Good morning, everyone, and welcome to the Darling International conference call to discuss the company's fiscal second quarter 2013 financial results. With us today are Mr. Randall C. Stuewe, Chairman and Chief Executive Officer of Darling International; and Mr. Colin Stevenson, Executive Vice President and Chief Financial Officer. [Operator Instructions] This call is being recorded, and your participation implies consent to our recording this call. If you do not agree with these terms, simply drop off the line. I would now like to turn the call over to Melissa Gaither, Director of Investor Relations for Darling International. Please go ahead, ma'am.

Thank you, Sue. Good morning. Thank you for joining us to review Darling's second quarter 2013 earnings results. Randy Stuewe, our Chairman and CEO, will begin today's call with an overview of our second quarter operating performance and discuss some of the trends that impacted our results. Colin Stevenson, Executive Vice President and Chief Financial Officer, will then provide you with additional details about our financial results. Randy will conclude the prepared portion of the call with some general remarks about the business, after which time we will be happy to answer your questions. Before we begin, I need to remind everyone that this conference call will contain certain forward-looking statements regarding the business and operations of Darling International and the industry in which it operates. These statements are identified by words such as may, will, begin, look forward, expect, believe, intend, anticipate, should, estimate, continue, momentum and other words referring to events to occur in the future. These statements reflect Darling's current view of future events and are based on its assessed facts and are subject to a variety of risks and uncertainties beyond its control, including disturbances in world financial, credit, commodity, stock markets and climate conditions; a decline in consumer confidence and discretionary spending; a general performance of the U.S. and global economies; global demands for biofuels and grain and oilseed commodities, which have exhibited volatility and can impact the cost of feed for cattle, hogs and poultry, thus affecting available rendering feedstock; risks associated with the renewable diesel plant in Norco, Louisiana, owned and operated by a joint venture between Darling International and Valero Energy Corporation, including possible unanticipated operating disruptions; risks related to possible third-party claims of intellectual property infringement; risks associated with the development of competitive sources of alternative, renewable diesel or comparable fuels; challenges associated with the company's ongoing enterprise resource planning project; economic disruptions resulting from the European debt crisis and continued or escalated conflict in the Middle East, North Korea or elsewhere, each of which could cause actual results to differ materially from those projected in such forward-looking statements. Other risks and uncertainties regarding Darling, its business and the industry in which it operates are referenced from time to time in the company's filings with the Securities and Exchange Commission. Darling is under no obligation to and expressly disclaims any obligations to update or alter its forward-looking statements whether as a result of new information, future events or otherwise. With that, I would now like to turn the call over to Randy.

Thanks, Melissa. Good morning, everyone. Thanks for joining us. It's my pleasure to welcome you to the Darling International earnings call to discuss our financial results for the company's second quarter that ended on June 29. While our second quarter performance moderated slightly from our performance in the first quarter of 2013, the variances are fairly easy to explain. There were 3 significant contributors to this performance. First off, we saw our value-added premiums for our pet food grade proteins narrow. This was a result of a typical seasonal slowdown in the pet food market. Usually, though, this is offset by a pickup in the aquaculture industry, but cooler spring temperatures have created a temporary gap in demand. Secondly, we reached a significant milestone in the mechanical completion and production startup of Diamond Green Diesel in very late June. Preparing for startup, we shipped a substantial amount of various feedstocks to our new joint venture. The accounting treatment for these shipments is reflected as an intercompany transfer, and thus, we have deferred over $2 million of earnings per the quarter. Finally, our SG&A increases reflect higher medical costs, acquisition-related costs and the installment of our new Oracle system. Overall, we were pleased with the quarter. Now let me provide a little more specific color. Rendering prices were mixed sequentially from the first quarter 2013. We saw gains in fats and greases, offset by a significant decline of almost 14% in pet food grade poultry meal. Additionally, large stocks of palm oil and soybean oil negatively influenced the global fat markets when compared to last year. Meat and bone meal declined during the quarter but recovered sharply toward the end of the quarter as tight soybean stocks drove pricing, along with another glimmer of hope for the Indonesian market to reopen.…

