Green Plains Inc. Green Plains Partners LP Q1 2023 Earnings Call
[music].
Good morning, and welcome to the Great Plains ink and Greens planes partners first quarter 2003 earnings conference call.
The company's prepared remarks instructions will be provided for Q&A. At this time, all participants are I listen only mode.
Like to turn the call over to your host.
<unk> Vice President investors Relations Mister Boggs. Please go ahead.
Thank you and good morning, everyone welcome to Greenpoint zinc and Green plants partners first quarter of 2023 earnings call participants on today's call, our Todd Becker, President and Chief Executive Officer, Jim Stark, Chief Financial Officer, and lastly, Vandermeulen AVP of product marketing and innovation. There was a slide presentation available and you can find it on the investor.
Patient or the events and presentations link on both corporate web sites.
This call, we will be making forward looking statements, which are 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 can materially differ because of factors discussed in today's press releases and the comments made during this conference call and then the risk factors section of our Form 10-K Form 10-Q, and other reports in filings with the Securities and Exchange Commission, we do not undertake any.
[noise] duty to update any forward looking statement now I'd like to turn the call over to Todd Becker.
Thanks, Bill on good morning, everyone and thanks for joining our call today to.
Currently with our earnings announcement. This morning, we announced an offer to acquire all of the public it held common units of Green Plains partners. We believe the proposed transaction will simplify our corporate structure and governance.
Right near term earnings and cash flow accretion.
Reduce SG&A expense related to the partnership improve the credit quality of the combined enterprise an alliance strategic interests between Green paint, Inc. Shareholders and the partnership unitholders by regaining full ownership and control of Green plants total platform, including our terminals. All of this will allow us to be more flexible with our.
Long term asset and company strategy.
Much commentary as we can provide on this potential transaction at this time, so let's get the first quarter results out of the way as indicated ethanol margins were very weak in the first quarter.
And began to recover too late for us to take advantage. If we look backwards, but since we are looking forward things have changed significantly from the lows.
We saw on January his market fundamentals look very interesting for the remainder of the year for all of our products and we'll get to that later.
This was further validated with yesterday.
Data.
Overall consolidated crush margin was negative seven cents for the quarter, leading to a negative EBITDA $27.7 million corn basis has continued to be high particularly in the west we.
<unk> pricing was weaker than the highest we experienced in 2022, which is also a factor during Q1, even though we had most of our corn oil presold for the quarter I'll give you some insight on current events later as it gets starting to get interesting for low carbon intense oils again, which.
Which is where we sit with our product. We also saw week driving demand in the quarter and coupled with continued excess ethanol production, which resulted in a challenging margin environment.
For the last 15 years, we made sure we owned our natural gas for our winter production and that was the right thing to do historically, but with the unusually warm winter, we saw natural gas pricing decrease below our cost, causing a drag on the spot crush Martin because of this we are limited in our ability to benefit from the reduction in spot pricing.
Having are natural gas purchase early impacted or crush margins negatively as well we will assess the best coverage strategy in the future for winter. We believe this ownership as is and always was the prudent approach Reese.
Recently, we have experienced significant improvement in overall ethanol margins as U S production is trended lower while gas and driving demand moved above pre COVID-19 levels and some of the reporting weeks.
That this year's corn acreage will be expanded and get plant in in a very timely fashion as we have a near perfect spring shaping up we all know the ethanol margin can move quickly and on paper. It is well off the lows experienced in Q1 going forward, we will choose our spots to walk in available ethanol crush margins to our hedging strategy is there are opportunities along with along.
Current parts of the curve to walk in a positive based margin, even before corn oil and protein contribution yes. This can't happen in ethanol as well, but it's been a while since we have been able to say this about the forward curve.
So this is really a great setup. Our main focus continues b and executing on the transformation to add incremental recurring margins of casual opportunities from our bio refinery platform through expanded protein and ingredients low carbon renewable corn oil clean sugar and Decarbonize Asian to insulate us from the volatility that we've experienced while.
With approximately 10% of our plant utilization capacity offline during the first quarter because of margins are overall production utilization came in at about 87% improved.
That compares to lawsuits 61, and a half million dollars or loss of $1 16 per diluted share for the same period in 2022.
Partnership declaring the quarterly distribution of 45, and a half cents per unit with a one times coverage ratio for the quarter.
<unk> and expand a suite of animal nutrition products of the MSC platform can deliver as many of you as seen through the visits to our plants and innovation centers, we have a strong pipeline of proof points and products that will increase the value of the ingredients. We can produce with our systems. Remember this is more than a protein system. It has a precision separate.
