Earnings Call Transcript - GPRE Q4 2021

Operator, Operator

Good morning and welcome to the Green Plains, Inc. and Green Plains Partners’ Fourth Quarter and Full-Year Earnings Conference Call. Following the company's prepared remarks, instructions will be provided for Q&A. At this time, all participants are in listen-only mode. I'll now turn the call over to your host, Phil Boggs, Executive Vice President, Investor Relations. Mr. Boggs, please go ahead.

Phil Boggs, Executive Vice President, Investor Relations

Good morning everyone, welcome to Green Plains, Inc. and Green Plains Partners, Fourth Quarter and Full Year 2021 earnings call. Participants on today's call are Todd Becker, President and Chief Executive Officer, Patrick Simpkins, Chief Financial Officer, and Andrew Mulan, EVP, product marketing and innovation. There is a slide presentation available, and you can find it on the Investor Page under the Events and Presentations link on both corporate websites. 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 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. We do not undertake any duty to update any forward-looking statement. Now, I would like to turn the call over to Todd Becker.

Todd Becker, CEO

Thanks, Phil. Good morning, everyone, and thanks for joining our call today. Our transformation continues to gain momentum. We continue to execute on key milestones necessary to achieve our 2024 and 2025 transformation and we're making great strides towards achieving these goals. 2022 is shaping up to be a transformative year and we're excited to review our progress and ongoing initiatives. We released our inaugural sustainability report late last year and are planning to release another in Q2. The market is starting to realize we are a true ESG story. We always have been, but we haven't always been forward about telling you. That has changed and we have made a significant commitment to reducing our GHG footprint by 50% by the end of the decade and to be carbon neutral by 2050. These aren't idle goals, and we have a concrete path to achieve them and more. For the fourth quarter, as we had indicated earlier, we had hedged our consolidated crush margins early. We strategically did this in order to reduce our risk and protect the capital that we had raised to execute on our transformation and ended the year with over $680 million in cash equivalents, as well as additional liquidity from available credit facilities. We achieved $0.20 per gallon in the consolidated crush and approximately $0.17 for the full year. Overall in 2021, these results are in line with what was available in the daily average crush. As we had significantly overachieved in the first half of the year. If we had not hedged anything all year, our year would have not been substantially different, although the fourth quarter would have been higher, making up for extreme weaknesses in the first half that we avoided by hedging and risk management. Q4 was unique from many perspectives and perhaps the only time we will see this. With that said, we managed for the long-term financial stability of Green Plains. Operationally, utilization at our Madison and Mount Vernon locations were impacted by supply chain constraints tied to national chip shortages and labor tightness, which delayed completion of these upgrades limiting our opportunistic gallons. Just this week, we started one side of the new Mount Vernon dryers and expect the full system to be operational late this quarter. Additionally, our York location experienced grain bin damage during the quarter, which limited overall utilization at that location as well. While we are thankful that no one was hurt as a result of this accident, the combined challenges to the quarter and utilization from these three locations resulted in lost opportunity given the expansion of the crush in the spot market. We continue to be focused on running Green Plains 1.0 to execute on Green Plains 2.0. The fourth quarter also included some negative impact from mark-to-market items in our export business, as well as some higher eliminations from ethanol gallons and renewable corn-oil shipments that weren't delivered due to logistics challenges in the U.S. at the end of the quarter. Combined, these items reduced our results by about $8 million, much of it will come back over the first couple of quarters in 2022 as deliveries on those positions get executed. On top of that, the York incident took over $5 million out for the quarter as well. Margins started out soft in 2022 as stocks and production levels built and increased quickly. With current logistical challenges in trucking and rail service on the carriers, we saw the industry slow down and stocks were built through this week. This, along with the fact that ethanol is at a significant discount to our inherent value, and the RIN values remain elevated, suggests that the discretionary blending is fully limited. While hesitant to call a bottom to the margin structure, we see GAAP demand rebounding this week as we get out of winter with mild temperatures, driving demand that can clear this excess quickly. In addition, it looks like more parties continue to take advantage of a flawed Chicago pricing mechanism which sent the markets to new lows on very little volume as we continue to argue for a better way to price a million barrels of ethanol production per day for an industry that is impacted by a few million gallons of sales in the timeframe. Finally, as global economics begin to put the pandemic behind us, we believe we could see strong energy and transportation demand as we move through the year. More importantly, though, the market needs fuel ethanol plants to run as vegetable oil demand has been robust and prices continue to move higher. In addition, we are seeing strong demand for high-protein ingredients, particularly after we started up our second MSE location and begin to demonstrate our increased size and redundancy in the market. I will discuss that later in the call concerning the positive impact to our strategy, for what seems to be a potential shortage in many of our products. We are scheduled to begin our 60% protein trial at Wood River in the next week or two, and we are excited about the potential to produce a new value-added ingredient that can be targeted at the aquaculture space. We are working with our aquaculture customers who are excited to get samples of the new product, and we believe this can be transformative for us and our program. We have a long-term goal of moving beyond protein levels in the 50s, and fully operating in the 60s and above, and we'll know more shortly on that opportunity. We broke ground on O'Brien in the fourth quarter, and are on track for mid-2022 startup of the patent on the MSC protein system at O'Brien, Mount Vernon, and Central City. We plan to break ground in other locations this spring as soon as the ground is thawed, the long lead-time equipment is in place, and we are executing our start-up plans. Green Plains Partners was able to increase our distribution this quarter to $0.44 per unit. We are pleased to increase the distribution for a second quarter in a row. The partnership is undergirded by long-term minimum volume commitments resulting in strong and stable cash flows. I will come back on the call to provide an update on our exciting ongoing initiatives for 2022 and beyond, and spend time on all of our verticals: protein, oil, sugar, and carbon. Now, I will turn the call over to Patrick to review both Green Plains Inc. and Green Plains Partners financial performance.