Thanks, Randy. For the 2013 second quarter, the company reported net sales of $423.6 million compared to $436.7 million in the year-ago period. The $13.1 million decrease in sales primarily resulted from lower finished product prices for fats. Raw material volumes improved year-over-year but were partially offset by yield declines due to product mix. On a year-over-year basis, lower prices in the overall commodity markets for the oilseed complex and decreased biofuels demand largely drove the decline in fat prices. The decrease was slightly offset by an increase in raw material volumes in both the rendering and bakery segments. Net income for the fiscal 2013 second quarter decreased to $26.4 million or $0.22 per share on a fully diluted basis as compared to net income of $36.2 million or $0.31 per share for the 2012 comparable period. As noted in our press release, the $9.8 million decrease to net income of the second quarter resulted primarily from several factors: product mix within the rendering segment; lower finished product selling prices; higher SG&A expenses related to medical costs, acquisition-related expenses and implementation expenses related to our Oracle ERP platform; and Diamond Green Diesel's startup expenses. As Randy mentioned, we deferred approximately $2 million in profit on the sale of fats and greases shipped to Diamond Green Diesel. Applicable accounting standards require us to defer these profits until the feedstock is converted into finished diesel fuels and sold to an unrelated party. While this typically occurs on a 30-day lag, we would expect to have a deferred profit balance of approximately $2.5 million to $3 million at all times based on our expectations of the feedstock that Darling will supply to DGD. At the segment level, rendering generated net sales of $350.6 million for the second quarter 2013 as compared to $371.5…

Thanks, Colin. Our plants are running well so far this summer, and we're carrying some pretty good positive forward momentum through the third quarter, with improved protein prices for all categories, along with pretty steady fat prices. The finished product markets will ultimately have to adjust to the replenishment of global crop surprise, but for now, all is well. We're excited about the opportunities to better serve our rendering customers through the strategic acquisition of TRS as we broaden our waste stream extraction business. We have a solid enterprise and capital structure in place that will continue to serve us well. And our healthy cash position gives us flexibility to be opportunistic and execute on any growth opportunities that may arise. With that, I'd like to go ahead and open it up to Q&A.

[Operator Instructions] And our first question comes from Dan Mannes of Avondale.

So first things first, on Diamond Green Diesel, your press release and Q clearly said you're running at nameplate capacity. But you made some comments about it being sort of in shakedown. So maybe if you can expand on that a little bit and talk about what it's running at now and sort of how it's progressed through this third quarter so far.

Yes, and when we referred to shakedown, obviously, you don't bring it up to nameplate capacity on day one. It came online in very late June, 28, 29, 30, and ran it 50% to 70% of capacity for a few parts of the month of July and then ramped on up to full rates here. So we are at rate now or nameplate capacity. When we talk about shakedown, we're still getting the renewable diesel/gas split and still have to complete the ecofiner performance checkout with UOP. But as far as any startup that I've ever been involved with in my 30-year career, this has been the smoothest, most successful, and hats off to the Valero and Darling team for bringing this thing online. We're shipping product inspect, out by barge, out by pipeline. You just couldn't ask for any more down there. I anticipate that the plant stays online. Obviously, over time, you got to learn a little bit about what's happening to the catalyst, but there's no signs of anything here other than smooth sailing ahead at this time.

That's great news. And then from a feedstock perspective, has the pretreatment shown the ability to use all the different feedstocks you're usually hoping? Or is that still a work in process?

For the most part, it's meet, met and exceeded our expectations. What we've done is a very rigorous approval process by plants around the country of different feedstocks. It continues to run on a blended of used cooking oil, yellow grease, some animal fats, corn oil and crude degummed soybean oil, it has become competitive now, so there's just a lot of different feedstocks that are sitting available to it right now. The one that we're not running in there today is poultry fat. And part of the TRS acquisition is the poultry -- one of the products we process or land apply out of the poultry industry sometimes ends up in the poultry fat called secondary poultry nutrient, which is full of polymers. And so we've been unable to process poultry flat through the plant at this time.

Okay. One last one on Green Diesel. Your commentary -- well, your commentary on the $0.10 to $0.12 for the quarter, given where we saw RIN prices at, I guess we would've assumed it would've been a bit higher than that number. Anything you attribute that to or, I guess, they just seemed a little lower than what we're anticipating?

No, I mean, you always get into what's -- there's a lot of moving parts in it, Dan. I mean, it might have been a little higher than $0.12, but we were using RINs on average for the second quarter of $0.95. So time will tell here. Obviously, we've got to get the splits of the gases and the liquids right. It's very close right now. So I think you'll be pleased with what you see.

Sure. And then my final question on the corn hedges. You mentioned and your -- I think your financials basically said, you have some hedges even going through Q1. And so number one, can you give an indication what percentage of your bakery business you're hedged for the second half of the year and into Q1 and 2? Within a range, kind of what price you're hedged against given what we've seen in the corn market?

