The Andersons, Inc. (ANDE) Q4 2015 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, and welcome to The Andersons, Inc. Q4 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Jim Burmeister, Vice President, Finance and Treasurer. Sir, you may begin.

Thank you, Chanel. Good morning, everyone, and thank you for joining us for The Andersons fourth quarter and full year 2015 conference call. For the purposes of today's discussion, we have provided a slide presentation, that will enhance our talking points. If you are viewing this presentation via our Web cast, the slides and audio will be in sync. This Web cast and supporting slides are being recorded and will be made available on the Investor Relations section of our web site at andersonsinc.com. Certain information discussed today constitutes forward-looking statements and actual results could differ materially from those presented in the forward-looking statements as a result of many factors including general economic conditions, weather, competitive conditions, conditions in the company's industries both in the United States and internationally, and additional factors that are described in the company's publicly filed documents including its '34 act filings and the prospectuses prepared in conjunction with the company's offerings. Today's call includes financial information, for which the Company's independent auditors have not completed their review. Although the Company believes that the assumptions upon which the financial information and its forward-looking statements are based are reasonable, it can give no assurance that these assumptions will prove to be accurate. This presentation and today's prepared remarks contain non-GAAP financial measures. Reconciliations of the non-GAAP to GAAP measures may be found within the financial tables of our earnings release, adjusted pre-tax income attributable to the Andersons is our primary measure of period-to-period comparisons, and we believe it is a meaningful measure for investors to compare our results from period-to-period. We have excluded non-recurring items, and items that we believe are not representative of our ongoing operations in calculating this adjusted pre-tax income. On the call with me today are, Pat Bowe, Chief Executive Officer; and John Granato, Chief Financial Officer. Pat, John and I will answer questions that you may have at the end of the prepared remarks. Now, I will turn the floor over to Pat for opening comments. Pat?

Thank you, Jim, and good morning everyone. Thank you for joining our call today to discuss our fourth quarter and full year 2015 results. Revenues for The Andersons for 2015 were $4.2 billion, slightly lower than the $4.5 billion last year on lower commodity prices. Full year adjusted pre-tax income was $76.1 million compared to $158.2 million in the prior year, primarily due to lower Ethanol margins and weaker performance in our grain and plant nutrient groups. I am pleased to note a bright spot in our Rail Group, which completed its most profitable year ever, where we have seen $50.7 million of pre-tax income compared to $31.2 million last year. Our Ethanol Group performed very well in an extremely challenging energy market. The Group set records for production volumes in the fourth quarter, and for the full year, where we have seen 101 million gallons and 384 million gallons respectively. Despite experiencing the pressure of steadily dropping oil prices on margins, the group delivered $28.5 million of pre-tax income for the year. A good result, but well below the record profits seen in 2014, when the Group earned $92.3 million. 2015 was a challenging year for agricultural groups, as they navigated difficult market conditions, and work to improve the operation of certain underperforming locations. Excessive rains in the eastern Corn Belt in May and June dealt us a double blow. The field is too wet to get in for nutrient application in the spring and giving rise to much lower crop production in many of our markets in the fall. Our Plant Nutrient Group finished with full year volumes lower by double digit from the prior year and pre-tax income of $5.9 million compared to $23.8 million last year. In addition to most sales volumes, the Group's results were lower by $10.1 million, due to the acquisition of Nutra-Flo, a low-salt liquid fertilizer and micro-nutrient producer. About half of these costs were one time deal related costs, with the remainder being the added operating costs of the new assets. As a reminder, Nutra-Flo's sales and earnings are very seasonal, with the majority occurring during planting season, which was before we acquired the business in 2015. Our Green Group had a very challenging year, generating adjusted pre-tax income of $15.2 million compared to $43.8 million a year ago. Our base grain assets struggled. Although some improvement was seen in the performance of our western Corn Belt assets, we did not see as much improvement as we had planned. The impact of excessive rains and resulting yields in the eastern Corn Belt, coupled with slower movement of the farm, significantly reduced earnings. Our affiliates also encountered difficult market conditions. Lansing Trade Group reported losses related to parts of their energy related business, and lower export margins, driven by a strong dollar and a constricting Chinese market. The year was also one of significant transition as Mike Anderson stepped down as the Chief Executive Officer after 16 years of strong leadership. It is an honor to join the company as a new CEO, and we are fortunate to have Mike continuing on as the Chairman of our Board of Directors. I will speak later in the call about our outlook for 2016, and some of the actions we are taking to improve our performance levels this year and for the longer term. John will now walk you through a more detailed review of our financial results.

