The Andersons, Inc. (ANDE) Q1 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to the Andersons Incorporated First Quarter 2017 Earnings Conference Call. [Operator Instructions] I would now like to introduce your first speaker for today, John Kraus. You have the floor, sir.

Good morning, everyone, and thank you for joining us for the Andersons' First Quarter 2017 Earnings Call. While this is my first earnings call as the Director of Investor Relations, I have a long history with the Andersons. I joined the company in 1987 and spent my first 15 years leading the company's tax function, and until November, I led the accounting and finance functions of the Rail Group. I'm also proud to identify myself as a grandson of Harold and Margaret Anderson, who founded the company in 1947. To aid today's discussion, we have provided a slide presentation that will enhance our talking points. If you're viewing this presentation via our webcast, the slides and audio will be in sync. This webcast is being recorded, and it and the supporting slides will be made available on the Investors page of our website 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 connection with the company's offerings. Today's call includes financial information which the company's independent auditors have not completely reviewed. 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. On the call with me today are Pat Bowe, Chief Executive Officer; and John Granato, Chief Financial Officer. Pat, John and I will answer your questions after our prepared remarks. Now I'll turn the floor over to Pat for his opening comments.

Thanks, John, and good morning, everyone. Thank you for joining our call this morning to review our first quarter 2017 performance. After John Granato provides a business review, I'll conclude our prepared remarks with some comments about our outlook for the balance of 2017. The first quarter results were substantially improved over the first quarter of 2016. While much improved, we continued to manage through some less-than-ideal market conditions. We also continue to manage excellent strides in addressing underperforming areas. Increasing productivity and efficiency and progressing on the path we're paving to improve the company's long-term performance. We continue to focus on 3 main areas. First, we continued to proactively manage our asset portfolio. We're in the process of closing our remaining 4 retail stores. Choosing to close a long-term business is never easy. While seeing our colleagues depart as this business winds down has been difficult, the closing process is going about as well as we could expect. We expect the stores to be closed in early June and are working through the disposition of the group's remaining assets. In our Plant Nutrient business, we sold our Florida farm centers. These decisions, along with similar previous actions, are among those that will allow us to focus our time and our capital on better performing assets and prospects. Second, we have made more progress towards creating a productivity culture at the Andersons. As we shared last quarter, we hit our initial $10 million run rate cost savings goal a year early and have embarked on an effort to save an additional $10 million by the end of 2018. We continue to streamline the organization and improve operational efficiency. One consequence of that work is a 10% year-over-year reduction in base wage expense this quarter. Third, we continue to make targeted investments in our businesses. The expansion of our Albion, Michigan ethanol plant is fully operational. In addition to this project being safe, ahead of schedule and on budget, we began operating the new assets earlier than planned. We also agreed to purchase a small ancient grain milling facility in Hudson, Michigan. This is our first foray into milling and adds to the value-added food origination assets we've acquired in Western Canada and our growing food grade corn business. We're also pleased to have purchased more than 600 railcars with leases attached, which comprises the largest single number of cars we have purchased in a quarter in nearly 2 years. I'll speak later in the call about our outlook for the remainder of 2017 and some of the actions we are taking to improve our performance this year. Our CFO, John Granato, will now walk you through a more detailed review of our financial results for the first quarter. John?

