Green Plains Inc. Q1 FY2024 Earnings Call

Good morning, and welcome to Green Plains Incorporated's First Quarter 2024 Earnings Conference Call. After the company's prepared remarks, we will provide instructions for the Q&A session. I will now turn the call over to your host, Phil Boggs, Executive Vice President of Investor Relations. Mr. Boggs, please go ahead.

Thank you, and good morning, everyone. Welcome to the Green Plains Inc. First Quarter 2024 Earnings Call. Participants on today's call are Todd Becker, President and Chief Executive Officer; Jim Stark, Chief Financial Officer; and several other members of Green Plains senior leadership team. There is a slide presentation available, and you can find it on the Investor page under the Events and Presentations link on our website. During this call, we will be making forward-looking statements, which are predictions, projections or other statements 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 today's press release 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. We do not undertake any duty to update any forward-looking statement. Now I'd like to turn the call over to Todd Becker.

Thanks, Phil, and good morning, everyone. We appreciate you being on our call today. We are navigating a challenging market in the first quarter, primarily due to industry oversupply from high production during a mild winter, which has resulted in increased stock levels. Additionally, weaker vegetable oil markets and compressed protein markets have contributed to a weak first quarter, leading to a negative EBITDA of $21.5 million, although this is an improvement of about 22% from last year. The typical first quarter slowdown in the industry, along with a sudden deep freeze, significantly impacted some of our plants. In response to the ongoing margin compression, we seized the opportunity to initiate two major upgrades in Mount Vernon and Obion. These upgrades will allow us to exceed historical performance levels at some of our top plants once completed, particularly at Obion, which has been one of our highest margin plants for the past 15 to 17 years. As mentioned, both upgrades are occurring at traditionally strong margin locations, which should have a significant impact in a low-margin environment. Operationally, we are performing well, achieving a utilization rate of about 92% and another strong quarter in protein production. With an improved margin environment, we can aim for a high 90% run rate due to our ongoing refresh investments. While we have seen some recovery in margins, there is still much work ahead. For Q2, margins are expected to range from the mid to high single digits to the low teens on average throughout the quarter. Looking ahead, each month this year has returned to positive margins, which is unusual for our industry at this time. We anticipate at least a $0.25 per gallon improvement in some months. We will discuss the fundamentals of the fuel markets later. During the quarter, we successfully continued our transformation strategy, completing the acquisition of Green Plains Partners in early January, started commissioning the SFCT demonstration facility with our partners at Shell in March, and are currently commissioning our CST project in Shenandoah. We also recently brought online our MSC protein joint venture at Tharaldson Ethanol in North Dakota and launched the Sequence brand for our 60 Pro product. I will provide more details on these milestones throughout the call. It might seem like these initiatives are happening in a period of macro weakness, but I assure you, they are not, and we have many positive updates to share regarding sugar, protein, and carbon. This is part of what is driving the positive margins we expect for the remainder of 2024. It's notable that the recent GREET SAF modeling update indicates that producing low carbon fuels significantly increases the asset's value. I will outline this further. We also anticipate that as we progress through spring maintenance and the summer driving season, we'll see seasonal stock draws that will strengthen base margins, helping us emerge from the winter slowdown we've faced for months. Corn planting is expected to start off strongly, potentially leading to favorable basis values as we move into summer. We remain open to the margin structure across all our products. Regarding our strategic review, the board and leadership team are actively evaluating our strategic options. As we mentioned last quarter, we believe our platform's value is not accurately reflected in our stock price, especially after the recent GREET update. During the quarter, we introduced our new specialty ingredient brand, Sequence, for our 60% protein product. We are very excited about this brand and its potential in the high-value aquaculture feed and pet food markets, as well as our opportunity to custom-tailor nutritional solutions for customers beyond just selling protein, which is the essence of the Sequence brand. Leslie and the innovation team are diligently working on specific tailored taste and texture solutions that can be paired with Sequence, which is another reason we are gaining traction with customers. Our sales for Sequence have been increasing, nearing the equivalent of one plant's production in recurring sales, representing about 10% of our production capacity. There has been strong interest in this product, and we believe we are on track to conclude the year with 20% to 30% of capacity committed to repeat sales customers, with plans to expand further and aim for 100% of our production to Shift to Sequence. This product differentiates us from the more commoditized 50 Pro market, which has been pressured by soy meal to corn price spreads — influenced by the rapid expansion of soy crush capacity, although we have seen soy meal prices rise recently. Base margins for our 50 Pro have been under pressure from tighter protein spreads and declining vegetable oil prices. However, we have consistently justified our investment in 50% protein while building for 60%/Sequence or higher. Our Sequence protein will set us apart in the long run. To highlight our momentum, this novel 60% protein is the world’s first plant-based protein ingredient made from a combination of corn and yeast, fermented for intestinal health. The corn and yeast provide better bioavailability and nutritional benefits for our customers. Lastly, I am pleased to share that our protein ingredient received the highest accolades in a recent European report titled "Emerging Protein Rich Ingredients for Aquaculture," which validates our view that our scalable, low-carbon intensity protein products are a valuable addition to the supply of quality ingredients for aquaculture, where we are currently in trials in some of the world’s highest value markets. With ethanol currently priced roughly $1 per gallon lower than RBOB, it is advantageous to maximize blending, and we are on track for strong exports this year, possibly achieving record levels that could surpass the 2018 figure of 1.7 billion gallons. Now I will turn the call over to Jim for an overview of our overall financial results. I will return later to discuss our updated strategic outlook and the larger role carbon and sugar will play going forward.