Pleaded a trial on specific species with significant global demand and have once again confirmed that our products nutritionally perform as design, but are seeing increased availability of key certain nutrients in our products that continued differentiate us and add value to aqua culture farmers far beyond just fish performance and growth.
While we have been delayed and some of our bills by a quarter or two or took longer to get the full rate than we originally thought including now having our wood river facility offline through the end of the quarter. We are seeing the full potential of this product long term, while the first half of the year had been challenging the back half of the year is in line with our original production projections with an opportunity to go higher if we.
Are successful hitting higher production goals and moving more towards a 60 pro product <unk>.
Demand for renewable low carbon cournot continues to grow and we believe the incremental renewable diesel capacity that comes online throughout the year. This market will tighten up and be bullish for vegetable oils pricing overall, we continue to discuss monetizing our corner of cash flows and we would do that in the right situation with the right economics, but it's worth letting the demand for low C.
Feedstocks accelerate later in the year with a sick significant increase in demand right around the corner or corn oil is advantage to other feedstocks due to its lower carbon intensity and we will be a crucial feedstock for these startups, however, with pricing coming off of 2022 highs and now in the low to mid fifties per pound for soil.
We've also seen a drop in Cornell pricing as well, but most interesting as as of late we started trading at a premium to soy again as high as seven or eight cents a pound for.
For awhile during the first quarter in early in the second corn oil was trading at a discount to soy which is absolutely crazy, but with our new increased production from existing renewable diesel capacity that changed very quickly to our advantage. These lower overall prices have reduced the contribution of oil overall, but remains one of the biggest value drivers above base crush.
For quite a while but we have seen it but we have seen a recent resurgence of interest and premiums. So let's see what is actually settled out for the year and next.
Or clean sugar technology construction is in full swing right now in Shenandoah as I mentioned and on track to be completed by the end of the year, even more exciting are the potential commercial partners and the progress we are making in those discussions we are building a first of its kind clean sugar facility sized initially to produce 200 to 300 million pounds with options to expand.
<unk>, two 500 million pounds in a quick manner by diverting a portion of the corn Bryan we can separate discharging converted the dextrose, while sending the remaining protein fibers and oils back into fermentation to produce other high value products.
While certain by volume buyers will want to validate the product. Once this facility starts up we're confident in our ability to meet and even exceed our customer expert expectations because of the success. We've had producing these innovative ingredients at our innovation Center at York and many discussions with potential customers, who have trialled our products.
Meets or exceeds other web dextrose performance products on the market today. The gating item has been electrical gear and continues to be so we are trying every which way we can to accelerate as our construction will outpace the gear delivery mechanical completion is tracking for year end and MCC gear will determine when we turn it on.
Let me give you a few updates on this initiative are lower carbon intensity of our clean sugar product has been reaffirmed by lifecycle associated associates.
Even lower than originally thought with opportunities to reduce even more <unk>.
In the month of May we are devoted the York CSP semi works facility to finalize our capability to produce 43 D E products, which is using confectionery and fruit products at a much higher value. We already know when we turn the plant on we can produce a 95 D E from the start both refined and unrefined the law.
Last step we will explore is using our systems to make crystal and dextrose and we believe we can crack that as well it will take three to six months after startup to get food safety certified so our initial customers will be industrial and we are that and we are seeking ended discussions on early off take agreements as we speak.
Remember, we already food safety certified in New York, So getting Shenandoah, there will just be a process and time as it will be the most modern and efficient facility in the world producing this product more to come on that but customer engagement is high and by the way margins are even higher as evidenced by recent validation of this by current companies that own and operate wet mills.
R. D Carbonization strategy remains on track to summer carbon solutions pipeline project would continues to make progress.
Has over two thirds of the right of way purchase and we anticipate this pipeline to be operational sometime in 2025, which can benefit from early days of the 45 Z Queen fuel production credit the future of this industry is low carbon and we are at the forefront of these efforts or JV with United Airlines in tall grass Blue Blade energy is in the process of optimizing the catalyst for our.
Exclusive ketone technology from P&L and depending on the success of key gating items could be constructing a pilot facility as early as 2024, we continue to evaluate other technologies out there as well and there are many promising that we're looking at all roads lead Saf and 80 J, though it is a second half of the decade story.
Bottom line. It provides a valuable additional outlet for ethanol volumes and increases the value of our assets significantly when we get there with.
With bipartisan support for certain provisions in the I R. A bill such as a 45 green fuel production credit we remain confident that the carbonization will be crucial factor driving the future of our industry.
We are developing strategies to deploy combined heat and power systems direct injection for carbon capture and sequestration in certain locations and more at the teacher and we will do a deep dive on all of this so I'll leave it with the programs leave it with you with the programs are in place that we discussed.
