Q2 2020 Green Plains Inc and Green Plains Partners LP Earnings Call

August 4, 2020

[music].

Good morning, and welcome to the Green Plains Inc. in Green Plains Partners second quarter earnings Conference call.

Following the company's prepared remarks instructions will be provided for Q Angie.

At this time all participants on the listen only mode I will now turn the conference over to your host fill box senior Vice President Investor Relations and Treasurer Mr. box. Please go ahead.

Good morning, and welcome to Green Plains, Inc. and Green Plains Partners second quarter 2020 earnings call participants on today's call, our Todd Becker, President and Chief Executive Officer, Patrick Simpkins, Chief Financial Officer, and Walter Cronin, Chief Commercial officer.

There is a slide presentation available and you can find the presentation on the investor page under the events and presentations link on both corporate websites.

During this call, we will be making forward looking statements, which our predictions projections or other statements about future events.

These statements are based on current expectations and assumptions that are subject to risks and uncertainties.

Actual results could materially differ because of factors discussed in yesterday's press releases.

And the comments made during this conference call and in the risk factor section of our form 10-K, and view and other reports and filings with the Securities and Exchange Commission.

We do not undertake any duty to update any forward looking statement now I'd like to turn the call over to Todd Becker.

Thanks, Phil and good morning, everyone and thanks for joining our call today for the quarter, we reported a net loss of 8.2 million.

Dollars or 24 cents, a diluted share while we had a small loss we were free cash flow positive for the quarter.

We also reported 17.9 million in adjusted EBITDA for the quarter before I get more specific on our results I would like to recognize how proud we our of our employees during the quarter.

As we continued our high quality alcohol donation program and partnership with the University in Nebraska at Lincoln as students staffs and professors made hand Sanitizers. This product was provided for free to various organizations renting ranging from daycares.

The U.S. da offices to local school districts, which we believe positively impacted Nebraska health and wellness during this pandemic.

The market value of this production from hand, Sanitizer program significant and the gratitude from those receiving this was simply something we could not have done without a facility like Green Plains York, Nebraska, We never ever said no to an organization in need.

Our positive results were driven by several businesses within our portfolio, we had another record quarter in our investment in Green Plains cattle company, which will allow a dividend to be paid to all the partners.

Our high quality alcohol sales out of our York, Nebraska facility helped deliver strong results and we had some beginning contributions from our high protein sales from Shenandoah, Iowa.

Finally, the completed project 24 facilities continuing to reduce our operating cost per gallon.

Without these improvements in initiatives ethanol margins would have been very negative.

While cattle in the last half of the year will become more normalized the rest of the initiatives that provided better performance versus the market margins should continue as part of our ongoing results.

While certainly ethanol margins will remain volatile. These initiatives are just the beginning of what is possible as we continue the total transformation of Green plains over the next several years.

We produced approximately 149.9 million gallons of ethanol, which put us at a 53.5% utilization rate for the quarter.

We exercised our operational discretion to slower shutdown plants as a result of the negative margin environment, but we did not fertile any employees. During the slowdowns. We will continue to follow the data moving forward, while we have seen margins improve off the lows in April and the spot market remains slightly positive margins are very inverted which is clearly.

Well to the market.

The weekly EA data has been negative towards margins as production is now over 950000 barrels per day, which is too much in our opinion.

Well, yes stocks got down to levels, we have not seen in many years. They began to rise last week clearly this industry lacks discipline. The consolidated crush margin for the second quarter was nine cents per gallon, which was strongly influence to the positive due to high grade alcohol sales.

Fuel ethanol margins were generally weak during the quarter, but we believe that through a combination of slowdowns and margin management.

We achieved better than the daily average market. We have now completed project 24 upgraded our Fairmont plant, where we are starting this plant backup and expect to see similar results to what we have realizing on our previously reported wood River facility.

As well as our superior and Fergus falls plants up next for project 24 is our Mount Vernon location, which should be done by the late fourth quarter.

Project 24 has been delayed at our Madison facility due to state of Illinois permits at permitting and also at our York, Nebraska location as we will now take that plant offline because of their positive contribution to the overall financial performance of the company, but we believe with what we accomplished so far we will be at or below 24 cents per gallon by the end of the.

Q4, and expect to complete our project 24 initiative by Q1 2021 subject to stay permitting.

We are excited to have announced that we have secured credit approval for 75 million dollar financing to continue funding of our protein initiative. This gives validation to our strategy allows us to quickly proceed with wood River as our second protein location as well as to begin engineering, a third location as well, we expect wood river to come online during the second quarter of 2020.

The one when completed we will have over 200 million gallons of capacity capable of generating 15 to 20 cents per gallon of incremental margin from this high value protein feed this incremental margin to what green Plains historical platform could produce.

During the coming months, we'll be working with our strategic partners to increase the value of this product and if nutritional characteristics, allowing us to move further up the margin curve.

We will continue to work on project level financing for every location our platform as a product has immediate acceptance as a high protein replacement ingredient in agriculture and pet food. We believe this financing is just the beginning of a rapid deployment across the platform.

Green Plains partners reported $13.2 million adjusted EBITDA for the quarter. The coverage ratio was 3.99 times for the second quarter at 1.59 times for the trailing 12 months as amortization of principle for the new loan Didnt begin until July.

Dominant call turn the call over to Patrick to review, both Green Plains, Inc. and Green Plains Partners financial performance I will then come back on the call Tim will talk more specifically about our York and Wood River U.S.P., an FCC alcohol production protein and aquaculture initiatives and a little more on markets and policy Patrick Thank you Todd.

Everyone Green Plains consolidated revenues were $418 million in the second quarter down $212.6 million or 34% from the second quarter year ago, driven primarily by lower ethanol production run rate as compared to the second quarter 2009 pool.

During the quarter, we adjusted our run rates down to 53, and a half percentage capacity compared to an 80% run rate for the prior year second quarter in order to maximize our respective operating margins.

Our consolidated net loss for the quarter was $8.2 million comparing favorably to a net loss of $45.3 million in the second quarter last year.

Adjusted EBITDA for the second quarter was a positive $17.9 million up from an adjusted EBITDA loss of $19.5 million for the same period a year ago.

For the quarter, our ESG and eight costs for all segments of $19.6 million remained relatively unchanged compared to Q2 2009 pull.

Consolidated interest expense for the company was $9.7 million, which was $1.6 million lower and the $11.2 million in Q2 2000 full primarily due to an increase decrease in overall interest rates.

Capex for the second quarter was $28.9 million with approximately $4.3 million of maintenance capex with the balance of $24.6 million being allocated to growth capital primarily for project 24 in our high protein initiative.

With the continued improvement and our overall liquidity driven mostly by non bioflo product sales and financing arrangements. We are revising our target capex for the balance of the year and expect full year capex to be between $100 million to $120 million in line with our original guidance. This estimate includes.

$28 million of Capex spending for our Wood River protein project during 2020.

On slide eight of the Investor deck, you will see a summary of our balance sheet highlights we at $243 million of cash and work will capital net of working capital financing at the end of the second quarter compared to $387 million to the prior year quarter. The balances for 2020 exclude our cattle business that was deconsolidate.

In September of 2000 late pull adjusting for the deconsolidation of the cattle business. The prior year cash of work will capital total would have been $273.1 million with the difference between Q2, 2020, and Q2 2009 pull being attributable mainly to a change in cash was about $50 million and networking.

Capital financing.

Our liquidity position that the ended the quarter consisted of $183.6 million and cash cash equivalents and restricted cash with approximately $289 million and availability under our working capital revolvers. This amount does not include amount that will be available under the recently announced financing facility for the current crop.

At facility at the partnership.

Green Plains partners, we had 151 million gallons of throughput volume that our ethanol storage assets during the quarter, which was down 75 million gallons or 33% from the second quarter 2019, as result of lower production rates at Green Plains plants. However, as a result of minimum volume commitment contract.

With Green Plains trade the partnership build trade route for 235.7 million gallons of throughput.

Accordingly, the partnership reported an adjusted EBITDA up $13.2 million for the quarter down slightly from $13.9 million reported in the second quarter 2000 link pull due in part to timing.

Of accounting recognition of railcar lease expenses and other items for the partnership distributable cash flow of $11.3 million for the quarter compared to $11.7 million for the same quarter of 2018.

Last 12 month basis, adjusted EBITDA was $53.1 million distributable cash flow was $45 million and declared distributions were $28.2 million, resulting in a 1.5 type nine times coverage ratio.

Lastly, as Todd will discuss more in detail a bit later, we successfully refinanced the partnership with our existing lenders in June as part of that financing. We will initially amortize two and a half million dollars of debt for Merck However, with the principal payments on our debt not beginning until the third quarter. Our coverage ratio was 3.99 times.

After now I'd like to turn the call back over to Todd.

Thanks, Patrick over the past few months, we have witnessed the industry production dropped to levels, we have not seen in modern history and come back just as fast as overall industry production dropped to about 50% overall capacity.

While the industry moved faster than other and energy industry production to shut down during the co bid it came back possibly faster than those same industries.

However for Green Plains, we are in a bit better place and we would have expected at the start of the pandemic. What we learned was York, Nebraska produces a great product that was previously exported to industrial markets and now almost fully transitioned to domestic use the quality of York's product is very unique as it was originally a beverage facility that has a very different profile than FCC.

See and industrial alcohol being produced by others.

That is why we chose this plan to immediately upgrade to us Pete.

We have been able to redeploy some of the equipment, we have an inventory from dismantling our hopewell location, which is adding to the speed of completing this project.

There are lot of fast followers, just because you have a great certificate that says you make that specification doesn't mean, it's a good product in fact, many of yours early sales were replacing sub standard products from other ethanol plants. We have worked closely with branded consumer product companies to get our product into their cleaning lines meeting their strict QAM QC requirements from such.

Companies is something that sets us apart and our continued development of New York and would revert to you Espeed secures our position to be a long term player in this important segment of the industry.

These customers know there are many ranges of quality and know that ours is exceptionally high in fact, we believe the U.S. government your crackdown imports of be grade and you SP from Brazil, Pakistan and other countries at these products should not make their way into our supply chain and they should be vigilant on making sure. These meet use specifications, which we believe many.

We do not as they are not getting tested adequately.

Hi, Great high quality alcohol sales have been strong has very strong contributor to the positive EBITDA achieved in the second quarter and should continue to help the balance of the year and through 2021.

We have already executed contracts with significant customers to the end of 2021 as demonstrated through our very important partnership with Lysol announced this morning.

This affirm that we have something unique happening at your.

During the quarter, we were pleased to complete the refinancing of our GPP debt, we extended to for 18 months and are required to pay a higher principal amortization, but we believe this benefit accrues directly to unit holders are which we remain almost 50%. In addition, we're also very excited to be finalizing a $75 million loan facility.

To support the execution of our protein strategy. This project level capital is just the next step in our transition to Green Plains 2.0, but it gives further validation of the finance ability of these projects and enables us to accelerate our transformation.