Thanks, Todd, and good morning, everyone. Green Plains consolidated revenues for the first quarter were $597.2 million, which was $235.7 million or about 28% lower than the same period last year. The decline in revenue resulted from lower prices for ethanol, dry distillers grains, and corn oil in the first quarter of 2024 compared to the previous year. On average, prices fell by approximately 25% to 30% year-over-year. Although we witnessed a reduction in our commodity inputs, with significant year-over-year drops in corn and natural gas prices, and despite ethanol trading at a considerable discount to RBOB, margin opportunities were restricted in the first quarter due to the oversupply in the ethanol industry that Todd mentioned earlier. Our plant utilization rate was 92% during the first quarter, compared to 87.5% in the same period last year and only slightly lower than the fourth quarter of 2023. We expect our plants to continue to operate at around 90% of our stated capacity for 2024, unless unforeseen events arise. For the quarter, we reported a net loss of $51.4 million, or $0.81 per diluted share, compared to a loss of $70.3 million, or $1.20 per diluted share, in the same period in 2023. EBITDA for the quarter was a negative $21.5 million, an improvement from negative $27.7 million in the prior year. Depreciation and amortization expense decreased by $3.9 million from last year, totaling $21.5 million. We expect depreciation and amortization to average about $22 million per quarter for 2024. We incurred a loss of $9.3 million in consolidated crush in the first quarter of 2024, compared to a loss of $12.5 million in the previous year. With the partnership acquisition finalized in January, we have integrated the Partnership segment into our ethanol production, as it was largely related to ethanol-related activities, including throughput fees and storage tanks linked to our ethanol plants. We had previously added much of that back to consolidated crush, but there are some minor adjustments resulting from the complete merger of the partnership, which are noted in the 8-K filed this morning. Additionally, the operating and maintenance expense line was included in the cost of goods sold. For the first quarter, our SG&A expense across all segments was $31.8 million, consistent with the previous year. Interest expense for the quarter was $7.8 million, factoring in the effects of debt amortization and capitalized interest, a $2 million improvement from the first quarter of last year. The decrease stemmed mainly from reduced debt balances, slightly offset by marginally higher rates from quarter to quarter. Our tax expense for the first quarter was $300,000 versus $3.4 million for the same period in 2023. By the end of the quarter, the net federal net loss carryforwards available to the company stood at $89.6 million, which can be carried forward indefinitely. Our normalized tax rate for the quarter, excluding minority interest, is around 24%, and we expect this tax rate to also average 24% in 2024. Our liquidity position at the end of the first quarter diminished from year-end due to cash utilized in the partnership acquisition, capital investments made during the quarter, and operational results. Nevertheless, I am confident we remain in a strong position to progress with our transformation plan. Our liquidity comprised $277.4 million in cash, cash equivalents, and restricted cash, along with about $230 million accessible under our working capital revolver. In the first quarter, we allocated $22 million in capital across the platform, with $13 million directed toward our clean sugar initiative, around $4 million for other growth initiatives, and roughly $5 million for maintenance, safety, and regulatory capital. We now anticipate capital expenditures for the year to range from $95 million to $115 million in 2024. This projection excludes the capture equipment necessary for our carbon capture initiatives in Nebraska. We have secured financing to address these requirements and plan to provide updates on these topics in the near future as the project advances. Our capital strategy remains focused on investing in the highest and most profitable projects.