About 40% of our product is hedged out there. There's different ways you procure raw material. Some things don't make sense to hedge, and so there's a rolling position that's on here that we've been carrying forward for a period of time now as we lift the hedge and we put another one on it. Ask the corn market hopefully starts to find bottom here, then that position will probably won't -- that position will be all used up.

The next question comes from John Quealy of Canaccord Genuity.

Congratulations on getting Diamond up and running. First, I guess on the accounting side, in terms of the permanent deferred that we're going to have to deal with. Just first up, the $10 million of sales deferred year-to-date on Diamond Green and with the 30-day lag on that one, when that comes through, that's going to come through as full cost, right? It's not going to be 100% profit. Is that correct?

That is correct.

Okay. And then, moving forward, we're always going to have that 30-day lag. Is that right? That's your $2.5 million to $3 million liability on the balance sheet?

Yes. We would always expect that with the percentage of the feedstock that we'll provide the Diamond Green Diesel, that will be in sort of permanent deferral mode on some portion of the used cooking oil, et cetera, that we've sold to the joint venture. That remains in their inventory.

Great. Randy, over to you on the supply side. So now you've got pretreatment and the tanks filled. I know it sounded like you're raising prices going out and acquiring that feedstock on a run-rate basis now. What do you think about costing of feedstock? And I'll come back to corn oil in a second.

Well, I would caution you on -- the facility is consuming over 3 million pounds a day, so yes, I'm not sure the market has fully felt the impact of Diamond Green Diesel yet, and I'm hesitant to say that tanks are full down there. So we continue to procure whatever is the cheapest down there. And my personal opinion is, I mean, it's been a true blessing in disguise. And as we've talked to the shareholders over the last 2.5 years, they have been incredibly patient with us on this. I mean, number one, we delivered the technology and the facility pretty close to what we thought it would cost. It works, we're very proud of it, and it is having the impact on being able to absorb a lot of the production in the country right now. So clearly, if you didn't have the facility today, between the pressure from additional corn oil supplies and the lower price of corn at least in the forward months here, you would have a yellow grease, used cooking oil down in the mid-20s. So it's a pretty impressive support that it's provided into the market today. Now that's not to say that Diamond Green Diesel is solely responsible for that. The biofuel industry is running very, very strong right now with record profitability. And so at the end of the day, it's probably a combination of all of those. But clearly, having a machine that's taking out 10% of the supply today is a blessing for us.

And, Randy, I'm hesitant to ask you this, but I think you have good insights in terms of the commodity market here. So with RFS, to your last point, EPA clearly giving indications that the blend wall is coming in or ethanol stocks maybe requirements coming down, how does that impact the availability of corn oil? Does it really bleed down to the Diamond Green level? Or what's your thoughts about that complex?

Well, I mean, there's a couple things. I mean, first off, I mean, I think the EPA ruling or discussion this week was pretty much spot on. And frankly, this has never been an issue. I mean, RFS2 is law with the EPA administrator have in discretion. And they showed they have to be flexible, given that we've hit the blend wall and the simple fact that no one who can competitively make a cellulosic biofuel yet. So it -- really, the law is doing what it intended to do. And really, there's no reason for Congress to get further involved here. So I mean, obviously, between the blend wall and biodiesel, especially biomass-based diesel, we can produce significantly larger quantities today to be that anticipated advanced biofuel standard that's going to -- that we want to stay there. And we expect that the EPA will raise the biomass-based diesel 2014 going forward. We've worked with Joe Jobe and Anne Steckel of the National Biodiesel Board, and they've done an outstanding job to represent the biodiesel and renewable diesel. And I think the EPA will take that in stride. Now relative to ethanol, I don't see any big downturn from where they have been running. It'll depend a little bit on imports and exports going forward, as that advanced category can be filled by renewable diesel and then Brazilian sugarcane ethanol, but yet you still hit the blend wall. So I think the supplies of corn oil will remain pretty much where they're at. Now the other piece that has to be noted relative to corn oil is that it's now being exported out of this country in fairly sizable quantities to other biofuel producers around the world. So that is putting into it pretty much kind of a floor now to corn oil.

Okay. And my last question on the residuals business, how much does it impact the P&L? And then secondly, there's been residuals players like Synagro, for example, that have been restructured 2 or 3 times over 10 years. What is it about this particular business that you like?