What you have heard today.
Some common intersections.
The value of R E E.
Portfolio embedded in fluke hoop technologies truly separates green plants from anyone else.
We believe this is truly an under appreciated some examples. Additionally that we're working on our 70% protein upgrades. There is an ongoing initiative to achieve this level and could accelerate in late 2023, which would be a big value driver to the future increased oil yields as we continue to use our technology portfolio.
To press towards one five pounds per bushel with a goal of proof of concept in mid 2024, moving to an engine engineered solution. We believe flew equip as the world's leading separation precision separation technology for growth in synthetic biology, and other industrial applications in almost all cases solid needs to be <unk>.
Separated from the process and we have some of the largest solutions operating today in the world quite frankly, it's our MSC systems. This part of the business alone can be very valuable we expect in the last half of 2023 to be able to deliver some exciting news on several initiatives. We are working on I assure you that's going to be very exciting. Please stay tuned lastly.
Lastly, when we deliver our first load of dextrose from a dry grind facility. The world will know what the value of our IP portfolio is and in turn the value of green plants through our four pillars of protein oil sugar and D. Carbonization combined with our Gen. One platform and the potential for alcohol to jet as as such sustainable aviation fuel.
It sounds like we have a lot going on but first and foremost we are focused on delivering right. Now these initiatives are complimentary and aligned with one another and we have confidence in this strategy remains squarely dedicated to achieving our vision.
Thank you all for joining the call today I know it was a little long, but we can start to Q&A session now.
At this time.
Question. Please press sorry, then the number one.
<unk>.
Our first question comes on the line.
Adam.
Morning time, everyone.
Good morning, Adam.
I'm trying to catch to get my notes down from litany of things that you just went through tied so so bear with US online later Dora.
But I I guess, maybe if I was to pick out a few of the newer items there.
This is the first time, we'd heard you allude to maybe.
Thinking about expanding corn grand capacity and I was hoping you could just clarify that just in terms of thinking about the size.
Of what that would entail the incremental.
Just how much that's actually.
Starch is actually ethanol versus versus thinking.
Thinking about clean sugar or just.
New ethanol capacity on its own has not been something.
Needed as much in the United States in the last decade, really so I just want to make sure I'm understanding where the capital's going there.
No I understand so we have probably three plants, where we have MSC installed today, where we'd like to get more grind, but but if you take a plant like Shenandoah, where we're going to have some of that Brian diverted to clean.
Queen sugar as well as.
But when we do that the protein in the oil.
And the and the feed stays the same so you really just diverting some of that starch from ethanol into sugar does free up <unk>.
Some of the back half of the plant, which will go unused.
And really the key at that point is while you might make a little more ethanol view and grind expanses are not very high in capex. So while you expand the grind. The most important thing to expanding grind as as I said, you make a little more ethanol, but you can make a lot more protein in oil and that's really what pays for it while you're also then increasing potentially down the road.
Moving that back and forth between making more dextrose as well.
Gross margin so high obviously the more grind, we can we can convert to dextrose, the better at Shenandoah and other plans, but it does free up other capacity to increase as well. So we kind of mentioned that on the last call and have been talking about it for probably six months or so so it shouldn't be anything new we just haven't we're starting to look at really Plantlike Shenandoah.
Plants legal buying and plants like.
Central City, which are easily expandable have the corn corn that they need and then looking at our other parts of the platform, where we have maybe some smaller sub optimal plans for that.
Can can look at.
Monetizing nose or using those for for other ingredients as well so.
We're just starting to look at it but when you look at the paybacks just from protein in oil alone to expand a little Brian it'll certainly take care of the rest.
Okay. That's helpful. And then and then prepared remarks as well there is some discussion around the realized premiums and you're getting on on on your high pro sales both in the first quarter and that those expanding.
Believe you said $230 a ton in the fourth quarter as we think about that level of premium on your fourth quarter volumes.
How do we how should we think about the protein concentration of that sales book.
Trying to think about how how much further there is to go as you push towards a corn gluten meal or soy protein concentrate replacement at 60% protein and Thats still based solely on a 50 pro premium so when we look at what's happened in the market with our inputs going down.
Forward corn and really.
We've seen we've seen soybean meal equivalent go down as well, but not quite as much as as the as the input side. So thats widened out the margin on paper and that doesn't include any uplift from any other products and when we look at we made some early small sales.
Of 60 pro and we've seen those premiums at another.
Three to $400 a tonne over over what we're selling.
The products today, just for the 50 pro product. So that's really the juice of the of the of the opportunity is that if we can start to make an impact into those products and we're pricing them right now we're in evaluations with several very large customers right now for 2024 to use our products as a.