Thanks, Jim. So when we embarked on our journey several years ago, the IRA did not exist. So while our go-forward mix of opportunities may have changed, the forward outlook and aggregate remains the same for 2025. Because of the IRA and the 45Z Clean Fuel Production Credit and the opportunities these present to produce low carbon intensity fuels, it is driving a reprioritization of our overall capital allocation strategy because of the guaranteed returns backed by the full faith and credit of the U.S. government. We remain confident that our Advantage Nebraska approach in carbon capture could begin to yield significant returns as early as next year. Our three Nebraska facilities, which represent 287 million gallons of capacity at present will be on a pipeline project that already has its trunk line in the ground as a converted natural gas pipeline. So building the laterals to our plants is relatively straightforward. Currently, our pipeline partners continue to make solid progress, and we are on track for starting up in the second half of 2025, and we plan to begin ordering capture equipment in the next several months and expect construction to start later this year. Given that we have first mover status, we are actively exploring redeploying capital to expand the production capacities for our Central City and Wood River, Nebraska facilities by 30 million to 40 million gallons each to take advantage of the early days of the 45Z Clean Fuel Production Credit and position ourselves as a preferred early feedstock supplier to alcohol-to-jet sustainable aviation fuel producers. We have already seen interest in the supply from multiple different parties, especially with the GREET SAF update announced. These are a couple of our premier facilities; already have MSC deployed and have abundant local corn supply. With York, we plan to decarbonize distillation with a small CapEx project to reduce energy usage, which reduces carbon intensity as today qualifies for 45Q, and we want to change that and opportunistically take advantage of early 45Z economics. And it really doesn't stop in Nebraska. We have four other plants on the Summit Carbon pipeline, and they continue to make good progress as well on permitting in the states that we will operate in. With all of that said that current econs, once up and running, we expect Nebraska alone to contribute over $100 million per year in carbon EBITDA starting in the second half of 2025 with the current progress we have made, again, all backed by the 45Z tax credit. Our MSC and protein since our Fairmont and Madison locations have faced permitting delays for the proposed MSC protein projects for some time now, and we literally received our Illinois permit yesterday. We previously made the decision because of the carbon economics to put the capital allocation for that on hold for the time being and only for the time being, while we turn our attention to our significant return profile of the Advantage Nebraska strategy along with potential clean sugar facility, which was two to three times larger than what we have in Shenandoah, Iowa today. The returns associated with both carbon capture and clean sugar are driving this and are significantly better than anything else we can do. We will continue to evaluate our overall asset mix, and we are focused on the future of decarbonization and clean sugar as our top two priorities after 60% protein or sequence going forward when we evaluate our portfolio. Part of the permit in Illinois is also the ability to run the plant at an expanded rate to reduce OpEx per gallon and improve margins at that site as we always have had spare capacity, we could not run under the previous permit. We also have several projects to be able to capture carbon and Mount Vernon and Madison under review as well. Those will just be a little further out. While we have not issued a press release, I'm happy to update you on our CST project, clean sugar project in Shenandoah, it is now mechanically complete, and we have begun commissioning over the last month, and we expect to produce on-spec product in the next week or so. In addition, we are negotiating multiyear contracts for our low carbon-intensity dextrose corn syrups, and we are continuing with substantive late-stage discussions for all of our 2025 volumes to take all of our capacity. We expect to start to sign some agreements even in the next week or so. The clean sugar technology is a game changer for Green Plains and sets us apart as we actively explore plans for site #2. Lastly, based on current markets and pricing, the uplift in converted margins have remained the same at a minimum of $0.60 a gallon uplift with some products and volumes significantly higher in the $0.80 per gallon or $0.90 per gallon range. This is another reason we want to allocate capital to this versus protein at this point, especially now that we have Shenandoah beginning to operate. The SAF tax credit and updated GREET model from earlier this week sets the stage for an increased asset valuations for any plant that can decarbonize. The SAF guidance has given us a starting point for rulemaking for the all-important 45Z Clean Fuel Production Credit, which begins this coming January, just eight months from now, and we remain optimistic this will carry through to that rule making. A couple of takeaways here, and I think they're really important for everybody to understand. The guidance for SAF was in line with our expectations. And to their credit, they actually lowered