Patrick Simpkins, CFO

Thank you, Todd, and good morning. Green Plains consolidated revenues for the fourth quarter of $802.3 million were higher than the same period a year ago by $47.8 million, driven mainly by higher prices and run rates. Our plant utilization rate improved year-over-year, and for the fourth quarter, we had an 83% run rate during the period, which compares favorably to a 76% run rate in the prior-year fourth quarter. We anticipate concluding final startup items at Madison, Mount Vernon, and York during this quarter, putting us in a position for higher utilization rates as we move through 2022. In the fourth quarter, we reported a net loss of $9.6 million or $0.15 per diluted share compared to a $49.6 million loss reported for the same period in 2020. Adjusted EBITDA for the quarter was $32 million, comparing favorably to $9.4 million in the prior-year quarter, largely due to stronger ethanol crush margins realized in the quarter, offset by a year-over-year decline in contributions from Ag and energy margins, largely due to favorable natural gas optimization in the prior year. Our net loss for the quarter included a non-cash tax charge of $4.8 million related to an evaluation adjustment on our deferred tax assets. For the period, we realized a $0.20 per gallon consolidated crush margin in the quarter and a $0.17 per gallon crush margin for the full year as a result of ethanol fundamentals, strong corn-oil pricing, and protein sales. For the quarter, our SG&A costs for all segments were $18.2 million compared to $22.8 million in Q4 of 2020, driven by an adjustment to our accrued compensation during the quarter, partially offset by higher costs from the addition of Fluid Quip SG&A expenses. Interest expense of $6.9 million was favorable to the $10.5 million reported in the prior-year fourth quarter, driven mainly by a combination of a change in the treatment of interest expense related to our convertible debt in early 2021, extinguishment of debt associated with our '22 and '24 converts, offset by the issuance of '27 converts and the effect of capitalized interest. For 2022, based on expected debt levels, cash interest expense should average approximately $10 million per quarter before capitalized interest, which will result in lower reported interest expense. Income tax expense for the quarter was $4.8 million, which represents a cumulative income tax adjustment for the year. As we've discussed before, Green Plains remains in a net accumulated loss position and as a result, we cannot use our NOLs or credits until we demonstrate consistent income. We therefore have to reserve against any future tax benefits in the interim. On Slide 9 of the earnings deck is a summary of the company's balance sheet highlights. We ended the period with $698 million of cash and net working capital compared to $302.8 million for the prior year, reflecting the result of a successful capital campaign during 2021 in support of our growth objectives. Our liquidity position at the end of the quarter included $685.8 million in cash, cash equivalents and restricted cash along with marketable securities, with approximately $287.8 million available primarily under our working capital revolvers and delayed draw term loan. For the quarter, we allocated $62.3 million of capital to profit-sustaining and growth projects, including $42.4 million towards MSC protein initiatives and approximately $15.3 million towards maintenance capex, safety, and regulatory capital with total capex ending the year around $187.2 million. As we look at 2022, total capex is anticipated to be in the range of $250 million to $300 million, including approximately $27 million of maintenance capital with another $18.6 million of capital rolling over from 2021 projects that should be completed in the first quarter of 2022. The balance for capital spend will be allocated to MVC protein and other key growth initiatives. This remains an important year for the company as we plan for significant levels of investment capital raised over the past 12 months toward achieving our transformation initiatives. I am pleased to report the partnership realized an adjusted EBITDA of $12.2 million for the quarter, and continues to perform according to plan. EBITDA was down from $13.8 million in the same period a year ago as a result of the sale with parent forward and Hereford plants. The refinancing of the partnership's debt earlier in the year, combined with continued performance supported by MVC, allows the partnership to enhance returns to unit-holders by increasing the quarterly distribution to $0.44 per unit, while maintaining a 1.05 coverage ratio for the quarter. For the partnership, distributable cash flow was $11 million for the quarter compared to $11.3 million for the same quarter of 2020. Over the last 12 months, adjusted EBITDA was $52.1 million. Distributable cash flow was $45.4 million and declared distributions were $26.4 million, resulting in a 1.17 times coverage ratio, excluding any adjustment for the required principal payments amortized in the past year. Now, I would like to turn the call back over to Todd.