Yes, 2 things on TRS. It's a great management team with a great group of employees. The 9 used cooking oil collection stations pretty much fall within the geographic territories that we operate in, so that's a pretty simple integration. We've done it before. Same customer base and pretty nice growth in that area for us. The residuals business is something we've always had our eye on. And really, our focus on and enthusiasm changed here about 6 or 7 months ago, as we started to learn the technology that we were starting up and learning to run down in Hampton, Florida. And really, what TRS does in their industrial residuals business is they go around and they collect the wastewater or it's called the DAF component, it's all their floatation solids out of mainly slaughter plants today, food and slaughter plants, but slaughter plants, predominantly chicken plants, and then they take it and land apply it. That is the exact feedstock that we need to support the Hampton extraction business. And so we look at it 2 things. Number one, it's a very good business with a nice EBITDA. Relative to materiality to our earnings, it's really not there, but at the end of the day, it provides us a new source of feedstock such that as we learn to run Hampton and decide we want to build #2, 3 or 4, we now have that supply chain. And then probably more important to our operations and raw material procurement teams is that it just gives us another linkage to our raw material suppliers who are providing solutions to both in the front door and out the backdoor. So we'll continue to operate the land application business. It's very different than what Synagro was doing on the municipalities. Now Synagro does operate a little bit of a land application business on the West Coast, and we've obviously looked around, and at the end of the day, there is still pretty good opportunity to grow the basic and base model for TRS.

Our next question comes from Farha Aslam of Stephens.

Now that you have the Diamond Green Diesel up and running, you guys probably have a great sense of selling prices. So when you look at the selling prices for the diesel, what is it priced off of? And how much of a premium does it command because of its blend stock quality?

Number one, I've got to be careful what I can comment about selling price of that product because it is not transparent to the marketplace because it is sold internally here and under supply agreements. But ultimately, the way this product is priced, which is much different than biodiesel is that we don't have a blender involved, and it's going straight to the pipeline. So it pretty much trades at Gulf wholesale, ultra-low sulfur diesel, plus the full RIN value, plus the $1-a-gallon tax credit, minus the small transportation, logistics fee that gets deducted from it. And then we get the full credits for the naphta, butane and propane, which we've also received green status or renewable status now on the naphta, so we will get RINs on that. So that's how it's priced today. It's -- you don't have to deal with the blender in there, so the profitability of Diamond Green Diesel relative to -- if you look at it, I know REG, and then Dan Oh and the guys are doing a great job, released earnings here. If you look at the EBITDA per gallon of that facility or those combination facilities, you're looking at $0.60 to $0.80 a gallon and versus when you start to look down at Diamond Green Diesel, you're looking at $1.50 to $1.75 a gallon. So it's taking the blender out of it, it's just a great play for us. And that's the value of being married to Valero and have an access to the logistics that they provide.

Okay. And then when you look at the cost of the fuel come -- or the fats coming in, is it running at around $0.35 a pound? Kind of you were talking about the different blends of fats coming into Diamond Green Diesel. Could you just share with us kind of what is the price that Diamond Green Diesel is buying fats for?

Well, that would depend on the blend that's going down there. Obviously, we're going to keep that to ourselves. But I mean, nominally, freight down there is a little under $0.04 from about -- between the Rockies and the Appalachians. And so depending on what's available down there, what's available on any given day, it's really whatever the Midwest is plus 4 [ph] is the delivered Diamond Green Diesel value.

Okay. And so clearly, this plant is really successful. So now can you push it beyond nameplates? And could you think about building a second facility?

No, the -- I think let's get through third quarter, and then I might answer that question.

Okay. And then you have $1.14 of cash on your balance sheet. When will you and the board consider kind of deploying the cash to really generate shareholder value? And what are the options that you're exploring right now?

I think we had $1.14 before TRS, okay? And so obviously, we're going to pay for TRS with our cash. And so at the end of the day, I think the cash balance is gone. The -- relative to how the year finishes up and how Diamond Green Diesel continues to provide cash, as we've talked in the past, given that there are debt repay down covenants and dividend policies within the joint venture, so for year 1, most of that cash will remain within the joint venture. And after that, it tends to become available here. Obviously, I think the most important part is any future expansion at Diamond Green Diesel can become self-funded by the entity itself. So I don't know that there is much view right now on any additional use of the cash. I mean, we've used it for Terra renewal right now, and then we'll see how Diamond Green Diesel progresses.

The next question comes from William Bremer of Maxim Group.

Let's go into Terra a little bit. Randy, on the Hampton plant, can you give us an idea what's the capacity of that plant? And you mentioned earlier a possible maybe second or third build, depending upon how this works out going forward. What's the cost to build one of these plants?