Replacement too good meal and as for soy protein concentrate in their rations and that will just widen out those margins as we get later in the year, we do have initiatives for this year.
To sell some 60 pro and we are in those discussions as we speak but none of that is included in that forward guidance.
Now that's that's very helpful and if I could just squeeze one more in as you maybe just on summit as we think about the the permitting and getting the rights of way necessary to get to to move forward. How how are you.
Currently thinking about the timing of when you could start actually shipping on that.
Thinking about the contributions from.
From the low carb from Ci in 45.
That might come with it.
Yeah, I mean, they're making great progress numbers are in the high sixties now across their platform from what I understand.
They've they've gone into South Dakota to go and start to increase those numbers as well as through certain programs.
<unk> and they have their force base and I think that's the key and is.
Is a project that doesn't have their poor space lined up today, probably doesn't have much of a chance to get operating in 2025, So it's really going to be a function of.
Can they can.
Continue on with their right of ways to get the permitting that anything need later hopefully later this year get in front of the agencies in the states.
And then from there start construction and start to move very fast, but I would say.
If I had to estimate hopefully at some time in 2025, when we start to achieve some of these values remember the 45 G of 2000 2500 to 2000 2007. So you want to make sure you get some of that in our view is the 45 G does get extended.
It's going to be a battle, but I don't I think there's a lot of interested parties not just not just the ethanol industry. It's the it's everybody from airlines to refiners to everybody in between so strange bedfellows, where we all want to 45 expanded <unk>.
Hoping and we're optimistic that sometime in 2025.
Some of these projects will be on line and we're working with others and other projects as well and when we do our teacher and we hopefully have some some interesting.
Discussions around other carbon intensity reduction projects.
And partners that we're working with to do that as well.
It's all very helpful. I appreciate the Carl Python.
Thank you.
Your next question.
[noise].
Oppenheimer.
Thank you for taking my question and I regret this but I'm I'm ready to write down the notes here.
Can you just give us a sense.
Moving parts.
For two Q between the ethanol crash.
Being Dan.
The maintenance.
Sam y.
[noise] Precrash margin can look like in two Q and then how we should think about any changes in baseline EBITDA bridge exiting 2023.
That would be great.
Yeah, So with Q2, it's a shutdown the first thing that start with Q2, that's typically a shutdown quarter for us so that traditionally impacts Q.
Q2 for the really the industry as well and we've seen that in the recent AIA numbers.
On paper, if we kind of look at the next three quarters, including based crushing everything else. We're doing you have to remember that when we started that.
Probably the last call. We had lost earnings call margins were significantly negative out on the forward curve for the whole industry and they've really moved a lot. Since then we believe they still have room to go when we kind of take a look at least on paper today.
Let's just call that unhedged on paper, what we're seeing in Q2 is a full fully loaded margin of everything.
Kind of in that 12 to 17 cents a gallon range just depending on.
What part of the what part of the quarter. We can get some of these shutdowns finished and get wood River back up and running in Q3 on paper fully loaded with the ethanol crush kind of coming back at least as for US 15 to 20 cents a gallon on paper today in in queue for on paper today, It's 22 to 25 cents a gallon with some volatility.
Everyday just depending on on the movements of the window in Chicago, but right now it feels like it's tighter.
Nice to have a baseline crush somewhere near positive or more than positive it and the last half of the year and as we exit 2023, and we will have to wait and see what translates I think the interesting thing about this industry.
And again I may be wrong on this but these plants are getting older. So while everybody gets exciting excited about running at a 1.1 million barrels per day, right and I think that's going to be there forever. It's a lot easier to run it at 950 to 1 million barrels a day right keep your plants running than it is to push towards one 1 million barrels, which that was a debottlenecked number of that kind of was the maximum.
We've seen I think that's going to be very limited as as as this industry gets older shutdowns take longer everything.
It is a little more expensive and it's just harder to run. These plants are with the labor that we have so it's really interesting dynamic that we're seeing right now again, maybe maybe off a little bit on that but it kind of feels that way from an industry perspective, because we should be running harder with the margins that we have on paper as an industry, but I think that all those come into play so overall as we exit <unk>.
23, I don't know that it is industry has a carrying capacity of 1.1 million barrels on it on a 355 day right anymore. I think it's I think as these assets get a little bit older. It's harder to run that hard.
Which is beneficial to I think overall and and driving season is driving demand is very very helpful. Right now.
Okay. Thank you for that and then you mentioned that.
Potential for a new fiber product I'm, just wondering where does that.
Overall ingredient opportunity how easy is that to pull off the line and how should we think about something.