Todd Becker, CEO

Thanks, Patrick. So our theme of execution on our strategy continues. And I'd like to walk you through an update on each of our strategic pillars. First, on our value-added ingredients and ultra-high-protein initiatives. We continue our construction mode, and we're planning on bringing forward locations online during 2022 and early 2023, including our turnkey partnership. We plan to have over 700 million gallons converted, producing over 400,000 tons annually in early 2022. We are seeing strong customer interest as represented by multiyear MOU in the PET space we announced last quarter and have continued to see growing demand adding additional customers in all areas. We are in substantive late-stage discussions with partners to use our ultra-high-protein products as well as production of ingredients using our products in aquaculture, as the demand for plant-based alternatives to soy and fish meal are growing globally. We expect announcements to be forthcoming during Q1 and Q2 of this year. One key is the 60% protein trial we are starting this month. And if successful, we believe we will have good visibility into potential aquaculture demand. We have a high degree of confidence we will find our path to achieving much higher protein concentrations. The world is short on protein, and this thesis remains intact and is especially relevant to our products now and into the future. The addressable market for ultra-high-protein at just a 5% inclusion rate in feed rations is over 14 million tons. When completed, our production will be approximately 700 thousand tons. Well below what's needed, but one of the largest new and novel plant-based proteins in many decades at real scale to make a structural shift in what we feed our pets, our farmed fish, and also swine, dairy, and poultry. We also believe a successful 60% or higher protein product will be transformative. The recent price moves in all things protein are evidence that world demand for protein will continue its trajectory of the last 20 years and start to accelerate again as more and more supply will be needed, alleviating fears of expanded soybean crush production pressuring markets globally. We believe trade flows will continue to change and prove to be continually beneficial to ultra-high-protein or any protein for that matter. Regarding our renewable corn-oil strategy, we continue to see strong demand and high values overall for vegetable oils, and for our low carbon intensity score renewable corn-oil. While pricing took a brief pause in the fourth quarter, we are now seeing robust demand and pricing return to the industry and expect acceleration of values towards the end of 2022 as the renewable diesel industry is expected to double again this year in its capacity. Our yields have improved with the addition of MSC to Shenandoah and Wood River. Our teams are focused on maximizing our corn yields, which is the most valuable pound for pound component of the corn kernel. We continue to anticipate that our annualized production exit rate this year will be over 330 million pounds after factoring completion of the ongoing MSC projects this year, heading towards 400 million pounds per year once everything is completed. In corn-oil, as in protein, we are in substantive discussions on how to partner our feedstock to increase returns for our shareholders. I will share further thoughts on that at the end of the call. We believe being patient has only increased the value of this part of the business as we have a structural advantage by owning and controlling IP around expanding yields not only through MSC systems but also standalone technologies Fluid Quip is in the process of developing. One of our most exciting updates is on the clean sugar front. As a reminder, Fluid Quip invented and owns the unique patented process that will produce clean sugar or dextrose from a dry milling operation. This is a completely disruptive technology that can exponentially increase the value of our assets in our opinion. Why do we call it clean sugar? Because study after study has indicated we produce dextrose that is at least 50% lower in carbon intensity, and significantly cleaner than dextrose produced in a wet mill using a completely different and more energy-intensive process. We have been busy at York Innovation Center getting ready to scale this up and produce commercial volumes of clean sugar. We have completed the FEL1 study and are ready to begin detailed engineering on a large-scale commercial system. We currently don't see any other substantial technology risks in our unit operations in the clean sugar process. We believe we are making good progress on co-location discussions and off-take agreements as we have sent more and more unique clean sugar samples to potential customers. Our engineering is being done with a plan to break ground in the second half of 2022 on a clean sugar system at one of our bio-refineries. This will most likely involve dedicating a portion of the corn grind at a facility rather than a full-scale conversion to start, which