that if corn weakens, ethanol will still travel with that. Maybe not one for one but in general ethanol sitting at these prices, if corn weakens $0.50 to $1 from here, which I think is a potentially harder thing to do real quickly, we still have to get through the end of the year. We’re pollinating well and good weather we still have a later crop, so we have to watch the end of the year weather. But in general, I don’t know that we’ll see the ability to expand margins quite to where you’re talking about. But overall, we like the fact that corn prices have started to move towards the lower end of the 2.5 year range. And the potential for us, as an industry is the fact that obviously, you don’t want to overproduce based on low corn prices and great margins. You find that equilibrium between production and economics. So, I think the thing is that, industry will be kept on some maximum peak margin, mainly because you still have extra capacity you could bring back on. So, if peak margins I think up two years ago are probably not attainable as they are quite today.

[Nathan Weiss:]

Okay, thank you.

[Todd Becker:]

Okay.

[Operator:]

And we’ll take our next question from Craig Irwin with Wedbush Securities.

[Craig Irwin:]

Good morning gentlemen, thank you for taking my question. So, in your prepared remarks, you mentioned that the profitability from the railcar initiative might not be a stronger contribution in second half. Are you reducing the number of cars on lease or is there a changing pricing or is there some other factor in there that’s impacting this contribution of the P&L?

[Todd Becker:]

Yes, and yes. So, with the addition of the Atkinson plant, we had cars that we could re-lease. But we felt like because of that plant coming online we had some of the excess in our fleet were put back into service with our Atkinson plant. In general, the overall lease market has broken dramatically for tankers. So, while there are still above, well above our cost structure, it is not as high as it was from the highs of last year or two years ago. And so, from a company standpoint, we had a good program that is giving us $25 million to $30 million a year for two to three years. And we took advantage of the excess in our fleet, the optionality of our program by becoming more and more efficient. Overall, if we don’t need as many cars, in the end, it will reduce our overall cost structure as a producer because we learnt how to become more efficient. And with the addition of our Birmingham turmoil and other CapEx, we now have sent a lot more larger units into lot more markets with better returns. But overall what you’re seeing is car values went from the highs of $3,700 or more a month in terms of leases to what we saw Steve recently a low of…

[Steve Bleyl:]

Some $900 get done.

[Todd Becker:]

$900 get done. The profitability of moving oil and tankers today out of the Bakken doesn’t exist. And so spending that kind of money on cars you – it doesn’t pay you today. So that’s spread between crude and Brandt, West Texas and Brandt that collapsed and hasn’t recovered to date, has it? No. So, that basically drove car values. That’s not to say that at some point in the future that’s spread wide as out again, which is absolutely possible. At that point we’ll have to reexamine. But we’re not winding down the program, it will just – it will start to overall – leases will start to fall off in 2014. Is that correct? Now, lease is on our program which start to fall in 2014.

[Craig Irwin:]

Great. Then the second question I had, when we look at the bio diesel market, most of the major players there participate directly blending their product and selling direct to customers in geographies near their terminals. What’s your opportunity to participate directly in the E15 opportunity. Is this something where you might have the potential to invest to capture the winds directly or is there some other way that you could possibly invest to increase your exposure to E15 directly and RINs generated?

[Todd Becker:]

Yeah, we looked at that, we said if we invest capital to increased blending as an industry, how would the RIN work? And from the standpoint of ourselves, and I think how at least some of our peers think is that the RIN is just a mechanism, we feel like RIN values will decrease with higher blends of ethanol because you’ll be able to sell for your obligation and any excess needs will be just taken care of through blending. And so, from a standpoint of, we don’t – if you start to get to E11 or E12 blend across the U.S., blend values will probably be a very old discussion that we had memories of. So, from a standpoint – but what I’ll do more importantly is if you get to that E11 or E12 blend on a E15 usage nationally, it takes up all the excess capacity in the industry. And at that point you are basically functioning without a lot of forward curve risk.

