Greetings and welcome to the REX American Resources Fiscal 2019 Second Quarter Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. I would now like to turn the conference over to Doug Bruggeman, Chief Financial Officer. Please go ahead, sir.

Good morning, and thank you for joining REX American Resources Fiscal 2019 second quarter conference call. We'll get to our presentation and comments momentarily, as well as your Q&A, but first, I'll review the safe harbor disclosure.

Thank you, Doug. Going forward, our ethanol business is currently running at a rate of approximately $3 million to $4 million pretax loss for the current quarter, excluding – and if we exclude our non-cash depreciation charge, it's approximately breakeven. Refined coal this quarter – in the current quarter that we’re in is currently running significantly – are projected to run significantly down from last year's same quarter, and that's basically due to slowing production, still running a rate that should be profitable on an after-tax basis. Put it all together, and we're currently running at a rate and again, this is a fluid number because we're in the commodity business, but approximately $0.35 to $0.45 loss for the current quarter. Biggest issues, which our CEO, Zafar Rizvi, will talk about later in the presentation, are corn shortages and rent waivers. In terms of cash on the balance sheet, that is now a little over $212 million. Should the shares drop significantly, we still have authorization to buy over 300,000 shares and we historically have bought on dips. We continue to look for opportunities in the ethanol field, but currently, profits are going down a lot faster than the price of the plants that we would be interested in, and there is nothing imminent. We always look for opportunities outside of our field where we feel we can use our expertise. We continue to do that. Again, we have nothing imminent. Our cash is being currently invested in short-term securities, and that has brought some income to our balance sheet or into our income statement. I'll now turn it over to our CEO, Zafar Rizvi to talk further on the overall business. Thank you.

Good morning, everyone. This is Zafar Rizvi. I'll keep my remarks brief. As I mentioned in our previous call, the first quarter challenging environment has continued in the second quarter, and now it has continued into the third quarter. The company is facing a number of issues due to weather-related problem, which delayed the planting of corn, uncertainty regarding the expected corn yield and our expected delay in harvest. We have struggled to obtain adequate supply for corn at our facility in South Dakota.

Thank you, Zafar. In conclusion, we drastically outperformed most of the industry during the quarter in a more challenging time than almost any time I can remember. Corn supply and low RIN prices are a current problem and they're going to cause difficulty in our profitability in the next quarter. As Zafar mentioned, we still have large cash balances and the ability to not just survive, but to possibly have opportunities that other people have cash to take advantage of opportunities that other people may not. In terms of long-term, we feel we have the best plants in the business. Most importantly, we feel we have the best people and we think that's all going to be needed to get through these difficult times. I'll now leave the forum open to questions.

Our first question comes from the line of Pavel Molchanov with Raymond James. Please go ahead.

Hello guys. Thanks for taking the question and I appreciate the kind of macro perspective on the market. So you said you have a large cash balance, and indeed you do. You've also said that right now or you indicated that right now is one of the worst ethanol industry conditions in modern history. What would prevent you from taking advantage of your underlevered balance sheet and deploying some of that cash to pick up assets many of which I imagine under the current circumstances are distressed?

You’re 100% right that a lot are distressed, but the prices of the large Fagen/ICM plants in the corn belt, which is what we have and what we are interested and possibly looking at, are – have not gone down here as much as – have not gone down significantly, at least the asking price. And we have looked and we've even talked to at least one party and we just can't justify the current price that's being asked for those type of plants. Now there are a lot of plants out there for sale at very, very inexpensive prices, but there are issues. But we’ve tried to be the premium player in this industry and we pretty much stuck to our knitting. When we've gotten away from that, it hasn't worked out so well. So if we do see something of that nature and the price was right, we would definitely pay very, very close attention to and possibly try to buy it, but we have not seen anything that meets all those criteria. So now we think – but the price being right at least once, but that's the biggest part is the price being right, especially if we're going to buy something and losing money.

Right. So what do you attribute this, which you have described as a bid-ask spread that's very wide for these assets. Why do you think that is? Is it because people are expecting the trade war with China to end and everything is going to go back to normal?

I think there's a couple of things that people are possibly expecting. There's been talk of rent adjustments. Trump’s talked about it. People competing against Trump, certainly have talked about being in favor of the ethanol business. So if something of that nature would happen, that would help us a lot. The trade war would help us slightly. Ending that, it would help our DDG a lot. It would help ethanol exports a lot. But the biggest issue that I see right now, and Zafar, I'll let him follow-up on this, is corn supply, which we don't know what the harvest is going to be this fall, but right now corn is very tight in South Dakota. There has been articles written about it. And the second – and that just doesn't go away because China is settled.