Our wholly owned optimal Aqua venture is continue to make progress as well the high protein ingredients, we are making at Shenandoah are serving as a delivery mechanism, replacing traditional project project excuse me products and ocho feet Green Plains is now selling various ocho feeds for Google Columbia trout and other species we.

We've always believed that this would occur and this is only the beginning let me explain a little bit about our optimal ocho company and how it fits into the overall strategy. We've long said that a world protein market is growing by 10 to 12 million tons per year.

One of the drivers is the need to provide fees, resulting clean healthy fish protein for human consumption and is very efficient as it is a very efficient converter of feeds to edible proteins.

Utilizing our high protein ingredients and Aqua feed produces a better overall feed product with improved nutrition and digestibility profiles as it includes both the corn protein and the east from the process. So it has an all veggies and positive fungal components that puts us it possesses other positive qualities are our aquaculture.

Customers have discovered and replaces a negative dietary effects of soi, along with a negative Meyer environmental connotations as soy.

Especially from Brazil, as well, we have introduced real world commercial feeds as well as continuing with additional feeding trials of novel ingredients at our World Class OCC 11, Shenandoah, we're just scratching the surface on what this could become and we'll have a more announcements on the strategy for forthcoming.

So to sum it all up.

We continue to put strategic partnerships together with world class companies, along our total supply chain.

On the front end with our 10000 farmer customers, where we are rolling out our customer facing mobile apps. This month for a more interactive relationship with them. We are using in developing our AI or artificial intelligence to make our interaction more efficient and predictable and we're seeing very good early results. We believe this will not only take our one.

Ability to buy it better but will also be able to offer solutions to the U.S. farmer base that we have to be able to sell it better more to come on that initiative.

To our high quality alcohol business, where we are tailoring very specific qualities and logistics to our customers needs and returning develop reach and in return developing long term sticky partnerships to our innovation platform with companies like no designs, where we are tailoring nutritional solutions for aquaculture customers and pet food customers and this is just getting started which will end.

Increase the value of our high protein products to our technology partners like fluid CWIP, where we're rolling out a high protein high quality production platform of new products at our industry never had before to our optimal Aqua business venture, where we are tailoring custom solutions to help bring more and more aquaculture production onshore.

As I said, we already have game changing solutions under development and some already in froze fullscale commercial trials with more starting soon and results forthcoming, but so far the outcomes are positive to our world class Aquaculture Laboratory, where we are using our new high protein protein feeds as a delivery mechanism for new and innovative products all.

Which is located on our buy or bio refinery site and Shenandoah, Iowa.

All of these initiatives and many more important as you make a decision whether to stay the course of Green Plains, but no. This our goal is within a few years to totally transformed our platform, where we intend to never be prisoner to government policy again, and minimize the impact of an on disciplined industry on our shareholders and stakeholders.

Proud of the Green Plains team for executing during the quarter, resulting in positive EBITDA.

We haven't focused on maintaining liquidity and the strong balance sheet and rapidly executing at every turn.

Lastly, I want to thank our employees, many of whom are listening and right now as its with your dedication to safety and quality every single day that makes everything else possible. Thanks for everybody joining the call today and I'll ask for the Q and a session to start.

Thank you.

And as a reminder, ladies and gentlemen to ask a question you need to press star one of your telephone Lovejoy. Your question. Please press the pound key.

Please limit your questions to no more than two at this time.

If you wish to add additional questions. Please rejoin the queue.

Please standby we've compiled the Q1 a roster.

Our first question comes from the line of Adams, Sam samples with Goldman Sachs. Your line is now.

Hi, Thanks, good morning, everyone.

Good morning, Adam.

Hi, So I guess first time, I mean, a tremendous amount.

Moving pieces between kind of market volatility in the internal initiatives you've had underway.

In the quarter and I guess I'm trying to parse through the ethanol crush margin the achieved and was up about 18 cents a gallon year on year and is there anyway, we can kind of dissect kind of the drivers of that between the industrial hand Sanitizers sales.

Shenandoah ramping.

From the Hydro project 24 changes in kind of market kind of crush margins and.

Your internal is kind of hedging activities that seem to have been beneficial im just trying to get ahead around how to.

Triangulate the performance should some of those factors so as we're not going to breakout all of that.

Because of competition reason I would tell you that if we hadn't none of that we would have been negative double digit EBITDA crush margins.

And then from there you can see that we achieved a positive nine cents a gallon plus the uplift from cattle. So you can assume that.

Much of that came from all the initiatives that you talked about but we really don't want to breakout the uplift from some of those initiatives individually at this point because the industry I think at this point is watching closely and we don't want to give them road back roadmap to success.

No Thats fair I appreciate you said that.

Limited color and then as we as we think about and as the balance of the year and we think about Shenandoah continuing to now now at full rate and wood river launching launching.

On mid next year.

Help us thinking my kind of the premiums that you're starting to just to realize on the on the high for the year, producing and kind of whats the roadmap to getting that hired from both the protein kind of content perspective, which obviously adds value, but also the different addressable markets as you start getting those redundancies in place for Matt Mccall.

Under control and supply chain resiliency.

Yes, that's a good question. Thank you. So if you think about the baseline.

Distillers grains that we produce which are worth somewhere in the hundred maybe $120 range.

And every hundred dollars you achieve as a premium over that for this product that we're producing adds about six cents a gallon.

Of margin to and to our production platform.

So as we indicated we believe both.

Baseline this margin before other improvements trades at a premium to high protein soybean meal because.

Right off the production line first week that we're producing product we are producing protein in the 50, 152% range as high as 53 mechanically.

With no other other technology added on top of that which was really beyond our expectations. The overall business thesis was made as a baseline high protein soybean meal replacement and that added about 12 cents, a gallon or couple of hundred $200 a ton premium too.

Distillers grains, but because of the protein level and we have as we've talked about the J curve, which as the protein level increases the margin increases faster the margin improvement increases faster so.

As high protein soybean meal is about 47% pro and we're putting 51% pro out right away as high as 53.

We're getting premiums above high protein soybean meal as well so our first initial sales we had in place.

Gave us somewhere between a.

Fifth 12, 14 to 17 cents, a gallon uplift depending on the customer, which basically was a two to $300 premium over distillers grains or up to $100 premium over high protein soybean meal and we believe it will just go up from there.

Addressable markets and I will tell you that the value of the product doesn't and our view and this is a strange.

Way to think about it but the value of this product doesn't go down with more quantity. It actually goes up with more quantity. Because now you can provide a consistent supply chain with redundancies to a bigger and larger customer addressable market.

If you just go to some of the largest buyers of feed in the world. They want even look at you until an industry can make a thousand tonnes. A day, that's 365000 tons a year and if you think about today there is for three or four of these plants running once shenandoah ones.

Wood River comes online and others that have bought this technology come online we might start to be able to reach that to get to even bigger addressable markets were right now where we're focused on is addressing the needs and pet food and agriculture, and I think will it will take us half of our platform before we even start to move into other.

Other markets other than maybe all bed specialty dies, and poultry, which I think will pay a premium as well so.

Again, it's really just a matter of every hundred dollars is worth about six cents a gallon. If you take distillers grain does your baseline and you decide what do you want what this product worth as a replacement protein up that J curve that I talked about it's it's very easy to see the ability to add.

Margin and then lastly, when we have wood river and Shenandoah running that's about 200 million gallons that a baseline we think 15 to 20 cents a gallon.

Which is $30 million to $40 million of additional EBITDA over our whole platform just on those two plants.

On an investment between those two plants of under under 100 should be under a 100 million and both of those plants. So you can see it's less than a three year payback.

That's a lot of great great color I really appreciate it I'll pass it on thanks, Thank you very much.

Thank you and our next question comes from alone have been begin.

With Stephens incorporated your line is now open.

Hey, Thanks, good morning.

Hi, good morning.

Really.

At this point really solid consolidated crush margins congrats on that it sounds like it's largely internally driven I wanted to focus in on hand, sanitizer business and less so in the quarter in of itself, but in terms of how you are arranging your assets to be more substantial player in that market going.

Board.

And I'm curious when you think about making those commitments and converting.

Some of your capacity to produce that product.

How do you think about the demand for the products relative to what you supply in a world beyond coated where we've seen elevated demand.

And then how variable is the revenue per gallon for this product sell.

Okay.

Okay. So.

First of all.

We are not just selling our alcohol for hand, sanitizer I think thats really important a really important point, it's going into many things from cleaners, disinfectants as well as hand sanitizers.

And the hand Sanitizer Revolution.

That we saw early was the initial driver of the euphoria around.

Hi quality alcohols.

And what happened was the market got very confused as you see the you at the FDA, recalling and putting out warnings.

Other companies thinking may make degrade selling it and then the quality in the smell and the older was was be off the charts negative and then they found their way back to York, Nebraska.

So the early Euphoria I would say was mostly around sanitizers like that and we've made our way into that and the reputation of York was it was a replacement for for.

Bad older Bad quality products that they came and got a higher quality product from from our company, which led US then into.

Moving away from.

Ted and John's hand, Sanitizer company into more of the branded branded products companies, where they were needing long term supply as their demand as the move to quality took place.

On these products and less about euphoria more about quality, which is what we announced earlier in our partnerships with GE current our partnership with Xerox and our most recent announcement with our partnership with Lysol that was a flight to quality and I think thats of lost on many who think you're just going to start up.

And access to market and and get get themselves injected into the supply chain. Because there are many many plants has started up with a U.S.P. or an FCC grade that will never get never make it for Q a QC of these organizations and that's the one thing that I think makes green plains very special and unique.

And differentiates US is our is our ability to get through global quality control and quality assurance processes with these companies. The demand I think is still variable, although we have seen a pick up more on the.

Larger comp global companies and a slowdown on some of the startups.

But that demand is outweighing.

The the slowdown that we have seen but again at this point it is to professionals that start to get involved and they are coming to green plains. As you can see buyer announcement this morning, because our ability to manage quality logistics.

Ongoing ability to help with providing a product that had that is what it says and.

And does what it says and can we can deliver on a timely basis and have.

The ability to supply large quantities.

Now I would say our view is that and the view of the our customers is that this is not going away anytime soon as evidenced by wanting to put together longer term offtakes in contracts with our company.

Because of the security supply, but also the quality of the product.

And our view is this is a easily through a 2021, if not a 2022.

And any any increase in coated and or other.

Viruses that come we'll just make this a ongoing and ongoing business, but again, you see a lot of announcements of fast followers and I don't.

Really fully believe some of them know what they're getting themselves into and we will have a customer to sell to because it's becoming very professionalize very quickly with high quality control.

Well with that said, it's also becoming global in our view, we're starting to see global.

Growth as well.

And those markets coming up typically we would have sold a.

The export market at a much lower price than the domestic market historically, but that export market is starting to have to pay up for finally, starting to see movements in Asia, the EU and little bit in South America of those prices starting to reach as high as domestic prices, but when this all started obviously it was.

Like the wild West and I would say is starting to mature very quickly. So our view is that the demand is elevated today, but it's going to remain elevated for at least 18 months if not a.

A year after that.