Thanks, Pat. Good morning, everyone. In the first quarter of 2017, the company incurred a net loss attributable to the Andersons of $3.1 million or $0.11 per diluted share on revenues of $852 million. These results compared to the first quarter of 2016, when our revenues of $888 million generated a net loss of $14.7 million or $0.52 per diluted share. The 2017 first quarter results, include $7.8 million in pretax charges associated with the company's exit from its retail business as well as a $4.7 million pretax gain on the sale of our Florida farm centers. Many of our other operating metrics improved when compared to the first quarter of last year. Gross profit was up almost 13% to $76.5 million from $67.8 million, and operating, general and administrative expenses were down, when taking into account employee separation expenses incurred in each period. Long-term debt dropped by $36.4 million or approximately 9% during the quarter, and the company's long-term debt-to-equity ratio improved to 0.47 to 1. We next present a bridge graph that compares 2016 pretax income to 2017 pretax income year-over-year for the first quarter. In the first quarter, we registered improved year-over-year pretax income from the Grain, Ethanol and Plant Nutrient groups. The decline in Rail Group results was driven by lower based leasing income. The decline in Retail Group results was driven by the exit charges noted earlier. These costs were partially offset by an increase in gross profit due to higher sale. For the first quarter, unallocated other expenses were $2.7 million lower than a year ago. Our Grain Group continued to improve year-over-year in the first quarter. While the group lost money during the quarter, its pretax loss of $5.1 million was a $12.3 million improvement over the pretax loss of $17.4 million in the same period of 2016. Base grain incurred a pretax loss of $3.6 million in the first quarter compared to a pretax loss of $13.3 million for the first quarter in 2016. A $9.7 million improvement matches the nearly $10 million year-over-year improvement in Base Grain operating results we realized in the fourth quarter of 2016. Grains affiliates, Lansing Trade Group and Thompsons Limited, also showed year-over-year improvement. Lansing and Thompsons pretax earnings improved by $2.6 million, combining for a pretax loss of $1.5 million in the first quarter compared to a pretax loss of $4.1 million for the same period of 2016. The Ethanol Group registered improved results in a comparatively better margin environment. First quarter pretax income reached $1.7 million, a $4.4 million improvement over the $2.7 million pretax loss the group incurred in the first quarter of 2016. The group benefited from its decision to hedge about half of its production coming into the quarter. The group continues to be negatively impacted by lower DDG margins due to both low demand from China and Eastern Corn Belt vomitoxin issue. The group also was negatively impacted by two shutdowns, which occurred in the first quarter that are usually completed in the second quarter. Finally, the group welcomed an earlier-than-expected startup of the new capacity at its Albion, Michigan plant. The Plant Nutrient Group earned pretax income of $6.7 million in the first quarter compared to pretax income of $1.7 million in 2016 first quarter. The 2017 results included a $4.7 million gain on the sale of the group's Florida farm centers in March. Base nutrient tons were down more than 5% year-over-year, but margins did improve some. Value-added volume was slightly higher than a year ago, but margins were compressed due to oversupply, particularly in the Western Corn Belt. The Rail Group generated $6.1 million of pretax income in the first quarter compared to $9.4 million last year. Utilization rate averaged 83.6% for the quarter compared to 91.5% in 2016. Average lease rates were flat year-over-year. Lower utilization, along with higher maintenance, storage and trade expenses, contributed to a base leasing income results of $700,000, down from $4.4 million a year earlier. The group recorded income from car sales of $3.6 million, up about 50% from the $2.4 million of pretax income earned in the first quarter of 2016. Most of the increase was generated from nonrecourse financing transactions. The group also benefited from higher scrap prices. The group's repair and fabrication businesses continued their strong performance, setting all-time quarterly records for both revenue and pretax income during the quarter. Those results helped to offset the loss of income from an investment in a short line railroad that was redeemed in the first quarter of 2016. As we announced in January, the company is closing its remaining 4 retail stores and exiting the retail business in the second quarter. That process is going as planned. During the quarter, the group incurred $7.8 million in exit costs, mostly for employee separation expenses. As a result of a pickup in sales during the early stages of inventory liquidation, and notwithstanding exit costs, the group's pretax income improved by about $3 million over the first quarter of 2016. We continued to expect to record pretax charges between $9 million and $14 million in 2017 related to the closing process. Pat earlier referred to the great progress we have made on our cost savings and productivity initiatives. We have built good momentum and are continuously working towards a leaner, more scalable infrastructure. As a result of headcount reductions made during 2016, our first quarter 2017 base labor costs were 9% lower than in 2016. I'll now turn the call back over to Pat for a few comments on our outlook for 2017.