some of the unreasonable land-use change penalties associated with corn as a feedstock for alcohol to jet. Climate-Smart Ag practices are also allowed to count towards CI reduction in corn. It's important to remember that 40B for SAF is just a stepping stone to the 45Z Clean Fuel Production Credit. One really important and lastly, really important point, the common misconception this week on the recent SAF guidance is that low CI corn will be required to qualify, and this is just not the case with CCS or carbon capture, you can get your score low enough to qualify for SAF. And after that, the lower CI corn is just additive to those economics, and we have a significant program around that as well. Bottom line, there is now a path for U.S. corn-based ethanol to qualify as a feedstock for producing alcohol-to-jet SAF. And the plants that can decarbonize are going to be at a distinct advantage, and this gives us an increased confidence in our Advantage Nebraska strategy and believe that ATJ, sustainable aviation fuel has the potential to fundamentally revalue our asset base or any other plant that's on a pipeline today. By the way, we were just checking, but to build a new ethanol plant in the United States in our view, could be as high as $2.50 a gallon because we have priced them to see the econs related to when alcohol to jet becomes a reality, and that's a minimum price at this point. We continue to see Chinese UCO weighing on the domestic veg oil prices, including our renewable corn oil; hopefully, new and expanded RD capacity coming online to help rectify this and balance, and we remain bullish on the long-term value of our low carbon intensity corn oil. However, there is recent pricing pressure from our prior projections when we were using $0.70 a pound that is now currently in the high 30s to low 40s, resulting in EBITDA from our base corn oil uplift to the base ethanol margin of $80 million to $90 million for 2024. Our MSC uplift has always included an uplift from corn oil yield increases as well, which is where some base pressure came from. Combined with the pricing pressure from lower soybean meal spreads during Q1, although starting to recover with a $40 ton rally from the lows, we are experiencing an MSC uplift of $0.07 to $0.12 a gallon. We believe Sequence margin will more than make up for this difference and more which is why we are focused on customer conversions every day in every market around the world. When we look forward ahead to the opportunity in front of us in 2025, if we assume some normalization, while our mix has changed, our guidance has not. We are still on track for a near $300 million EBITDA contribution from our protein corn oil, clean sugar and decarbonization pillars, excluding any contribution from base ethanol, corporate overhead or Ag and Energy segments, which by the way, has performed well last year and off to a good start this year. I tried every which way I can, but we keep coming up with this result, which is consistent with what we outlined at the beginning of our transformation in 2025. In protein, our 640 million gallons of converted capacity, including half of our ownership in our joint venture, it could generate a baseload of $80 million to $120 million. As protein spreads widen back out, we will increase, and we will see an increase as 30% to 50% of our platform moves to Sequence that we believe in 2025. We also look to add another one or two production facility in the future, as we mentioned earlier, but we want to make sure we allocate capital to the best projects today. Corn oil contributions on the base business are fully relying on prices, but 2025 should see some recovery as we are approaching the end of the biodiesel tax credit on December 31, and corn oil is an advantaged feedstock relative to those valuations. The contribution should be a base of $100 million and grow from there. In sugar, our belief that Shenandoah will be fully lined out as we go through this year, and the facility could generate a baseload of $15 million to $25 million a year on a full year basis, depending on what the customer mix ends up. Again, we have strong customer demand. And as mentioned, we expect food grade certification in around 90 days after we make the on-spec product, hopefully, in the next week or so. Finally, in decarbonization and Nebraska-First strategy is on track. And based on the latest GREET model, could generate up to and possibly exceeding $110 million a year on an annualized basis from our Nebraska assets alone beginning in 2025 and then grow from there, if we are able to quickly expand those assets and additionally, when the Summit Carbon pipeline comes online as well, we will also continually review our asset mix and where we have opportunities to monetize an asset, pay off debt and delever our balance sheet while focusing on our Nebraska first-mover advantage, where a combined expansion of 50 million to 70 million gallons could have an outsized return due to carbon capture, we will do that. Much of our asset base is unencumbered, and we have no near-term maturities and remain in a strong cash position. We are also focusing, though, on reducing our cost of debt as well as we've seen some opportunities to do that as well. So while you see that the mix has changed from where we originally laid out the transformation, our efforts to transform this earnings power have not wavered notwithstanding a weak Q1 we just reported. Thanks for joining our call today. We can now start the Q&A session.

