Good day, everyone, and welcome to the Green Plains Inc. and Green Plains Partners fourth quarter 2017 results conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jim Stark. Please go ahead.

Thanks, Kevin. Welcome to the Green Plains Inc. and Green Plains Partners fourth quarter and fiscal year 2017 earnings call. Participants on today's call are Todd Becker, President and Chief Executive Officer; John Neppl, our Chief Financial Officer; and Jeff Briggs, Chief Operating Officer. There is a slide presentation for you to follow along. You can find that presentation on the Investor page under the Events & Presentations link on both corporate websites. During this call, we will be making forward-looking statements, which are predictions, projections and other statement about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in yesterday's earnings press releases and the comments made during this conference call and in the Risk Factors section of our Form 10-K, Form 10-Q and other reports and filings with the Securities and Exchange Commission. You may also refer to page two of the website presentation for information about factors that could cause different outcomes. We do not undertake any duty to update any forward-looking statements. Now, I'd like to turn the call over to Todd Becker.

Thanks, Jim. And good morning, everyone, thanks for joining our call today. We reported net income of $46.6 million or $0.98 a share for the fourth quarter. There is a tax benefit of $52.8 million recorded in the quarter related to the revaluation of our deferred tax liabilities at the newer lower corporate tax rate. Excluding the revaluation of deferred tax liabilities, we had a slight net loss for the quarter of $6.2 million or $0.16 a diluted share. I'll let John talk more about the tax benefit later in the call and how the new law affects the tax rate going forward. We generated $36.1 million of EBITDA for the fourth quarter and our 2017 EBITDA totaled approximately $155 million. The consolidated crush margin was $0.08 per gallon for fourth quarter. While we came into the quarter partially hedged in the financial markets, the physical basis reached multiyear lows as the market was oversupplied and production was ramping up for the winter. For example, what typically would trade at 10 to 12 under basis level in the western corn belt, we saw days as low as 17 under in some locations. So, while we were hedged, we did see some slippage of a couple of pennies in a physical market on average that we have not experienced before this widespread as an industry. In addition, December declined rapidly in the financial crush as well. For the year, our consolidated ethanol crush margin was $0.10 per gallon. If we go back in our history, the lowest crush margin for us over a year was in 2012 when we reported $0.09 a gallon. Our operating costs for ethanol production are heading in the right direction and we're finally starting to see this. it takes about 1.5 to 2 years once we…

Thank you, Todd. I'm many of you are interested in hearing what we have to say about the impact the Tax Cuts and Jobs Act of 2017, but first let me run through our results for the fourth quarter. Green Plains Inc. consolidated revenues were $921 million in the fourth quarter, down 1% from the fourth quarter a year ago. Revenues were impacted by lower volumes and a lower average price for ethanol, offset by the addition of three cattle feed lots acquired earlier in 2017 and the addition of the vinegar business acquired in the fourth quarter of 2016. Consolidated volume of ethanol sold for the quarter was down 5.4% to 359 million gallons, but was up almost 6% for the full year to 1.48 billion gallons. Consolidated net income for the quarter was $46.6 million versus a net income of $18.7 million a year ago. Excluding the revaluation of deferred tax liabilities, we had a loss of $6.2 million or $0.16 per diluted share. We recognized a tax benefit of $52.8 million due to the revaluation of deferred tax liabilities under the newly enacted Tax Cuts and Jobs Act. As you know, the act reduced the federal tax rate to 21%, which means, of course, that our deferred tax liabilities were reduced. As you probably know, the act was written quickly and, in some cases, vaguely, causing confusion and some unintended consequences, such as the Section 199A issue, which Todd will discuss later. Currently, as we interpret the new tax law, there are components of the act that have positive and negative impacts to Green Plains. While the overall corporate tax rate decreased from 35% to 21%, which is an obvious benefit to us, and the ability to expense 100% of CapEx, which reduces current cash taxes, our…

Thanks, John. We're approximately 35% locked in for the first quarter, which effectively means we're in the spot market. So, let's get right into the fundamental outlook. As I indicated last quarter, we're effectively two to three days oversupplied as an industry and we remain that way if something seems a bit different. The physical markets have tightened up as evidenced by several factors. The first is, in relation to the quarter we just finished, the physical weakness has gone away. Basis levels had returned to normal or better and it's hard to find excess volumes if you need them depending on the market. Second, the New York Harbor cargo spread has widened out to double digits after spending the last several years well below that. And third, the term structure of the market has narrowed significantly over the last several weeks, which also represents the physical market is tight even with greater stocks than last year. Margins over the last several weeks had begun to show improvements out on the curb because of all these factors, but we still have a lot of work to do. We have not done anything locked in on the margin curve beyond the first quarter as we believe we should start to see an improvement as we move closer to summer driving season and really haven't had that much opportunity or motivation to lock away forward margins. The job of the market is to build stocks in the driving season, but is having trouble doing this with such strong export demand, which I'll get into shortly. Gasoline demand has started off the year 6% better than 2017 in spite of all the severe winter storms around the United States. So, gas demand weakness was a major factor of last year that transpired during…

Thank you very much. [Operator Instructions] Our first question comes from Farha Aslam from Stephens Inc. Please go ahead.

Hi. Good morning.

Good morning.