Thanks, John. As we look forward to the rest of 2017, we still expect our overall company results to improve significantly over those of 2016. More specifically, we'll continue our focus on operating efficiency by lowering our costs to serve and thus improve the performance of our businesses. We will also continue to look to improve our portfolio via asset optimization and invest in our core and targeted growth areas. The Grain Group had another significant year-over-year improvement in the first quarter and remains positioned for a better 2017. As expected, the return in more normal grain production in the Eastern Corn Belt, with the fall harvest of 2016, has been a positive contributor to 2017's base income. Last quarter, we estimated corn planting acreage of 90 million to 93 million acres and soy bean planting acreage of 87 to 90 million acres. Our current estimates are now at the low end of the corn range and the high end of the soybean range in line with current USDA estimates. Cold and wet conditions may cause some changes in planting decisions from corn to soybeans in some regions. While we still expect better results in 2017, a shift from some acres from corn to soybeans could reduce our volume of grain handled as we look ahead. In ethanol, 2017 is off to a much better start than a year ago. We now entered the higher demand spring and summer months with the new Albion capacity online and a solid the outlook for margins. Weaker DDG values are being negatively impacted by Chinese import tariffs, and we are further impacted by localized vomitoxin present at our 3 Eastern plants. The vomitoxin issues are likely to persist until the new crop harvest begins. We expect that robust ethanol exports will continue through the year. Overall, we believe our ethanol facilities are ready to run at full capacity as some spring shutdowns were taken early in the first quarter and Albion is now running at its new capacity. This positions us to perform well in 2017. Our Plant Nutrient Group is off to a slow start due to the markets' inability to sustain improved conditions. While the anticipated corn planting acreage is supportive of nutrient sales in the planting season, continued heavy rains may narrow the window farmers have to apply fertilizer. This could have a negative impact on group performance. We anticipate better results from higher margin, value added nutrient products, as we approach the peak sales season in the second quarter, although planting delays here also may impact farmer buying decisions on our products, including value added nutrients. We believe that these products will continue to support sustainable agriculture in the U.S. Our enhanced portfolio of these value added nutrients is a key to our strategic growth plan. Rail continues to be impacted by an oversupplied market, so far this year. While carload movements and railroad efficiency data suggests that we may have seen the bottom of the downturn. Recovery of our utilization rates may be a little later in coming and somewhat more gradual than we thought earlier in the year. On a more positive note, we are seeing an uptick in portfolio purchase opportunities and have been more successful recently in acquiring cars, which bodes well for future results. At a companywide level, we continue to move forward with our productivity initiatives. We're targeted additional $10 million of pretax run rate savings by the end of 2018. We harvested much of the lower hanging fruit last year and the next level of productivity will take extra efforts. We're hard at work on programs that will continue to help optimize the performance of our business with a focus on improved procurement and back office practices. We've launched a second phase of our procurement project, which will improve our purchasing leverage. While our first quarter results were not as strong as we wanted or expected, our performance has improved. We continue to focus on productivity and working efficiently to drive performance in the markets we serve. I'll now turn it over to our operator, who will help us take your questions.

[Operator Instructions] We'll be taking our first question from the line of Farha Aslam with Stephens Incorporated.

I have several questions on three of your segments ethanol, grain and fertilizer, and perhaps we'll take the easiest one first, and it's on ethanol. You clearly highlighted that fundamentals here in the second quarter seem to be well positioned. So two questions. Do you have hedges coming in for the quarter? And how much should we think about vomitoxin hurting you on a per gallon basis or any way you can help us with that one?

Yes. Thank you, Farha. So as we mentioned, we had some of our plants shutdowns taken early in the first quarter, which are a little bit of a volume in the first quarter. We're ready to run solid for the second quarter. Albion, as we mentioned the expansion, to double the plant, is up and running very smoothly. It was a great project for us. So we feel good about our physical capability to operate, and we're optimistic about the outlook for ethanol for the balance of the year. The one negative that we've experienced is the spotty patches of vomitoxin around the Eastern Corn Belt. And a lot of that we had in the fourth quarter as farmers sold us some of that grain right at harvest time. And here, in the first quarter, that vomitoxin incidence persisted, which, as you know, impacts as it flows through the DDGs, and DDGs have already been little bit impacted negatively by Chinese tariffs, et cetera. So we're in a little bit tougher position on our DDG income and that will continue for the balance of the year. It could be slightly better, as we think some of that grain that will come out of farmers' bins might be in better condition than the corn they moved at harvest time. But it's a little bit of a nagging issue that relates to our DDGs.

