Third Quarter 2007 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Brian Millberg - Piper Jaffray - Analyst : Congratulations guys, great quarter.

Question: Brian Millberg - Piper Jaffray - Analyst : I had several quick questions. I'm looking at the relative margins on the grain and ethanol, and while revenue was not up substantially, it appears this year that the margins have been dropping as time goes on. Could you comment on that at all?

Question: Brian Millberg - Piper Jaffray - Analyst : But will you?

Question: Brian Millberg - Piper Jaffray - Analyst : Okay, that certainly makes sense. I had one other question. On the maintenance in rail, is this still the wheel issue that continues to plague the industry?

Question: Brian Millberg - Piper Jaffray - Analyst : Okay, one last question and then I'll let other people in. Just going back to the margins a bit. Knowing that you typically contract forward a significant amount of time on your ethanol, I -- even though prices have deteriorated this year, shouldn't your margins still be fairly decent? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Brian Millberg - Piper Jaffray - Analyst : Just the sale of your equity portion in the ethanol.

Question: Brian Millberg - Piper Jaffray - Analyst : Well, yes that was going to be a follow-up. Mike Anderson. We have -- I'm going to just say hedge roughly 70% of the ethanol hedged in the sense of have ethanol sold/corn bought from 2008, which we feel good about. Now, back at the time we were doing that and we've talked about this before, if you move back a year and look forward, the ethanol prices forward were lower than the spot ethanol prices and the price for corn forward was higher than the spot corn. So when we locked it in, it was at lower apparent margins from the spot margin. Today, those margins look quite nice. So we still have a good chunk locked in, a little more than 70% we still have more to do.

Question: Brian Millberg - Piper Jaffray - Analyst : Very good, thank you.

Question: Eric Brown - Bank of America Securities - Analyst : Thanks, just to follow-up on that first question is, for the facility opening up in Q1, have you hedged anything at this point? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Eric Brown - Bank of America Securities - Analyst : Okay, so would the --

Question: Eric Brown - Bank of America Securities - Analyst : Okay, so --

Question: Eric Brown - Bank of America Securities - Analyst : And when you say hedged, you're talking about the ethanol, corn and natural gas?

Question: Eric Brown - Bank of America Securities - Analyst : How about the distillers grains? Can you hedge that?

Question: Eric Brown - Bank of America Securities - Analyst : Okay, the reason why I ask is because you may have hedged, I mean I guess typically distillers grains would offset about one-third of corn. So -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Eric Brown - Bank of America Securities - Analyst : So where you're hedged, is it offsetting around one-third or is there a -- because of the timing is there a difference?

Question: Eric Brown - Bank of America Securities - Analyst : Okay. As far as your equity income, would it be possible to break out Lansing versus the equity investments in ethanol?

Question: Eric Brown - Bank of America Securities - Analyst : Okay, is there a rough breakdown, percentage wise?

Question: Eric Brown - Bank of America Securities - Analyst : As far as the corn acres, you mentioned that you're expecting less corn acres for next year.

Question: Eric Brown - Bank of America Securities - Analyst : At this point, what are you expecting and how will that affect your business next year? You obviously have a lot of inventory of grain at this point, so you're well positioned, but --

Question: Eric Brown - Bank of America Securities - Analyst : Okay.

Question: Eric Brown - Bank of America Securities - Analyst : Okay, thanks a lot.

Question: Heather Jones - BB&T Capital Market - Analyst : Good morning.

Question: Heather Jones - BB&T Capital Market - Analyst : Have a few questions. One just to clarify one of your comments you just made. So the high carryout, should that be beneficial to your grain storage business in the first half --

Question: Heather Jones - BB&T Capital Market - Analyst : -- given it won't go through as quickly as some people were expecting?

Question: Heather Jones - BB&T Capital Market - Analyst : Okay.

Question: Heather Jones - BB&T Capital Market - Analyst : It seems like it's tracking more normal this year.

Question: Heather Jones - BB&T Capital Market - Analyst : Yes. Now given in the past few weeks ethanol prices have stabilized somewhat and started to move up, are you hedging any more of your Greenville production at this time, or are you just going to wait for the margins to become more attractive?

Question: Heather Jones - BB&T Capital Market - Analyst : Okay, okay. And then cash flow from these ethanol investments. How is that tracking and how much of a lag is it typically between when you see their earnings and when you get the cash in?

