ANDE
#Just to echo what <UNK> said, we really fully integrated Nutra-Flo.
We've had a good selling season.
We like the spread on our specialty products and our sales of specialty.
We are feeling quite good about where PN is positioned.
I don't think I'll use the term superior.
That's a big word.
But we'd like to see a return to if you want to call it normal because we had such a tough crop year last year.
It looks ---+ corn acres are up.
We are estimating 92.6 million, quite a size of [93.6] put out by the USDA a month ago.
But it's going to be very solid crop reduction.
So our handle and then drying and other margins we can earn at harvest time could be attractive.
So ---+ and outperformance is really based on volume at the time of harvest.
So we just want to see a return to good normal crop conditions in the East.
We could see that returning back into our normal historical range of space income we've talked about before.
That's somewhat true.
I think across the whole ag sector that's true.
I think in our case, again in the East, we do a lot of wheat blending, and that's one of our core capabilities.
We are also located right here in the delivery market for week.
So it's good opportunities for us in the Great Lakes, in our position in Canada as well as in Ohio and Michigan.
We are more positioned to do enter market trades during the summer.
So we are encouraged with we see so far in wheat, and probably it will be towards the end of the third quarter as the crop comes off, but more of it will be tilted to the fourth quarter.
Specific successes ---+ we had a really good volume of price [when at] risk management tools when we were out with farmers this year.
Obviously, growers coming off the high-price and high-income years, years ago, and now having more tougher economics with lower commodity prices are looking for help and looking for ways they can better manage their crops, manage crop insurance programs along with risk management tools.
So, we had a good selling season of our risk tools that will go into next year.
So we are excited about the position that we are at from a service standpoint.
We would like to do more.
And we look to 2017, and that's also going to link up with our technology and how we improve our access to the farmers through our technology portal, etc.
So that's a long-term investment of partnering with farmers.
I'll start off and then see if anybody else wants to finish up.
But I think in relation to some of the other players, and I can't speak for them, we are very fond of our ethanol business.
We believe that we are well-positioned both with the assets we have, their locations, both in the Corn Belt and also for the majority of the locations close to demand centers, the technology run and the great people we have running it and the partners that we have in those businesses.
So as we go through these cycles, even in the tough conditions we just came through, we saw the business deliver positive cash flow, positive margins at the cash level.
And that's what you what you see is the ability to go through a tough season and still throw out cash and then be there to earn money when the season comes back.
So we like those assets.
We like how we participate with our JV structure, with services we provide into the JV and the assets we run with our partners.
So, we are fairly positive on the business long term and the industry.
I'll just add I think we are, as you know, adding capacity at our Albion facility.
So I think that says a lot about our views of the long-term prospects for our ethanol business.
It's also ---+ you really can't ---+ it's hard to compare different players in the industry.
But you have to understand where our grain assets are in the Eastern Grain Belt.
And ethanol has had a huge impact in the Eastern Grain Belt.
So we like participating in that because it's a big portion of the grain flow in our region.
As <UNK> mentioned, we think Michigan is a particularly good truck market for fuel and it works well for us.
And that's why we are expanding our facility in Albion.
So there is cyclicality, no doubt about that.
You brought that up.
So we still feel good about our business model and stick to our knitting and keep our plants highly efficient and be really smart about how we merchandise our grain and coproducts.
Yes, appreciate the question and the thoughts.
And that's exactly the thought process we are taking.
And I formed a leadership group with <UNK> <UNK>, the CFO, as well as our business Presidents and myself as oversight.
And everyone is fully accountable.
<UNK> <UNK> here has got a GE Black belt background.
We have some of us who have experience from other companies of looking at process improvements and where we can drive productivity across the Company, whether it's in supply chain procurement, staffing and just working on all aspects of our business to make it cleaner and more efficient.
So that's a process we have kicked off.
We think we're off to a good start and we will keep you guys updated after we finish the year on how we are returning.
But it's more a state of mind and how we are moving forward for the Company to be competitive.
It's also have we're beginning to see the benefits of the investment we made in our IT system.
We are now pretty much fully integrated in our Grain business and starting to see those benefits as we begin to take that across the rest of the Company.
So it's ---+ like you said, it's a journey.
And you've got to keep working on it, keep pushing it.
So it's not a one-time dollar amount.
It's about how we can continue to improve the Company for the long term.
There is a slight drag related to some ongoing salaries, but it should be flushed through in the second quarter.
So it's not much.
I think it's relatively similar, maybe a slightly lower drag this year.
We have talked, <UNK>, about we are now starting to implementation relative to our Plant Nutrient Group.
So some of that effort will be capitalized rather than expensed.
And once we go into production, obviously then you start to depreciate the asset.