Could you just explain a little bit more about physical basis? You highlighted that it's getting tighter. And also, your commentary on physical inventory, how that's getting tighter, even though the supplies numbers that we're seeing seem to be large?

Yeah. So, they physical basis got very weak during the fourth quarter and late in the third quarter of last year. So, what that really means is that, so when we say we're hedged, we're financially hedged, but oftentimes we have – still have physical to sell. And, historically, the physical basis has been pretty well in line with historical numbers. So, if it's 12 under in Iowa or 2 over in Tennessee or even in Bluffton to the financial markets. And we saw very weak physical market as we were bit oversupplied and trains were moving rapidly and we saw some new stuff come online from production. But that all got cleaned up later in the fourth quarter, early into the first quarter where now we saw better-than-historical levels in the first quarter, but again the remained weak. So, there's something – what we have been saying to the market is that there seems to be a disconnect between the physical markets and the financial crush. In the physical markets, there are times we could not buy a train. Chicago was trading at 1 to 2 over this quarter and it was very hard to get excess ethanol and excess physical stocks of ethanol, even though the stocks looked large, because demand is so good. And so, demand continues to increase in terms of our export demand and the needs for that, even though you might see stocks moving around from 22 million to 23 million barrels, none of that is really translating into a big physical weakness into the market like we saw in Q4 at this point.

Okay. So, the tightening of the physical basis that you're highlighting in the first-quarter is going to help profitability kind of in the first quarter itself.

Well, it's not translating yet into a much better margin structure. It's just pointing out that the physical markets remain tight, even though stocks are still a little bit higher than last year. But as we see increasing demand, it looks like it's heading in the right direction. This is a quarter where we really need to build stocks coming in the driving season. And with export demand so robust, I don't think we're going to be able to do that. And if we start to see an uptick in domestic demand as we enter the driving season, we're kind of focused more on kind of the Q2/Q3 changes that we expect to see, but it's not translating into such a – there's a disconnect between the margin structure and the underlying physical markets and the spreads as well. So, late in the fourth quarter, we were in almost a full carry situation where calendar spreads were $0.04, so you literally were being incented to keep your ethanol back and carry it or put it in the storage and carry it where those spreads are coming to – either once in a month or even inverted in some markets, which again translates into the fact that there is physical tightness going on out there, but it's not translating yet into a better margin structure overall. So, again, I think the market is a bit confused. I think there's some nearby pressure, hedge pressure in the daily spot market. Each day, the market continues to get pressured from a from a spot perspective, but it's not translating necessarily into physical – a bunch of physical ethanol sitting around, looking for a home, like we saw a bit in the fourth quarter.

Okay. And then, a longer-term question. You had highlighted – kind of when we think about your tax rate – about a $0.15 EBITDA margin. Is that the long-term margin that we should think that Green Plains can achieve and anything that points you to go above or below that level? How should we think about that $0.15 EBITDA? I think that's down from about $0.20 to $0.25 in terms of historical levels you were targeting?

For the past four or five years, I think we've indicated a midcycle margin at $0.15. So, that's going to just kind of where we're at parity and there's just a little bit – there's excess supply or excess demand on any given day and stocks are kind of in that 20 million to 21 million barrel range and so – or however many days of demand. When you look over the long-term, we did not – that's only a midcycle margin. If you go back to December of 2016, we generated $0.27 a gallon. So, our view is that we have not invested in this company, so we can earn a midcycle margin. And we believe over the long-term, we will do better than that. But as we are right now in this situation where stocks seem to be a bit oversupplied and demand is catching up with supply right now, I think demand will grow bigger than supply, and I think things like the Brazil programs, the China programs, all of that could lead to a better margin structure than the midcycle margin. We did not build these plants to earn $0.15.

Farha, this is Jon. I picked $0.15 as just an illustration. We've done analysis at various consolidated crush numbers to try to identify what our go-forward tax rate will be. And now, it's just simply an illustration, nothing more. Not any kind of prediction on the go-forward numbers.

Okay. So, this would be – $0.15 would be a conservative number and we'd look to get better than that over time. Is that how we should think about it?

Absolutely. Because $0.15 includes $0.04 for corn oil. When you go back in history, that $0.15 five years ago did not include corn oil. So, when we talk about that, we think that's a conservative lower end of the margin structure over a long period of time.

That's helpful. Thank you.

Our next question comes from Adam Samuelson from Goldman Sachs. Please go ahead.

Yes, thanks. Good morning, everyone. Maybe first on ethanol. And, Todd, I just wanted to just make sure we understand kind of your supply view and the balances for this year. Do you think production up 1.7% is 1050 [ph] a day? We've running above that this year. I'm just trying to think about what's the risk on capacity creep in the industry if there's just more – there's been a surprise to the upside pretty continuously for the last couple of years. As you look at your own footprint, do you actually think your production is up that 1.7% year-over-year in 2018 and how would you dimensionalize the risk for that number?