[Craig Irwin:]

Okay, excellent. And then last question if I may, Jerry, in your prepared remarks, you mentioned a tax hide but you didn’t call it out specifically as far as how big it was. Obviously something like a 330 basis points. In fact, do you have a little more color you can share with us?

[Jerry Peters:]

Yeah, it’s as we do our tax provision there are some items that flows through the effective tax rate that has to flow through in the quarters if they are identified. And so this was about $350,000 item that we had to flow through the tax expense this quarter. We, with the level of income that we had, it moved the effective tax rate by the 300 basis points. So, again, don’t expect that to return or to recur, and so we’re back to about 38.5% rate going forward.

[Craig Irwin:]

Great. Thanks again for taking my questions.

[Todd Becker:]

Thank you.

[Operator:]

And we’ll take our next question from Farha Aslam with Stephens Inc.

[Farha Aslam:]

Hi, good morning.

[Todd Becker:]

Good morning.

[Jerry Peters:]

Good morning.

[Farha Aslam:]

Just a question on your third quarter ethanol production. With the breaks that you’re going to take, what we would expect your ethanol production to be in the September quarter?

[Todd Becker:]

You know, with the breaks we’re going to take in terms of production, because we’re pushing a little bit harder. And because we are bringing Atkinson online, we will be in the range of 180 million gallons of production for the quarter.

[Farha Aslam:]

Okay. And then for the fourth quarter, can we expect your fleet to be kind of all up and running for the whole quarter kind of like it’s about the $195 run rate?

[Todd Becker:]

We should be up and running for the full quarter, we’ll determine based on the market how hard we push and where yields go. But in general, we should be greater than the third quarter and it just all – it’s a work in progress depending on how hard we want to push versus the yield. One thing we got to watch in the fourth quarter Farha, is, always quality of the corn crop and depending on what that – it comes in very wet or if starch contents not quite the same, it’s always a restart every fourth quarter on how to maximize yields. So we have to watch that closely but there is definitely today a chance that we’ll run at full capacity in the fourth quarter just depending on the market structure.

[Farha Aslam:]

Okay. And then, your new Birmingham terminal, could you share with us kind of how you find the performance of it and would you consider and are there opportunities for you to expand that program and how quickly you can do that?

[Todd Becker:]

Yeah, our Birmingham terminal is performing very well. We’re bringing more unit trains in per month than we had anticipated, when we built the terminal. And we are now expanding two other products, we have done bio diesel contracts there, we’re looking at other specialty chemicals. So, overall, it’s our flagship obviously when – it’s our biggest terminal, our most profitable terminal. If we could recreate that in our system, we would look at another opportunity to do that. We do have some potential sites to do that. Obviously it takes a couple of years to get everything done. But in general that has performed better than expectations and we’re very, very happy with the performance. But across our whole platform, we’ve been able to look at different products and not re-purpose but burn additional returns at some of those terminals by pushing other products through.

[Farha Aslam:]

And then, just some further color on your physical flow. I think you’ve said you had 10 traders. Now could you just give us your goals of how large you want that program to be, what’s the earning potential of that can be for Green Plains into 2013 and beyond?

[Todd Becker:]

Yeah, we’re going to continue to grow that business as we find individuals or teams of individuals that we can bring in that have a program that we can – it can be profitable when we’re utilizing the ability of our structure that we have across different geographics. And so, we feel like that program is – the goal of that program is to get to a point where we’re starting to replace other stock that major up all, I mean, the railcar program will eventually drop off here. And we’re building the grain business. We think that over time, as we said, when we started it that our goal was to make it $20 million to $30 million contributor. But we think more conservatively in the next couple of years, it’s going to be $10 million potential contributor, but again that’s all subject to getting the right people in with the right businesses and the right opportunities. So, if you don’t allocate a lot of risk capital in that business, we don’t allocate a lot of balance sheet capacity in that business, very, very efficient. But they are – we don’t know the capability of our teams yet, because we’re running the year in a very, very tight situation and we are just building the base of what we need to over time be very, very impactful in the markets that we’re going to trade. But with how tight we are at the end of the year, and the volatility and the underlying physical agricultural basis, we’re limiting our risk there just so that we don’t have any kind of long-term problems. So, overall, we’re setting the base for what we need. And we’ve got multiple products, whether it’s cross energy or agriculture, and things that are very complimentary to what we do today. But overall, we believe that it is a very big growth area for us and we’ll continue to look at that.