The -- number one, Hampton is kind of morphed from what I would call a large bent-scale pilot plant now to a full production plant. It will be coming up. We really don't know the capacities today, but at the end of the day, we're looking at somewhere between 50 and 100 tons per day out of it, relatively small. You got to remember, you're taking high-water waste streams, evaporating off the water to condense the solids, and then separating the fat from the protein. So at the end of the day, building something much larger than a couple hundred tons per day is probably going to be challenging, given the inbound logistics of the amount of water you got to handle. Cost to build out this stuff is somewhere between $25 million and $40 million, depending on logistics, for storage, and both for product in and out of the plant and energy sources. So our goal right now is to get Hampton up and get it running continuously. As I said, we've put in some additional equipment for hexane recovery here during the month of July. They anticipate starting to bring it back online and beginning to run it continuously here shortly. And so hopefully, here in the third quarter call, we can give you a full status update of how we're doing there. As I said, I just want to caution people, it is proprietary in-house technology. We've developed it, it does work at least in the batch fronts that we've done today. Now converting it from batch to continuous will be the next challenge, and we'll see how it goes.

Good luck there, without a doubt. My second question, what's the maintenance schedule looking like for Diamond Green Diesel at this time?

The turnaround on that facility is hopefully every couple years. Obviously, everybody's got their fingers crossed, and hopefully, much as -- the challenge in this business is to make sure that your pretreatment unit is running efficiently and removing all the alkaline metals and other impurities that can poison the catalyst. We are meeting and exceeding any type of performance guaranteed that we need to go feed the ecofiner and the catalyst today. So we're anticipating that all should be good for a couple years here.

Okay. And then one for Colin, and then I'm done. The SG&A, was there -- or can you sort of give us an idea what were the acquisition costs this quarter? And what's a good run rate there now that we pretty much have everything sort of baked in?

I think on the SG&A, we've talked about using a $42 million kind of number, $42.5 million as a normal run rate. And the acquisition really costs -- were not a material number. And Bill, we're just not going to disclose that today.

Yes. At end of the day, it's just one of those things, Bill, where there are about 3 or 4 things that added up in there, and that's how they were ranked.

The next question comes from Carla Casella of JPMorgan. Carla Casella - JP Morgan Chase & Co, Research Division: I wonder if you've maybe made any decisions with respect to your -- the bonds that are called on December 2014? Would you consider taking those out early?

We've looked at that. The premium to take them out today is pretty significant. It's in the $35 million range. So it's something we continue to evaluate. We get to our first call in December of '14, but it is something that we've looked at and evaluated. Carla Casella - JP Morgan Chase & Co, Research Division: Okay. And you may have answered this, I missed 1 of the 2 -- or 2 questions. But the RIN volatility that we've seen this week, does that affect any of the either revenue profitability forecast for Diamond Green?

Carla, it's Randy. I mean, obviously, with the EPA statement, it kind of took a little bit of the edge off of the RIN market here. I mean, yes, it's taken some of the profitability out of it, but I would qualify the profitability of where RINs were and the EBITDA underneath Diamond Green Diesel. I mean, Diamond Green Diesel was running through second quarter in an annualized rate of about $230 million of EBITDA. Probably excessive, so it's probably come back a little bit more towards where we thought it would be. The real challenge in that business is, last year, about Halloween, I think we hit the fulfillment of the mandate. It doesn't look like we're going to hit that this year. If anything, we could hit it towards the end of the year. But given the $1 a gallon, I suspect the industry will run pretty strong on through. And then as I said, we anticipate next year, given that the EPA understands now clearly that the biodiesel and renewable diesel industry can produce probably 2 billion gallons of finished product, they will expand, would be our guess, the RFS2 mandate for 2014. And hopefully, we get some direction by that here in September. Carla Casella - JP Morgan Chase & Co, Research Division: Okay. Do you have an outlook for where RINs could stabilize? I mean, I've heard that it's been very driven more by -- much driven by more hedge fund purchases than overall market supply and demand? But do you have any view in terms of where its normalized rate would be for a RIN?

I have no idea. I mean, remember, that's a mathematical computation related to what's the profitability needed to balance and produce the product. But most importantly, it's related to our RINs or related to the ethanol RINs. And so as ethanol RINs go up and they're not available, then they chase the D5, D6 RINs. And so if ethanol RINs back off, then our RINs are going to back off a little bit. So -- but right now, it looks like they're going to stay pretty firm through the end of the year.

The next question is from JinMing Liu of Ardour Capital.