Something like hyper how should we think about that process evolving.
I'll talk a lot about how it evolved now of Leslie kind of come in and talk a little bit about the product overall, so all we've discovered is.
In and around our IP only we can come up with a clean fiber fraction that we've been able to modify through fermentation and and use our precision separation and add a component to that to make a fraction of that is that is more valuable than say a traditional distillers grain.
And but maybe less valuable than the high proteins, but a lot more volume of it so.
We have we have is part of our patented process.
And we are now working with customers <unk>.
Domestically and globally on distraction.
Provide significant uplift in the future as we think about protein protein with again was never just about making 50 pro and getting a little bit of oil upgrade. It was all about these other fractions that we're going to go after that a wet mail goes after today and even other companies go after and other things that they do around brain processing, but also have less we will talk a little bit about the product that that.
Yes, I think so Chris and in terms of the development cycle, we really look at those as tight as indicating is a holistic product development approach. So as we make improvements to the protein because the protein fraction comes from the original distillers grain traction we are keeping a close eye on what the potential is of the fiber.
So it really goes hand in hand, and we are seeing improvements that make the products.
Very interesting for specific markets that would actually be almost companion products to the protein.
You ask a question in terms of how we fit the scene on the sales force side of things as we've built out the team and when deep into some of these markets with their rolodex is of our sales team, there's really becomes in other products that they can.
Sell to our customers. So we actually expand our opportunity and really build onto the view that we have an animal nutrition platform that really comes off of this.
Precision separation technology.
Thank you I'll leave it there.
Thank you.
Operator can you get us the next person please.
The next question comes from the lineup.
[laughter].
I just wanted to learn more on them.
Honesty.
It looks like now.
Come on NBC indicated that at 60 million gallons, probably going to send in Turkey, and and at the same time.
Progress on the sustainable aviation fuel inside again, the community that you can take another part also help us understand what you're seeing out in terms of phenol.
Speaking speaking up from the.
Any benefit.
Tangible benefits in terms of demand.
Oh, let's not picking up as both Ivy and <unk>.
Gained momentum.
Well, let's talk about the oil first as we indicated.
We went from a weak market as the U S was was importing some offshore used cooking oil of which some of those are still sitting offshore because they are getting rejected because of quality.
It helped us as well but.
That would cause a bit of a week tone to the.
To the fast market earlier in the year that has changed significantly I think are low Ci oil becomes more valuable over time as more plant startup because of the value from the the programs that are in place to monetize that low ci relative to soybean oil suicide soybean oil will always be the most.
Volumetrically available for this industry and the easiest to buy and probably the best logistics. So they will always have their place and it's it's it's the right product you used for for some of these processes, but we fit in very well and as I said, we have seen now moving from soybean oil price to a little bit of a discount to now again.
A five to 10 cents a pound premium too.
Soybean oil futures, which is somewhere in that 10% to 15% range.
Well anything that starts off just takes longer than you might think.
And some of these are the plans to come on line take a little bit longer than you might think and but once they kind of get through that initial debottlenecking bring on the oil and and and that's really good for us are rollin' Saf in and.
And <unk> at this point is still limited because we're really not commercialized in any technology across the industry. Although there are some really great technologies out there, including what we're trying to develop as well so we'll see where that goes but the first thing is you have to decarbonize you're out pulling up we have certainty of that.
Not going to what's happening in Saf around verse.
Vegetable oils and half of feedstocks.
Doesn't have a ton of an impact to the alcohol market for us it does on the individual market only but.
Perfect.
<unk> Margaret from the.
So if you could help us understand that.
Yeah, I know, we need greed, I mean without a doubt were pressing for that I mean, it's harder.
I mean, you make more money.
With greed, but even without greet the first 35 30 to 30 points of carbon sequestration get you.
To a good place and then on top of that another five to 10 points.
On.
Our combined heat and power systems, which is co generation, which are easily financeable or people, it's actually put them on your site and you'll get all the Ci point credits for that so there's a lot to do there, but I think it's you can't just look at it tastes global greet versus California, greed, it's not quite that easy while certain.
<unk> easier with <unk> with with grief coming from the government side.
We'd like that we'd like that is I think the industry with like that as well, but overall certainly we are going to benefit from it either way as soon as you sequester you state you are in the game and then beyond.
Sequestration and beyond combined heat and power. There's another five to 20 points to go after and multiple different areas post combustion fermentation or post.
Post combustion.
Gas is that we can and carbon that we can sequester that's worth quite a bit we've got on farm programs that are worth quite a bit I think it's a big long program, but it's not necessarily we have to have it but we'd like to have it.
Thank you.
Thank you.
Thank you.