Question: Heather Jones - BB&T Capital Market - Analyst : Okay. And on your rail business, you answered the maintenance expense question, but on the fabrication/manufacturing side, when do those comps ease?

Question: Heather Jones - BB&T Capital Market - Analyst : On the manufacturing/fabrication side, earnings have been down for the last couple of quarters and I understand there was a difficult Katrina comp and just wondering when comparisons will ease or I guess in another way, when is performance going to improve there?

Question: Heather Jones - BB&T Capital Market - Analyst : Okay.

Question: Heather Jones - BB&T Capital Market - Analyst : Right, have you seen any -- I mean I know you said lease rates and I think you said railcar values have held up, so you haven't seen the prices you're having to pay -- you've haven't seen those really coming in?

Question: Heather Jones - BB&T Capital Market - Analyst : Right. How big are you all now, as far as market share on the used side?

Question: Heather Jones - BB&T Capital Market - Analyst : Right, right. But including like GE Capital and all?

Question: Heather Jones - BB&T Capital Market - Analyst : Okay. And then my final question is on Lansing a back, into at least, they must have done at least $3 million for the quarter. Was that just, say, had some unusual market movements as far as weed etc. or was the first half unusually depressed and we should be expecting better performance from them?

Question: Heather Jones - BB&T Capital Market - Analyst : Right.

Question: Heather Jones - BB&T Capital Market - Analyst : That's what I'm here for.

Question: Heather Jones - BB&T Capital Market - Analyst : Yes. All right, well thank you and great job on the quarter.

Question: Heather Jones - BB&T Capital Market - Analyst : Thanks.

Question: Farha Aslam - Stephens Incorporated - Analyst : Hi, good morning. Unidentified Speaker Good morning Unidentified Speaker Hi Farha.

Question: Farha Aslam - Stephens Incorporated - Analyst : Could you provide us a little more color on your color on your Rail Group, in particular could you share with us what your railcar sales were?

Question: Farha Aslam - Stephens Incorporated - Analyst : Great. And when you look at your Plant/Nutrients Group, the sales number was really significantly higher. And could you share with us what the breakdown is, just roughly, in terms of volume and what it is in terms of price?

Question: Farha Aslam - Stephens Incorporated - Analyst : And going forward, do you expect that pricing to hold or how much of that pricing component do you anticipate --?

Question: Farha Aslam - Stephens Incorporated - Analyst : Are you at all concerned about the current potash situation in Russia and --

Question: Farha Aslam - Stephens Incorporated - Analyst : Okay, so you're okay with your potash supply. How about the weakening U.S. dollar? Is that at all impacting your fertilizer cost?

Question: Farha Aslam - Stephens Incorporated - Analyst : So you're pretty much well hedged in for fertilizer going into next year.

Question: Farha Aslam - Stephens Incorporated - Analyst : Okay. And could you share with us some detail about rain movement and elevator volumes? You have added storage volume in your third quarter. No? You're grain and ethanol --

Question: Farha Aslam - Stephens Incorporated - Analyst : The amount of storage maybe of volume of corn that you are handling this year, or grain overall versus last year in the third quarter, would you say it's 20% higher? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Farha Aslam - Stephens Incorporated - Analyst : Okay, that's fair. [I was] just trying to get a deeper granularity in your business. Can you look at the Grain/Ethanol group, it looked like you had $5 million or so in lower profitability in the quarter from just your grain business, excluding your equity earnings. Is that fair in kind of looking into the fourth quarter, are you looking at similar type drop-off, are you looking at again earning the $10 million to $11 million that you earned last year in that business?

Question: Charlie Rentschler - Wall Street Access - Analyst : Yes, etiquette is going to limit me to just two questions. First, can you give us your thoughts on the supply/demand situation currently in the ethanol business? Are there -- with more blenders possibly coming on stream? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Charlie Rentschler - Wall Street Access - Analyst : And my follow-up question, related to the first. You mentioned that you're a value buyer for used railcars, do you have appetite for more ethanol capacity maybe not another greenfield site, but an acquisition that might fit somebody that's maybe in trouble or -- ?

Question: Charlie Rentschler - Wall Street Access - Analyst : Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. Operator. Thank you. And our final question will come from the line of [Pree Ocamenan] from Thomas Weisel International. Please proceed.