And your first question comes from Adam Samuelson with Goldman Sachs.

So Todd, a lot of ground cover. Maybe I'd like to start on just the ethanol market outlook and kind of where we go from here to get things back in better balance. You talked about forward curves that are more favorable than the past, but you also talked about the business being open. Can you help us think about the demand side it seems sluggish? What you're seeing on exports that might be the critical swing on that demand balance and kind of where you're seeing spot margins today and certainly through the second quarter?

Spot margins today across our platform are averaging between $0.08 and $0.12 a gallon for May and June. Following that, we expect mid- to high single-digit margins across the platform, with some variations. This shows a significant improvement from previous low levels, where we experienced margins in the mid-teens and even negative 20s. We have seen a strong rally on the back end of the curve, although such numbers typically don't last long. The corn market has a carry, and the ethanol market has shifted from flat to inverted, which has changed slightly. We need to see more contribution from basic production, as we are seeing less from corn oil and distillers, although natural gas prices are now a strong positive factor. Demand-wise, we've had some solid weeks of driving demand as we come out of winter, and with the summer driving season approaching, we hope to position ourselves well as an industry. We remain around $1 under RBOB, and with RIN values hovering in the mid-50s, that translates to a $1.50 blend credit. Recently, we've seen blends as high as 10.5%. Overall, we expect the U.S. base business and gas demand to recover as we enter the driving season, especially given the higher rates and lower capacity. We are hopeful that summer will follow typical trends. Additionally, we are competitively priced in the global ethanol market, and we see Brazil as a potential opportunity for pricing despite existing tariffs, as they lack sufficient ethanol capacity to meet demand in the latter half of the year. If we can maintain steady production and exercise discipline as an industry, we could see a continued draw as we move past the maintenance season. In summary, margins are currently positive across the board, and we are optimistic about continued improvement. Did you have any thoughts, Jim?

Yes. Just from an export perspective, Adam, we're running about 25%, 26% ahead for the first quarter this year versus last year. So that's what gives us the optimism that this could be a record year for us from an ethanol export standpoint.

Okay. That's very helpful. Now I want to discuss some of the strategic initiatives, particularly the clean sugar aspect and the phased negotiations with various off-takers. As you see the Shenandoah plant nearing commissioning and approaching the conclusion of some pricing negotiations, can you explain your expectations for the EBITDA uplift from that plant, both in the second half of the year as well as the timing and scale of EBITDA we can anticipate moving forward?

Yes, we mentioned that contribution will increase during 2024 because the plant will start up gradually to ensure everything is on track and meets specifications. We aim to obtain food-grade certification within the next 90 days after producing our first product. We are engaged in significant negotiations across various markets, from beverages to food ingredients and industrial sectors. We have sufficient demand to utilize all our production for next year, estimated at 200 million to 250 million pounds, while maintaining previously discussed margins or better. It is now our responsibility to get the plant operational, produce on-spec products, and have them tested. The food companies and industrial players are mostly ready to go, and once we achieve full testing and certification, we anticipate strong demand. Additionally, margins are currently positioned within the range we discussed, which is approximately $0.65 to $0.90 per gallon uplift. We do need to consider some impacts from the Gen 1 plant, but overall, we are very optimistic.

And we will take our next question from Kristen Owen with Oppenheimer.

A couple for me. Just one clarification, Obion and Mount Vernon, are they back online?

Obion is starting to ramp up a little bit. What we've done there, so everybody knows is we've done a major refresh on conveyors that were 17 years old. We are replacing literally every conveyor front to back, so the plants can run at higher capacities going forward. I mean I think it's just some major refreshes that just have to happen occasionally. In addition at Obion, we're adding a new RTO to allow us to run the Gen 1 plant harder and the Gen 2 plant for protein harder as well. We are a little undersized there. And it is one of the, we think, premier plants in the United States, and it just hasn't run to where we wanted to because of the conveyor project as well as the RTO. So that should be completed middle of the year, but we're already seeing some of the results because some of those conveyors are completed as we speak. So generally speaking, it's not having as big of an impact in the second quarter as it had in the first quarter just because of where it was. But I think we will still see a little bit. But overall, the margins I gave you were the average across our total platform, including those at this point. So that's really what we're doing at those two plants.

And Kristen, I would add that we still expect to maintain a mid-90% utilization rate, which means those plants need to operate at their normalized levels.

Yes. Lastly, Obion has the capacity to operate at 120 million to 130 million gallons per year, whereas Madison has been limited to under 100 million gallons annually due to a permit. This permit has now been updated as of yesterday, allowing Madison to potentially go up to 130 million or 140 million gallons. We want to ensure that we proceed responsibly in line with the permit. This is a significant program to help reduce our operating expenses back to the appropriate level per gallon.

Okay. One additional follow-up there and then I'll ask my second question at the same time, just so I'm not taking up too much time here. But the additional follow-up is included in that mid-90s capacity utilization? And then sort of the bigger question here is really, given the improving curve, you've got the ramp of these other facilities, clean sugar commissioning. I mean I think the question that investors frequently ask is, are we at the point where we're now seeing the trough in Green Plains earnings potential and that we should see upside from here? Is this the low point? And how do we get comfortable with that?