Very helpful and Todd is that the revenue per gallon as a variable or fixed and the contracts that use.

Hi, or.

There was a sense of.

What's embedded in.

Volatility or.

Line of sight to pricing.

For us what's more important as line of sight and putting together partnerships that work for both ourselves and our customers and I'd say, we have taken business away from others because of our ability to commit to volumes and be fair with our customers and our and the people that we supplier product to in our partners as they will.

Extend contracts further out more importantly to us.

Then.

Getting an elevated price in the spot market is actually locking in a margin for a longer period of time with a partner and helping them make sure. They can.

Lock in their needs at what I would say is reasonable terms and we can lock in our margins at reasonable terms and we work together on that instead of just trying to get the best priced as weak as as you can in the spot market. So we've always taken to view as a company that if we can lock in and become more predictable and nowhere.

Were 75 million gallons of very high quality alcohol, we'll have a home we'd much rather have that than than playing around and messing around in some of these.

Spot high priced markets, although we still have product for that as well and we're still we still are selling some of that but the long term offtakes are much more important to us, but but know that but theyre, they're definitely not at the same level as has been thereby prices, but they are at levels that give our shareholders. A very good baseline earnings at least are based on EBITDA as before.

Everything else starts.

Okay very helpful.

My second question is around project 24, and you guys had made really solid progress there.

It seems like you might need to start to rename the project I don't know project 22 or 20, but.

Can you help us think about what the barriers or governors might be on.

Getting your network below that 24 cents level.

Cost perspective, then.

Just kind of quantifying or or putting parameters around what we should be considering respect to what that ultimate opportunity looks like.

Yes, I think you're on the right track when you think about where we're going to end up because the results that we've seen with our partnership with IBM as well.

I roads remiss not to mention in our other partnership discussion who has really worked closely with us on driving the cost of our operations down. The results. We saw in Wood River output Wood River into the World class facility in Opex Opex mode, much similar to modern and best in class IBCM plants.

In fact, as we said we are basically converting the biggest part of the plan to an IC ATM facility and is operating consistently like that.

The Fairmont facility is starting up right now.

We had a bit of a cobot outbreak there, but now thats under control. So we're back in Bakken startup mode should have that running sometime next week as our second Big Delta team. After we did two also smaller delta tease the big driver will be our eastern plants of mine burden in Madison those are the Vogel Bush plants, and we're going to do the same.

Thing there we have started to.

Convert Mount Vernon as we speak.

We should probably take that plant down in a couple of months for conversion.

And that will be really the telltale sign of where we end up at the end of this program, but I would I would agree with you. It will not be project 24, it will be probably closer to the project 23 or project 22.

And then from there I actually think Theres next steps that will be able to take once we're at those levels to drive our cost structure down further where we can get our whole platform.

Down into that probably that 22 ish type at 22 type range.

I think what's really dramatic.

Is what we've done not at our large plants, which we saw the path was there is a plant lake superior, Iowa, or a plant like Fergus Falls, Minnesota, which traditionally was a high cost small delta T. plan to running and Opex. After the four basic commodities and we've outlined that in the past how that works. So we can do like.

For like comparisons because some have some have been skeptical of what Opex is or said there is better which we would disagree but.

With that said, we've taken too small delta teas high cost production facilities and they have run as low as 22, and 23 cents a gallon opex comparing the and better than many large IC ATM facilities.

Because of what we were able to do with with our technology upgrade and that just his game changing to a two a platform like us when we will have a various amounts of technology with many which many said could never.

Be reduced to a level that is average best in the industry for portfolio, which we believe.

Lastly.

In comparison, just one comparison point for you.

Well city.

50 million gallon plant traditionally ran at 32 to 30 35 cents a gallon operating costs and right now our plants are below 24 cents, a gallon or right at 24 cents a gallon on the small plants operating cost. It's just a dramatic change in our ability to withstand margin volatility.

Okay, great. Thanks for that and that's look.

Thank you.

Our next question comes from the line of Eric Stine with Craig Hallum humans now.

Good morning, everyone.

Good morning.

Hey, just want to get back to that the FCC and the U.S.P. alcohol.

Just curious.

Lastly, much more as you said after the early days much more of an emphasis put on a higher quality are meeting certain specifications as some of your partners.

With that in mind.

I mean wondering your thoughts about what your ultimate volume levels could be.

We know 75 million gallons that youre.

Im not sure if you've ever disclosed what your production level is that wood river, but would love to know kind of on what you think this can be going forward. The overall platform.

No were York is about 50 million gallons would reverse 25, so that the two plants combined.

Our being both will be upgraded to USPI and we are actually now engineering are now starting to.

Design and think about going to VVA acute which is very high quality. Just continue to go we don't want to stop.

I think from our standpoint, we have to continue to differentiate ourselves and because we have such a big starting advantage because York.

Was already a beverage grade facility and wood river is getting massive columns.

Distillation columns from our Hopewell facility that we have in stock today that can transform that that be grade column that.

Im sorry, York's getting a massive distillation columns, but wood river now being a be great facility is going to get the the same treatment as well we could move so much faster, but we're not going to as I said, we're not going to stop I mean, we probably won't become a beverage grade seller of alcohol, but we want to get to the V. HQ type specs, a very high quality pharmacy grade.

We want to continue to move because.

You SP moniker is not really the same with every single plant and we would warn and tell customers out there that byproduct from this industry to make sure you know what you're buying because you SP is not U.S.P. It every facility make sure. The older meets the standard and make sure the quality mix to standard and while.

You might get the moniker it might not give you what your what you're looking for so make sure you're very very careful on that so I think we're going to probably stay around 75 million gallons theres enough projects announced let's see if theres any growth in in the business as we move into specialty alcohols, and and we HQ type alcohol and have it and we do have a strategy around that we'll wait and see.

If we transform anything else but.

All right now I think were very good at the volumes that were that we're selling today. The market. There are the market is.

As active but I wouldn't say its its.

Deep without without a lot of work.

Got it got it and maybe just follow up on that.

Let me just done response, so previous question talked about your preference to be under long term contracts. Just wondering are you able to are willing to disclose.

The contracts that like the one this morning, you've got for the end of 21.

Versus ones that are.

Have yet to come up for renewal just trying to get a sense of.

What the contracts that reflect today's environment and going forward rather than ones that maybe were signed in 2019.

I can only comment that in the beginning of the.

Cobot crisis.

The market was.

In that five to $10 per gallon range for some volumes because of the short of shortness of supply and that has come down from there.

It's definitely a premium to fuel grade because it costs more to make.

It's a much different supply chain much different logistics much different cost structure.

But it's definitely definitely not in that initial euphoric price range.

But either way when you take 75 million gallons.

And you multiply it by something better than fuel grade.

And as I said, probably not over that.

Low end to that euphoric range, it's still it's still meaningful but.

It's just different customers.

We'll pay different for different needs, whether it's a long term short term totes versus rail trucks versus.

Gallons I mean, you can go on and on a non and in fact, we are.

Starting up to pack at lines at the end of the month at Green Plains that owns a partnership with a pharma great company, a pharma company in a clean room facility.

We're starting up to pack at lines to give one milliliter single serving.

Delivery mechanism.

For the market and we've already we're going to make.

We're going to make pack at not just for our own distribution, but also for customers that will buy the one milliliter wanted to have millimeter pack at lines that we order those from European manufacturers right at the beginning of this as we saw the vision for the need for different delivery mechanisms, we partnered with others that make one.

Gallon jugs that that.

Trade a lot higher because of the cost of production. So it's really all over the place.

But we're involved in all the different sizes.

And all the different delivery mechanisms and if somebody needs to move from totes, the rail and rail to truck and truck to gallons. We can we can deliver all of that and Thats. What I think makes us very unique in our ability to service very high end high quality customers better than anybody else today.

Okay very helpful. Thanks.

Thank you.

Next question comes from the line of positional Mollison.

With Raymond James Your line is now open.

Thanks for taking my question on kind of a high level policy dynamic, we're obviously watching the stimulus.

Conversation in Congress wrapping up here presumably.

Do you think the ethanol industry.

Realistically get from the next stimulus package in your mind.

Uh huh.

Well.

The difference between.

Reality and hope.

Is.

It is wide right. Our hope is not a strategy is sometimes all this industry has.

But.

The reality of it is probably not going to get very much.

And any any and everything else is wishful thinking.

I think that.

If we get something.

Well, we'll obviously not going to say no.

But I think it's a very hard ask and that continues to try to get pushed out of the legislation.

And our champions continue to try to keep it in that believe this industry was.

Damaged from many different policies.

That.

And many different issues that took place this EPA damage this industry beyond reproach.

They.

China Trade war was damaging to us.

And and I think that we need.

A little payback wouldn't be so bad, but I'm not sure that's going to happen.

And so I say that the chances low that we probably see very much.

But but relative to what we have endured.

More probably than any other industry impacted by China trade EPA and other policies, we are probably the biggest impacted.

The industry that was had the most impact negatively as the ethanol industry.

And and I think that.

That needs to be taken consideration.

Okay.

One other kind of policy dynamic this one from the other side of the Atlantic when we talk about export.

Usually western hemisphere and in China in the conversation.

We're seeing more and more headlines from Europe about the European Green deal the climate lot et cetera.

Why is the you at industry not exporting billions of gallons.

To the world's largest fuel market.

Because.

Exactly what the administration is fighting which is breaking down tariffs is exactly what has to happen.

And it's a very unfair system, where we'll bring in.

Brazilian ethanol without a tariff, but they terabytes to go into Brazil.

We'll bring in Chinese products without a tariff what we pay a tariff to go into China will bring any new products without a tariff, but we pay a tariff to go into the EU and we continue to gav unfair trade policy around ethanol everywhere in the world that we have to compete not only be cheaper, but also have to be cheaper when you take it.

So duration, a terra while our boats HSCT passing the night.

As as our policy is flawed on on many different fronts.

We've done a good job building up our exports of ethanol around the world to what was pushing what was going to push probably 2 billion gallons.

And I would say.

Because of coded and because of the lack of movement.

We are.

Significantly we're going to be significantly hampered at least over the short term to get ethanol out of this country and it's going to be driven both by not just coded but also trade policies and tariffs and that's what I think where we support. This administration is in the fact that they are trying to break down these tariffs what's crazy is that.

While we can't get our ethanol into China, there stealing our corn at the lowest farm prices that we've seen and how many years I mean this is a a unbelievable grain robbery from China stealing the corn or the United States stealing farm products from the U.S. farmer, when not having to buy us ethanol and putting a tariff on that while they come into our country and.

And led co bid and this trade policy drive us corn prices lower and now they step in and now they're going to buy.

That to me is a gross.

That is a a complete.

What I would say.

Mistake.

Of our of our agricultural policy to let that happen and I think we need to stop it.

Appreciate the color guys. Thank you.

Thank you very much.

Thank you.

Your next question comes from the line of Craig Irwin with Roth Capital Partners. Your line is now.

Hi, Thank you John I would agree that Q latent ineptitude at the head.

Okay.

My question is about high pro so.

Can you please update update us on the the collaboration with no designs.