Yeah. From our standpoint, we don't have any expansion projects at all in 2017 and we don't expect that we will see any increase in our production in 2017. From an industry's perspective, sometime later in the year, we will see 150 million gallons of new capacity come online from some new construction, but that's limited to those couple of plants. I don't think there's much else going online. Projects, we think, have slowed across the industry in general as margins continue to be somewhat muted and the investment returns aren't quite as good. So, in general, when we take a look at the full year, we believe – when you start to think much about shutdowns, shutdowns will be coming. And last year, at this time, we started to – the shutdown season is about 30 days away and we went below a million barrels a day and then we came out of shutdowns, ramped up pretty hard. I think there's – we have taken Hopewell down for the foreseeable future until the margin structure changes. We have York fully 100% committed to B grade. I think you've seen some others talk about production capacity at some of their plants or changing around as well. And so, I think overall with the pluses and minuses, I think 1050 a day is a reasonable expectation, plus or minus 5,000 barrels is probably the right way to think about it. And I don't think capacity creep will be quite as robust as we've seen over the last several years.

Okay. And just to be clear, because in 2017, you took some pretty some pretty – some bigger downtime over the summer months. That was maybe market-driven. Your expectation is still against that comp. You'd be flat even though you don't have any other kind of capacity increments to come.

That's correct.

Okay. And then, just a question on the food side. Maybe can you dimensionalize? The Food and Ingredient business was down year-over-year despite the additions on cattle. I get that there's timing for the company-owned cattle and the Cargill lots, but you had a full quarter of Fleischmann's last year. What was the cost on cattle? Maybe it's hard for us to see the Fleischmann's year-over-year. And specifically, on Fleischmann's, is there an expectation for EBITDA from that business for 2018?

Yeah. And we're not going to get completely into the fourth quarter, except to say that as we were building cattle we had more expenses associated. So, basically, when we were taking out – the Cargill cattle is being marketed and we're building cattle, you have all the expenses associated with the cattle and you can't – you have none of the revenue associate with all of that cattle. So, it was just one of those quarter where the expenses were outsized relative to the amount of head we had in the yards that we could recognize. So, as we're marketing six-month ago placements in December and recognizing a much smaller amount of revenue against those, we have to take expenses against the full amount of 200,000-plus head. And so, it's an outlier quarter that happens if you buy a new feedlot or if you fill up a new feedlot after coming empty where you have to have all the expenses associated with all the cattle and you might only be marketing 25% equivalent. So, placements year-over-year, both from a quarter perspective and a year perspective, was a record for the company. And we expect another year like that next year as well. We had mentioned that we bought the company for $250 million on just under a sub-10 multiple. And we've improved the business since then. We think the business over the long-term is in that – next five years is in that kind of $28 million to $35 million range of capability, but could certainly move up and down from there based on kind of some of the underlying markets. But all of the growth trends are in our favor and we have expanded and spent money to expand that business to achieve those kind of numbers. And then, cattle, on the other side, when you look at it, if we're going to have market – 520,000 head at a minimum $50 a head – we've not earned $50 a head for several years. So, it's kind of just a minimum number. So, our view is that we could earn $50 to $60 a head on the minimum, which is $30 million on top of that. And so, in general, that's kind of how we break out that segment as a baseline.

Okay. I appreciate the color. I'll pass it on. Thanks.

Thank you.

Our next question comes from Heather Jones from Vertical Group. Please go ahead.

Good morning.

Good morning, Heather.

So, quick question, when you were laying out your demand scenario for 2018, you remarked on how strong year-to-date gas demand has been. And, granted, it's easy comps. But on a full-year basis, you're really not expecting much growth in gas demand and thus blending.

Gas demand, we still think will be in that 143 to 144 range. 144 will be better. I think it's very hard to predict because of the strength in the first quarter where the full year will be. So, we're going to go with all the experts that are in that 143 to 144 range and keep it at that. Obviously, a lot of things are in play there. The cost of gas, the economy and everything else. So, that's basically – we're in a much better situation year-to-date with gas demand than we were last year. So, we're not feeling the big drop off and no place to go with ethanol which might be some of the reasons why the physical tightness. There were some markets that were running out and some markets that were oversupplied and it's kind of one of those supply and demand dislocations that we sometimes see in the market. But those are all positive signs for our longer-term demand for our product, ethanol.

And then, going to the high-protein DDG. So, you would, obviously, know this better than me. But, like, some of the numbers we've run, some of the products that are out there are really strong, potentially really strong returns, especially if you're bullish protein demand for the next few years. So, it would seem like they would be one of your higher return projects you could potentially invest in. So, I was just wondering, like where it ranks, what's the likelihood of you guys putting that into one of your plants once you push the Beaumont terminal down to the Partnership. Just give us a better sense on that.

So, I'll start backwards. We don't need to push the Beaumont partnership down – the Beaumont project down in the Partnership to move on high-protein DDGs. That's so because we do have liquidity and the capability to do that. We're in the final stages of evaluating multiple technologies and there is also emerging technologies that we're starting to see on bringing the protein up in this product as well as there are some – on the soymeal product, there it's up as well and there's kind of a crossover between some of these technologies. And so, we are in the final stages of making a decision on which technology we will do based on, obviously, the uplift in protein and the returns that we get from that. When you look at it against global protein demand and what you're able to uplift the protein, if you can uplift your protein at or above high-pro soymeal and you can gain those values, you will pick up what we believe is about $0.10 to $0.12 a gallon of margin in each 100 million type gallon ethanol plant. And that's significant and that's steady and we could think there are supply agreements you can get in place to lock in that spread. And so, we want to make sure that when we choose, we choose wisely, we choose the one that we can deliver on, we choose one that will deliver the quality that we need and we are also looking at offtake partners right now, both domestically and globally for the product to make sure that the product will ship and have a place to go. So, it's kind of a combination of all of that. It is coming, though. But it's not like corn oil. Corn oil was $2 million to…

Right. That's a very valid point you make about the high cost of putting it out. So, that, in your export terminal, just fast forwarding, let's call it, 18 months to two years, and you put this high-pro technology at multiple plants. And a lot of these one and two-plant operators, coops, they're not going to be able to afford this. So, doesn't this in your export terminal a big differentiator for you guys potentially?