Your next question comes from the line of Andrew.
Hey, good morning, Thanks for taking my questions.
Good morning, My first one I think is good.
Good morning, I think if I did the math right, but you mentioned on some of the forward consolidated crush margins. It gets you to make a run rate of $100 million box EBITDA in the back half of the year, if I have that right with countries. The low end of the medium term range you've talked about it in the past.
So number one I guess correct me if I'm wrong, there number two how much of that.
Do you actually have hedged out over those quarters and is it at those levels are different levels and the number three excuse me.
What are the moving pieces left I guess to achieving.
And that type of margin.
Okay.
Well I think the movie pieces to start out with the last part of your question because.
Ethanol crush steeps keeps moving around.
Corn and your inputs lower the last part of it some of it where the opportunity may exist as well as basis levels into west towards the end of the year, we've been able to buy some corn.
Well, we think those have an opportunity, especially late in the third quarter with the crop coming on getting placid early.
Finally, having property United States, that's going to be helpful corner oil prices recovering a little bit hopefully in the last half that's not included in those numbers.
Getting two bit of a 60% protein market not included in those numbers, but we think overall I.
Continue to remind people, even though we've come off the lows that we saw earlier in the year of the deferred curve in the margin.
Relative to what we should have and what we've seen in the past, it's still not high enough and.
And I appreciate that people are excited about this movement from the lows too where we're at today, but our belief and we've seen it and we saw last year and I think we'll see it potentially again this year because I think we have actually a better fundamental backdrop for our fuel than we had last year. I think there is there is more to go now I'm sure now that they say.
That is probably going to go straight down, but but I don't think it is I think there's more fundamentally to to take out of this market and I think that's probably where you can achieve some higher values. Both in oil both on base crush and hopefully we start to see even some of our wider expansion of our of our protein margins in the last half of the year, Yes, we have been.
Gone to hedge as we indicated on the last call we.
We.
Last year reluctant Lee did not hedge as much as we normally would have and I think we left some opportunity on the table.
As evidenced by the movement of the crush this year, we're not going to let that get in our way, but we're also and that's not going to urge everything so I mean right now we're somewhere between between now and in the year 50 to 100 million gallons hedged.
Versus the rest of our production of six or 700 million gallons left to produce.
And we'll just take our will pick our points I mean, when you look at that fourth quarter right now it's very interesting use.
Using base crush and everything else you know to hedge a 22% to 25 cents a gallon margin on paper now you do have some basis recurring basis risk, but the rest of us pretty well you can lock down most of that most of that opportunity. While we haven't seen that for quite a while and we remember two years ago in the fourth quarter with similar.
Drop in fundamentals at a much higher value. So we're watching it closely but I think the opportunity is there I mean.
We're assessing and moving around with the moving pieces, obviously, the first quarter crushed it and help us relative to some of our guidance.
Wood River accident in the second quarter, which is why we want to get are the explosion in the second quarter. So I want to get that plant up and running very quickly.
That's 20% of our MSC production, and our and our customers want that product and so we need to get that plant up and running very quickly. So we've had some moving pieces, but the fundamental backdrop on every component of what we do today.
Is better than we have seen in quite a while and ethanol.
And protein margins to perella are protein values related to corn values.
And what we're finally seeing again on our oil margin.
And then finally get into our sugar startup when you look at sugar margins I wished I had it running today.
We're talking about over one dollar a gallon contribution margin from dextrose, if you had a running today so.
That's where we're heading with this platform we owned the technology, we control the technology, we control the IP and I think we have to really think about long before we started a plant number one on Dec shows, whereas plant number two is going to be.
Because we can't think about it in today's ship your first truck it'll be two years behind.
And we have to think right now, but we would like to lock in some we'd like to lock in some offtakes to prove to the market that we can achieve those margins and then from there.
Start to think about plan number two very quickly.
That's really great color I appreciate that and then the second question.
Arctic agreements.
It sounds like from a corner oil perspective.
2024 is kind of the right time for you guys in your view, which I think is maybe a little different when you were talking about weeding.
For Awhile. Some curious why do you think that's the right time, it's just a function of once we get R&D et cetera, uplinks online that.
Have reached some steady state value and so that will be kind of.
Reasonable or is it something else that's going on there will look at how we think about optics, if somebody wants to own part of our corn oil catch.
Cash flows and control and and have access to all of it.
We want to get we want to get paid for that.
And we're not just going to do that because we could stay in the spot market for quite a while we believe corn oil will trade at a premium for the higher are the most of most of any given year two soybean oil only because we know why because the ci value is so much more valuable to buy corn oil and.
New Rd plans have learned how to use it.