What you're working on and what you expect within the next few quarters.

Incremental.

Incremental production available at East Strange that you using and other potential enhancements that product and then the Norwegians, obviously, one slot salmon they've taken some specific actions already can you quantify for us what the size of the Norwegian.

Aquaculture market is and.

Is it can take many many high pro plants.

And what Green Plains cannot can do to satisfy their demand.

Yes so.

With regard to what we're doing on.

Moving up the price curve, it's not just a combination of of.

Just the level of protein.

Which has been done for.

Flu equip was doing that long before.

And collaborating to move those up the protein J curve.

Long before anybody else, even thought about it and so we believe that won't be the biggest issue to do that in fact, it's a combination not just of protein, but as you said yeas.

And other things that we're working on to really create a product. If you think about your J curve that we've talked about which is the higher the protein it's not a linear price move on on value. Its A.J. price move which is the higher the protein you get actually multiples higher on price.

When you think about that if you flatten out that surface all around the J curve, that's where we're going to operate because it's not just about.

A higher protein, it's about nutritional solutions and Thats, where we work where we believe the partnership with no designs.

Is really what that takes us to its going into their libraries of other things that they do.

Other than just moving protein higher.

And partnering with them to live up to provide solutions to our customers that are much more valuable than just just the level of protein and so we're making at what we wanted to do is get to a steady state in Shenandoah.

And run that way for awhile before we start to.

Bring these other nutritional solutions into the product quality.

And and that's going to probably start to begin shortly there there are partners chomping at the bit and ready to go.

We believe that we have lots and lots of innovation to add in.

And we're we're literally on the cost both beginning these processes today, but again, it's not just about raising level protein, which flu equip has been doing for many many years through different technologies, both biological and and mechanical.

And we'll just we'll just tap into that expertise on top of what the library of solutions that are great partner of Novas items, but this partnership and no designs a lot of a lot of things that we have seen around just are just some of the some of our customer development and other areas is because of our partnerships that we're putting in place so there.

There are definitely achieving other things other than.

Just a product development. So we're excited about that were just kicking this off and what will that will allow us to do is once we start wood River facility number two we will already know what we can immediately add to increase the value of this product when we look at.

The World I think.

Thinking about corn as the deliver corn protein meal high protein formula as a delivery mechanism.

For aquaculture.

Right now obviously you see the fall out of Soi is just beginning in the not just negative nutritional characteristics, but negative connotation around.

The.

Land use and other things that obviously, we've dealt with a lot in ethanol, which we've proven to be incorrect, but.

Today, we're still working on trying to figure out how to give Norway and other markets like that a non GMO solution.

And we are considering taking one of our one of our refineries to a non GMO corn supply, where we can make a non GMO high protein corn meal right out of the bad we think that we can we can do that over it as the next one possibly that we have chosen.

Number three in number four would probably be a non GM most solution and work with farmers to grow non GMO corn, we have time to do that but today, we think in the Norwegian salmon market. If you just look at that in a vacuum what the opportunity is.

We think there's about 2 million tons of demand for feed their 20% inclusion rate would come from corn high protein corn meal, we produced at a high protein corn fermentation that products that we produce so just that market alone just that market alone is 400 to 500000 ton opportunity and that's just one single country and that's.

Just to include.

This as a as a as a delivery mechanism of of high protein, but that doesn't include the nutritional characteristic that we can add on top of that.

And Thats, just the salmon market thats not inclusive of all the other aqua market. There is as well, but I think we're working with customers around the world partners around the world more to come on that US and then more relationships that were putting in place that I think we'll be very exciting for our shareholders.

Thank you and my second question I guess I should start by saying congratulations on 75 million dollar debt financing.

It really does give you give you a cleaner runway.

Many of much thought you would probably monetize your capital assets, some sort of back of the envelope mass as she would gets something similar to what you got to get the other costs 75 million.

Is there may be an opportunity to do high profile faster on monetizing cattle or maybe a plant sale if thats still available to you.

What would it take to do high pro faster and is that potentially.

Under consideration for the next couple of quarters.

Yes, we're looking at accelerating and moving at warp speed, if we cannot hydro we want to get a rolled out across all of our production facilities that we have and we're working on a strategy to do that financial strategy to do that inclusive of many of the things that we've mentioned in the past some that you've mentioned on this call, but you know.

The great thing about this announcement and the approval that we got and trying to and getting and now getting to a close hopefully mid August mid to late August.

With the lender, who who who we will announce at that time.

Is that.

It validates.

The at this as a financeable asset.

Now remember what's interesting is not just bolting on a few pieces of equipment. It's a standalone high protein production facility that gets fad a a stream from the ethanol plant, but that's it at that point it on its own it has its own dryers its own production facility its own load out its on quality control.

So it's much higher in standard to yes, we service Pat and Ocho markets. So its own as you've seen actually you have seen it its its own standalone facility.

And now as the lenders and as financing understands that.

That we believe will kick off other project level.

Financing in different forms obviously, what we have to wait and see what those are but.

As this was so important to get that first one that first announcement out to get the for 75 million at what I would say is very good terms for this type of investment which is even another validating point and how much. The our partner believes that this investment is financeable. When you when we look at the terms that we announced so we.

Think this will lead to too many other announcements, whether it's going to be through monetization of assets, whether it's going to be through partnerships or whether it's going to be through project level financing I think you'll see more to come on that but we want to move at warp speed.

Okay, great Congratulations again on surprisingly strong execution.

Thank you.

Thank you and our next question comes from the line of Laurence Alexander with Jefferies. Your line is now open.

Hi, I guess two things first on the very near term can you just confirm that.

Hi protein will be accretive in Q3 or is there any offsets or ramp from or like in running it now.

So if you think about Shenandoah I mean, it's obviously going to be a contributor as you Ron.

He said Shenandoah has the capability running about 40000 tons, a year 40 to 45000 tons a year.

If you just take a 15 cents a gallon uplift on those 45000 tons at an 80 million gallon plant it'll start to have a run rate of about $12 million EBITDA, a year $10 million to $12 million of EBITDA year, and we'll start to see that contribution start to come in in Q3.

As we start as we ramped up now to 100% without it we do have some ups. We do have some downtime just to upgrade some systems in this quarter as we learn from new things and we want to add new things to it.

But in general you should start to see post some downtime this quarter so.

Starting in Q4, you start to see that run rate of 15 to 20 cents a gallon at 80 million gallons per 40000 is on the production.

Okay.

Great and how close are.

Unit to become a theoretical yields.

Or should we expect to low tier optimization cycle whats youre.

Okay.

Yes. So our models were all built on about little over three pounds per bushel.

Of yield so thats going to be three pounds of protein for every bushel of corn, a bushel weighs about 56 pounds and so you could see how much of the corn kernel was going to go into this protein. We believe our short term, we're going right what will be a 3.5 pounds and most site. It also depends obviously location protein tesselate all the other types of things.

We are moving quickly and we will move quickly to that 3.5 pounds.

That point it will also come down to.

The post MSC distillers grain the post production distillers grains, what we're seeing is the increase in quality of also the traditional distillers grains that we produced because it's a much cleaner product because we are now dividing out corn oil or dividing out some high protein.

And what we're leaving though is they also a very early in the.

Post production distillers grains product as well, but in general our view is it's a 3.5 pound per bushel yield.

And it can go up from there, but at that point you got to make sure. It's the locational. It's a locational perspective, some locations don't mind, the lower protein remaining distillers grains, because it's a cleaner and better product.

Some locations of one is still maintaining a minimum level of protein on the remaining distillers grains, which will prevent you from maximizing yields but we believe the effective.

Yield of the fluid CWIP system that we're putting in can go as high as five pounds per bushel.

Which you can understand that would be a much bigger uplift to the margin structure, but you just have to make sure that the remaining post production traditional distillers grains still still maintain their value, but our goal is to continue to push yield with fluid quote.

Yes.

There's been some discussion the soy.

For all about.

They are using gene editing rather than humor to outgrow the protein contents in that so.

Are you see this thing discussion.

Core.

Hold on Simo high protein solid.

You should convert.

Yes, so as you know we have a strong partners commercial partnership with Syngenta.

On average in corn in fact, we're one of the largest commercial partners. They have on these on these type of products and Thats why what was so important as I announced is.

We have 10000 farmers that are coming onto our platform and many of those farmers are in our antigen program today, and we've discussed with our partner.

What we're doing with the thought process around the corn kernel and what's important for them to think about as they come out with new genetics and and interestingly enough.

They're very excited as well and they can probably help and they believe they can help us into future on working with us on our needs to what needs to get fitted into the corn kernel for a.

Obviously, I'd be a GML product, but it can move under crisper and things that they have taken moves so fast it turned out a new product obviously still takes.

Couple of years to scale up seed, but the ability to add it into a corn kernel actually is easier and if I recall than the ability to added into a soybean.

Today, and so what's what's great about our partnerships with seed company.

Is that because of what we're doing in our platforms and they have an amazing.

Farmer platform as well producer platform when we put those together the knowledge base that we have we believe will be second to none as we innovate around changing characteristics in the corn kernel that match, what we need to do in say our fluid quit process.

Lastly, I think what we also have talked to them about is a non GMO.

Kernel that we can use to help provide solutions for our non GMO feed customers around the world and we believe and what we've seen so far as they're making advancements on that as well, but we're obviously waiting to hear more about that but they know that those are things that are important to us as with being a very large commercial customer.

Of theirs and a partner we've been with them for many years, we use antigen corn across our platform, which has given us.

An uplift in yield and better viscosity through our plants and they run better on this product.

Thats very about the best best part of it is that when the farmer customer that uses and grow our that grows antigen. He has a antigen field any as a yellow corn field and we have them all on our platform. We're getting access to all of that product and then obviously as a two way street going back and forth, which we think is the value.

The coming to an outward facing app for Green plains, giving them more solutions much like you've seen in other farmer.

Entities that are being form when do we can put 10000 customers right onto our platform has a lot of value to to many companies, whether it's a seed company whether its a.

A chemical company, whether it's a fertilizer company and those partnerships that we think we'll be very valid valuable in the future.

And then I guess the.

Other question is when you look that's full corner.

Bundles on nutrient profile or the the aquaculture application.

If we're getting the core overweight modify the corn crop.

Improve the stability of other nutrients are micro nutrients are the processing stability of the final call.

There.

A layer of differentiation that do on the downstream treatments.

Or is that something that is more for two three.

On the valuation.

I think that's a step following exhausting our technology partnerships.

To increase nutritional value and profile.

In our in our feeds both for Rockwell, Pat and other animals, and I think thats really the importance as I said of the Novozymes relationship is that's what we're working on as using all of their libraries and technologies not just not just about protein. It's all about the characteristics of what's in our feed and that's I think whats makes our situation.

Unique be between kind of what we call. It is a hardware in the software the hardware is.

Is the fluid quips system.

And the software as all the other partnerships, we're putting in place that we can deliver.

And I think the corn kernel will be part of that at some point.

But in terms of nutritional characteristics I think we're really focused on.