Thanks, Pat, and good morning everyone. In the fourth quarter of 2015, the company generated a net loss attributable to The Andersons of $47 million or $1.68 per diluted share on revenues of $1.2 billion. This compares to the fourth quarter of 2014, when our revenue of $1.3 billion generated net income of $25.9 million or $0.89 per diluted share. For the year, there was a net loss attributable to The Andersons of $13.1 million or $0.46 per diluted share. This compares to the $109.7 million earned in the same period of the prior year, or $3.84 per diluted share. Adjusted pre-tax income for 2015 was $76.1 million, compared to $154.2 million in the prior year. Adjusted net income for 2015 was $41.2 million, or $1.45 per diluted share compared to $99.1 million or $3.46 per diluted share in 2014. Fourth quarter 2015 adjusted pre-tax income was $20.1 million compared to $37.5 million in the fourth quarter of 2014. Slide 6 provides a walk from reported pre-tax income to our adjusted pre-tax income for both 2014 and 2015. In the first quarter of 2014, the company recognized a gain of $17.1 million related to the partial redemption of its ownership in the Lansing Trade Group. Deducting this gain, resulted in 2014 adjusted pre-tax income of $154.2 million, and adjusted net income of $99.1 million, or $3.46 per diluted share. In 2015, there were four adjustments to reconcile reported pre-tax income to adjusted pre-tax income. We added back the $51.4 million charge associated with the termination of our defined benefit pension obligation in the fourth quarter. We also added back the goodwill impairment of $56.2 million, which was partially within our Grain Group, as well as the $4.9 million one time costs associated with the acquisition of Nutra-Flo. Finally, we adjusted out the $23.1 million gain recognized as part of the partial sale on redemption of our ownership in the Lansing Trade Group. This results in an adjusted pre-tax income of $76.1 million for 2015 compared to the reported $13.3 million pre-tax loss. Next, we have provided bridge graphs comparing year-over-year results for fourth quarter and full year adjusted pre-tax income. In the fourth quarter, we saw improved year-over-year adjusted pre-tax income from the Rail and Plant Nutrient Groups as well as reduced costs from corporate and other. These were more than offset by lower income from Ethanol and a significant drop in the Grain Group's performance. Full year results showed a $19.2 million improvement in the Rail Group year-over-year and smaller improvements in Corporate and Retail, which were more than offset by the reductions in the Ethanol, Grain and Plant Nutrient Groups. Rail Group had a strong finish to the year, generating $6.8 million of pre-tax income in the fourth quarter compared to $5.6 million last year. Full year results were $50.7 million compared to $31.4 million for the same periods last year. This year's record performance was driven by improved lease income from a sizable settlement in the second quarter, and a high utilization rates throughout the year. Utilization rates averaged 92.4% for the year, compared to 89.5% in the prior year. Improved performance in our repair business helped lift services income by $3.9 million versus last year, which was partially offset by $2.5 million of lower profit from railcar sales. The Ethanol Group performed well in a year filled with many market challenges. Steadily weakening oil and gas prices put pressure on margins throughout the fourth quarter and full year. Additionally, our eastern facility saw higher corn prices, due to this year's poor crop production in the eastern Corn Belt. Despite these challenges, the Group turned in good results with pre-tax income in the fourth quarter coming at $7.7 million. This compares to the $17.3 million last year, where margins were still running at record levels. Full year pre-tax income was $28.5 million, well off the record $92.3 million in 2014, but a good performance in a tough market. The Group continues to focus on driving even greater operational efficiencies to achieve higher yields and lower costs. Our Grain Group had one of its most difficult years in recent history. The Group delivered adjusted pre-tax income of $9.8 million in the fourth quarter and $13.9 million for the full year, compared to $24 million and $41.1 million for the same periods in the prior year. Base Grain had limited space income opportunities, as crop production in our current markets was poor. The wet planning season, limited nutrient application and acreage planted, resulting in lower crop production. Adjusted pre-tax income for Base Grain was $6.2 million in the fourth quarter, and $600,000 for 2015, compared to $17.2 million and $15 million for the same periods in the prior year. Grain's affiliates, Lansing Trade Group and Thompsons Limited delivered combined pre-tax income of $3.6 million in the fourth quarter and $13.2 million for the year, compared to $6.8 million and $26.1 million for the same periods in the prior year. As I previously discussed, the Grain Group's GAAP, pre-tax income includes a $46.4 million charge in the fourth quarter from the impairment of goodwill, which was offset in part by a $23.1 million gain from the partial redemption and dilution of The Andersons' ownership in Lansing Trade Group. We have adjusted both of these items out for purposes of comparability. Next, is our Plant Nutrient Group; we saw improved results in the legacy business. Improving fourth quarter adjusted pre-tax income from $500,000 in 2014 to $3.1 million in the fourth quarter of 2015. Full year results were lower on the impact of excessive rains in the second quarter, coming at $20 million compared to $24.5 million in the prior year. We expanded our disclosure for Nutra-Flo this quarter and the full year, breaking on its operating pre-tax income from the legacy Plant Nutrient business, and a non-recurring cost associated with the acquisition. Nutra-Flo had a $1 million pre-tax loss for the fourth quarter and a loss of $5.2 million since being acquired in May of 2015. Sales and profits for the acquired product lines are heavily skewed to the spring planning season. We expect Nutra-Flo to be accretive in 2016. The Retail Group posted results for the fourth quarter that were consistent with the prior year, achieving a pre-tax gain of $1 million. For the full year, they reduced their loss slightly, from $600,000 in 2014 to $500,000 in 2015. I will now turn the call back over to Pat for a few comments on our outlook for 2016.