Yes. Farha, this is John. I'll get a little more granular there. I think at a high level, probably somewhere between $3 million to $5 million of potential drag depending on how things play out over the remaining three quarters of the year, that's not in each quarter, that's for the year.

That's helpful. And then when we look at your Plant Nutrient's business, you highlighted this delayed start to the planting season and fertilizers are critical here for the second quarter. Start of May, how far are you behind in terms of normal volume? How quickly can that be made up? How are you thinking -- we should think about profits relative to second quarter of last year?

Yes. It's an interesting time. Little bit different than last year, I think, Farha. We came into the normal supply chain season of fertilizer last year with really weak commodity markets in fertilizer and lot of the prices were dropping right during the channel. So it made difficult for distributors as farmers stood on the sideline to purchase. I think this year's a little bit more choppy. We have weaker margins maybe, or prices, I should say, in nitrogen and phosphates. We've seen urea down as much as $80 a ton, but potash is up probably about $20. So it kind of depends on the price of each individual ingredient. But application delays are here in the East are mainly related to the rain we've had, especially last two, three weeks. So farmers are making kind of just-in-time decisions, which -- that's never good. We'd love to see it nice and spread up and perfect sunny warm days every single day. The outlook is for little bit more wet weather through the next 3 to 5 days. The good news is that the 10 to 20 day outlook is for warmer and drier conditions. So as you know, the farmers are very efficient, and they can really get after planting fast. If you look at the numbers we've put in the appendix, the state averages were pretty much on normal 5-year average with the one exception of Michigan that's a little later planting, and they're a little bit behind. So the challenge for PN is really about getting a nice application season and extending that window. We've seen this weather is all across the belt, too. There's been a lot of rain across the whole belt. So what we need is just a good window of application right now.

And Farha, I'll just add, that I think relative to last year's second quarter, obviously, the rain impacts this. But there is -- we're still feeling like we could perform as well as we did last year in the second quarter a little bit better.

That's helpful. And then my final question is on grain. That's the segment that's been just challenged by ample supplies of grain here in the U.S. and the lack of buyers to really commit to that forward market. Can you talk about Andersons' earnings opportunities in that business? How we should think about that businesses' performance near term? And kind of looking out, is there structural changes that you need to make to that business?

Yes. I think you have to look at the whole supply chain across the grain business from a farm all the way to the plate on a global basis. And every company plays in that slightly different. As you know, we're mostly an Eastern U.S. domestic player. And so, you really have 3 different stories for the 3 crops we participate in. So when you look at wheat first, soft red wheat continues to make very good storage income. We have a global big supply of wheat. Markets have been pretty flat and prices have been pretty low. Now recently we've had some weather impact in the hard red wheat belt with snowfalls that came down in Kansas. So that's something to watch as it relates to the wheat prices all around. But we still have about a 50% stocks to use ratio and with big wheat supplies. The good news for us, we still hang on to 2 VSR ticks. So wheat storage is an income maker for us, maybe not a big merchandising opportunity for trading and selling for the wheat, but we have a good storage income on wheat. So that's commodity 1. On 2, for soybeans, farmer did sell it at harvest, and beans were sold because cash prices were pretty decent at the time of harvest. Since that time, we've had good appreciation in the spreads. Our carries were out to close to full storage rates, and we've had some good merchandising opportunities in soybeans. In fact, we've load out a few boat in the lakes already this spring. So beans has been a better merchandising environment. And lastly, in corn, we filled our bins, but farmer is continuing to hold on to his corn with prices relatively low. We mentioned the vomitoxin issues in the East. But corn spreads have moved out to close to full storage rate. We've picked up our piles off the ground and have done a decent job of merchandising grain. Hasn't been a bigger pickup and appreciation in margins or merchandising margins of corn as we would have liked to seen. But eventually that's, we have to bring corn to market year before the end of the year. So the bottom line before I'll give you long answer on each of the 3 commodities, but we need to optimize our assets that we have to make sure all our plants are running full blast. We continue to push at selling risk tools, which we feel the farmers need now more than ever, and we just try to run as efficiently as we can and capitalize on the opportunities when they come to us.