The quote unquote software relationships, we have today and the software relationships, we are developing today and so.

We haven't even scratched the surface.

On on those before we even get back into reading them back into.

Into the corn kernel.

Great. Thank you.

Thank you very much.

Thank you and our next question comes from the line of Ken Zaslow with bank of Montreal.

Your line is open.

Yes, we know we see good afternoon.

I should just limit to one question.

If I.

Assume your margins were breakeven two years ago, then I would assume that breakeven today and I assume there breakeven in two years.

What do you think the difference of your profitability would be on those four on those three different levels metrics.

Well a breakeven two years ago.

Was at a 32 cents a gallon opex.

So a breakeven today.

Is approaching a 24 cents a gallon opex.

So you would say thats, a 10% to 12% uplift.

In a brief break even two years from now and this is just opex alone.

Would be.

Probably let let's shoot for 22 cents. So you're a 12 to 14 cents a gallon uplift two years from now better than than four years two years from now better than two years ago now two years from now let's say we have.

For.

To five let's say 400 million gallons to 500 million gallons of.

Hi, pro running at let's use 20 cents a gallon two years from now.

That's going to add 100 million gallons, a $100 million some using round numbers make a faster for you $100 million over a 1.1 billion gallons. So now you're two years from now from Opex youre going to get.

12% to 14% uplift plus you're going to get another 11 cents a gallon uplift from just half the platform converted to two high pro not inclusive of nutritional uplifts and other things that we're working on if you fast forward two years from there.

You are going to be 12 to 14 cents, a gallon on opex and youre going to be a minimum of 11 cents a gallon on high pro.

At a.

At the first cost of.

Of margin at 50 Pro and I would say by then we should be realizing another.

Potential.

No I'm sorry that point you are now 20 cents a gallon uplift.

Yes.

Four years from now on Everything's built you up 20 cents a gallon uplift over the whole platform because that's the baseline. So now you are 32% to 34 cents a gallon uplift over two years ago, and thats not inclusive of any other nutritional quality uplifts or or protein J curve uplift. So it's a pretty dramatic shift from two years.

Ago at 32 cents, a gallon opex with nothing else going to today with 24 cents a gallon uplift opex uplift to two years from now with a.

12 to 14 cents a gallon uplift from Opex at 22 cents 11 cents for half the high pro two to four years from now to 12 to 14 cents a gallon opex to 20 cents minimum across the whole platform, which is 32 to 34 cents and then from there potentially it's.

10 to 20 cents a gallon of at certain levels at certain plans for that have.

At certain plants that have.

Im nutritional characteristics built in and that's not even inclusive of you SP business that we've built which we're not going to break out. So that's fine that's getting you just.

Two quick to crazy levels, but that's the path that were on that's why we're so focused on it.

Let me just rephrase this.

Two years ago Britain industry breakeven margin you'd probably be a breakeven margin today. If there is breakeven you probably do tend to about eight to 10 cents margin in two years from now there's a breakeven margin in the industry you'd be about 20 to 24 cents.

Hearing.

Inclusive of a inclusive of half to half the platform delivering on high protein button, but not adding any uplift from our U.S.P. program.

Yes that is correct.

Okay. Thank you got it exactly right. Thank you.

Thank you.

And our last question comes from the line of David Your School DD Research. Your line is now.

Great. Thank you. Thanks for taking my questions I appreciate it I know what time it so.

On on the utilization for the plant project 24, Todd I think you sit in the past that you expect at the conclusion of project 20 or that your plants will be in the top 20% most efficient plants in the industry. If that's correct.

Also correct. It seems that green plains should fairly consistently be running at 100% utilization. We project 24 is done.

Yes, because when project 24 has done and we embark on protein across as we're embarking on protein across the whole system, our plants need to run every single day.

So we are going to be a Max a run rate and at all times the things that impacted it wasn't just a decision to slow down last quarter because of the market, we had madison down for.

Permitting.

We had fairmont down.

For finishing up we had.

I think a couple of hurford down for market reasons, we had atkinson down from market reasons, and we had other ups and downs above that so it wasn't just a market driven reduction because we did take some plants now for a project 24 upgrade but yes. You are you are you are correct to assume that way as we push down into that 22 cents a gallon range.

Range, Opex and try to get lower and we are going to try and get lower it's meant to be.

In place so that we can run high protein every single day, and I would say to two and we've made a very clear you should not put you should not add on unless you can do that with your plan for you got to be running everyday. So if you don't delivered to your pet food customer and they run out of product.

You'll never get that customer back again, and they will and they will probably never buy from this industry again.

Makes sense arm that 75 million in financing first off congratulations on that very exciting to hear about your wood River announcement I think you said Wood river was at $50 million expenditure for that high protein.

To give you $25 million left over it seems like you have the cash on hand.

At another 25 to get you to 50 million to announce a third plant, but you haven't made that announcement. So I was just curious what is needed to make that next announcement for high pro number three is the engineering customer interest is it the money so what's on your mind on that.

Well, we basically said, we're we're deciding where number three is we were down to where rank ordering our platform, but you have to assume a number three will get announced.

Shortly when we make our decision.

You can assume that the 25 million will get use the additional 25 million will get used for that whether we monetize assets, whether we borrow more project level financing or.

Any and all the above you should assume that number three is coming very quickly and now it just depends it depends on the site at the site doesn't have a dryer, it's going to be more of the site has a dryer it will be around that level. If it's a smaller site will be lower than that level. So we're going to make the best decision, but you should assume that that 25 million is already spent.

On slide number three and we're just back solving for the rest of it but its a.

It's absolutely a forthcoming announcement and the depth of demand is there we have offtake, our offtake and in that we announced a few years ago is ready to take at least our first two or three or four plants and.

And that doesn't include any of our agriculture initiatives as well.

If I could sneak in one last one and I really appreciate those comments Todd one last one just ethanol inventories certainly look very tight to me ethanol prices only look okay.

I'm curious whats your thought process is on R&D is ethanol prices enough to encourage idled capacity to come back on the market.

For me it feels like there is.

To date on ethanol inventories look so tight I'm surprised that maybe ethanol prices are better, but just love to hear your thoughts on on what's happening.

Well the ability for ethanol to scale up very fast and.

Have inventories go up very fast is well known.

So I think when you look at it we've gone to 950 production I.

I think we'll learn more about that where we're at this week, but we've we've actually scale too fast as an industry above demand and without the big export program I think the market is not going to give any credit for this industry for be disciplined as nacco reward them at all in the forward curve, which is why I made those comments about government policy.

Okay and getting away from on disciplined economics, So where we're at today is while we are certainly around 20 million barrels still adequate because of the size of the export program. While we're at 950000 barrels a day of production to high relative to demand and the market knows it adds.

And the market also knows the inability for this industry to maintain discipline and those that we will make too much too fast and build inventory way faster than anybody can think like we did earlier in the year and it's just a.

It's just that's where thats why we will not see.

Anything beyond a spot margin and air in times of tightness, and we do need to have a rebuild of this export program at this point.

We're very predictable as an industry.

Thanks for the comments.

Thanks.

Thank you and this does conclude today's question and answer session I would now like to turn the call back to Todd Becker for closing remarks.

Yes, thanks, everybody for coming on I won't take any more timing was a long call. Today, we talk covered a lot of things, we're making big moves as a company you got it obviously, we're in transformation mode. We are still subject to volatility of of our big business and ethanol, but you will see this company dramatically change and we hope you stick with us so thanks for being on the call today.

And we'll talk just soon thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Good morning, and won't be to the Green Plains, Inc. and Green Plains partners second quarter earnings Conference call.

Following the company's prepared remarks instructions will be provided for Q Andrew.

At this time will participate in front of listen only mode. I'll now turn the conference over to your host fill box senior Vice President Investor Relations and Treasurer Mr. box. Please go ahead.

Good morning, and welcome to Green Plains, Inc., and Green Plains partners second quarter 2020 earnings call.

Participants on today's call, our Todd Becker, President and Chief Executive Officer, Patrick Stakenas, Chief Financial Officer, and Walter Cronin, Chief Commercial officer.

There was a slide presentation available you can find that presentation on the investor page under the events and presentations link on both corporate web site.

During this call, we will be making forward looking statements, which our predictions projections or other statements about future that.

These statements are based on current expectations and assumptions that are subject to risks and uncertainties.

Actual results could materially different because of factors discussed in yesterday's press releases.

And the comments made during this conference call and in the risk factor section of our form 10-K, and he went other reports and filings with the Securities and Exchange Commission.

We do not undertake any duty to update any forward looking statement now I'd like to turn the call over to Todd Becker.

Thanks, Phil and good morning, everyone and thanks for joining our call today for the quarter, we reported a net loss of 8.2 million.

Dollars or 24 cents, a diluted share while we had a small loss we were free cash flow positive for the quarter.

We also reported 17.9 million in adjusted EBITDA for the quarter before I get more specific on our results I would like to recognize how probably our of our employees during the quarter.

As we continued our high quality alcohol donation program and partnership with the University in Nebraska, Lincoln as students staff and professors made hand Sanitizers. This product was provided for free to various organizations running ranging from daycares.

The U.S.D.A. offices to local school districts, which we believe positively impacted the brasco health and wellness brand is pandemic.

Our high quality alcohol sales out of our York, Nebraska facility helped deliver strong result, and we had some beginning contribution from our high protein sales from Shenandoah, Iowa.

Finally, the completed project 24 facilities continue to reduce our operating cost per gallon.

Without these improvements on initiatives ethanol margins would have been very negative.

Well certainly ethanol margins will remain volatile. These initiatives are just the beginning of what is possible as we continue the total transformation of Green plains over the next several years.

We produced approximately 149.9 million gallons of ethanol, which put us at a 53.5% utilization rate for the quarter.

We exercised our operational discretion to slower shutdown plants as a result of the negative margin environment, but we didn't up are there any employees. During the slowdowns. We will continue to follow the data moving forward, while we have seen margins improve off the lows in April and a spot market remains slightly positive margins are very inverted, which is clearly sending I'd say.

Well to the market.

The weekly EA data has been negative towards margins as production is now over 950000 barrels per day, which is too much in our opinion.

Hey, stocks got down to levels, we have not seen in many years. They began to rise last week clearly this industry lacks discipline. The consolidated crush margin for the second quarter was nine cents per gallon, which was strongly influenced at a positive due to high grade alcohol sales.

Fuel ethanol margins were generally weak during the quarter, but we believe that through a combination of slowdown the margin management.

We achieved better than the daily average market.

We have now completed project 24 upgraded our Fairmont plant, where we are starting this plant back up and expect to see similar results to what we have realized on our previously reported wood River facility.

As well as our superior and Fergus falls plants up an extra project 24 is our Mount Vernon location, which should be done by the late fourth quarter.

Project 24 has been delayed at our Madison facility due to state of Illinois permits it permitting and also at our York, Nebraska location as we will now take that plants offline because of their positive contribution to the overall financial performance of the company, but we believe with what we accomplished so far we will be at or below 24 cents per gallon by the end of it.