And offtake nobody's going to there isn't there isn't many people if any that are going to do a five year uptake at a fixed price today, that's just not how it works now can we get a potential fixed premium we've had offers on that because we get some people that want to.
Tickets small amount of our.
Forward curve are for cash flows.
And monetize some of that sure that's easy to do but I think there's better opportunities out there I think those opportunities as you say will come in.
And the value and the true value of our Cornel R. Chernoff, Cornell business and really quite frankly Cornell business of this industry.
Comes when we get later this year and those projects turn on and it's not just a soybean oil play it's going to be low carbon and they are going to have to be low carbon.
Numbers, if they want to go into Saf. So we feel like we're in a very valuable place right now.
Don't want to rush too much into it we've been in lots of discussions.
But at this point I think we are being patient has paid off.
It wouldn't have mattered, if Cornell went to 80 or 50, that's not what these off takes her all about it as a matter of the premium as a matter of the checks upfront.
Great. Thank you very much on Hollywood there.
Yeah.
Your next question comes from the line of ants.
Helen.
Yeah. Good morning, it's Aaron's Bahama Entre Eric Thanks for taking the questions. Maybe first tied you talked to a little bit about partnering for MSC with other third parties can you just give a little bit more color on the opportunity. There is there an active pipeline and just what might capital needs look like they're given given paybacks.
Okay I didn't hear the first part of the question can you repeat.
Oh, yes, yes, we continue to to look at that approach. It is not a cheap capital investment when you look at it but as we gain more proof points.
I'm, sorry, 170 million gallons of of a new protein system running equivalent or will produce over 100000 tons of protein and by that point the benefit of that joint venture has all the work that we put in to date to gain premiums for our products.
And I think Gwen.
Quite frankly, the market sees that there is some that will auto invest and build their own systems, but a lot of them will just wanna essentially partner to access our our suite of innovation and again as I said, if you've been to Omaha and taken the tours you CD innovation that's happening around this product, it's just not a protein concentrate.
<unk> product, it's well beyond that there's so many opportunities that working with so many customers on enhancing different different opportunities to change taste texture profiles nutritional characteristics those type of things, which we all can do which increases the value of our products. Overall. So this is a step by step process, we're actually talking to people not just domestically but globally as.
Well on partnerships in different markets, where maybe they have unique opportunities around things like non GMO or other opportunities that we can take advantage of as well. So this is the beginning stages of what we believe will be really exciting rollout of this technology and again, it's not just protein is going to be protein is going to be clean fiber, it's going to be taste textured nutritional changes though.
Type of things things, we can do accommodation that nobody else. We believe can do in the world. So.
We're in very very good we're in a very very good place, but again, it's just a step by step process.
First thing is he was running around your systems well you got to run Jan one well, which is a continual sometimes a continual challenge on these older plans, but.
Will continue to to focus on that and then from there. We just build build off of all the initiatives we've talked about.
Right.
For that and then just to maybe as a follow up on carbon capture can you just talk a little bit about the plans for other plans that are not on the pipeline and <unk>.
Potential timing and just capital needs there as well.
Yeah, I mean for the most part at this point everything that we have in the west is on a pipeline and we talked about that a little bit earlier in the east.
We are.
Working on a project in Mount Vernon that hopefully in the next couple of months will come to fruition, where we can determine what we're gonna do with that carbon and I think this is pretty interesting opportunities. There those economics anytime you can do.
Your own project, if you have something close where you Jen sequester are always better may take a little longer but it's certainly worth.
Worth their weight, so we have that going on we've got.
We're looking at buying and what the alternatives are there, it's a little far away from some sequestration sites, but.
There could be rail options that could be pipe options to the river and then shipping down barges will liquefied.
Carbon as well and so we're looking at those as well as the Osaka gas Tallgrass partnership where maybe some of that gets.
Not as far away, but into some type of synthetic gas that gets then shift through the LNG terminal and the golf so.
More to come on most of that.
But we are working very hard really in any of those plans, especially in like a madison in Mount Vernon. The first thing we want to do they're even before sequestration happens is look at combined he'd power systems reverse.
Reverse turbines co Gen and the most interesting thing there is the fact that you can do that.
With a very.
Investment light.
Opportunity because others want to build them for you and you get most of the benefit while they're getting a return on progen.
And so it doesn't it's very capital like for green plants to get.
85% of the benefit with almost zero capital investment. So we're looking at that and that reduces we have a very high power costs and our east that makes those plants longterm less competitive with the west by doing co. Gen. We will we will be able to have western prices and mountain burden in Madison.
And potentially even cheaper than being on the grid and that's where the next big opportunity I think in carbon reduction is five to 10 carbon points right there, but we still have to get the sequestration to get the Max benefit.