[Farha Aslam:]

Okay, great. Thank you.

[Todd Becker:]

Thank you.

[Operator:]

And we’ll take our next question from Matt Farwell with Imperial Capital.

[Matt Farwell:]

Hi, good morning. I just wanted to address the stock prices up significant from last year, and we’ve gone from period where ethanol was in distress, in that period where ethanol is driving. So now, that you look at your balance sheet, are you happy with the amount of debt you have or would you consider reducing the amount of debt?

[Todd Becker:]

Well, we are reducing the amount of debt every day because we’re paying off $50 million in normal payments plus an additional payment this year as well. So, we’re going to reduce debt by the end of this year again. Again, same schedule for next year, and then, the convert which matures in 2015. So, when you look at the next three years, we outlined in our conference call an initiative to have zero net term debt by the end of 2015, and we feel like at that point we have a very interesting structure in place that allows us to do – that gives us a lot more flexibility. We think that based on our performance over time, based on the strength of what we’ve been able to do with our balance sheet, our cost of debt remains low, our average cost to debt is still around 5% that is very, very manageable. And we’re trying to see some flexibility to help reduce overall those obligations as well as we might have some opportunities for that. But at this point it’s added core for what we’re doing. And we feel like the program we have just outlined will be very beneficial for our shareholders over the next two to three years.

[Matt Farwell:]

Okay. And this question is asked every quarter but could you comment on the M&A environment, I know that you acquired a plant in June, what kind of valuations are you seeing?

[Todd Becker:]

Yeah. We don’t know that that plant is the basis for the valuations of the world. But because one of those plants that was closed for a few years or a year or so, we knew the technology very well, we knew that it wouldn’t take much to get it up and running and it hasn’t. I’m not sure the market is as familiar with the debt size and debt scale in that location as we were. So we took up an opportunity to acquire a plant with an all-cash purchase at a very reasonable price and advantageous price for our shareholders. And so there is no debt on that plant at all. And it’s producing ethanol, actually as of today. So, we got it up and running, we also love the geographics of it. It’s in the best producing area in all of Nebraska. We inherited a rack loading system in O’Neill Nebraska, we’re looking at that for potential grain storage opportunities as well. We love that area where you don’t have to dry, spend a lot of time on drying your storage grains because there is so much cattle and opportunities around there. So, we’re very, very happy with that purchase. There are other plants that have traded significantly higher than that. The ICM, Vintage, large plants, newer builds, people have a lot of interest in that because – if you don’t know the Delta-T technology like we do, obviously you’re not going to take time to learn how to operate those correctly. But the ICM big plants have a different value proposition for people that don’t want to take time like we have taken on the Delta-T. Those plants are trading significantly higher, we’ve seen some plants trade in the $1.10 to $1.35 range, and other plant recently traded we don’t know the value. But it’s an excellent plant and excellent location and it’s ICM $120 million plus type production. So, overall, I think in general, you still can’t go out and purchase the best vintage of the ICM 100 plus million gallon plan where easily they’re not available, they’re profitable, people have paid down a lot of debt on them. And so, there is not that much in terms of M&A, there is a few potentials out there, but in general not much is changing hands besides a couple of plants a year. So there is a no rapid consolidation at this point that we expect to see a lot of M&A activity in the industry.

[Matt Farwell:]

Okay. And then lastly, if you put on your macro hat and you look forward to next spring, we’re looking at lower farm profitability, also the prospects for lower production cost especially given some of the news recently about product pricing. So, could we begin to see acreage perhaps decline or under-shoot next year or how are you looking at next spring?