will allow the system to continue to scale up while also leaving flexibility to produce ethanol depending on market conditions. A commercial 30,000 bushel-per-day system, the equivalent of over 30 million gallons of ethanol, should produce close to 400 million pounds of clean sugar or dextrose annually. We also believe our cost of production using our patented low-carbon technology is competitive with other products out there today. So who is interested in our product? We believe this type of product is in demand as a feedstock for the bio-economy that is upon us. We are in discussions with customers from synthetic biology to green chemicals to bio-plastics to enzymes, and the results have been positive. Finally, on carbon, we remain focused on the best monetization of this last piece of the corn kernel, other than clean sugar, which handles it on its own. Our team is reviewing opportunities at our three Southeastern locations, and the potential goes beyond just direct injection. Eight of our other locations remain committed to some carbon solution projects, to capture fermentation CO2 from these plants, lowering their CI scores dramatically. We have continued to assess the use of our capital to help fund the Summit pipeline and remain in discussions to do this. Summit continues to make progress on standing up the pipeline, from compression equipment to site designs, to permitting processes, to survey permissions, to starting to execute right-of-way agreements, to cost estimates and engineering, and drilling the stratigraphic test wells to further space acquisitions. This project remains on track and we are excited to be a shipper and an early owner. This project has a winning formula as it focuses on the health and longevity of U.S. agriculture and the farmers who depend on the U.S. ethanol industry to remain a viable place to sell their crops. We remain optimistic that the clean energy portions of the Build Back Better Bill will ultimately make their way into some form of legislation that will pass in the future. The expansion of the 45Q tax credit for carbon capture and sequestration, and the new sustainable aviation fuel tax credits are both items that could also provide tailwinds for Green Plains. We are closely monitoring various competing technologies for alcohol to jet opportunities to produce sustainable aviation fuels, and we believe this could be an important development for the industry over the long term. This is still very early days for ATJ, and we at Green Plains have undertaken a full technological review of available technologies and others that are nascent, looking for a partner to help commercialize them as well. More to come on this, but we believe there's plenty of time on this opportunity. Finally, let's take a moment to look at the opportunities for Green Plains to create significant value for our shareholders. We believe our investment in ownership in Fluid Quip and the IP portfolio with our partners is the leading agricultural technology opportunity in the world today. In 2021 alone, we were issued an additional seven patents, five in the U.S., one in Canada, and one in Brazil. We received several notices in late 2021 as well, which should go active in 2022. This all bolsters our IP and we will defend against infringement, as we believe there may be some of that going on. We are not accompanying anyone at just by someone else's technology anymore. Our technology is starting to accrue real value, in my opinion. The opportunities to monetize the products from corn using our IP continues to expand, and we aim to capitalize on those opportunities. So what does this all mean for the value of Green Plains today and in the future? Other than the volatility in our ethanol platform, we can start to look through that as we see our transformation take shape in 2022, getting ready for 2024 and beyond. Our non-ethanol margin guidance from last quarter for 2022 remains the same. With corn-oil pricing once again touching $0.70 per pound, we feel comfortable that corn-oil itself could contribute over $140 million to $150 million of EBITDA during 2022, at $0.65 a pound on average. Ultra-high-protein contribution is still estimated to contribute between $40 million and $60 million as well in 2022, and on top of that, the rest of the platform from Specialty Alcohol to Ag and energy will be additive, less of course corporate SG&A. As we are still transforming and now transformed, fuel ethanol economics will also need some recovery from current levels to not detract from anything and be additive to these figures. We are growing in confidence that we can produce clean sugar at scale with base margins significantly higher than traditional dry-mill economics. This patent and our owned technology can truly be disruptive. Lastly, we are in the beginning stages of developing decarbonization to produce sustainable ingredients that matter. As our stakeholders expect us to do all of this in a responsible manner. Thanks for calling, joining our call today, and we can now start the Q&A session.