Yes, the numbers do not include indiscernible factors, but protein will update you on its performance this quarter. The plant is exceptional, likely one of the best and largest in the world. They manage their operations very well, which is why we chose to partner with them for our joint venture facility. The first quarter can be unpredictable; some are better than others. In a challenging margin environment, along with our allocation of SG&A, Q1 typically shows significant losses. We need to adopt a more proactive strategy as we look ahead to better margins and not shy away from hedging opportunities in the first quarter. We may have strayed from that approach. However, concerning the overall trend, CST is starting operations, protein is increasing output, and hopefully, we're at the low point for oil prices, which currently favor soy producers as they hit multi-year lows with oil in the low 40s. We’re also observing a rise in protein prices, which have fluctuated dramatically from $120 to $210 per ton recently. This positively impacts our margin structure, but we still require a rebound in vegetable oil prices as significant RD facilities come online mid-year, needing substantial production of vegetable oils. This demand exceeds that of the entire U.S. ethanol industry, which will start later this year. Many sectors are at a low point, and with lower corn prices, corn basis, and natural gas prices, I believe we will emerge from this and begin to realize the growth we’ve discussed over the past few years.

And we will take our next question from Craig Irwin with ROTH MKM.

So Todd, the progress with Carbon is exciting, and we all look forward to the confirmation of your order for the compression equipment since the interconnects appear to be relatively straightforward. My question is, with Carbon coming online, the implication is that SAF becomes much more exciting and feasible, and the GREET numbers indicate that your Nebraska plants could be early suppliers. Can you discuss whether you are having conversations about offtake for low carbon ethanol? Is there specific interest from the SAF sector with people looking to build or who already have capacity? Can you provide an estimate of how long it will be before we see potential production of those gallons from Nebraska into SAF?

Yes. Currently, we are assessing our needs and have noticed a reduction in compression lead times from approximately 55 weeks to 40 weeks. In collaboration with our partner in Nebraska, we are preparing to place our order as we finalize the project scope in the upcoming months. Construction on their project and the final stages of our own project will begin shortly, and we hope to start our construction on interconnects and our plant building as soon as we receive the compression order. We are very excited about this progress. I anticipate that we will begin activities in the latter half of this year leading into the latter half of next year. A few months ago, I would have considered it ambitious to think that alcohol would qualify under the SAF ATJ guidance, but we remained hopeful. The recent guidance boosts our confidence that our early alcohol from Nebraska will qualify as a valuable product for SAF, encouraging investment in the construction of these plants. Previously, there was uncertainty about the qualification of alcohol, but now our Nebraska plants starting as lower carbon intensity facilities and benefitting from carbon capture incentives will qualify. Additionally, sustainable farming practices enhance the value even further, fostering interest in building alcohol to jet plants. We have been actively engaging in discussions post-guidance to secure early agreements for gallons with parties interested in establishing initial ATJ plants; there is considerable activity in that arena. The Nebraska asset, particularly with an early decarbonization strategy and existing pipeline infrastructure, holds significant value. This is why we are examining opportunities at Wood River and Central City to enhance our capabilities without incurring substantial capital costs, potentially increasing output by 30 to 40 million gallons per plant and taking advantage of incentives. We're well-positioned for the upcoming benefits of the 45Z tax credit for these plants. Not many entities outside of Nebraska have such an advantageous position. Additionally, we plan to invest modestly in our older York plant to improve its carbon score without making major capital expenditures, which would allow us to leverage the 45Z benefits effectively. I need to note that we evaluated the costs associated with building new facilities, and the all-in cost approaches $2.50 per gallon. Relative to the 45Z incentives, it might be viable, but the base cost remains $2.50 per gallon even with an excellent location. The market will need to consider these factors given the growing demand for alcohol to jet conversion.

Excellent. My next question is about the current state of ethanol and the demand for it. We're starting this year on a much stronger note than last year, despite the negative impact of $0.04 that was not ideal. This year, we have exports and other positive factors, such as the airline industry's challenges with rising seat prices and canceled routes due to limited plane availability. These complications suggest that miles driven could see a significant increase this summer. With gasoline demand looking strong for ethanol, can you clarify your expectations regarding exports this year? I've heard that Brazil may have a smaller sugarcane crop, which could lead to it being an importer instead of an exporter. Additionally, there may be opportunities with Mexico or Canada. Can you help us understand the extent of this gap and the potential contribution from exports? Also, if you’d like to comment on the issues related to airlines and miles driven, anything you can share to help us grasp how the supply and demand gap might close this summer would be valuable.