[Todd Becker:]

I think when you look at the curve today, you’re going to have $4.50 to $4.80 corn, and when you look at the potential what you discussed with terms of world fertilizer prices coming down, cost of production decreases alongside of that. And overall the farmer loves to plant corn in the United States. And so, I found our job right now to plant soybeans, that’s the job of South America, it’s our job to plant corn. And I don’t think that you’ll – depending on obviously the price structures which have all come down recently, we’re going to have to plant something. So, when you look at it relative to – I think the key point will be what’s the yield this year. And a farmer realizes that in good conditions they will generate above average yields to potentially higher than that then they’ll continue to plant corn, it’s normal rotation anyways. But there is not really much other alternatives than corn beans or wheat and started out, it’s not our job to plant beans in the United States, just other people that do that better than ourselves, but not better than us, but they do it, in South America in terms of they have surpassed us in our production. So, overall, I think it’s hard to say that corn acres will just fall off the cliff and substitution for being acres, but we’ll watch it closely. But in general, I think that – what I think people have to remember is that what the yield was last year times the average price on the farm versus the yield potential this year versus the average price on the farm, revenue per acre is not dramatically different. And I think that’s really an important point, when you get 30 or 40 bushels more per acre on your farm at $2 lower cost, $2 lower features and now your revenues don’t change dramatically and now at a lower cost potentially a fertilizer inputs. Overall that is probably still a better value proposition to keep planting corn. But that’s a long way away.

[Matt Farwell:]

That makes a lot of sense. Thanks a lot.

[Todd Becker:]

Thank you.

[Operator:]

And we’ll take our next question from John Segrich with Restorative.

[John Segrich:]

Hi guys, I just wanted to make sure we kind of understand the math here. So, you know, it looks like you’ve kind of generated about $0.10 a gallon in the last quarter kind of based on the way things fell through. Could you just tell us, and I know Nathan was trying to get to this kind of one way. But what is the current spread if you kind of lock things in right now, what’s the gallon profitability that you can lock in, is it $0.30 or more than $0.30, now you were saying $1 maybe if you get to. But kind of where are we now and what’s a realistic expectation around 3Q and 4Q, because it seems like the market isn’t really discounting that you’ve got a real bump coming here?

[Todd Becker:]

Yeah, when we look at Q2 over the last eight quarters, Q2 was and under-performer against the spot market at $0.10 we know that but we came out of a very negative margin environment and when we got to those type of levels with everything we saw around the market, we locked a lot of the quarter way we had at corn bath. So, that was one of those under-performed quarters in a margin expansion. What we saw in July were better margins than that in our platform and we achieved them. We don’t typically give a lot of direct guidance on current margin structure but I would tell you the spot margin structure is in the high single digits, low double digit tight numbers at this point, off from the highs of 20 or so and up from the lows of zero. And so, it’s in that range. So it’s not – it’s certainly not – turn it out block, it’s a very volatile structure right now, it’s got a lot of moving pieces. As I said, July was better than what we achieved in the second quarter from a margin standpoint. But in general, the market is still developing for the spot market. So, overall, we’ve seen a bit of pressure in the spot market, September has no definition at all. But based on the current underlying fundamentals, we believe that the market will continue to be tight on ethanol, we will see margins spikes in both direction. And typically that’s only tried to lock margins away. Fourth quarter hasn’t been as high as – as low as both single digits to as high as $0.20 plus per gallon. And we’re in the middle of that range, a little bit better than that for the fourth quarter right now. So, we’ve locked away as we indicated, 25% of our fourth quarter. And we still have a lot of work to do, we still have a lot of corn to buy, but in general, I don’t think that the opportunity – now we just have to keep our lid on the margin structure not now because we have so much excess capacity. So, if we can operate at some equilibrium, we can generate good returns for our shareholders and a solid margin structure, something that you can plan on quarter after quarter where margins expand rapidly. We take the manager of it, it takes us just a little while to get there, but when margins contract, dramatically, we typically have more on than the market. So, that’s the way I think about it.

[John Segrich:]

So, when you say…

[Todd Becker:]

It’s a long answer to answer your question.