Operator, Operator

Our first question comes from Craig Irwin from ROTH Capital. You may begin.

Craig Irwin, Analyst

Good morning and thanks for taking my questions. So I guess nobody in their right mind owns Green Plains for ethanol. So I'll let the analysts that didn't pay any attention to your hedging comments previously. I want to congratulate you on the operating progress. Todd, the key question that I'm getting from investors this morning is the 400,000 tons of high-pro protein that will be produced in '23. When do we start to get visibility on pricing there? I know you are working actively with a large number of different customers. It's exciting to hear 60% is going into trials. How does this take shape? What should we be looking for? And what do you see as a reasonable scenario?

Todd Becker, CEO

Thanks, Craig. We are in the process of continuing to evaluate markets for our products. We already are in pet food that has traded at a premium to high-protein soybean meal prices today. Today, high-protein soybean meal is about a $200 to $250 premium over traditional DDGs. Remember, just at that price, every $100 a ton is about $0.06 a gallon equivalent. So baseline, just on protein alone, you're starting to see that type of premium if you're just comparing it to high-protein soybean meal. Every $100 above that obviously adds another $0.06 a gallon, not including the uplift from corn-oil that we don't even include in those original corn-oil numbers. Our first goal is to get and stand up higher protein concentrations. We didn't want to stop at 56 and 58 and get the market really primed on that; we really believe we can and will achieve higher protein concentrations with our partners from a biological perspective. We wanted to kind of wait before we extend contracts extensively in volumes to see what our success is on the upcoming 60% protein commercial trials. If we're successful there, then I think our first stop is to start competing against things like soy protein concentrates and other products priced at $800 to $900 a ton. Currently, when you think about just the breakdown of our product today, it's 75% yeast and 25% protein. If you take the price of the 75% protein and the price of the 25% yeast in the market today, our product should be worth $800 a ton. So our focus starts there and we start to think up from those levels. The key is being able to make that product and get it into the market. We're working with customers from South America to Europe to the Mediterranean to North Africa and to Asia, and are focused on these higher protein products. We are not spending a lot of time with the 50% to 52% protein products as we believe that our differentiation is at stake. We'll know a lot more in the next 30 to 60 days regarding the success of these trials. Accessibility will come later in the year as we determine where we will start these new sites and what protein we'll use to kickstart them. At that point, I think we will be able to give the market a much better look while still building the systems based on a 12 to 20-cent margin, along with a $200 to $350 premium over distiller’s grains. We are able to achieve that today as well and are seeing good instances with high-protein inclusion in pet food and aquaculture. We are deep in discussions with our customers across various species to put something in place that I believe will be very exciting for our shareholders.