Yes. I think, Pavel, I think the problem we're having in the South Dakota is that, farmers own 79% of the corn, and elevators own only 21% of the corn according to USDA report on June 1, which is new report is expected sometime in September. So the farmers are looking at the corn price. When it was a $4.50, they were looking at $5 and now it dropped, pound continued to drop. So they are hoping that corn price will go back again at least to $4.50. Then they will take it out and sell. So it's not that there is – I mean, 210 million bushels are quite a lot since total storage there and then new harvest will be coming at this time. Still 57% of the harvest is good to excellent in South Dakota. But the problem we are facing is farmers are not selling, and then if elevators don't have much, that’s the reason is we see this kind of shortage of supply of the corn. As I mentioned, even we have not seen at the drought year time. At that time, the corn price was still very high and ethanol was also high. But the farmers were willing to sell at that time because they were getting $6, $7 a corn, so they were happy with it. But now, they see $3.40, $3.50, so they are just not selling it. So that's what is causing the problem with the – really the supply of the corn in that area. But on the other hand, if you look at in Illinois, it's only 45% of the corn is owned by the farmers. And so there is corn available, but we have to pay a little bit up, so that's a little bit different situation than Illinois – than South Dakota. So that really is the concern we have.

Okay. One last question for me on – in the Renewable Fuel Standard statutes, going back to 2007, it says explicitly that we have to have 15 billion gallons of corn ethanol blending in this country and that obviously – that law has not changed at all. Given the EPA refinery waivers, do you have reason to doubt whether we are in fact, the industry is in fact going to be blending 15 billion gallons in 2019 and 2020?

My opinion is we are going to make it, so we're going to have to blend it. The problem being we all built our plants based on the rent – and we put – the industry put billions into these plants and we built our plants based on that 15 billion number and the capacity is 15 billion. The only way the industry won't be, and there is a real possibility. I shouldn't have said it so quickly that we will, but things stay the way they are. There will be some shortages and there'll be some plants closing down, some of them probably for a long, long time. And if that happens and then the industry probably will get back into supply and demand equilibrium, and then prices should go up, and the issue with supply and demand prices of ethanol should go up. But at the moment, I think the industry is very disappointed that the law is – and our opinion is not being followed. And as you mentioned, that is a law of 15 billion gallons are supposed to be blended using small refinery exemptions to lower that required number. And it’s very disappointing to not just me, but to all ethanol producers.

Great. So are we going to get the blend 15 billion gallons this year in your view?

That's up to Trump. Are they going to require it? My opinion, no. Zafar, do you have a different answer. My opinion, no. They're not going to require it.

I think it will be tough given the situation which we are facing right now. So effectively they reduced that to 15 billion to 13.6 million because by taking away 1.4 billion a gallon, and as you probably already know, there is – plants are already – some of them shutting down as far as the information which I have is almost 760 million gallons worth ethanol plants are already shutdown. So that's – also reduction in total production will go down, and the situation is at this time is different and changed. And we do not know – as you know, we are in the commodity market. Tomorrow it will maybe different. But it looks like I don't think we will be able to blend 15 billion gallons this year.

Okay. Appreciate it.

Thank you.

Our next question comes from the line of Christ Sakai with Singular Research. Please go ahead, sir.

Hi. How are exports to Brazil, India and Canada this quarter? And how are they this coming quarter? I mean do you see growth in those numbers or are they still declining?

I think, Brazil, this was at 219 million gallon was exported to January to June and India was $115.9 million was exported January to June. And if you look at the last year same period, Brazil was 343 million gallon was exported. So there is certainly drop. But last year, India was 74 million was exported, which is compared to this year 115 million gallon exported. So there is increase in the India gallons, but there is a huge drop to Brazilian gallon this year. Does that answer your question?

Okay. Thanks. Yes. And then as far as China is concerned, do you see any openings there? Will they demand any ethanol?

I think as you know, China has said that they want to blend 10%. But given this trade war, which we're going through, unless this is resolved, China is not going to really import any ethanol. And even if they try to import, there's going to be heavy tariff, and that really does not encourage any export. So that's the main concern we have. So far, this year in China, we see very little export. If there is any, compared to last year, it was about the same period about 54 million gallons was exported. So it really got worse than last year to export to China.

Okay. And then one thing for those, the Section 45 tax cuts for the coal business. How long do those last?

They last for two more years, a little over two more years.

Production for two more years. We can carry them forward up to 20 years.

Correct. Thank you, Doug.

Okay. All right.

There are 22 more years. That's how long we have to use whatever we generate.

Okay. Great. Thanks. Yes, that's all I've got.

Okay. Yes. Thank you for the questions.

And we have no further questions at this time. I'll turn it over back to you, Mr. Rose.

Okay. We'd like to thank everyone for listening, and we'll talk to you next quarter. Thank you so much. Bye.

Thank you, everyone. Bye-bye.

That concludes today's call. We thank you for your participation and ask you to please disconnect your lines.