Thanks John. As we look forward to 2016, we have a strong focus on improving overall company results, with continued focus on bringing value to our customers. Specifically, the focus on managing costs and improving margins. Rail is coming off a record year, interim market with slower Rail traffic in some sectors and economic uncertainty, have potentially [indiscernible] performance of the Group. That said, the business is positioned with a highly diversified portfolio of lease customers, spanning a wide variety of equipment types and customer industries. Our portfolio is balanced and the timing of when leases rollover, and as such, was impacted by short term weakness in the Rail industry. Market conditions in Ethanol are very challenging in the first quarter of 2016. As oil and gasoline prices put downward pressure on margins. But we believe our facilities are well positioned geographically, and we have proven efficient technology to navigate these market conditions. We do expense some additional pressure early in the year, driven by higher corn prices in the dry areas of our Eastern plants. The Grain Group's performance was below our expectation in 2015. We estimate corn acres that will be planted in 2016, be 90 million acres, up 2% from 2015. Soybean acres are estimated to be 84 million, up 2% as well from last year. Wheat acres planted have been reported down approximately 3 million acres for this year. Assuming normal weather conditions, better return to trend yields, the fall harvest should present a good opportunity for our Grain Group in the second half of 2016. We have done enough work to determine that the Iowa assets have value, and has seen some improved performance there. We are working to determine, if we are the best owners [indiscernible] better fit in the marketplace. We are pleased to welcome Cory Jorgenson as the new President of our Grain Group this month. The Group has well positioned Grain assets, will need to do a better job realizing volume and margin potential this year. While looking forward to 2016 in our Plant and Nutrient Group, we expected planting acres bodes well for the nutrient sales in the spring planted season. We anticipate seeing a positive lift from Nutra-Flo, as we get into the peak sales season in the second quarter. We see the continued need for specialty nutrients to support precision agriculture in the U.S., and believe we provide a broad line of value added products to support our farming customers. This is my first conference call as CEO. I have been at The Andersons for just three months now, and are very committed to our employees, customers and shareholders. This is a difficult time for the company, but I have been very impressed with the resolve, commitment and experience of our team. I am focused on driving improved performance and accountability throughout the organization. I am also excited on our ability to attract new talented leaders to the company. I look forward to getting to know all of you and working closer together. I now hand it back to our operator, so we can take your questions.

[Operator Instructions]. And our first question comes from Farha Aslam of Stephens Inc. Your line is now open. Please go ahead.

Hi, good morning.

Good morning Farha.

Pat, since this is your first call and given that you come from such a value-added kind of food and ingredient background, was one of your thoughts that you would take The Andersons portfolio over time to be more forward integrated?