Yeah. We believe for a company our size with the financial capabilities we have, to do things like this, when you take a look at – first, when you start out with our non-ethanol operating income and non-ethanol EBITDA as a baseline of 160 to 180, and you add on top of that the fact that our export terminal is just getting started and is giving us great insights to global demand and we are providing end-to-end solutions for our customers, put on top of that, you've got your corn oil business and your high-pro distillers grain business, it's going to take time to again work this all through the valuations. But put that all together and then look at the valuation of the MLP as well, which we believe there's a lot of growth opportunities there in the cattle business and it's going to be a very interesting exercise to look at Green Plains and look at our valuation, which today is – we believe is undervalued relative to where we should be.

Okay. Thank you so much.

Our next question comes from Laurence Alexander from Jefferies. Please go ahead.

Good morning.

Hi, Laurence.

A couple of quick ones and then a couple of open-ended, if you don't mind. The quick ones is, could you give a quick update on the amount of your plants that are using Enogen on the algae side? And also for the cattle, the 113 EBITDA per head, do you see that as a good number or is that like midcycle? And what do you think like a high unsustainable number on that front would be? And then, I'll get to the open-ended questions.

Okay. For the Enogen question, we used Enogen at seven of our plants last year and we're in a one to two-year rollout to 17 plants over the next year. Some will take a little bit longer because of Syngenta moves to gain market share in the eastern US that they've really – that's one place of – area of expansion for them and they'll use our plans out there to help them do that. It's a great partnership we have with them and it's a great product. And so, every time we done a sign up with them, it sells out very quickly. Local farmers love the product. The yield is keeping pace with what they're growing on their farm. And we believe that, overall, it helps Green Plains with our supply chain and helps Syngenta sell more seed of all their products. And so, that's kind of the first step of what we're doing there. On algae, what we've done is we basically have converted our technology and we have patented to take an outflow of the ethanol plant as the main major feedstock to grow algae using fermentation technology. And the reason we moved it to York is when we bought York, we inherited a world-class fermentation scale-up lab that was built there for $30 million or $40 million and we inherited that for not very much cost at all. And that's why we moved very quickly to York to start to scale up this product. We have a few design things that we're working on, but we think, in late March, we will get to a point where once we get into larger fermenters there, we will then come out with our scale up opportunity. We have been aggressively in fish trials. We're looking also at…

He had two more.

The cattle margin. The cattle margin, $113 was inclusive of revenue that we received, but we didn't have much costs associated with it in general because we are just feeding, as per a fee, cattle for customers. When we kind of look back at what we achieved on our cattle alone, notwithstanding the extra revenue, it was in the $80 a head range. And we earned that last year as well, in 2016, in the 80s. And we earned that in 2017. So, while we always start with a baseline of 50, we want to be conservative because there are times we see $20 and $30 feeding margins. We always start at $50, but then, obviously, our returns get better. We are working with packers on branded programs, all-natural programs. And so, those are where we get uplifts. The quality of our genetic that we put into the yard have gone up significantly and we're getting better returns as well with our agreements and our partnerships with Cargill that we put in place, which I think is paying off for both parties as we feed the cattle and they use it. we're very focused on giving them very high-quality genetics that they can obviously do better with as well. So, while I certainly would use $50 to $60 on the model, we have achieved in the 80s over the last several years.

Okay, great. And then, I guess, just lastly, I guess one for each of you. So, maybe for John, in the five months that you've been with Green Plains, can you give any perspective on what has surprised you positively or negatively or what you see as serious challenges over the next couple of years? And I guess, lastly, much of your earlier discussion was around how you're shifting the center of gravity sort of into these coproduct revenues and margin streams. And when I think my conversation with investors, a lot of the questions that come up is this view that, excluding those, your assets – your ethanol plants are creeping up the cost curve and becoming less competitive over time. Can you talk a little bit about that? Like, either philosophically or if there are metrics you would point to to sort of argue like where you are on the cost curve and how you feel about that?