Craig Irwin, Analyst

Thank you for that. For a second question, I wanted to ask about the Novozymes relationship. You mentioned this in your response just now. But the potential for engineered food products with better bioavailability and better nutritional profiles that can be tailored to the needs of your different customer groups. Can you maybe describe for us the progress that's been made in the last couple of years? When would we potentially see things move into trials, and what do you see as the potential upside scenario of that technology being adopted in the high-protein platform?

Todd Becker, CEO

Yeah. It's a constant discussion that we continue to have with our partners, and Novozymes is one of them. Our partnership with Novozymes and others will always go beyond just protein concentrations. To really start this new trial, we wanted to be up and running at multiple locations so we have redundancy and can provide products for our customers at the specifications we've sold. So, our next step is to focus on the fact that our product contains 25% yeast. If you look at the value, just the plain value of yeast today in the market, it is significantly higher than the value of protein. We are starting to work together to target that 25% yeast to express characteristics such as amino acid, palatability, or nutritional characteristics. We have ongoing work with our partners to seize those opportunities. That's really where you make a step change in the value of this product. We're starting to see some early results from our work and we are encouraged by those outcomes, but we have a long road ahead. When you think about bio-engineering yeast and the opportunities that are available, we already produce a lot of yeast and have considerable fermentation capacity available. When you combine those two together and incorporate it into formulas, we believe that's where real opportunity lies. It was never about making 50% protein; if that is all we did, it would be a nice achievement, but our real value will be in making 60% protein and greater. The value will come from bioengineering the yeast too. That's the essence of our partnership with Novozymes and others, and that's where we see our company's real opportunity.

Craig Irwin, Analyst

Thanks again for taking my questions.

Todd Becker, CEO

Thank you.

Operator, Operator

Our next question comes from the line of Manav Gupta from Credit Suisse. You may begin.

Manav Gupta, Analyst

I think about a year or so ago you guys had correctly predicted that eventually the renewable diesel markets would start pricing in carbon intensity and that the gap between soybean oil and corn-oil would close. Now what we are seeing is that corn-oil has started to move above soybean oil. So obviously, my question is, do you expect that going forward as over 2 billion gallons of new renewable diesel capacity comes online, most of it has some form of pre-treatment, that soybean trade at a discount would decline so that you have a premium product going forward? That's the first question.

Todd Becker, CEO

We have seen a structural shift in the demand for distiller’s corn oil and what we produce, which is why we're still focused on making more of it through our process improvements and use of the MSC protein system; that has another process improvement in terms of extracting and liberating more oil. Additionally, we believe there is potential to separate some of that technology and even stand alone and get more of that oil left in the kernel. Remember, there is 1.8 pounds of oil per 56 pounds of corn, and if we are already achieving 1.2 to 1.3 relative to the 1.8, we're about two-thirds of the way there. To answer your question regarding pricing, we have seen strength as a premium for soybean meal for distiller’s corn-oil, with some markets posting bids as high as $0.10 a pound. While this has relaxed a little, we expect that as we double renewable diesel capacity this year and reach late 2022, benefits will accrue to both soybean oil and distillers corn-oil. If you look at the future of what's coming online, there is an overall structural shortage of not just oil, but particularly low carbon intense waste oils, fats, and used cooking oil, and that's where we're going to participate. This reality solidifies our confidence. If you consider our oil contribution margin alone, which stands at $130 to 150 million a year right now, not including what comes from the MSC system, you truly start to demonstrate the value of Green Plains by itself.