Our next question comes from the line of Ken Zaslow from Bank of Montréal. Your line is open.

So Pat, you mentioned that there is another level of optimization in corporate activity going on. Can you talk about it a little bit, I don't want to front run you if there is a big claim coming your way or anything like that. But can you kind of put some parameters on it? Or kind of think about how, what your next level of activity at the corporate level is?

Sure. And explain, so the first year here, we looked a lot 1: we talked about looking at our portfolio and what assets didn't perform up to the level and didn't have an outlook of performance that we would have liked. And we've dealt with several of those at least outlined that earlier and that includes a lot of that headcount that went with that. At the same time, I think, Ken, you're aware, we've invested quite a lot here in the last several years on our new enterprise system to run our back office. We're doing that fully in the grain business and we're down the path of our next phases in the company to roll that out to our fertilizer business. The big thing is now capitalizing on that and optimizing the back office. I mentioned briefly in my comments it's procurement of -- putting all our procurement under one bucket and see how we can leverage it, and we're working on that, as we speak. So that's an area of focus we have right now. Like I said, the low hanging fruit was picked last year. Now there's a lot of pick and shovel work that we have to work on to make the company more efficient. And I see good opportunities there. They're not huge being chunks, one at a time, but we're going to peck a way at it, and we have another target of another $10 million take out that I'm optimistic we'll receive. Again that $10 million is in run rate by 2018.

And then my second question is, I know you guys have spent in ethanol production. Given where the environment is and you kind of think about the supply demand, is there more for you to do in terms of expansion? Or do you think that there is a natural limit that the supply should not be coming on enrolling? How do you guys think about that?

I think that's a good question, Ken. So we wanted to get our Albion plant up to double its capacity, get it over 100 million gallons to get at the bigger plant scale that we have in our other plants. And we've accomplished that in Michigan, and there is good demand in Michigan for ethanol and a good local corn supply. So that made sense for us. Beyond that, we don't have any near term expansion plans in our sites. We're always optimizing and tweaking production to make sure we can get the best yields. But we see the outlook is good. Exports has been strong as we talk -- previous call, I said we would see $1.2 billion, the range is about $1.1 billion to $1.3 billion as you've heard from others. So that outlook looks good. Even if a Brazilian tariff is threatened, we still have big demand for oxygenates in the global markets. So we should see a decent to strong ethanol off take in the exports. And as we get into summer driving season and spring driving season, driving demand was little slow in the first quarter and like to see it finish little stronger. We were down 1% to 2% on the quarter. And we'd like to see a finish with us in a plus 0.5% to 1%. And that's where we'll see some incremental volume and demand come from.

The next question comes from the line of Eric Larson from Buckingham Research. Your line is open.

Pat, mine's pretty easy. I'm sure you'll have a pretty straightforward answer to it. So if we don't get a weather event or a price appreciation event, particularly in the corn market between now and pollination, do you think your customers -- I don't know what you're hearing from the farmers, will the farmers get price realization on their corn crop and start selling by third quarter?

Yes. I think that the farmers will normal -- do their normal marketing patterns as they'll have to just because their bins are full. In all conditions -- I mean, we have really ample subsoil moisture across all the Corn Belt, as you well know the old adage that rain makes grain. I think we're in a good position. We do need to get some nutrients out there to support the crop to get a potential record crop like we've had in the last couple of years. With that in mind, I think the farmer won't have a choice that he's going to need the market grain as we get into the latter part of the third quarter just because of a space constraint. And we're optimistic. There could be a little uptick if we see any kind of price appreciation, I'm sure the farmer will sell into it. They've done that on beans, they just haven't done that so much on corn this year.