Sure. Let me address the second question first and I'll let John come on and eloquently discuss his first five months. So, we creeped up the cost curve through acquisitions of plants that were very high cost, which we felt like we could fix. And over the last couple of years, we're starting to see the results of our investment in those plants of time and talent to get those costs down. And we really saw the best results we've seen really over the last year or so, year-and-a-half in December where our cost curve really dropped down more towards below historical levels. So, everything is judged off of the best plant. So, when we look at an Obion, Tennessee, we have the corn, the ethanol, the distillers and the natural gas, and what we used to say is deduct $0.28 to $0.30 a gallon off of that to get to an EBITDA number. So, that's how kind of how we used to guide the market. We creeped out over $0.30 a gallon with the acquisitions of these plant as well as there's other cost increases happening as well, railcars and things like that. So, it's not all just because we bought some higher cost operating plants. And so, now we spent the last year-and-a-half or two and finalizing with what we're doing in Madison on moving from continuous to batch to drive those costs back into our historical cost level of $0.28 to $0.30 a gallon. That's where we would like to be. We're not going to get the whole platform to an Obion or a best-in-class ICM in the middle of Iowa at $0.23 or $0.24 a gallon. We're not to get the whole cost curve there because we didn't buy those type of plans for a lot…

Laurence, this is John. I would say that – five months, I think, next week. First of all, from a pluses, minuses, I think it's all been pluses. Seriously, though, if I look at – if I look at kind of overall my assessment after five months, I think on the positive side, I think the attention to detail here and the sharing and the flow of information internally around what's happening really day-to-day, intraday, even I think has been pretty fascinating. And I think very interesting for me. We have fantastic bank support. I think the financial community in general. A lot of the bank relationships are with people I knew before in my past work life. But I think that the support in the capital markets for the company, especially on the banking side, has been fabulous. And I can only hope that I can keep that going forward as we constantly are looking for opportunities on our capital structure and have certainly had a very strong group of banks supporting us along the way. I think on the challenging side, I think it's really a couple more industry things that I understood, but maybe didn't fully appreciate. And one is just the sensitivity to ethanol margins for a company our size because we produce 1.5 billion gallons a year. And, obviously, the lack of a forward curve at times keeps you wondering what's going to happen around the corner. But we always seem to find the margin when we get there, but it's certainly volatile. And I've been accustomed to volatility, but it's really looking forward and what we can expect from margin, how we can manage that. I have a new appreciation for that having come in from the outside.

Hey, Laurence. One other thing, just to close out on the discussion we had on the ethanol plants, because of our portfolio of assets and what's changing in the global markets around all the different countries that buy all of the different grades, we can make any grade for any country across our portfolio. And as the global demand for ethanol grows, we believe we are in a unique position to give any customer, using the Beaumont terminal, with our portfolio of asset upstream, any grade they want, anytime they want it, anywhere they want it. And it's a total end to end solution. We're not getting credit for that value yet, but as demand continue to grow and we see global demand continue to grow, we think we will be one of the only players in the market to allow somebody to get that. And the importance of traceability and tracking where your shipment comes from, especially with the European standards that are in place, we believe we're one of the only companies that will be able to do that.

Great. Thanks for adding that. Okay, thank you.

The next question comes from Brett Wong from Piper Jaffray. Please go ahead.

Hi, guys. Thanks for taking my questions. First, wanted to dig in a little bit on the exports. Just a quick clarification. Todd, you talked about 1.7 to 1.8 as export opportunity in 2018, but the deck says 1.5 to 1.7. Just wondering deviation there and really how many gallons you think you are exporting to China in 2018?

Jim is just not keeping up with me right now. I will talk with him about that. But, in general, our view – the view that we have as a company is a 1.7 billion to 1.8 billion gallon view. Some things have to happen around that. But, in general, I think that we will be in that range and could end up higher. China, we think, will come in in that 200-million-gallon range. They were aggressive in the first quarter. And if you just do one cargo a month for the rest of the year, that's 200 million gallons. We think in the first quarter alone, though, we will be pretty close to 100 million gallons. And so, if they reengage at all, that is just going to be additive to kind of our idea on where exports are going to be. So, I think that's an important fact is that half their year will be done in the first quarter and their policy is to use more ethanol. So, it's very hard to predict what's going to happen there. It's very hard to predict if they will fully turn it on or not. But thus far, I think they like buying cheap product. They like buying cheap octane. And quite frankly, they're buying cheap equivalent. And that's a kind of a bigger part of it.

Thanks. And, Jim, that wasn't my intention by any means.

It's okay. I'll find out [indiscernible].

I just wanted to check on it. But, also, Todd, if you can talk kind of longer-term, and, obviously, we're seeing the impact here as China is looking for cleaner air emissions, importing US ethanol. Do you think – your thoughts on the E10 policy there in general and really do you think that they're going to really import a lot of US ethanol to meet kind of – with China typically as self-fulfilling in terms of their policies. And then, obviously, just kind of getting to E10, do they have the water availability there to grow the corn, et cetera, et cetera. Just your thoughts on that longer-term demand opportunity.

I think long-term demand, it's a huge opportunity for ethanol as they need it. I think, overall, they're working through this burdensome corn situation that they've had. And that was one of the reasons that they were supporting internal production of ethanol. They're still not running all the ethanol plants because of the – they're starting to see a bit of a scarceness in certain regions on their corn. I wouldn't say they're anywhere close to running out. But, it looks like some of the reports out of China, demand continues to grow and are working trying to work through the excess. That's all positive for us. I don't think that – it's easier to import cheap ethanol and use more corn locally and domestically. Same thing with distillers grains. If you take a look at China policy on distillers grains, in our view, it was an error on their part to lock this product out. It's cheap protein. And the world took it. And so, we cleared everything that we made at higher values last year than kind of where we saw China when they left. And so, I think that we are still going to be – have opportunities to continue to take advantage of the policy that they're putting in place on E10. And I think they're going to on-and-off focus on the United States to make up some of the shortages that they may have. Overall, I think that's positive for us. Again, as anybody that knows me from a long-term perspective, China is always a nice to have. It was never something I always depend on because it's hard to predict when they'll come in and out of the market. But we have a very competitive cheap octane, clean burning fuel and they've recognized that fact.