[John Segrich:]

Yes, when you said between sort of zero and 20, are you saying as a percentage or is that cents per gallon?

[Todd Becker:]

No, I mean, we’ve seen in the range over the last 12 months, Q4 ranged between kind of zero and $0.25 a gallon. But again, you didn’t want to – when you had an opportunity a lot of $0.25 or $0.30 a gallon, you don’t have any corn but and you don’t want to shore to US corn basis, because the last few years you did that it didn’t feel very good. So, it’s just – this is all kind of work in progress, as margins expand and we’re able to buy some physical corn, we locked away margins in the fourth quarter. I just can’t give you an absolute answer yet on where this fourth quarter is going to shake out, except the fact when we look at the full curve, and we say what do we do in the first half versus what we do in the second half, we still believe on paper and everything we’ve been able to achieve, we’ll have a better second half than the first half, more heavily weighted towards the fourth quarter.

[John Segrich:]

Got you. And let me ask you maybe before anyone kind of asks about it, is it 10-Q, or $0.10 let’s say under-stock for Q2 to kind of imply spotless or more like $0.20 if you could have done it in Q2 but you guys had hedged some. Is it fair to say that you should at least be kind of above where spot was in Q2 given kind of everything we know about Q3 and kind of where prices are now above that $0.20 per gallon is where spot is looking today?

[Todd Becker:]

Spot is not $0.20 a gallon today.

[John Segrich:]

Yeah, okay. Got it, okay, perfect thanks.

[Todd Becker:]

Again, we said we were better in July than what we achieved in Q2 and August and Sept are still work-in-progress but they’re not as good as what we saw in July.

[John Segrich:]

Right.

[Todd Becker:]

How does that fair?

[John Segrich:]

Okay, that’s helpful. Thanks.

[Todd Becker:]

Good.

[Operator:]

And we have time for one more question. And that question comes from Laurence Alexander with Jefferies.

[Laurence Alexander:]

Just a quick one. Can you revisit the three to four year opportunity to reduce the amount of enzymes you use like how much you could take out on a cost per gallon basis. But it seems to be a lot more options now than there were a few years ago to do that?

[Todd Becker:]

Now, totally it kind of runs on, only run in the six to seven center range and of that maybe half of that is actual enzymes. And so, it’s an incremental process where we’re looking at different additives and different processes. But it’s not something that’s going to necessarily swing that, the curve so to speak to, for about profitability. There are going to be incremental contributions to profitability as all part of that continuous improvement process.

[Todd Becker:]

But you still have to spend the money on the enzymes. But what we decided to do this time as we talked about it, we spent the capital cost to get the same impact that a different enzyme is available today and we do that once instead of everyday. Now over time, we have driven a lot of cost out of those chemical and enzymes for the last five years. To get much below the actual cost of what we’re spending per gallon, it will be hard. But when we spend that per gallon, we expect to see better performance in that spend on yields. So, that’s going to be driving, it’s all going to come by improved yields, not only the cost of enzymes.

[Jerry Peters:]

Yeah, we have made decisions to buy more expensive enzymes to then justify with better yields on occasional situations as well. They’re going to actually pay more money in some cases for enzymes, but if it pays up in yields, it’s an benefit for the company.

[Laurence Alexander:]

Okay, thank you.

[Todd Becker:]

Thank you very much.

[Operator:]

And at this time, I’d like to turn the conference back over to you Mr. Becker for any additional or closing remarks.

[Todd Becker:]

I just want to thank you everybody for coming out on the call today. We’re very happy with the direction where we’re heading as a company. We think we have a lot of great things happening coming out of 2012 in great shape. You know our three-year plan that we’ve outlined to you on our debt reduction which we believe will be a great benefit to our shareholders. We continue to work on behalf of everybody, our shareholders, our stakeholders and our debt holders. And we look forward to updating you next quarter on our performance. Thank you very much.

[Operator:]

And again that does conclude today’s conference. We do thank you for your participation. Please have a good day.