Yes. And if it's a significant enough of events and spooks the buyers into going a little longer on their coverage it would help as well.

That would also help.

Yes. So I mean, even it is realistic here or realizes that the second quarter, you're going to see improvement in the grain market. It's going to be a tough quarter again. It's going to be very competitive. But, I mean, what we just talked about with corn, the fact that you've got a full bin, volume numbers -- and maybe even bases, your cash market should be pretty weak in that kind of an environment, that should be positive for your second half, in general. Would that be a fair observation?

I think that's a fair observation, yes.

Our next question comes from the line of Heather Jones from Vertical Group. Your line is open.

I don't know if you all answered this. If so, I missed it. So could you tell us again -- or help me, did you say how much you have hedged for Q2 on ethanol?

No, we didn't say that. And it's only about 10%, Heather. So we haven't had a big hedge book going on into the quarter. So right now, for the whole quarter, we're only about 10%.

Okay. And then thinking about Lansing. So last year was a pretty difficult year for them. And I can't remember what quarter it was, third or fourth or something, but anyway, they had a big impact from, basically, China exiting the DDG market and just -- and I feel like I can't remember all the specifics, but I feel like there were some other disruptions as well. So I know you don't run Lansing, but just as we're thinking about '17, could you help us understand, should we see substantial improvement each quarter this year?

Right. I think we're feeling that we'll see improvements from Lansing. As you remember, last year, just -- you hit it right on the head that they're a big export of DDGs to China, that hurt them. They've some other trade losses early in the year. But more importantly that the frac sand business wasn't very good last year, and they've seen a nice return on their frac sand business this year, maybe in the Permian. So that market's come back for them which is good. So we're expecting to see better performance from Lansing. Now they are subject to the same grain industry margins that everybody is, and they're more in the Western Belt, as we where we're in the East. So I'd say, we expect better results, I don't know about outstanding. I think we'll just see good steady results from Lansing.

Yes. I thought outstanding would be too much to hope for. But, like last year, in Q2 specifically, I mean, they did a loss of 5 million as compared to like prior year 8 million, prior year 5.5 million. I mean, last year was horrible on Q2. Should we at least get back into positive territory for this Q2?

Yes. Heather, I think we expect them to get back into positive territory into Q2, yes. I mean, if you look at ANDE base grain, we improved by 10 million year-over-year in the first quarter. And Lansing and Thompsons both improved substantially over the last year's first quarter, and we expect that momentum to continue.

Okay. Awesome. Corporate expense, that was down nicely for Q1. Was there some timing benefits there? Or should we -- I mean, Q2 of last year had some unusual items in it. But I guess, as opposed to year-on-year, how should we be thinking about -- just on an absolute basis, what that corporate expense line will look like for the rest of the year?

Give me one second. I think we're going to be relatively similar to last year, potentially up just slightly because we've, if we hit our numbers, there will be some additional compensation expense and those type of things, but it's pretty flat.

The one thing it's a, the onetime charges related to the stores closing, and we've noted that very specifically with the severances, but that's different than our regular G&A line. We have, a year ago, we took out about 400 headcount numbers, and so our base payroll, even with the additional normal increases for the year, we're still much lower than we were. So we feel good about that. The big things we need to focus on are now more in the administrative back office.

Right, okay. And then a follow-on to Eric's question. So in the Grain business, I understand another, you get another crop coming along on top of ample supplies put pressure on the bases, all that's positive. But going back to wheat, and I understand that, I mean, the supply picture in Soft Red Winter is particularly burdensome, but you are making the VSR, but recently we've seen nice, or what we've tracked in your region, they said, there's been some appreciation in bases there. Is that something that will, that should benefit you? Or is there a limited benefit because the merchandising opportunities aren't that great?