Thanks for the question Farha. Just to reference it a little bit, so I have 35 years of experience in the ag industry, and the first part of my career was in the grain business, as a grain merchant. Also worked for the Chicago Board of Trade, so a lot of my experience is in [indiscernible] grain merchandising which I’m still very bullish on as a business for the long term for The Andersons. Having said that, if there was opportunities in white space for us to bolt-on and move up the chain in our business, we will look at those. But I feel pretty good about the existing portfolio we have.

That’s helpful, and just one follow-up on the Ethanol industry. Could you share with us your thoughts about kind of the intermediate outlook for Ethanol, how you expect it to develop over the years? And then what you expect is needed to fix that business?

Good question. So far this year our realized margins for Ethanol have been below breakeven with cash positive and we expect to see a slight loss in the first quarter. As I mentioned earlier, about some higher basis levels in the eastern grain belt that we have. But as we move into the second quarter, the industry’s scheduled plant maintenance will start to kick in. We also expect to see increasing driving miles with these low gas prices, as we head into the summer. So we expect to see a margin improvement in the second half of the year.

That's helpful. Thank you.

You're welcome. Thank you.

Thank you. And our next question comes from Brent Rystrom of Feltl and Company. Your line is now open. Please go ahead.

Yes, thank you. Good morning.

Good morning.

A quick thought, looking at the weather and thinking about how the weather statistically can influence things, and I know with your background, you are probably much better versed at the business than I am, but, having just had a strong El Niño, statistically, we had very high odds of a strong La Niña developing. There has been a lot of visibility for those over the last couple of weeks, with people coming in with forecasting models, showing that there is a very strong possibility. If we get a strong La Niña and we get hotter and drier weather, within the corn belt, with your focus on costs and margins, how would that adapt to handle maybe a shorter supply of corn, soybeans and wheat, and maybe much higher price?

Brent, thank you for your question. So I have been around the grain business a long time. There’s one adage I always heard a lot was, Rain makes Grain, and so we had a very good winter condition. So we like the position that the crop conditions are in, nationwide. So it's starting off from a good spot, that's important. If there is a La Niña occurrence and we get a hot-dry impact in the key growing cycle of the summer and spring, of course that will impact the crops. I think we all don’t know exactly if that were to happen, it’s a possibility. As you said, there is different models that suggest different weather patterns. I think the key thing we can control is our costs and the position of our assets and how we work with the farmers. A big part of our business is helping farmers manage price risk, and working with them on pricing tools, and on crop nutrient to get the very best production out of their farms, so that we can provide a unique solution there, and that's a big part of our focus. Of course, a bigger grain crop is always better for our handle, so we would love to see a bumper crop this year. The biggest thing we could do is focus on our ability to work with farmers and have our assets at a good position, to be in place for harvest.

All right. Thank you. And a quick second question; how should we think about timing for the Plant Nutrient Group this year? I would assume that the first quarter is kind of a non-event, the second quarter, you should see a better application season and then for fall applications, can you kind of remind us how the fall applications look in November-December?

Yeah. I think you made a very good point. It has been a very interesting year, with falling fertilizer prices. And we are just starting to see the market start to book now; it’s a little later than normal, as farmers are waiting to make their price decision. But the planted acreage number that looks bigger, will be a help, and good current application weather in the fourth quarter. But farmers have been reluctant to buy early. We are now starting to see this market starting to shift and the pipeline will need to be filled here in the coming weeks. So I think you made a very good point. It's going to be tougher in the first quarter. But we are pretty optimistic about the second quarter.

Thank you.

Thank you. And our next question comes from Heather Jones of BB&T Capital Markets. Your line is now open. Please go ahead.

Good morning gentlemen. This is actually Omar filling in for Heather.

Hey Omar.

Hey Omar.

My first question relates to the Rail business. I was hoping you guys could help me better understand how that segment is positioned, given the weaker traffic backdrop? I know you mentioned that renewal rates are holding up at good levels in most sectors. But I was just trying to better understand, how much deterioration, if any, we should expect in average lease rates this year, and what proportion of your lease portfolio is insulated from the deteriorating traffic trends we are seeing?

So Omar, this is John. If you look at our portfolio, our leases average between kind of three and five years. So to the second part of your question, about 20% of our portfolio turns over, during a given year, and conversely 80% does not turn over. So there is a portion that is subject to some of the softness we are seeing. We have seen rail traffic down -- compared to last year, about 14% through early February. When you take out coal, it's still down, it's about 6%. So we would expect some potential impact, but overall, we are feeling okay about our business.