First, regarding Diamond Green Diesel. That facility is currently running at a cost structure that you previously disclosed?

Yes, that's correct.

Okay. Secondly, regarding the raw material supply to that facility. Do you have to supply the facility with a certain blend of raw material like FFA contents or just the facility can take whatever you give them?

Yes. JinMing, the investment into the tank farm at Diamond Green Diesel, we always talk about there were -- there's really 3 big components down there: one is the tank farm; two is the pretreatment; three is the ecofiner. The tank farm has the ability to unload and store 100 million pounds of feedstocks and 3 or 4 really massive tanks. And so, yes, we try to isolate the different feedstocks, as I've said earlier in the call. We have a list of approved plants that are out there, and there's a lot of them. So I don't want anybody to think that it's -- that we're focused in on 1 or 2 types of oil. Basically, all the corn oil plants are approved out. They're all of Darling system is approved out there, plus many, many other renderers to feed the plant. As I said, it can run on soybean oil, RBD soybean oil, crude degummed soybean oil, corn oil from the distillers industry, yellow grease, animal fat, tallow and used cooking oil. So there's no set blend down there. There's no -- as we call it, there's no cocktail that we have to have, and they've proven that out with the ability to clean it up in pretreatment. Pretreatment has exceeded our expectations in the ability to handle whatever we send it. Now that said, we've not shipped any of the really bad, dead stock animal fats from like Lexington, Nebraska this summer. I don't know that they're ready for that, but we may as to give them some shortly.

Okay. For the current quarter, should we put in any additional costs associated with the startup process?

I wouldn't think so. I mean, obviously, I wouldn't assume a full run rate for third quarter just because the month of July was a ramp-up month. But after that, that should be normalizing out. As always, when you do startup facilities of this size, you will have expenses flow through during the first 90 days related to startup. The extra consultants that are on-site and some of the other staffing that goes on while you get it up and you get the bugs out of it. But beyond that, it's -- like I said, we are running at nameplate and pretty much of the yields we anticipated going forward now.

The next question comes from Ken Zaslow of Bank of Montréal.

A couple of housekeeping questions. The $0.10 to $0.12 from Diamond Green Diesel, does that include all the startup, the consultants, all that stuff? Or is that like an ongoing number?

No. That's just kind of a snapshot used in average. Jacobsen fat prices plus $0.04, RINs at $0.95, ultra-low sulfur diesel at $2.86, just really the month -- the quarterly averages.

Okay. And then just going back to the cash question. So in terms of you used the cash to obviously make the acquisition for Terra, and you're not sure -- I guess, the return on that cash, how do you kind of think about that? Because it sounds like you -- I guess I'm trying to figure out, it sounds like you used up the cash more quickly than we actually anticipated on something that may not be as high return as maybe the other opportunities are. I probably misunderstand this. I just want to kind of get your framework for that.

No. I would categorize it as that. I would say that the acquisition was large enough to use up the cash and -- but it hasn't closed yet. So we're still working through some details there. Obviously, the returns that we operate on are we're looking for 15% to 20% returns on gross investment. And then we believe that this acquisition will more than exceed that once it's integrated. And if it provides the ability to build out one more Hampton extraction unit, it will well exceed that, it will double it. So it's a very, very exciting acquisition.

Okay. Like I said, I think I misunderstood. That's perfect. That's exciting. In terms of the volumes going forward, can you talked about where you think the volumes are going to go for each of the businesses? But -- and is there going to be any -- I'm assuming probably not, but any impact on the Zilmax announcement?

Yes. I mean, the first thing I guess is, at this time, surprisingly that daily slaughter number hangs in there from 122,000 to 126,000 a day. So any shortage of cattle that the people thought was going to happen here, maybe we're still killing them all off, but we haven't seen the reduction that we thought we would. The Zilmax thing, I think, is yet to be fought in the media and at the consumer level because you got Tyson saying, one, "we won't buy any cattle with shot cattle prices up yesterday," and yet Cargill, very consumer conscious, said, "we continue to believe that, that is a source of good-quality, high-value protein for our consumers." So we'll see how that sorts itself out. The poultry side, let's just -- I mean, you've seen the Pilgrim's numbers. Bill Lovette and the guys have done a great job there. And then Tyson numbers were outstanding. I mean, but you've been around the poultry guys long enough to know that the good times are followed by expansion. And so we are already starting to see here kind of the signs of additional birds and egg sets being placed out there. So I think the poultry side, you're going to see a pretty good turn-up here going forward. Pork side continues to be pretty steady. The bakery side, this -- probably the last 2 weeks or the peak seasonality of the summer season, and then it kind of tails off a little bit. And then, probably, the one that we're most excited there, this is our used cooking oil collection business. We have to get the companies put together, get our marketing strategies put together, get our equipment offerings lined out, and we have seen that business start to grow at a rate of 3% to 4% for us, so pretty exciting times there on that. So...