So I would say in general it will be relatively consistent.
Maybe just to build on that, I'd love to use the term investment rather than drag.
And feel good about where we are at in our Grain business now with the assets and want to get that all fully operating prior to going into the key harvest seasons.
So we feel good about where we are at and now we are just starting the planning and blueprinting for the fertilizer business.
And that's going to help us a lot in fertilizer as we go forward.
So we understand the investment and the timing and resources it takes.
We feel it's being managed well.
So as we have talked about it before, it really is about renewing our IT infrastructure and the need to get systems that allow us to be competitive.
So let me at least give you one specific example.
We recently rolled out some automated ticket processing functionality.
And I won't go into a lot of details, but we estimate that that functionality cuts time between 60% and 80%, relative to ticket processing, which is a pretty big deal for us.
So just one very specific example where we are really realizing benefits today.
And as we roll out to more locations, we will continue to see those benefits.
So over the last three years, we've averaged a loss relative to those assets of approximately $4 million of pretax income.
Average over the three years, yes, per year.
It has varied between $2 million and $7 million.
That is correct.
And when we say small gain, we mean small gain.
We just wanted to make sure that people understood that we are able to exit at a reasonable outcome for us.
And when you said long, long, you made me feel pretty old.
But I appreciate the butter-up comments.
But you hit the head on the nail in terms of the highly fragmented.
Right.
So you can never speak to what other companies are doing.
Long term, the US is continuing to be the bread basket for the world and is going to be an exporter of record, of note, for many years to come.
There's many assets that need to be upgraded and improved.
And there has been a lot of investments in the key export ports here in the last 10 years.
And in the years where it was quite good, then obviously a year like this past year, which weren't particularly that attractive.
You also mentioned or someone mentioned earlier about space that farmers have put in.
The whole ag supply chain continues to get more and more efficient.
And so, companies like ourselves and others are always looking at what best way you can add value and create advantage or make the supply chain better.
We are always looking at our assets, as we did in this case, and trimmed our portfolio with the Iowa assets.
But at other times we have one in construction in Tennessee, as we talked about, that's an attractive location for us.
So I was just at Champaign, Illinois in the last few days.
And those tanks were built in the late 1960s.
This was ---+ these are long-lived assets, as we talked about.
And some will have to be upgraded and improved, and everyone is looking at doing that in a smart way that impacts their markets.
We are very much focused on regional plays for us where we supply the Southeast from the Eastern Grain Belt or even ---+ we are still exporting beans up to the Lakes and other opportunities we have in our wheat market.
So I'll make it a long answer, it's ---+ bottom line, it's fragmented.
And people will make the right decisions for their companies that give them the best returns.
I'd say not, from the standpoint as when the farm economy is quite strong in farmers are very smart is and they make astute decisions, whether it's an equipment ---+ again, just been out in the country the last couple weeks [looking at] brand-new planters, people laying tile in a new precision ag implement, tools.
So they have invested in technology to help improve their earnings, which makes sense.
Some of them added commodity bins.
And it's a cycle, right.
As their wealth builds, which is now declining, there's going to be some pressure from new farmers who recently got into the business at a high and have more debt.
I visited some old farmer customers ---+ I shouldn't say old but long-careered farmers that we work with that are still making smart investments in technology.
Maybe they put in some smaller bins to grow specialty crops and they are looking at that as a way to improve income.
So I think this idea that there's a space build on the farm and that takes it right out of the merchandisers and exporters, I think, is really overblown.
Yes, appreciate your memory on that, <UNK>.
Again, these are long-term trends.
So you haven't had massive shift in ag production and what was a small niche a few years ago is becoming a little more mainstream.
I would say the market is still pretty fragmented on non-GMO, organic and even other specialty crops.
We've had a long history of doing some origination of specialty crops, especially beans, which are (inaudible); we have been involved in other food companies, getting contract acreage grown of specialty crops.
We think they can get bigger.
Will it be huge.
No, but we think it could be a meaningful segment that would have higher margins.
So it's going to come.
It's going to take a little time, say, because it's crop year to crop year.
Right.
So we will see it, we would like to position ourselves for the long term as a player in that space.
You won't see a move-the-needle, major P&L swing item next year because of that.
But we want to continue to build our position there.
I think we continue to see advances in that space, not just precision ag but I'll call it specialty ag.
You see lots of people playing in the biological and specialty nutrient businesses today.
Those have lower volumetric impacts on the fields and generally more targeted results.
So, I think your specific question is also about delivery, and we continue to see advances in delivery techniques where people are actually mapping spaces on their fields to make sure that specific nutrients go down in very small grids.
So we believe that we are positioning ourselves well for that trend and we think there's room to continue to grow there.