Yeah. Good color. Thanks. Just one last one from me. On the high-pro DDGs, when I was back in the industry ten years ago – wow, it's been a while – we were looking at the technologies. And as you mentioned, Todd, there's a lot of hurdles, CapEx being a big one. But why are you doing this now? Kind of gets a little back to the question Laurence was just asking, are there any more kind of cost efficiency opportunities across your platform or is it just because the technology – the frack technology has gotten better? And then, on top of that, I'm sure you've, obviously, done this analysis, but why not look at kind of building out more of the non-ethanol assets?

Well, from both perspectives is the technology across many different areas of protein through – whether mechanical or fermentation technology, it has the abilities and the processes and the competing technologies have all rapidly gotten better, whether you are in soy processing, whether you're grain processing, whether you're in some other protein, we've seen upticks in capabilities. And I think it's finally starting to translate back to upgrading our protein. Also, over the last ten years, if we kind of look at what's happened is the world is clearing all the protein and needs more and will need more in the next 10 or 15 years as evidenced by, whoever you talk to in agriculture, whatever companies, their strategy is all around servicing that global growth of protein demand. I think it's not going to go away. Extremely robust. And so, when we look at it and where are we going to allocate capital, we have invested well over a billion dollars in ethanol assets. And we always said, you haven't seen anything yet. So, we started out, we used to make DDGs and we made ethanol. Now, we make DDGs, ethanol and corn oil. Now, we are using – getting rid of alpha-amylase through technology in the corn plant with Enogen. And them, we're looking at domestic growth in distillers demand. And the next thing you say is what can you do with these. These are basically just factories that you continue to upgrade the quality of your product. And so, this is just a natural line extension of what we do already at the ethanol plant. And if you can gain – if you can reduce earnings volatility over long-term by having a product that will have long-term value from a plant that you can produce for –…

Great. Thanks a lot, Todd.

Our next question comes from Eric Stine from Craig-Hallum. Please go ahead.

Good morning. Just a few quick ones for me. So, you mentioned you idled some production in the first quarter. Just wondering if you could quantify that or give that maybe as a percentage of your overall production. And then just to confirm, are you seeing other people in the industry do that? I know, in Q2, you kind of went at it alone. So, any details there would be helpful.

Yeah. We reduced January by approximately 20% overall, inclusive of Hopewell, which is down until margins improve. But also, now what we're seeing in the go forward is Madison is going to go down for about – the month of February as we are changing over from continuous to batch production. And then also just – we kind of took our lowest producing plants and we just said we're going to – it didn't make or lose money for us by doing that and it was very marginal. So, we took that production down. We haven't made a decision yet in February what to do with that. But with the export demand that we're seeing and the need to supply and stem the boats that are coming, we'll have to just figure out what we flesh up and down during the quarter and then come out of the quarter ready to go.

Got it. And maybe just quick on E15, it sounds like you've got a decent level of confidence that a year-round waiver might be granted. Just thoughts on what you think that would mean in terms of incremental volumes. Is it a couple hundred million gallons or thoughts there would be good?

I'm not sure I have huge confidence, but I know that we're working hard as we look at some of the things that are going on in Washington and using E15 waiver, RVP waiver as a potential bargaining tool for other things. But, again, there's not much progress being made on the front other than – I know that the EPA is looking at it. The White House is thinking about it. And the industry groups like it and the automakers love it from what we understand. They want high-octane fuels. They want available high-octane fuels. And they want to lower the – raise the standard from 87 octane as your minimum base fuel. And so, all of that plays well into the fact that the RVP waiver is important if wet get it. I think, at that point, it's a great opportunity to sell a lot more E15 across the US. Right now, by selling E15, the blender, the retailer blender, if he buys this base fuel, he's getting somewhere $0.50 and $1 blend margin on that extra 5% of fuel. And I think that's a highly motivating factor. We're some markets that did not get any incentive money. We're seeing retailers on any of their new stations put in E15 pumps and selling it because they're competing with the early adopters who are selling E15 and selling a lot of it and making good money doing it. So, overall, we are cautiously optimistic more so than any certainty around getting that.

Got it. Okay, thank you.

Thanks.

Our next question comes from Omar Mejias from BMO Capital Markets. Please go ahead.

Good morning, gentlemen. This is actually Omar in for Ken. Just a quick question on exports. I know you provided some color on China, but could you guy talk about Brazil. I know there have been some news around them potentially removing some of the tariffs, I guess, hinging on the US allowing beef imports from Brazil. But are some of the – what are your thoughts there? Any color on the potential upside or – I think, also, they've been talking about building some corn ethanol plants down there. So, just your general view on Brazil.