Thank you very much. That's very helpful. My second question relates to corporate expense, I was just trying to get a little bit of color there, and how should we think about it this year, and when should we expect to see the SAP implementation costs abate? Thanks.

Overall, SAP should be relatively steady in the other sector, which we report separately. We are expecting it to be flat relative to 2015. When you look at operating, administrative and general expenses, they were up this year. They are primarily up due to higher labor and benefits costs associated with our Kay Flo and AB&G acquisitions. We also have higher depreciation, amortization and maintenance associated with those. We did have some offsets this year related to utilities, and reduced performance incentives. So as we looked to next year, or this year coming up, 2016, obviously, as Pat alluded, we need to help drive costs out of our system. But more importantly, we need the assets that we have acquired, to perform at a level that we would expect.

Thanks guys. That's very helpful. And lastly, just wanted to follow-up on a comment you guys made on some of the Iowa assets and you guys were going to determine throughout the year, you guys were the correct owners for those assets. I mean, what sort of level are we talking here about -- what would make you guys decide, whether or not to hold on to those assets going forward? Just looking to better understand how are you guys thinking here? Thanks.

Thanks Omar. This is Pat again. I can't comment specifically on that, but as we noted in the call, we have done enough work here, evaluating the Iowa assets that have value, and we have seen improved performance this year. Also behind what we'd like to see. So we are still working to see if we are the best owners or if there are other alternatives. So that's in progress.

Very helpful. Thank you.

Thank you. And our next question comes from Eric Larson of Buckingham Research. Your line is now open. Please go ahead.

Okay, thanks. Good morning everybody.

Good morning Eric.

And welcome Pat. It will be good to work with you in the years going forward. So congratulations.

Thank you.

A couple of questions. One related to kind of the last question, are your issues with western assets, isolated strictly to Iowa, or is your new -- your storage facility, grain merchandising facility in Nebraska still underutilized and there is potential for that to get better as well. Can you kind of frame that? I would assume that the majority of your goodwill impairment charge this quarter, or last quarter was for Iowa assets?

Thanks Eric, and glad to have a call from a fellow Minnesotan. I did want to comment on that. So we have talked about recent western assets, we are more particularly talking about Iowa, not our Nebraska assets, which we feel comfortable with how we are performing in Nebraska. It's not really appropriate for us to talk about the specific values of those assets. Overall conditions of goodwill related to overall performance of our Grain Group, and not really particular to one particular asset.

Okay. And then, when you look at -- and this is more from a clarity standpoint. When I look at your Plant Nutrient business for the year, Nutra-Flo was and is highly-highly seasonal and just a huge vast majority of our sales are in that kind of late Q1 -- starting late Q1 and mostly Q2. Given the nature of their sales, will that drag -- when you kind of look for modeling that, does that hurt -- will that hurt your third quarter and fourth quarter numbers in general too? I mean, you will get the bulk of that accretion in Q2, but does it penalize Q3, Q4 earnings?

Yeah Eric. This is John. I think that's probably correct. Obviously, you have got the costs associated with running the Nutra-Flo business that will impact the third and the fourth quarters, and the vast majority of Nutra-Flo does come in the planting season. So I think that's accurate.

And then, I know Pat, you are very early on in your tenure at The Andersons and you are probably formulating a lot of different strategies. But, looking at what's happening today in the ag sector, we all know it’s a pretty rough world out there right now. It also creates opportunities, and given the fragmentation in the grain storage business, your merchandising background, is there reason to believe that there could be good opportunities over the next year or two, to actually pick up assets at good values now? Particularly, given the sort of fragmented nature of the storage industry?

Thanks Eric. It’s a very good point, and one we think about quite a bit. So as you know, our balance sheet has been in a very solid shape. We are positioned to be able to make acquisitions, should the right properties come along. We like businesses to be really nice fits for us, from not only a geographic standpoint, but from a ability to work with farmers in that region. As you know, we are building another asset in Tennessee. We have had good success in our development of our presence in Tennessee. Other parts of the geography, that would be good fits for us in the grain belt, could be attractive. And as you mentioned, things are pretty difficult, so that creates some disruption in the marketplace. So we are actively looking for the right things that fit The Andersons. A big part as I mentioned, is also our marketing and providing solutions to farmers. And as we want to continue to work on that, to bring good risk management tools and other services to growers that they are desperately going to need, when you have tough economic conditions in the farm belt. So we are looking to do both.