And then a final question. As the hedges roll off for bakery, is it fair -- let's say, the corn price stays exactly where we are, nothing changes, is it fair to say that this quarter is a good run rate or would be a little bit lower or how do you think about -- how should we think about that for 2014?

Yes, I mean, essentially, what we've done is use the series of slabs to color the profitability of the bakery business. Remember, you're buying off corn, you're selling off corn, so you truly do have the opportunity to lock in that margin to the degree that your plants operate at the capacity and costs you think, and the blending stock costs, what you think it is. We pretty much lap it in. It should be relatively close to the second quarter, probably a hint down because price are coming off pretty hard right now, but nothing catastrophic relative to the replacement economics that you'd say if we didn't have them in place.

The next question comes from Roman Kuznetsov of Gates Capital.

It's actually Jeff. A follow-up -- actually, a couple questions, but on the corn hedges, can you just review again how much benefit that's going to provide in 2013 to shore up bakery profitability? Number one. And number two, the Diamond Green Diesel dividend policy, you talked about that cash is tied up for year 1, but in year 2, there's more flexibility. And I'm just wondering what that dividend policy -- the allowable dividend policy is beginning in year 2 and how much capital might be required to expand that facility beyond the 137 million gallons?

Let me talk about the corn hedges that are out there, Jeff, I think it's pretty safe to look at the second quarter run rate. Probably discounted a little bit because the market was inverted when we put the hedges on, meaning the third quarter was automatically going to be lower than second. But that's a pretty good run rate a little bit from where we were in the second quarter here through the balance of the year. Relative to the dividend policy, I'll let Colin comment on that in a minute, but the reality of expansion down at Diamond Green Diesel, we honestly don't know the answer to that. As any good operating company like Valero is with the engineering staff they. I think I would be disappointed if we didn't have a little bit of tweak left in the system down there before it required capital to expand. So I guess, I want to see it run for 90 days, see what the true incremental operating rate is, and then we'll give -- have a chance to give you a better answer on that.

And Jeff, the dividend policy in the first year for Diamond Green Diesel is it was driven by a need to get the facility up and running and understand it, coupled with the fact that there's a significant tax benefit from the joint venture in the form of bonus depreciation that was allocated to both -- or will be allocated to Valero and us. So that produced a very significant cash tax savings for both parties. In the future, we are allowed to take a dividend for our tax costs, and then eventually look at what they need in that working capital, debt repayment at debenture levels and look at their cash position and make a decision accordingly.

And if I could just follow up on -- I guess, the question on the corn hedge was, if you didn't have the -- I'm just wondering, how much benefit to profitability are you getting from the corn hedge because you don't have one next year? And so I'm wondering what the profitability of bakery would be without the cord hedge.

Jeff, this is John [ph]. Understanding -- you're looking at the futures market out there with corn is down quite a bit, but the cash price of corn is about $2 basis difference between the futures market and the cash market because of the tightness of corn supply that we get into this bumper crop. So the profitability in bakery is still getting the benefit from the high cash corn prices that are out there during first and second quarter. You're going to get a little bit of that improvement in the third -- the third quarter, you're going to still benefit from that. As Randy said, when you get into the end of the third quarter, you get into harvest and start pulling the corn off, we'll see what that does. The impact in the third quarter and fourth quarter, the hedge will help us even more if the fourth quarter's cash prices come down. We're not disclosing exactly what that number is from that standpoint, but you should only see a slight decrease in the third quarter of where we are with that hedge because you still got some nice cash prices for bakery. Fourth quarter is when you want to see the cash prices really come down, and then that's when you'll get more the benefit of the hedge out there at that time.

And then will you file an 8-K when you close the Terra acquisition?

Yes, we will.

The next question comes from Tyson Bauer of Kansas City Capital.

A couple questions. You talked about how diverting some of that supply to run your facility at Diamond has helped support some of the fat prices. Dynamic has not been running. And if you take the comments between Tyson and Syntroleum and Neste, it does appear that if a transaction is completed, that facility is ready to get up and running later this year, with those 3 players seemingly being the most logical participants. That should take out some more supply out of the marketplace. Does that really provide that solid base with them adding on, with the Renewable Energy Group starting up a couple of their facilities, that we're going to get in a different historical relationship with some of your previous -- the corn oil and some of the other products that are out there?