We're generally positively inclined towards the country, both in 2018 and over the long-term. Last year, we did 438 million gallons. This year, we're estimating that we will do something structurally similar, even with the tariff. It still has positive economics to come in. And then, if you weighted average, it has very positive economics. We think renewable bio in that program that they are putting in place is long-term structurally bullish for demand in Brazil. We'll start to see some of that in 2018 and 2019, but more towards 2020 when some of the targets need to be hit. I think anybody down there would say that is structurally bullish demand out of that region. The corn ethanol industry is just starting up down there. I think there is a few plants that people are building or some have started. They're profitable. They're positive. And it looks like they're gaining some traction down there as well to, hopefully, get some of the demand locally as well. So, overall, we are structurally bullish Brazil in the long-term. We believe because of the size and the scope and the scale of our corn crops that we're coming in that with record yield this year. And the incredible genetics that we have, we believe we will remain long-term competitive versus sugar-based ethanol for the foreseeable future, if not longer.

And on your outlook, do you guys are incorporating any incremental exports to Japan and how do you guys look at India in the export market?

Japan is going to be icing on the cake this year. They opened up their market based on our carbon footprint. We now qualify to go into Japan. And again, that's going to be something that we will focus on in 2018 to see if we can get some of those gallons. Any 50 or 100-million-gallon difference makes a big difference for our stock situation. If we can get 50 to 100 million gallons into Japan this year, that's another 2 million or 3 million barrels that comes off the supply. Again, when I'm talking about my numbers, we're not even including much into Japan in those numbers at all yet, but we believe in 2019, we will be able to gain share in Japan, if not even in 2018. Oh, and India. Did you ask about India as well?

Yes. If there are any incremental thoughts there. I think there was some US delegations out there, trying to just open the market. Any thoughts there?

Yeah. We think India is another great opportunity for us. We're seeing India demand all throughout the curve in 2018 and even into 2019, starting to look for pricing. And so, last year, they did about 170 million gallons. They're the number three buyer out of the United States. We think that this year they could exceed those numbers. And we're starting to see that through some of the inquiries we're getting already. So, that's kind of why we have a positive spin on exports. But, again, we need to get some of this business done.

Great. That's very helpful. And last one for me, it's more of a housekeeping item here. How should we think about capacity utilization? I know you guys talked about production cuts in Q1 and how should we think about that for the full year as well? Any color?

I think as we ramp up for the remainder of the year, we have full production run rates, structurally similar to the fourth quarter that will run – fourth quarter 2017 that we think we can run at. And, obviously, we have downtime coming and things like that. But, in general, we'll run towards our historical 90% to 92% of historical – of capacity.

That includes Q1 as well?

Yes.

All right, thanks.

Our next question comes from Selman Akyol from Stifel. Please go ahead.

Thank you. A couple of questions on partners.

Okay.

When you look out and you see 25% of partners' business coming not from Green Plains Inc., what kind of time frame are you looking at for that to reach that goal?

Our goal is, in the next 18 to 24 months, we are seeking to diversify those earnings.

Okay. And then, kind of given the weakness in 1Q that you alluded to in terms of slowing production there, should we be looking to be supported by the MVCs like we were in the second quarter of last year?

I think we'll be above – or at or above the MVC, if not we will support it internally from Green Plains. We'll always do that.

Okay. And then, in terms of the drop-down of the terminal, can you just kind of talk about what contracts are in place or you anticipate having in place? Would they be sort of MVCs or would they be throughputs with MVCs or would they be take-or-pay contracts, any thoughts on that?

We're seeking take-or-pay contracts. We're in multiple discussions with multiple parties to try and lockdown that terminal. We will be one of those parties. Green Plains would support the whole terminal, but we think that's for our shareholder and unitholders at Green Plains Partners. We diversify that a bit. And so, we are very bullish of that terminal and we have – as I said, right now, we are still not even running at full steam. Yet, we are unloading 10 to 12 unit trains a month right now. And so – and the boats – every boat has been loaded, been minimal demurrage. All the grades have been met. All the trains have been unloaded. There has been no real issues from a quality standpoint. It's really just getting in line, getting everything in line, getting everything working, getting logistics straight and starting to even become more efficient down there. And so, the market is seeing that I think. The market is seeing that we load. We have less down days because of fog because we're related. We have better service from the standpoint of getting their trains unloaded. We can unload barges. And I think people are – and companies are starting to appreciate the capabilities of a terminal solely devoted towards unloading these boats.

Appreciate that. And then, do you anticipate selling out that terminal?

Selling out the terminal in terms of –

Just being fully utilized in terms of loading.

Yeah. We anticipate that that terminal will be fully utilized in terms of loading. And even looking beyond that to say where does the next expansion come from because we always indicated that 500,000 barrels, we want to look at kind of phase two of another 500,000 barrels. So, we want to get – let's get through phase one first and then figure out where we go from there.

I guess. And then, do you need to have that fully sold out on the 500,000 before you drop it down or would you drop it down with still some capacity to go?

No. I think we could drop it down with some capacity to go. I think the GPP board and complex [ph] committee is comfortable – would be comfortable that Green Plains is sitting there supporting it already. And while we certainly would support it fully, again, I think over the long-term our unitholders would want to see some diversification of revenues. So, that's why we're not going to take the whole terminal.

Got you. And then, last one for me. Just distribution growth for 2018, any comments there?