Q4, and expect to complete our project 24 initiative by Q1 2021 subject to stay permitting.

We're excited to have announced that we have secured credit approval for 75 million dollar financing to continue funding of our protein initiative. This gives validation to our strategy allows us to quickly proceed with wood River as our second protein location as well as to begin engineering, a third location as well.

We expect wood river to come online during the second quarter of 2021. When completed we will have over 200 million gallons of capacity capable of generating 15 to 20 cents per gallon of incremental margin from this high value protein feed this incremental margin to what green Plains historical platform could produce.

During the coming months, we'll be working with our strategic partners to increase the value of this product and if nutritional characteristics, allowing us to move further up the margin curve.

We will continue to work our project level financing for every location our platform as a product has immediate acceptance as a high protein replacement ingredient in agriculture and pet food. We believe this financing is just the beginning of a rapid deployment across the platform.

Green Plains partners reported $13.2 million of adjusted EBITDA for the quarter. The coverage ratio was 3.99 times for the second quarter at 1.59 times for the trailing 12 months as amortization of principle for the new loan Didnt begin until July.

Nominal cost turn the call over to Patrick to review, both Green Plains, Inc. and Green Plains Partners financial performance I will then come back on the call Tim will talk more specifically about our York and Wood River U.S.P., an FCC alcohol production protein and aquaculture initiatives and a little more on markets on policy Patrick Thank you Todd.

During the quarter, we adjusted our run rates down to 53.5% of capacity compared to an 80% run rate for the prior year second quarter in order to maximize our respective operating margins.

Our consolidated net loss for the quarter was $8.2 million comparing favorably to a net loss of $45.3 million in the second quarter last year.

Adjusted EBITDA for the second quarter was a positive $17.9 million up from an adjusted EBITDA loss at $19.5 million for the same period a year ago.

For the quarter, our SGN a cost for all segments of $19.6 million remained relatively unchanged compared to Q2 2009 pull.

Consolidated interest expense for the company was $9.7 million, which was $1.6 million lower than the $11.2 million in Q2, 2000 full primarily due to an increase decrease in overall interest rates.

Capex for the second quarter was $28.9 million with approximately $4.3 million of maintenance capex with the balance of $24.6 million Bill allocated to growth capital primarily for project 24 in our high protein initiative.

With the continued improvement and our overall liquidity driven mostly by non bioflo product sales and financing arrangements.

Our revising our target capex for the balance of the year and expect full year capex to be between $100 million to $120 million in line with our original guidance. This estimate includes $28 million of Capex spend for Wood River protein project during 2020.

On slide eight of the Investor deck, you will see a summary of our balance sheet highlights we had $243 million of cash unworkable capital net of working capital financing at the end of the second quarter compared to $387 million for the prior year quarter. The balances for 2020 exclude our cattle business that was deconsolidate.

In September of 2000 late pull adjusting for the deconsolidation of the cattle business. The prior year cash at work will capital total would have been $273.1 million with the difference between Q2 2020 at Q2 2000 late pull being attributable mainly to a change in cash of about $50 million a networking.

Capital financing.

Our liquidity position that the ended the quarter consisted of $183.6 million, all cash cash equivalents and restricted cash with approximately $289 million and availability under our working capital revolvers.

The amount does not include amount that will be available under the recently announced financing facility for the current credit facility at the partnership.

Green Plains partners, we have 151 million gallons of throughput volume at our ethanol storage assets during the quarter, which was down 75 million gallons or 33% from the second quarter 2019, as result of lower production rates at Green Plains plans. However, as a result of minimum volume commitment contra.

Next with Green Plains trade the partnership build trade route for 235.7 million gallons of throughput.

Accordingly, the partnership reported an adjusted EBITDA up $13.2 million for the quarter down slightly from the $13.9 million reported in the second quarter 2000 late pull due in part to timing.

Of accounting recognition of railcar lease expenses and other items for the partnership distributable cash flow of $11.3 million for the quarter compared to $11.7 million at the same quarter of 2018.

Last 12 month basis, adjusted EBITDA was $53.1 million distributable cash flow was $45 million.

Declared distributions were $28.2 million, resulting in a 1.59 times coverage ratio.

Lastly, as Tom will discuss more in detail a bit later, we successfully refinanced the partnership with our existing lenders in June.

As part of that financing, we will initially amortize two and a half million dollars of debt Primark, However, with the principal payments on our debt not beginning until the third quarter. Our coverage ratio was 3.99 times the second quarter now I'd like to turn the call back over to Todd.

While the industry moves faster than other and energy industry production to shut down during the cobot that came back possibly faster than those same industries.

However for Green Plains, we are in a better better place and we would have expected at the start of the pandemic. What we learned was York, Nebraska produces a great product that was previously exported to industrial markets and now almost fully transitioned to domestic use the quality of York's product is very unique as it was originally a beverage facility that has a very different profile than FC.

See and industrial alcohol being produced by others that is why we chose this plan to immediately upgrade to us Pete.

We've been able to redeploy some of the equipment, we have an inventory from dismantling our hopewell location, which is adding to the speed of completing this project.

There are lot of fast followers, just because you have a great certificate that said you make that specification doesnt mean, its a good product in fact, many of yours early sales were replacing substandard products from other ethanol plants. We have worked closely with branded consumer product companies to get our product into their cleaning lines meeting their strict Q a QC requirements from such.

Companies is something that sets us apart and our continued development of New York and Wood River to us Pete secures our position to be a long term player in this important segment of the industry.

These customers know there are many ranges the quality and know that ours is exceptionally high in fact, we believe the U.S. government your crackdown imports of big raid and U.S.P. from Brazil, Pakistan in other countries at these products should not make their way into our supply chain and they should be vigilant on making sure. These meet U.S. specifications, which we believe many.

I do not as they are not getting tested adequately.

We now have almost 75 million gallons of capacity, which is important to our customers. We can provide high purity high quality product at scale. Unlike many of the one off projects that have occurred in this industry. We have already executed contracts with significant customers to the end of 2021 as demonstrated through our very important partnership with lysol.

This morning.

Just a firm that we have something unique happening at your.

During the quarter, we were pleased to complete the refinancing of our GPP debt, we extended to for 18 months and are required to pay a higher principal amortization, but we believe this benefit accruals directly to unit holders are which we remain almost 50%. In addition, we're also very excited to be finalizing a $75 million loan facility.

To support the execution of our protein strategy. This project level capital is just the next step in our transition to Green Plains 2.0, but it gets further validation of the finance ability of these projects and enables us to accelerate our transformation.

Our wholly owned optimal Aqua venture is continue to make progress as well the high protein ingredients. We are making at Shahuindo are serving as a delivery mechanism, replacing traditional project project excuse me products and Aqua feet Green Plains is now selling various ocho feeds for Blue Gil Columbia trout, and other species, we've always believed.

This would occur and this is only the beginning let me explain a little bit about our optimal Aqua company and how it fits into the overall strategy. We've long said that the world protein market is growing by 10 to 12 million tons per year I wanted to drivers is the need to provide feed resulting in clean healthy fish protein for human consumption and is very efficient as.

It is a very efficient converter of feeds to edible proteins.

Utilizing our high protein ingredients and Aqua feed produces a better overall feed product with improved nutrition and digestibility profiles as it includes both the corn protein and the east from the process. So it has an all veggies and positive fungal components that puts us at possesses other positive qualities are our aquaculture.

Your customers have discovered and replaces a negative dietary effects of soi along with a negative by our environmental connotations the soil.

Especially from Brazil, as well, we have introduced real world commercial feeds as well as continuing with additional feeding trials of novel ingredients that are world class Ocho 11, Shenandoah, we're just scratching the surface on what this could become and we'll have a more announcements on the strategy for forthcoming.

So to sum it all up.

We continue to put strategic partnerships together with world class companies, along our total supply chain.

On the front end with our 10000 farmer customers, where we are rolling out our customer facing mobile apps. This month for a more interactive relationship with them, we are using and developing our AI or artificial intelligence to make our interaction more efficient and predictable and we're seeing very good early results. We believe this will not only take ROI.

Ability to buy it better but will also be able to offer solutions to the us farmer base that we have to be able to sell it better more to come on that initiative.

Through our innovation platform with companies like no designs, where we are tailoring nutritional solutions for aquaculture customer the pet food customers and this is just getting started which will increase the value of our high protein products to our technology partners like fluid CWIP, where we are rolling out a high protein high quality production platform of new products at our industry never had before.

So our optimal Aqua business venture, where we are tailoring custom solutions to help bring more and more aquaculture production onshore as I said, we already have game changing solutions under development and some already and froze fullscale commercial trials with more starting soon and results forthcoming, but so far the outcome.

Those are positive to our World class Agriculture Laboratory, where we are using our new high protein protein feeds as they delivery mechanism for new and innovative products all of which is located on our by our bio refinery site and Shenandoah, Iowa.

All of these initiatives and many more important as you make a decision whether to stay the course of Green Plains, but no. This our goal is within a few years to totally transform our platform, where we intend to never be prisoner to government policy again, and minimize the impact of an on disciplined industry on our shareholders and stakeholders.

I'm proud of the Green plains team for executing during the quarter, resulting in positive EBITDA.

We haven't focused on maintaining liquidity and a strong balance sheet and rapidly executing at every turn.

Thank you.

And as a reminder, ladies and gentlemen to ask a question you need to press star one of your telephone withdraw your question. Please press the pound key.

Please limit your questions to no more than two at this time.

If you wish to add additional questions. Please rejoin the queue.

Please standby we've compiled the June a roster.

Our first question comes from the line of Adams, Sam Samuelson with Goldman Sachs. Your line is now.

Hi, Thanks, good morning, everyone.

Hi, Adam.

Hi, So I guess first time, I mean, a tremendous amount.

Moving pieces between kind of market volatility and the internal initiatives you've had underway.

In the quarter and I guess I'm trying to parse through the ethanol crush margin the achieved and we're talking about 18 cents a gallon year on year and is there anyway, we can kind of dissect kind of the drivers of that between the industrial hand Sanitizers sales.

And then Dello ramping.

From the Hydro project 24 changes in kind of market kind of crush margins and.

Your internal kind of hedging activities that seem to have been beneficial Im just trying to get ahead around trying to triangulate performance should some of those factors as we're not going to breakout all of that.

The competition reason I would tell you that if we hadn't none of that we would have been negative double digit EBITDA crush margins.

And then from there you can see that we achieved a positive nine cents.

Gallon plus the uplift from cattle. So you can assume that.

No Thats fair I appreciate that.

That little bit Teller, and then as we as we think about and as the balance of the year and we think about.

And then continuing to now now at full rate and wood river launching it launching.

Mid next year.

Help us thinking about kind of the premiums that you're starting to insist to realize on the.

On the high pressure that you are producing and kind of whats the roadmap to getting that hired from both a.

Protein kind of content perspective, which obviously adds value, but also the different addressable markets as you start getting those redundancies in place from from a quality control and supply chain.

Yeah.

Yes, Thats a good question. Thank you. So if you think about the baseline.