Manav Gupta, Analyst

Perfectly clear. My follow-up is, I understand that Q4 is in the rearview mirror, but I want to understand a little more about the supply chain challenges you faced, and whether those are easing. We could get more confidence that 2022, whether the first half or second half doesn't repeat whatever issues that might have come from Q4. Thank you, and I'll leave it there.

Todd Becker, CEO

When we look at our full year, we went back and checked. If we would have been in the spot market every single day, we would've been within $0.50 of the daily average crush for the year, not including negative contributions from assets being modernized. It really came down to these last two or three assets waiting for parts and actually waiting for a chip that was in short supply to run our DCS control system at Madison. Once that finally arrived, we ramped Madison to full rates and are making great progress there. The same situation happened at Mount Vernon, which we were replacing the dryer as it outlived its useful life. You'll see more of that which may cause disruptions in the U.S. fuel ethanol market because these assets are aging and will require upgrades. This is why we invested significantly in our modernization programs over the last couple of years. Regarding Mount Vernon, we have initiated one half of the dryer and expect to kick off the other half in the next three to four weeks to ensure everything functions smoothly for the MSC startup later this year. The location has excellent positioning both from river and Southeastern demand perspectives. Everything that we need to accomplish this is now on-site. Labor continues to create challenges; we have noted increases in production costs across the industry due to factors including labor and chemicals like urea. But that's an equal opportunity cost increase. Overall, I believe we're in a better position to move in 2022 than we were in 2021. Lastly, in our York facility where we have our specialty alcohol business, the grain bin collapsed. Fortunately, nobody was injured. We have subsequently replaced one bin and are finalizing the second, expected to restore full capacity operations by mid-March. For now, as we look forward, we're enthusiastic about our opportunities in protein, oil, sugar, and carbon, alongside a stable ethanol market, that would be advantageous as well.

Manav Gupta, Analyst

Thank you.

Operator, Operator

Our next question comes from the line of Adam Samuelson from Goldman Sachs. You may begin.

Adam Samuelson, Analyst

Yes. Thank you. Good morning, everyone.

Todd Becker, CEO

Good morning.

Patrick Simpkins, CFO

Good morning.

Adam Samuelson, Analyst

I wanted to clarify some of the pieces of '22 because obviously you provided insights on corn oil and the high-pro that you will be producing as increments. Those all get rolled into the ethanol crush. I'm trying to understand how we should view your ethanol reported crush for this year, particularly given that we’ve had very high corn oil prices while ethanol crush margins have considerably weakened, deviating meaningfully from spot market conditions based on hedging over the past year—both good and bad. How does this translate into actual ethanol crush in the first quarter or framing and what that means from an asset-reported level on crush for the year given all these moving pieces?

Todd Becker, CEO

Sure. To clarify, we started the year thinking, with zero base in ethanol; right now, ethanol from a pure crush standpoint is negative. So we have to make up for some of that later in the year, and we think that's kind of how we began our last year as well. Looking specifically at corn oil, by itself it will contribute over $140 million. You consider protein in a standalone capacity will add between $40 million and $60 million. Lastly, it all comes down to the situation with ethanol being at -10, +10, -20, or +50. We'll provide better clarity at the end of Q1 on every component of our achievements and break down the daily ethanol crush, corn oil returns, and protein returns. We'll start to visibly showcase the value in the process; even in a negative environment for base ethanol crush, we should still realize positive results. If ethanol is above zero, we should see extremely positive results. We have observed some signs of market recovery during the first quarter aside from volatility in margins, and we should see that trend continue. Regarding supply chain challenges, we anticipate some market dislocations later this quarter due to significant logistic issues moving ethanol throughout the U.S. With the incentive to blend ethanol improving, I think that will help drive our future outcomes as well. In summary, we began slowly during the quarter, but momentum seems to be building in the second quarter. We are confident that our base ethanol crush will return to a positive state, from which you can add everything else for 2022.

Adam Samuelson, Analyst

That’s helpful. I have a follow-up on clean sugar as you begin work on engineering the first system. To be clear, is there any capital associated with that in terms of your 2022 capex outlook? I suppose you won't have a complete picture until the engineering is finished, but regarding per effective gallon capacity, does it differ from how you've expressed it in the past where you indicated around a dollar per gallon? Do the unit economics still match what you’ve been stating for the past 12 to 18 months?