Okay, good. And then my final question is, it is a slide that was not included in your deck this time, which you have talked about in the past, and that is, looking at what your profit per bushel is in the grain business, and you have historically had a range of, anywhere from $0.15 to $0.35 a bushel, I am assuming and looking at the basis numbers. I am assuming you are pretty well below that $0.15 historical range for 2015. Can you give us any kind of a reasonable read as to how 2016 might look? And I know Q1 is going to be a pretty tough start? I think, we are all aware of that.

Hey Eric, this is Jim. Yeah Eric, as you can imagine, with the crop year, persisting at least in the first half this year, we challenged and we will likely push below that range. That chart is available, by the way, at the appendix of the deck when you go back online and get it from our Investors site.

Okay. I didn't see that. Okay. Thank you, gentlemen.

Thank you.

Thank you. And our next question comes from Ken Zaslow of Bank of Montreal. Your line is now open. Please go ahead.

Hi, good morning everyone.

Hey, good morning Ken.

So Pat, just [indiscernible] asking you kind of how bad the asset sales of [indiscernible]. The kind of different question on this is, how you go through the assets that you have? Are there opportunities for you to do something different, to change how the business is done? Is there a way that you could affect change within a business, and can you talk about you can do?

Yeah. I think it’s a fair question. When you look at our portfolio of assets, obviously there is some -- we have grown out of a real strong mold in eastern rain belt. We like that position, and want to continue to strengthen that. We like their entrance into Tennessee, as I mentioned earlier. We have good presence that we have been in key grain markets for many-many years. We'd like to continue to expand that presence. And again, as I said earlier, building that relationship with the farmers, not only to buy their grain, but to sell them services, as well as plant nutrient products. I mentioned earlier, in Eric's question, about grain assets, but also could be opportunities in plant nutrient, that fits our portfolio well. So I think we need to understand where we are strong and build on that strength, and be careful, we venture out in areas that are too far away from that strength. But there is going to be some opportunities, we feel, over the next few years to look at assets that might fit really nice into our portfolio.

So there is no like -- incremental system that you [indiscernible] there is no integration, there is no operational improvement? Anything that you -- coming from the outside, obviously, you see this sort of position. Then you kind of guided very successfully, but from an outsider's point of view, you don't see there is anything restructuring or something to do within that, in your eyes, bring new [indiscernible].

I appreciate the comment, and yes, that's a big part of my focus on performance, and driving accountability throughout the company. We need leaner operations, and have really high performance levels that has just been here 90 days. But we need to have the right people in the right places to drive productivity across the whole company; and return our Grain and Plant Nutrient business to the expected performance levels that they have had in the past. So I think there is plenty of opportunities to be smart, get leaner and improve our performance, and that's my top focus.

And my final question is, you said there is good opportunity in the grain in the second half of 2016. Does that translate to normalized numbers, or is that still -- how do you think about that?

Ken, I think, if you look at the crop year for 2016-2017, as we look out, I think we hope, given a strong planting and a good harvest, that we would get back to that normalized level in the second half of 2016, primarily during harvest, and as we look to the early part of 2017. So we are seeing 90 million acres of corn planted, 84 million acres of beans. If we have normal weather, good yield trends, I think in that second half, we should be in good shape. You combine that with the strong U.S. dollar and limited exports, and that should help drive value to our space in the harvest period coming up. So yeah, I think it's possible. We will have to wait and see. I think the other thing to point, that we talked a little bit about is, moisture content in the soil, it looks pretty good. It's not too wet, it's not too dry. So just like [indiscernible] as well.

Thank you very much.

Thank you. And our next question comes from Paul Massoud of Stifel. Your line is now open. Please go ahead.

Thanks. Good morning. Thanks for taking the questions. I guess, I wanted to ask a couple of questions. The first is, I am curious -- you are seeing South American currencies weaker against the dollar, and we are starting to see a creep-up in imports of grain and oil seeds into the U.S. And so I am wondering, how that might be affecting your business right now? I mean, certainly, we are seeing a basis figures? I mean, you talked about the first half of the year being weak. But the inventory levels are high as -- that seemed to be the case. I mean, is that something that could really extend into the second half of the year?