Distillers grains that we produce which are worth somewhere in the 100.

Maybe $120 range.

And every hundred dollars you achieved as a premium over that for this product that we're producing adds about six cents a gallon.

Of margin too and that to our production platform.

So as we indicated we believe.

Flying this margin before other improvements trades at a premium to high protein soybean meal because.

Right off the production line first week that we're producing product we are producing protein in the 50, 152% range as high as 53 mechanically.

As high protein soybean meal is about 47% pro and we're putting 51% pro out right away as high as 53.

We are getting premiums above high protein soybean meal as well so our first initial sales we had in place.

Gave us somewhere between a.

Addressable markets and I will tell you that the value of the product doesn't and our view and this is a strange.

If you just go to some of the largest buyers of feed in the world. They want even look at you until an industry can make a thousand tonnes a day that 365000 tons a year and if you think about today there is for three or four of these plants running once Shannon once.

Wood River comes online and others that have bought this technology come on line might start to be able to reach that to get to even bigger addressable markets were right now where we're focused on is addressing the needs and pet food and agriculture, and I think will it will take us half of our platform before we even start to move into other.

Other markets other than maybe all bad specialty dies and pull trade, which I think will pay a premium as well so.

Again, it's really just a matter of every $100. It's worth about six cents a gallon. If you take distillers grain does your baseline and you decide what do you want what this product worth as a replacement protein up that J curve that I talked about it's it's very easy to see the ability to add.

Margin and then lastly, when we have wood river and Shenandoah running that's about 200 million gallons at a baseline we think 15 to 20 cents a gallon.

Which is 30 to 40 million of additional EBITDA over our whole platform just on those two plants.

On an investment between those two plants of under under 100 should be under 100 million and both of those plants. So you could see it's less than a three year payback.

That's a lot of great great color I appreciate it I'll pass it on thanks, Thank you very much.

Thank you and then next question comes from a line of Ben begin.

With Stephens incorporated your line is now open.

Hey, Thanks, good morning.

Hi, good morning.

Really.

In terms of how you are arranging your assets to be at more substantial player in this market going forward.

And I'm curious when you think about making those commitments and converting.

Some of your capacity to produce that product.

How do you think about the demand for the product relative to what you supply in a world beyond coveted where we've seen elevated demand.

Then how variable is the revenue per gallon. After this product that you sell.

Okay. So.

First of all.

We are not just selling our alcohol for handset ties are I think thats really important really important point, it's going into many things from cleaners, disinfectants as well as hand sanitizers.

The hand Sanitizer Revolution.

That we saw early was of the initial driver of the euphoria around.

Hi quality alcohols.

And what happened was the market got very confused as you see the you at the FDA, recalling and putting out warnings.

Other companies thinking they make degrade selling it and then the quality and the smell and the older was was off the charts negative and then they found their way back to York, Nebraska.

So the early Euphoria I would say was mostly around sanitizers like that and we've made our way into that and the reputation of York was it was a replacement for for.

Bad older Bad quality products that they came and got a higher quality product from from our company, which led US then into.

Moving away from.

Ted and John hand, Sanitizer company into more of the branded branded products companies, where they were meeting long term supply as their demand as the move to quality took place.

On these products and less about euphoria more about quality, which is what we announced earlier in our partnerships with GE current our partnership with Xerox and our most recent announcement with our partnership with Lysol that was a flight to quality and I think thats a lost on many who think you're just going to start up.

And access to market and and get get themselves injected into the supply chain. Because there are many many plants at started up what you SP or at FCC grade that will never get never make up for Q Ache you see of these organizations and that's the one thing that I think makes green plains very special and unique.

Larger comp of global companies and a slowdown on some of the startups.

But that demand is outweighing.

The the slowdown that we have seen but again.

At this point, it's the professionals that start to get involved and they are coming to Green plains. As you can see buyer announcement this morning, because our ability to manage quality logistics.

Ongoing ability to help with providing a product that that is what it says and.

And does what it says and can we can deliver on a timely basis and have.

The ability to supply large quantities.

Now I would say.

Our view is that and the view of our customers is that this is not going away anytime soon.

As evidenced by wanting to put together longer term offtakes in contracts with our company.

Because of the security of supply, but also the quality of the product.

And our view is this is a easily through a 2021, if not a 2022.

And any any increase in co bid and or other.

Irises that come we'll just make this a ongoing and ongoing business, but again you see a lot of announcements of fast followers and I don't really fully believe some of them know what they're getting themselves into and we will have a customer to sell to because it's becoming a very professionalized very quickly with high quality control.

But with that said, it's also becoming global in our view, we're starting to see global.

Growth as well and those markets coming up typically we would have sold a.

The export market at a much lower price than the domestic market historically, but that export market is starting to have to pay up or finally, starting to see movements in Asia, the EU and little bit in South America of those prices starting to reach as high as domestic prices, but when this all started obviously it was.

Like the wild West and I would say, it's starting to mature very quickly. So our view is that the demand is elevated today, but it's going to remain elevated for at least.

In months, if not a.

Our year after that.

Very helpful and Todd is that the revenue per gallon is that variable or fixed and the contracts that use.

Hi, or.

Give us a sense of.

What's embedded and.

Volatility or.

Line of sight to pricing.

Extend contracts further out more importantly to us.

Then I guess.

Getting an elevated price in the spot market is actually locking in a margin for a longer period of time with a partner and helping them make sure. They can.

Lock in their needs at what I would say is reasonable terms and we can lock in our margins at reasonable terms and we work together on that instead of just trying to get the best price as weak as as you can in the spot market. So we've always taken to view as a company that if we can lock in and become more predictable and nowhere.

For 75 million gallons of very high quality alcohol, we'll have a home we'd much rather have that than than playing around and messing around in some of these.

Spot high priced markets, although we still have product for that as well and we're still we still are selling some of that but the long term offtakes are much more important to us, but but know that but theyre, they're definitely not at the same level as has the nearby prices, but they are at levels that give our shareholders a very good baseline earnings at least our base on EBITDA as before.

Everything else starts.

Okay very helpful.

My second question is around project 24, and you guys had made really solid progress there.

It seems like you might need to start to rename the project I don't I project 22, or 20, but can you help us think about.

What the barriers or governors might be on.

Getting your network below that 24 cents level.

Cost perspective, then.

Just kind of quantifying or or putting parameters around what we should be considering that respect to what that ultimate opportunity looks like.

Yes, I think you're on the right track when you think about where we're going to end up because the results that we've seen with our partnership with IBM as well, who I wrote remiss not to mention in our other partnership discussion who has really worked closely with us on driving the cost of our operations down the results we saw in Wood River.

Put wood river into the World class facility in Opex Opex mode, much similar to modern and best in class icing on plants effect. As we said are basically converting the biggest part of the plan to an IC ATM facility and its operating consistently like that that the Fairmont facility is starting up right now.

We had a bit of a cobot outbreak there, but now thats under control. So we're back in Bakken startup mode should have that running sometime next week Thats, our second Big Delta team. After we did two also smaller delta tease the big driver will be our eastern plants of mine burden and Madison.

Those are the Bogo Bush plants, and we're going to do the same thing there we have started to.

Convert Mount Vernon as we speak.

We should probably take that plant down in a couple of months for conversion.

And then from there I actually think Theres next steps that will be able to take once we're at those levels to drive our cost structure down further where we can get our whole platform.

Down into that probably that 22 ish type 22 type range.

I think what's really dramatic.

Is what we've done not at our large plants, which we saw the path was there is a plant lake superior, Iowa, or a Plantlike Fergus falls, Minnesota, which traditionally was a high cost small delta T. plant running and Opex. After the four basic commodity than we've outlined that in the past how that works. So we can do like.

For like comparisons because some have some have been skeptical of what Opex is or said there is better which we would disagree but.

With that said, we've taken too small delta teas high cost production facilities and they have Ron as low as 22 in 2000 treats a gallon opex comparing that better than many large IC ATM facilities.

Because of what we were able to do with with our technology upgrade and that just his game changing to up to a platform like us when we will have a various amounts of technology with many switch many said can never.

Be reduced to a level that is average best in the industry for portfolio, which we believe.

Lastly.

In comparison, just one comparison point for you a delta TV.

50 million gallon plant traditionally ran at 32 to 30 35 cents a gallon operating costs and right now our plants are below 24 cents, a gallon or right at 24 cents a gallon on the small plants operating costs. It's just a dramatic change in our ability to withstand margin volatility.

Okay, great thanks for that and Thats a lot.

Thank you.

Our next question comes in the line of Eric Stine with Craig Hallum. Your line is now.

Good morning, everyone.

Morning.

Hey, just wanted to get back to that the FCC and the U.S.P. alcohol.

Just curious obviously much more as you said after the early days much more of an emphasis put on.

Higher quality, our meeting certain specifications as some of your partners.

With that in mind.

I mean wondering your thoughts about what your ultimate volume levels could be.

We know 75 million gallons that youre.

Im not sure if you've ever disclosed what your production level is that wood river, but would love to know kind of what you think this can be going forward. The overall platform.

No were York is about 50 million gallons Wood River is 25, so that the two plants combined.

Our being both will be upgraded to you SP and we are actually now engineering are now starting to.

Design and think about going to VVA acute which is very high quality. Just continue to go we don't want to stop.

I think from our standpoint, we have to continue to differentiate ourselves and because we have such a big starting advantage because York.

It was already a beverage great facility and wood River is getting massive columns.

Distillation columns from our Hopewell facility.

We have in stock today that can transform that that be grade column that.

Im sorry York's getting the massive distillation columns, but wood river now being a be great facility is going to get the the same treatment as well we could move so much faster, but we're not going to as I said, we're not going to stop I mean, we probably won't become a beverage grade seller of alcohol, but we want to get to the VH Q type specs are very high quality pharmacy grade.

We want to continue to move because.

You SP moniker is not really the same with every single plant and we would warn and tell customers out there that byproduct from this industry to make sure you know what you're buying because you SP is not U.S.P. at every facility make sure. The older meets the standard and make sure the quality mix to standard and while you.

I get the moniker it might not give you what your what you're looking for so make sure you're very very careful on that so I think we're going to probably stay around 75 million gallons theres enough projects announced let's see if theres any growth in in the business as we move into specialty alcohols, and and we HQ type alcohol and have and we do have a strategy around that we'll wait and see if.

We transform anything else.

But right now I think were very good at the volumes that were that we're selling today. The market. There are the market is is active but I wouldn't say its its deep without without a lot of work.

Got it got it and maybe just follow up on that.

Can you just in response so previous question talked about your preference to be under long term contracts I'm. Just wondering are you able to are willing to disclose.

The contracts that like the one this morning, you've got through the end of 21.

Versus ones that are have yet to come up for renewal just trying to get a sense of.

What the contracts that reflect today's environment and going forward rather than the ones that maybe were signed in 2019.

I can only comment that into beginning of the.

Cobot crisis.

The market was.

In that five to $10 per gallon range for some volumes because of the short of shortness of supply and that has come down from there.

It's definitely a premium to fuel grade because it costs more to make.