That's the grand debate around here, I mean, to see that yellow grease and corn oil in the high 30s, the $0.40 delivered down there right now, with crude degummed bean oil, $0.43, $0.44, whatever the flat price number is there, to think that we already narrowed it there, it's hard to believe that it will happen more. Our products haven't come down because they were the cheapest feedstocks for the biofuel industry. I mean, obviously, once the biofuel industry gears back, some of them have to gear back because of seasonality of the blend stock for winter weather. So I suspect you're going to see a little bit of pressure on the corn oil/yellow grease, used cooking oil market here as we enter fall. And because relative to animal feeding economics, we're a substantial premium to that today, and then exports are pretty much nonexistent of those products today. Relative to whether Dynamic Fuels ever comes back online, we probably have different opinions that we probably aren't in a position to share on that. But that facility isn't running for a reason, and a lot of the reasons are mechanical that have to be fixed. And whether the facility is truly sold or staying down, we're not part of those discussions, but I suspect any new owners are going to be faced with a significant capital infusion into that to make it a redundant and consistent facility.

You've talked about this a little bit before, but my sense in reading the 86 pages from the EPA. Was that -- in general, they are going to take the industry's availability to supply product with the demand absorption that exists, and that's how they're going to calculate their RVOs as we go forward. That should be a very big positive for the renewable biomass diesel industry in conjunction with lowering the ethanol mandates, which then kind of caps what corn oil supply there will be. And you can only put in so much Brazilian sugar ethanol into a market that can't absorb it in the first place. So are you -- is it your sense that the advanced renewables will maintain or grow and you're just going to take some of the volumes away from the cellulose previous statute mandates?

Well, that's obviously what we're lobbying for. The -- essentially, you had a biodiesel industry out there, and then you had Dynamic Fuels that was either on or off, and then you had us, where, as you've said, the Odyssey plant that was going to run, we brought on 137 million gallons of new capacity with hopefully some growth in it. The ethanol industry continues to buy cheaper -- a nice and economical feedstock in the form of corn oil. And so we took those 2 facts and sat down with the EPA economist, and then we showed them that there's adequate feedstock in the wastes, fats and greases and capacity for us to more than fulfill a substantial portion of that advanced biofuel bucket that's out there. So provided they're listening, I think they should allow that number to go up substantially. Will it be enough? I mean, who knows in Washington right now. But clearly, our anticipation is they've done the right thing by being flexible in the blend wall and cellulosic. And the reality is the biomass-based diesel side can fulfill a substantial portion of that, and hopefully they'll let us.

Okay. And a different topic. If we look at beef placements, early indications for fall, heifer retention, although we get the comments from poultry manufacturers of much better production going into '14. Are we setting ourselves up that total raw materials probably won't change much but your percentage of value-added products, because of the poultry increase replacing, maybe backfilling some of the beef side, should provide a much more favorable mix as we go through '14 and '15?

I think we're probably pretty status quo where we're at right now. I would highlight a little more that we're spending a lot of time in that beef and pork area of trying to value add there. I mean, the poultry side for us is pretty well maxed out. I mean, we're running at or near capacity today of those products. So at end of the day, I don't know that there's any giant upside there, but on a product mix, the beef was to go down certainly. It would be a greater percentage, but continuing to find homes for different beef products has been the challenge to Jim Conway's protein team. And they've done a pretty good job of it.

Last quick one. To play in Q3, we have there product quality issues due to the summer heat, given the lack of a summer in a big part of the country this year. We've had years, 1 out of 10 maybe, where we have not had those product quality issues. Is 2013 going to be another year where we do not face those kind of quality issues?

I think we've made, as we said, a lot of capital improvements in the plants to handle essentially the heat, which is really the deadstock plants that have to handle the really, really tough raw material. So far, as I said, the plants are running well this summer. And ultimately, our goal is to figure out a way to blend and move those feedstocks into higher value markets. They're still continuing to be heavily discounted out there because they are super-high asset. But at the end of the day, the plants are running well this year. Now it's felt like it's been a pretty decent summer up until in the last 5 days in Dallas at over 105 degrees.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Stuewe for any closing remarks.

All right. Thanks, everyone, for joining us, and we look forward to providing you an update on Diamond Green Diesel on our base business here at the third quarter earnings release in November. Have a great day, and be safe.

The conference has now concluded. Thank you for attending today's presentation.