[noise] understood. Thanks for taking the questions I'll hop back in the queue. Thank you.
Our next question comes on the line and Jordan.
Securities.
Good morning team.
Team.
Maybe just to take a step back quickly and.
Talk to talk to fluid equip I'm curious you know.
Clearly up your plate full with plenty of initiatives going on but I'm curious, how you're thinking about fluid equipment has its own business as we move through the next.
Couple of years.
I know, there's there's turnkey initiatives and that sort of thing, but what's the appetite there to crew that business outside of the work they're doing for you.
Yes, we are we have a strategic initiative Ralph Lou equipped to increase revenues increased profitability.
Continue to have that as a as a standalone P&L for us within our system.
Can do everything from.
From what we do in our Gen. One plants through MSC clean sugar hits, that's a big that's a big win for flu equip on top of that there are several initiatives about expanding things like I talked about if we get the one five yield on.
Oil is a fluid quick technology upgrade they are working on that we don't work at that green plants.
We get to 70% protein that they flew equip initiative that they are working on and we'd like to do as much of that mechanically as we can to go as far as we can we're even looking at different ways to even get closer mechanically to 60 pro which we think we have some opportunities to look at that but for mutation is very interesting as well are they are working with everybody for.
Dry mills to wet mills to other types of industries and separation to sell their technology and sell their machinery, it's very undervalued I believe in our in our valuation from a portfolio perspective.
Yet to be proven out for some but when you look at the value of the IP they have the value attached.
Essentially what they're developing and doesn't take a lot of money allocation capital allocation to get to some of these endgames because a lot of it's a lot of the work has been done prior to acquisition. They just have a really great franchise and we just don't have enough salespeople quite frankly, so if you know anybody that wants to sell our tech now some of our technologies, we're hiring at flu.
Equipped because we have some great things. So I guess that we're talking to all different industries domestically and globally from Canada to Europe to Brazil, we help those plants both both in all types of grain processing and everything in between so we've got a lot of stuff to do there. It's totally in my opinion, a underappreciated asset of green planes.
But again, you've got to wait you gotta wait and see the contribution for that and it'll be it's probably a little while away, but they contributed last year that contributed this year and over.
Raw, we think the future is very very bright for that technology provider.
Oh, that's good to hear and then just quick follow up.
Any thoughts on the current landscape for ethanol assets I don't know if you've seen any.
Yes.
I'm, an activity or anything that.
Yeah.
It's hit and Miss right now.
The bigger.
More efficient plants are.
More valuable than the smaller.
I would say sub standard size. So you either got to make those bigger or just like.
We've said, we assess our portfolio every day, if we can't apply some type of technology to any one of these plans that we have it.
It probably doesn't fit longterm with our portfolio, but we're not worry that somebody else won't take good care of them either so we evaluate.
Our portfolio and we think there's probably room for some.
Some optimization of that I'm moving in and out and we also look at we look at what's in the market today, there isn't a lot it in the market today for acquisitions of large plants I.
I think especially again is this curve has.
Has gotten better attitudes are better in the industry, we still have a ways to go again as I said I would try to caution people that while they think that his move.
That is really really good.
I think it could still continue to get better. So I think there is.
There are some opportunities there, but our view is that you gotta have a plant that you can apply carbon protein.
Oil extraction further dextrose fiber.
Nutritional products.
Those plants can do all of those things.
It's probably something we'll look at in the future to say should be in our portfolio and how do we go get more that are in our portfolio one way, it's requisitioned one way through partnerships.
Thanks for all the details.
Thanks Jordan.
Yeah, no further questions.
Call back.
Closing remarks.
Yeah. Thanks, we really appreciate you being patient for this call. We know they don't go along sometimes but we.
We tried to give you as much information on what we're working on as we can see there's a lot and we think it's very valuable for our shareholders and stakeholders understand what.
Not just the near term opportunities are but but the future opportunities.
We look at one of the most valuable opportunities for US is getting this clean sugar system up and running and our view is that we want to have two to 300 billion gallons converted to sugar by 2000 2007.
Which is a significant increase.
And.
From what we are building today and that really is where the game changing starts to happen relative to everything else that we've been doing on top of everything else, we've been doing and.
So we're working on all of that and they are working on behalf half evolve you hopefully in the next couple of months, we have some more good news around.
The things that are important to you around technology, and demand and offtakes and and having a nice steady ethanol market for a little while would be would be nice too. So.
We'll see you next quarter and thanks for all of your support.
Ladies and gentlemen that complaint today's call. Thank you for joining you may now disconnect.
Yeah.
[music].