Yeah. I think, over time, when we look at our goal is to remain – our long-term goal is to be 1.1 times coverage ratio and, as we said, at 8% to 10% growth rate. And so, whether that's a penny or half a penny to do that in 2018 and 2019, it depends on number one the drop. Number two, whether we make acquisitions. So, all in all, we want to make sure that we maintain a coverage ratio well above one. And we've certainly grown our distribution to date and we're not going to stop growing our distribution. I think we'll just assess, making sure that we keep our coverage ratio strong as well, depending on how it goes on all the other segments.

Okay, thank you.

Thank you.

Our next question comes from Pavel Molchanov from Raymond James. Please go ahead.

Thanks for squeezing me in. Broader question about the federal policy landscape. We're talking about the E15 waiver. But, of course, we've heard the EPA also trying to make some changes to RIN policy that are much less, shall we say, minimal to ethanol interest. So, I'm curious, one year in, do you look at this administration as a net positive or a net negative for the industry?

This administration is absolutely a net positive. The White House is supportive and has held a hard line on being supportive to the industry and understands the Midwestern support that helped them get there. And I think that – but beyond that, I think he believes in the fact that you need to have all-of-the-above solution and ethanol is one of the solutions and has maintained support for the industry. Obviously, we have certain threats from certain senators, but we believe the bottom line is we're still in the driver's seat on the legislative front. We think we're going to be able to grow our market through potential RVP waivers. I think that, legislatively, it will be hard to get a change. Regulatory threats, I think, are limited at this point. obviously, administrator Pruitt so far as followed the law. And I think that's very important. He is concerned about RINs and some of the costs associated with RINs through some independent refiners and we certainly understand that. And I think he's trying to find solutions on how to help salve that. We have indicated to him the best solution is the RVP waiver because we believe immediately that would that would start to limit the upside on RIN prices. We would sell more ethanol into fuel supply. And it's hard when you have people complaining about the RINs, companies that complain about RINs that have distribution and retail capabilities and retail contracts, but won't offer E15 in the market to mitigate. And I think the administration sees that, that if you want to mitigate – you first try to mitigate your risk and then come to us and talk about change. But now, they're just trying to come – they basically are – the people that are against RINs are coming to get the change, so they don't have to mitigate at all. And so, I think that's one of the things that it doesn't give a lot of credibility. Obviously, judicially, we're looking at whether some of these lawsuits ever get hold. But the bottom line is that the courts that they're in have repeatedly ruled in favor of the biofuels petitioners and it's unlikely that any of these new cases will lead to meaningful changes in the RFS. So, at the end of the day, the real question is, is there some negotiated deal between the industry and the refiners and congressmen or senators from certain oil states and corn states? It's a hard path. And so, I think the status quo will maintained. Yet, I do believe, at some point, there will be some changes made, but none of them I believe are a threat to our industry.

Okay. And a question about your M&A approach as well. As you clearly aim to diversify the revenue mix at the parent level, have you essentially ruled out boosting your ethanol capacity beyond 1.5 billion gallons or is that still an option opportunistically?

No. Opportunistically, it's absolutely an option. We think that to really have scope scale that you need, you need to be kind of 2 billion to 2.5-billion-gallon player in this industry as we start a level off production. So, our goal continually is seeking to expand all the pieces of our platform. But right at this point, you can't buy you the ethanol plant that you would probably want to buy at any value that would make sense. So, if you want to replace an Obion, Tennessee or a Bluffton, Indiana or a Shenandoah, Iowa, that cost to purchase that – first of all, I'm not sure you actually could buy one like that. And if you wanted to, our view is it's pretty close to replacement to make an acquisition. And so, there's a huge disconnect between the valuation of our underlying assets in ethanol and where we would have to pay to replace many of these assets. And we believe, over time, that disconnect will get worked out. So, we've seen this before.

All right. Appreciate it.

Our next question comes from Craig Irwin from ROTH Capital Partners. Please go ahead.

Good morning. And thanks for taking my questions. I should say good afternoon. Pretty much everything that I was considering was already asked. The one thing on my mind is on China exports. So, they were a very small piece of the US exports in 2017. And you're explicitly including them in 2018. I know there are a bunch of cargoes that have been booked. Can you share with us an approximate number of gallons you expect to send to China in 2018? And just confirm for us that this is over the top of the 30% tariff that's in place?

Yeah. I'm not exactly sure how the importers are approaching the tariff into China. But in terms of volumes, we think December was kind of that 35 million to 45 million gallons of execution. But some of it went into January. And so, overall, between December of 2017 and all of 2018 added on top of that, you could get pretty close to 240 million to 250 million gallons with about 40 million or so – 35 million to 40 million or so of that in December 2017. So, in total, we think the baseline for China in 2018 is 200 million gallons, which half of that happening in the first quarter.

Great. Thanks for that. Congratulations on the strong progress.

Thank you.

And this does conclude our question-and-answer session. I'd now like to turn it back to Todd Becker for any additional or closing remarks.

Well, thanks for everybody for coming on the call. We're very busy working on behalf of the shareholder on many different fronts, as you can see. We continue to focus on the growth of the platform, monetizing all the different income streams that we believe are there over the long-term and proving the value of the assets overall and closing that gap between what we believe the valuation of this company is and what the market is giving us credit for. And so, we will continue to work hard to close that gap and look for opportunities to do that. Thanks for coming on the call today.

This does conclude our conference for today. Thank you for your participation. You may disconnect.