We are currently observing a narrowing in the supply and demand gap. There have been some stock draws recently, although they are not significant enough yet. We're hoping to see production decrease a bit further, but we are monitoring the situation closely, especially as we have not yet reached the summer driving season. In the latter half of the year, we anticipate Brazil could return as a demand driver, alongside sustained strong demand from Canada and other global markets due to our competitive pricing and their low carbon requirements. Looking ahead, we expect some recovery in margins and believe there is potential for a significant improvement if conditions favor us, especially if we can operate our plants more efficiently. Last year, we generated around $100 million across the platform, and we think there's an opportunity to exceed that this year. We do need to keep an eye on corn prices and the upcoming planting situation. Although we had good planting progress last week, weather conditions may affect this. However, we believe the crop will ultimately be planted, which would positively impact ethanol production.

I want to add some detail on exports. We anticipate that our exports will be in the range of 1.7 billion to 1.8 billion. This estimate does not factor in any potential gains from Brazil. Our main export markets include Canada, the United Kingdom, India, the Netherlands, Colombia, and South Korea, which are all well-distributed. If Brazil contributes positively, it could enhance our export demand even further.

Excellent. Congratulations on the progress with HiPro. I like the HiPro.

And we will take our next question from Andrew Strelzik with BMO Capital Markets.

I actually wanted to follow up on that last comment on HiPro, and it does sound like, to your comments, the volume is kind of tracking you reiterated the 20%, 30%. But I wanted to ask about the economics of that revenue stream, HiPro Sequence specifically. We've certainly seen the broader protein markets evolve in recent months, and we've heard some demand sensitivity around premium ingredients generally. So just curious what you're seeing and expecting in terms of protein economics versus kind of your initial expectations in those conversations?

Yes, you are correct about the protein economics. We have observed that it is compressing across all premium ingredient producers due to the availability of several new products in the market. This is why we aim to move away from lower protein options, focusing primarily on 60 Pro Sequence and above. The 60 Pro Sequence stands out as it is produced in a fermenter and possesses unique taste and texture characteristics that our customers desire. We have also noticed compression in the corn gluten meal market, which we need to monitor closely. Overall, we consider our product to be a premium alternative to corn gluten meal, if not significantly superior, depending on the specific application. Recently, the protein markets have seen notable recovery, with prices rising. We're curious to see how Argentina will influence these markets. While I won’t repeat remarks I've made about Argentina in the past, it remains somewhat unpredictable, and recent weeks have highlighted that uncertainty. When we examine 60 Pro, we view it as just the beginning. We are working with some of our largest customers to secure product labeling. This product is distinctly different. One of our potential major customers, with whom we've been in discussions for three years, recently received approval for the labeling after numerous tests and discussions on how to present the product. This combination includes protein and yeast, and our team is innovating new technologies to integrate within the yeast, collaborating closely with our customers. This product is quite distinctive, and I believe there is potential for even higher protein offerings. We have made significant progress at both the bench and lab levels for higher protein products, which represents our next phase with this platform. Sequence represents a broader platform, and while the base protein markets are facing an influx of HiPro soybean meal, it appears the market is accommodating that volume. We were never overly concerned that the market would not absorb it, although it might take time. I believe we may eventually return to previous levels, though it could take a few years.

And we will take our next question from Jordan Levy with Truist Securities.

We will move on. Our final question will come from Steve Byrne with Bank of America.

Todd, I recently toured the LanzaJet alcohol, the jet plant down in Georgia, and they're bringing in the ethanol from Brazil. reportedly due to a lower carbon intensity. My question for you is, can you be competitive with that Brazilian sourced alcohol from carbon capture? Do you also need to pull these other levers like sourcing low-carbon corn, et cetera? And do the premium you get on that ethanol is it likely to offset those costs?

Yes. LanzaJet is bringing in early alcohol, and while we don't have complete visibility into their operations, we recognize the importance of the current program. With this week's announcement on regulations, we see that the industry— including airlines, energy companies, and LanzaJet—is supportive of these new rules. It's really about timing and the GREET program, as everyone is waiting for that modeling. Overall, we feel competitive, but it's essential to sequester carbon to produce that initial output. Once that's achieved, your alcohol will qualify for alcohol to jet. Climate-smart technologies further reduce carbon scores. For example, carbon scores from Brazilian sources are generally in the 20 to 30 range. In contrast, a plant in Nebraska, like Central City, might start at around 55, and after applying carbon capture and Climate Spark techniques, we can lower that significantly. This positions us to potentially achieve lower scores than some sugarcane and corn sources in Brazil. The current regulations enable corn ethanol linked to a carbon capture pipeline to become competitive and serve as a reliable feedstock for these technologies. Additionally, I want to acknowledge that Atlanta has been a strong advocate for using U.S. corn in jet fuel production, as they see it as essential for scaling up efforts.