No, it should benefit us, but it's a thinly traded market. So we got to be careful sometimes that 1 or 2 people raise a bid and then that looks like the market is appreciated. I think we see opportunities for wheat, and we would like to make merchandising margins. Of course, when you make good income on storage, you have to pull that grain out of storage with the kind of margin to elevate that pulls it out. And we see that will happen as millers come the market for soft red wheat later in the year. I think it's going to be interesting to watch this hard red wheat action in the West here, and how much damage was made from the snow in Kansas. It'd be interesting to watch the inter-market spreads between KC and Chicago. [indiscernible] let this play as the next couple of weeks is just a short-term little bit deal or to get something that's a little more important to damage in hard wheat country. But globally, we still have ample wheat stocks, so we don't see flat prices getting away on wheat.

And are you, I understand that typically you all have been more corn than wheat than beans, has that proportion mix changed considerably relative to last year or the last 2 or 3 years?

No, not really. Our ratio is probably of actual bushels [ph] hasn't actually change we bought a little bit more beans at harvest. So we did a little better on our bean origination and maybe a little bit less corn in the fall, just because that's how the farmer marketed. But our normal total volume ratio is probably about similar to historic.

Our next question comes from the line of Sandy Klugman from Vertical Research. Please go ahead.

In specialty fertilizer, are you still generating margins that are 2 times to 3 times higher than what's achievable in the bulk market? And the issue is just that the base continues to move lower? And then in the NPK market, which fertilizer prices have the greatest impact on what you can charge for your specialty products?

That's a good question, Sandy. So yes, that we still see the 2 times to 3 times spread, but it does go up and down with the commodity markets. So when we see a baseline NPK, or let's call it, commodity fertilizer prices lower the ratio goes down and thus has a bigger impact on a specialty item. I think it's hard to really talk about the individual components because it's kind of a different product. Our low-salt liquid starters, or actually can be quite helpful or actually can be quite helpful in a wet season like this, in cold temperatures, so that's it's a product that can actually help the plant get good emergence. And so in some ways, it could be even more value added in a period when you have wet and cooler conditions like we have. So obviously, we're trying to sell that. The challenges that, like I said, the markets are choppy and little bit mix. So nitrogen is amply supplied and price has been a little bit weaker. We have new plants that are -- one has come online and a second is scheduled to come up. So nitrogen looks to be like that's going to be amply supplied. But we've seen little pickup in potash. So I think it's just kind of -- you've got to look at each market. Urea, as I mentioned earlier, it's been down pretty sharply and that's a key component. So John, anything that you want to add there?

Maybe covered. There isn't really one particular commodity that drives that. It's more about the volume of sales at the time of the application here in the next month.

Okay, great. And then you discussed your expectation for robust ethanol exports through year end. I think the number was 1.1 to 1.3. How do you think of that? How high that number can move over time, particularly in light of some of the political risks that have emerged from China and Brazil?

Yes. That's a crystal ball question. And I think the key thing, you got to look at oxygenate value. The U.S. corn produced ethanol still has the best value in the marketplace in the world and the market should come to U.S. ethanol to buy that. So if we can't continue with the kind of crude oil prices where we're -- been -- even between $45 and $53, I think we're around $47 and gas has picked up a little here to about $2.50 in the spot and reasonable corn prices. We've been $3.75 or so in corn. That makes a very good price product for the global market and Brazilians with their focus on trying to get the most value out of their sugar crop, if that's in sugar. They are still going to need to import ethanol. Who knows what happens exactly with Chinese policy here going forward. But we have many other countries, Canada, Mexico, other countries in Europe, where we can be a very good supplier. So there's potential for it to go higher. How much exactly, I don't know, if I'd put a number on it.

Ladies and gentlemen, I see no other questioners in the queue at this time. So I'd like to turn the call back over to John Kraus for closing remarks.

Thank you all. We want to thank you for joining us this morning. I also want to mention, again, that this presentation and slides with additional supporting information will be made available later today on the Investors page of our website at andersonsinc.com. Our next earnings conference call is scheduled for Friday, August 4, 2017, at 11:00 a.m. Eastern, when we'll review our second quarter 2017 results. We're hope you're able to join us again at that time, and until then, be well.

Ladies and gentlemen, thank you, again, for your participation in today's conference. This now concludes the program, and you my now disconnect this time. Everyone, have a great day.