Also just to build on that, too, that I was out, again, in our farm centers with our agronomist, who was meeting with farmers.
And they have the satellite imagery maps of their fields and where they are planting at what population rates and then, specifically, what inputs they are putting down in what parts of the field, which I think you guys are aware of that.
The interesting part is people think, well, gee, when the commodity price is lower, maybe it will go away from that.
In fact, the farmers are looking to even utilize that more because they want to be really smart with their ---+ to demonstrate the return for those inputs.
So they really focus a lot on that.
What pressure that may have on prices in general is a different topic.
But the technology is, of course, not going away and only going to get more advanced.
Yes.
We talked the last crops, the last meeting we had in New York.
I didn't see a lot of switching to beans.
There's a little bit of switching to beans, just so the price actions happened late.
Still, we're talking about a 92.6 million acres is still a huge crop for corn.
And that's a solid number.
Other people, I'd say industry is probably in the similar kind of areas for the crop, 82.5 million for beans, those kind of numbers.
So it's not a dramatic shift.
And weather conditions are great.
We've had scattered rains across the entire growing areas in the country.
So, so far, so good.
And I think a lot of the decisions have been made.
Well, I guess it always remains to be seen.
We had this discussion before about La Nina events.
And so far, all crop conditions are outstanding.
There's always the potential to have heat come into the Grain Belt later in the summer.
That exists every year, maybe more so in a, quote, La Nina period.
The good news is crop was in early, especially in the West.
So if you look at the crop planting numbers are in ahead of schedule, especially in Illinois and even in Nebraska.
We are right on our five-year average here, but we are behind where the other parts of the Belt are.
But we are right on our average.
So as long as we get the crop in, in timely fashion, that's the key numbers to watch, this planting progress here the next few weeks.
And then, that's a big thing to be in solid beforehand.
Also, as we mentioned before, the technology of the kind of corn that's been planted and the new varieties of beans ---+ we have been a little bit more heat-tolerant.
So we ourselves can't do anything about the weather.
But our contingency planning for the latter half of the year just be to make sure we buy the right kind of crops that are tributary to our areas and position ourselves accordingly to foresee the price risk action of a drought-like condition.
Well, we are not an exporter.
So it's probably wrong for us to comment.
As I told you before, I lived in Brazil in the early 1990s.
The safrina production that has come into the interior of Brazil is quite amazing.
And as talking to people there and ---+ but it's going to be you said, a collapse.
I think that's a big word.
It could be easily done 2 million to 4 million tons, the numbers I've heard.
10 million would be a big number.
Brazil exports were big the last couple years, so if their exports come off the grid a little bit, that will price the US into some markets.
So that could be encouraging for exports.
It remains to be seen.
Probably more interesting to see what happens politically with the President and whether she gets taken out of office or not here, prior to the Olympics.
So it's going to be a busy time in Brazil this summer.
I think the price action has been ---+ some other ingredients have actually been soft during the season here.
So the supply chain has been hard to time.
Overall there hasn't been a steady appreciation of all inputs this season.
Nitrogen is a little bit up and down, moving with the energy markets.
We don't see a big runaway pricing increase happening.
What we need is a stable pricing period across our sales season right now, which looks to be the case.
I think, obviously, we've heard the same things you have.
I don't know that we've seen a lot of that.
And we really do try and keep an eye on all market trends and anticipate where they are going.
We talked a lot about and we have actually executed to position ourselves on the higher-margin side of the nutrient space.
I think it's ---+ so I think we think about it.
I don't know that we are losing sleep over it this point, to be honest with you.
It's not a major macro trend at all.
If anything, it would position us well to work with farmers on maximizing how they manage their crop in that business.
We did say was going to be about 33% for the year is what we are estimating now.
It's a combination of everything.
Right.
So it's kind of hard to say this is the case.
The big thing is, especially as we move to Nutra-Flo, that acquisition, it's really having specialized products that bring value add to the farmer.
That's more of a, if you want to call it, IP-protected kind of specialty solution for growers.
So that's, if you want to call that blending science, it's really a special product.
Some years there's good price appreciation in the markets allow for, if you want to call it fertilizer carry.
We don't comment that, but it's enhanced elevations.
In other years it's more moderate price action.
I would say this year is probably more moderate price action.
But the volumes are good.
So we like the second quarter in fertilizer and feel real strong about our start and like how Nutra-Flo is fitting into our portfolio.
Well, we want to thank you again for joining us this morning.
I also wanted to mention that, for those of you that are interested, this presentation with the appendix slide of additional supporting information will be made available on the Investor Relations section of our website at Andersons Inc.com.
Our next earnings call will be scheduled for Thursday, August 4, at 11 AM.
We look forward to talking with you then.
Have a good day.