Okay. Very good. Just one follow-up on that. It refers to Lanza. They have the biological process to convert CO2 into alcohol. I’m wondering if, instead of building new capacity at the $2.50 a gallon capital expenditure you mentioned, you have considered that technology as an alternative to carbon capture and new capacity expansion?

Yes, we have observed various methods of converting CO2 into alcohol over the past decade, including some initiatives in Texas. We believe that to achieve this at scale, industrial agricultural practices are essential to increase yields per acre, which is also why our indirect land use metrics have improved. To generate substantial volumes of alcohol, we think it’s necessary to utilize traditional ethanol production methods, particularly from sugarcane and corn. While there are several intriguing technologies available, we maintain that the most effective way to achieve the significant volume increases required to meet the alcohol-to-jet standards is to focus on the U.S. market.

We will take our final question from Jordan Levy with Truist Securities.

Just looking at the protein business and some of your commentary on this call. Just wondering if anything has changed significantly kind of in your long-term thesis for the broader 50 Pro and 60 Pro markets. Is the mantel looking as strong as expected, both this year and then kind of in out years?

Significant changes have occurred in the U.S. soy crushing industry, with considerable capacity coming online this year and next. Our long-term outlook remains that global protein demand will continue to grow, although there may be fluctuations over the next few years. As we transition from the 50 Pro market to a less supplied market with 60 Pro and higher protein concentrations, we need specific rations to gain acceptance. We expect to see a continued decline in the 50 Pro or lower markets over the next 12 to 24 months due to the increased soy supply. However, the situation looks more promising now as protein values are rising due to issues with rainfall in Brazil and Argentina. Additionally, our focus extends beyond just protein and oil; we're witnessing increased demand for our products, including sugar, which benefits from its low carbon footprint. We've seen interest across all our products thanks to this low carbon profile, a point highlighted in our new sustainability report. We believe what we are doing is quite unique, particularly in Nebraska as we prepare to capture carbon in 2025, giving us an early mover advantage. While some companies may not prioritize low carbon ingredients, our ability to produce them—with a 30% to 40% lower carbon intensity in our sugar and protein products, as well as in alcohol and oils—enhances our appeal. Therefore, our focus will not solely be on demand but also on our production capabilities in this area.

Great. Just a quick follow-up. Do you guys have any incremental updates on the progress for the Blue Blade ATJ plan? I know that's kind of a long way out, but just curious how that kind of plays in your longer-term strategy for SAF?

Yes. I mean, scaling a catalyst is always challenging, and that's proving out as well in that venture. But that's not the only that venture was set up for. We are definitely continuing to look at the catalyst that with PNNL that we've got control of, but also to look at the fact that, again, we're partnered with Tallgrass, United on that venture. You know that we're going to be on a Nebraska pipeline, and you can go Google who that's with? And then basically, you can see that, that partnership is strong. And generally speaking, we'll have some of the earliest low-carbon alcohol gallons that can go into jet fuel of anybody in the world in volume, in big volume. And I think that, that will be a good strong potential opportunity for all of our partners, and we'll see where it goes from there. But that is also not just a partnership that is focused on one single catalyst. We're really technologically agnostic to say that it's a strong partnership between infrastructure, supply and demand and nothing else exists like that. So we're also going to look at other technologies as well.

And that concludes our question-and-answer session today. I will now turn the conference back over to Mr. Todd Becker for closing remarks.

Hello everyone. Thank you for joining the call today. There's a lot happening, and we are making significant progress in all of our strategic areas. We still believe our asset base is highly valuable. We are evaluating various factors such as the mix and size of our assets and determining what should stay and what should go. We are also reviewing our balance sheet to ensure we maintain a strong position in terms of cash and debt since we have considerable unencumbered assets and no immediate maturities. As we look to the future of Green Plains, we see it as evolving in many ways, but we remain confident that we are on track with the plans we laid out a few years ago, despite a challenging first quarter. We look forward to the rest of the year and will provide updates in the coming quarters. Thank you all for being on the call and for your continued support.

Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.