Yeah. I mean, obviously a strong dollar and weak export numbers and the status of the Chinese as the major importer is a big consideration for the entire grain industry, right? And in our case, it’s a little bit more unique and the Eastern grain belt, and our important focus on wheat, is not as specifically tied to the export flows. There is good opportunities for us, as we get into the wheat season. I think if we have the kind of crops that John just mentioned, there will be a return for value for space. As you know, the farmers had very strong income in recent years, and built on farm storage. But this last year, on farm storage was over -- just over a percent, and if we get to normal yields in our crops -- we will get 1.5%. There will be more of a value to off farm storage. So there could be opportunities, given a good crop for grain handlers and stores this coming season.

Thanks for that. I guess, my only other question is just on the Ethanol industry. I mean, it's still very fragmented, you are talking about some of the weakness addressing in your portfolio, that you are expanding a little bit. I mean, how do you see this industry evolving over the next year? I mean, are you expecting to see some consolidation in the business? There is some questioning about whether or not some of the larger players might be looking at different strategies for some of their lower margin facilities. So I guess, just looking at the business, do you see consolidation from here, just something that you are interested in looking at? Any color, that would be helpful.

Yeah, thanks Paul. It’s a good comment. Obviously, when you have difficult times like we have had in Ethanol margins. Of late, that causes a lot of concern, and there is some new entrants and some that aren't as well capitalized. There will likely be assets that will trade, on seeing the coming year or so. There might be some consolidation, as you mentioned; I couldn't speak to any different competitors and their strategic plans. We are going forward with our plans for the expansion in Albion, Michigan. That will be complete in the first half of 2017. We feel, Albion is a little bit unique, because it's well positioned in a market that's a truck-in truck-out in a market that has ethanol deficit in Michigan. We have a great partner in Marathon, so we feel we are well positioned there. There might be opportunities for us to look at. We are being cautious in and trying to focus on operating as lean and as efficiently as we can, and getting fast throughputs we can through the assets we have. But as you mentioned, we will kind of see how the next couple of years play out in the marketplace.

Thanks.

Thank you. And I am showing a follow-up question from Brent Rystrom of Feltl and Company. Your line is now open. Please go ahead.

Great, thank you. Out of curiosity on your acres expectation for corn at 90 million, and soybeans at 84 million. We are having a lack of a bidding of acres process right now. So when you look at corn versus bean, the economics in beans right now are a little bit better. In fact, quite a bit better than corn. I am curious, what you see happen, that would cause both to go up at this point?

Well, as we mentioned earlier. So wheat acres are down a little bit. There is a little bit of fight for what's the best economics to see on the farm. As you mentioned, corn, bean spreads have moved a little bit. What I have seen in recent years, the switching isn't much as we used to see, back in the old days, with agronomics and GM corn feed availability. People make these decisions much earlier. But I think those are pretty much set in a lot of cases, and there is [indiscernible] to see dramatic switching late in the harvest, is unlikely, unless we have some major events. That's the thing that have changed acres in the past. Good news this year, consistent weather across the entire rain belt, there was ample moisture. So all we need was a really nice weather pattern to get planted in and that we have seen this also. Doesn't need a lot of time anymore, to get the crops planted. You get a week of nice weather and we can -- American farmer is pretty amazing right now. So I don't think we will see major shifts would be made in my opinion.

All right. Thank you.

Thank you. And I am showing no further questions at this time. I would now like to turn the call over to Mr. Jim Burmeister for closing remarks.

Thank you, Chanel. We want to thank everyone for joining us this morning. We also want to mention that, the presentations will have appendix slides when we post it on the Investor Relations of our web site, at andersonsinc.com. Please also see the web site in the near future for details on our planned celebration of our 20th year as a public company listed on the NASDAQ exchange. Our leadership team will be ringing the opening bell on February 24, and then we will host a web cast at 1:00 PM Eastern Standard time, in which Pat will discuss in more detail, his early impressions of the state of the company, provide further outlook for the company's near long term strategic opportunities. Our next earnings conference call is scheduled for Thursday, May 5th, at 11:00 AM, Eastern Standard time, to review the first quarter's results. We hope that you are able to join us at that time. Until then, have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.