It's a much different supply chain much different logistics much different cost structure.

But it's definitely definitely not in that initial euphoric price range.

But either way when you take 75 million gallons.

And you multiply it by something better than feel great.

And and as I said, probably not over that.

Low end of that euphoric range, it's still it's still meaningful but.

It's just different customers.

We'll pay different for different needs, whether it's a long term short term totes versus rail trucks versus.

Gallons I mean, you can go on and on a non in effect we are.

Starting up to pack cat lines at the end of the month at Green Plains owns a partnership with pharma Great Company, a pharma company in a clean room facility.

We're starting up to pack at lines to give one milliliter single serving.

Delivery mechanism.

For the market and we've already we're going to make.

We're going to make pack thats not just for our own distribution, but also for customers that will buy the one milliliter wanted to have millimeter pack at lines that we order those from European manufacturers right at the beginning of this as we saw the vision for the need for different delivery mechanisms we partnered.

With others that make one gallon jugs.

At that trade a lot higher because of the cost of production. So it's really all over the place.

But we're involved in all the different sizes.

And all the different delivery mechanisms and if somebody needs to move from totes, the rail and rail to truck and trucked to gallons. We can we can deliver all of that and Thats. What I think makes us very unique in our ability to service very high end high quality customers better than anybody else today.

Okay very helpful. Thanks.

Thank you.

Next question comes from the line positional Mollison now with Raymond James Your line is now.

Thanks for taking my question on kind of a high level policy dynamic, we're obviously watching the stimulus.

Amortization in Congress wrapping up here presumably.

Do you think the ethanol industry.

Realistically gap from the next stimulus package in your mind.

Well.

The difference between.

Reality and hope.

Is.

It is is wide right. Our hope is not a strategy is sometimes all this industry has but.

The reality of it is probably not going to get very much.

And any any and everything else is wishful thinking, yes, I think that.

If we get something.

Well, we'll obviously not going to say no.

But I think it's a very hard to ask and it continues to try to get pushed out of the legislation.

And our champions continue to try to keep it in that believe this industry was.

Damaged from many different policies.

That.

And many different issues that took place this EPA damage this industry beyond reproach.

They.

China trade or was damaging to us.

And and I think that we need.

A little payback wouldn't be so bad, but I'm not sure that's going to happen.

And so I'd say that the chances low that we probably see very much.

But but relative to what we have endured.

More probably than any other industry impacted by China trade EPA and other policies, we are probably the biggest impacted.

The industry that was had the most impact negatively as the ethanol industry.

And and I think that.

That needs to be taken consideration.

Okay.

One other kind of policy dynamic this one from the other side of the Atlantic when we talk about export.

Usually western hemisphere and in China in the conversation.

But we're seeing more and more headlines from Europe about the European Green deal the climate lot et cetera.

Why is the you at industry not exporting billions of gallons.

To the world's largest fuel market.

Because.

Exactly what the administration is fighting which is breaking down tariffs is exactly what has to happen.

And it's a very unfair system, where we'll bring in Brazilian ethanol without a tariff, but they terabytes to go into Brazil.

We will bring in Chinese products without a tariff what we pay a tariff to go into China will bring any new products without a tariff, but we pay a tariff to go into the EU and we continue to have unfair trade policy around ethanol everywhere in the world that we have to compete not only be cheaper, but also have to be cheaper when you take into can.

Incineration, a tariff while our boats passing the night.

As our policy is flawed on on many different fronts.

We've done a good job building up our exports of ethanol around the world to what was pushing what was going to push probably 2 billion gallons.

And I would say.

Because of covet and because of the lack of movement.

We are.

Significantly we're going to be significantly hampered at least over the short term to get ethanol out of this country and it's going to be driven both by not just cobot, but also trade policies and tariffs and that's what I think where we support. This administration is in the fact that they are trying to break down these tariffs what's crazy is that.

While we can't get our ethanol into China, there stealing our corn at the lowest farm prices that we've seen and how many years I mean this is a a unbelievable grain robbery from China stealing the corn out of the United States stealing farm products from the us farmer, when not having to buy us ethanol and putting a tariff on that while they come into our country add.

And let co bid and this trade policy drive us corn prices lower and now they step in and now they're going to buy.

That to me is a gross.

That is a a complete.

What I would say.

Mistake.

Of our of our agricultural policy to let that happen and I think we need to stop it.

Appreciate the color guys. Thank you.

Thank you very much.

Thank you.

Your next question comes from the line of Craig Irwin with Roth Capital Partners. Your line is now.

Hi, Thank you John I would agree with you later ineptitude at the head.

Okay.

My question is about high pro so.

Can you please update.

Update us on the the collaboration with no designs.

What you're working on and what you expect what's in the next few quarters.

Incremental.

Incremental production available are these strange that you using and other potential enhancements that product and then the Norwegians, obviously, one slight salmon they've taken some specific actions there already can you quantify for us what the size of the Norwegian.

Aquaculture market is and.

You can take many many high pro plants beyond what Green plains cannot can do to satisfy their demand.

Yes so.

With regard to what we're doing on.

Moving up the price curve, it's not just a combination of.

Just the level of protein.

Which has been done for.

Flu equipped was doing that long before and collaborating to move those up the protein J curve.

Long before anybody else, even thought about it and so we believe that won't be the biggest issue to do that in fact.

It's a combination not just of protein, but as you said yeas.

And other things that we're working on to really create a product. If you think about the J curve that we've talked about which is the higher the protein it's not a linear price move on on value. Its A.J. price move which is the higher the protein you get actually multiples higher on price.

And when you think about that if you flatten out that surface all around the J curve, that's where we're going to operate because it's not just about.

A higher protein, it's about nutritional solutions and Thats, where we work where we believe the partnership with no designs is really what that takes us to its going into their libraries of other things that they do.

Other than just moving protein higher.

And run that way for awhile before we start to.

Bring these other nutritional solutions into the product quality.

And and that's going to probably start to begin shortly there. They are our partners chomping at the bit and ready to go.

We believe that we have lots and lots of innovation to add in.

And we're literally on the cost of beginning these processes today, but again, it's not just about raising level of protein, which flu equip has been doing for many many years through different technologies, both biological and and mechanical.

And now we'll just we'll just tap into that expertise on top of what the library of solutions that are great partner of novas items, but.

This partnership and Novas items, a lot of a lot of things that we have seen around just are just some of the some of our customer development in other areas is because of our partnerships that we're putting in place so there.

Any achieving other things other than.

Just a product development. So we're excited about that were just kicking this off and what will that will allow us to do is once we start wood River facility number two.

We will already know what we can immediately add to increase the value of this product when we look at.

The world.

Thinking about corn as the deliver corn protein meal high protein formula as a delivery mechanism.

For aquaculture.

Right now obviously you see the fall out of Soi is just beginning in the not just negative nutritional characteristics, but negative connotation around.

The.

Land use and other things that obviously, we've dealt with a lot in ethanol, which we've proven to be incorrect, but.

Today, we're still.

Working on trying to figure out how to give Norway and other markets like that a non GMO solution.

And we are considering taking one of our one of our refineries to a non GMO corn supply, where we can make a non GMO high protein corn meal right out of the bat and we think that we can we can do that over it as the next one possibly the net we have chosen.

Number three and number four would probably be a non GMO solution and work with farmers to grow non GMO corn, we have time to do that but today, we think in the Norwegian salmon market. If you just look at that in a vacuum what the opportunity is.

We think there's about 2 million tons of demand for feed their 20% inclusion ray would come from corn high protein corn meal, we produced at a high protein corn fermentation that products that we produce so just that market alone just that market alone is 400 to 500000 ton opportunity. That's just one single country and that's.

Just to include.

This as a as a as a delivery mechanism of of high protein, but that doesn't include the nutritional characteristic that we can add on top of that.

And Thats just the salmon market, that's not inclusive of all the other aqua markets. There is as well, but I think we're working with customers around the world partners around the world more to come on that US and then more relationships that were putting in place that I think we'll be very exciting for our shareholders.

Thank you and my second question I guess I should start by saying congratulations on the 75 million dollar debt financing.

Really does give you give you a cleaner runway.

Many of US thought you would probably monetize your cattle assets.

Sat back and then blip mass as she would gets something similar to what you actually get the other half 75 million.

Is there maybe an opportunity to do high growth faster.

Tighten cattle or maybe a plant sale, if thats still available to you.

What would it take to do high pro faster and is that potentially.

Under consideration for the next couple of quarters.

Yeah, we're looking at accelerating and moving at Warp speed, if we cannot hydro we want to get a rolled out across all of our production facilities that we have and we're working on a strategy to do that financial strategy to do that inclusive of many of the things that we've mentioned in the past some that you've mentioned on this call, but you know.

The great thing about this announcement and the approval that we got and try me and getting and now getting to a close hopefully mid August mid to late August.

With the lender, who who who we will announce at that time.

Is that.

It validates.

Yes. This is a financeable asset.

Now remember what's interesting is not just bolting on a few pieces of equipment. It's a standalone high protein production facility that gets fad a a stream from the ethanol plant, but thats it at that point at the on its own it has its own dryers its own production facility, it's on load out its on quality control.

So it's much higher in standard to yes, we service Pat and Aqua markets. So its own as you've seen actually you have seen it its its own standalone facility.

And now as the lenders and as financing understands that.

That we believe will kick off other project level.

Financing in different forms obviously, what we have to wait and see what those are but.

As this was so important to get that first one that first announcement out to get the first 75 million at what I would say is very good terms for this type of investment which is even another validating point and how much. The our partner believes that this investment is financeable. When you when we look into terms that we announced so we.

Think this will lead to too many other announcements, whether it's going to beat your monetization of assets, whether it's going to be through partnerships or whether it's going to be through project level financing I think you'll see more to come on that but we want to move at warp speed.

Okay, great Congratulations again on surprisingly strong execution.

Thank you.

Thank you and our next question comes from the line of Laurence Alexander with Jefferies. Your line is now open.

Hi, I guess two things first on the very near term can you just confirm that.

Hi protein will be accretive in Q3 or is there any offsets or ramp term or lies in running extremely well.

So if you think about Shenandoah I mean, it's obviously going to be a contributor as you Rhonda.

That Shenandoah has the capability running about 40000 tons, a year 40 to 45000 tons a year.

If you just take a 15 cents a gallon uplift on those 45000 tons at an 80 million gallon plant. It will start to have a run rate of about $12 million.

EBITDA, a year $10 million to $12 million of EBITDA year, and we'll start to see that contribution start to come in in Q3, as we start as we ramped up now to a 100% without we do have some up we do have some downtime just to upgrade some systems in this quarter as we learn from new things and we want to add new things to it.

But in general you should start to see post some downtime this quarter.

Starting in Q4, you'll start to see that run rate of 15 to 20 cents a gallon at 80 million gallons per 40000 tons of production.

Great and how close are.

You too.

Radical yields.

Or should we expect to lotion your optimization cycle, what's your loans totaled.

Q2 2020 Green Plains Inc and Green Plains Partners LP Earnings Call

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