Todd Becker, CEO

Yes, we believe that everything we’ve stated remains consistent. That’s why when we think about it, we could start out with a smaller plant, but clearly, capex per unit will be higher. Overall, we see the best plant size at around 30,000 bushels a day, with engineering looking to produce roughly 30 million gallons of our equivalent production, about 3% of our output, yielding close to 400 million pounds of clean sugar or dextrose annually. All the metrics we're currently observing support what we've shared in the past: sub-$1 per gallon equivalent capex and margins exceeding $0.50 per gallon based on a roughly $0.15 per pound dextrose against our production costs. So, when evaluating all these factors, we feel confident that the plan we have in place is a solid one for our first unit. We also expect a strong demand for our first project, as we’re engaged with several businesses seeking co-location opportunities, spanning renewable chemicals to synthetic biology. Thus, we firmly believe that there's very strong demand for this product, one that will only grow. What sets our product apart is that we are not required to produce fully refined dextrose; we leave some minerals and other characteristics in it, which are beneficial for these producers as they prefer the less refined, clean low carbon dextrose. Our accomplishments at York give us great confidence that our first system will break ground in 2022, and it's the beginning of what we anticipate to be a revolution in our platform goals, focused on clean sugar.

Adam Samuelson, Analyst

Just to clarify, is there a chance we are talking about breaking ground later this year or about coming online by early '24? How long do you think it will take to come into service?

Todd Becker, CEO

We believe that depending on the size of what we do, there’s a timeframe of about a year to 14 or 15 months. So, our target suggests late 2023 for service. If we can break ground by the end of Q3 2022—which is the goal—our site selection is underway.

Adam Samuelson, Analyst

All really helpful. I’ll pass it on. Thank you.

Todd Becker, CEO

Thank you.

Operator, Operator

Our next question comes from the line of Benjamin Bienvenu from Stephens. You may begin.

Benjamin Bienvenu, Analyst

Hey, thanks. Good morning, everybody.

Todd Becker, CEO

Good morning.

Benjamin Bienvenu, Analyst

I want to ask about corn oil. You've anchored your contribution from that product to $0.65 a pound. I think the point is taken and understood. However, what I want to get your view on is how much leverage do you think the business has to higher corn oil prices? With the idea that, across the industry, as the corn oil price goes up, it essentially lowers the breakeven price for ethanol. I would think your upside to price would be driven more by yield improvements than the absolute price. I am curious to hear your thought process around dimensionalizing that.

Todd Becker, CEO

When you step back and evaluate the demand for fuel and the overall demand for energy, oil, and gasoline when consumers return to normal; we see a solid foundational demand for our products naturally as consumers resume driving. Furthermore, I think other opportunities exist to generate returns from these alcohol products, whether through specialty productions, ATJ, or others. While you can make some assumptions, the industry has faced cases where corn oil yields haven’t been as high, others have had higher yields but there has been compensation for the industry as a whole. While we haven't yet experienced much pressure from such issues, we believe the demand for low-carbon feedstock in renewable diesel will intensify, providing a solid backdrop. When looking at Green Plains alone, our corn oil contribution margin stands solidly to generate $140-$150 million a year, which further emphasizes the ongoing viability of our business.

Benjamin Bienvenu, Analyst

Okay, makes sense, thank you. My second question was around the phasing of the rapine and how that's expected to ramp up, in terms of where that stands in your critical path at this moment.

Todd Becker, CEO

It's a huge critical path of our priorities; we are just waiting for the ground to be suitable for work. Once that happens, we’re ready to mobilize. We've started preliminary groundwork because we anticipated that constructing in this area would become challenging. We're ready to start construction as soon as the conditions allow for it. The engineering is set to commence, and we will begin building what will ultimately be the largest plant in the U.S., capable of producing the most ultra-high-protein while expanding corn-oil yields as well. We're highly motivated about our projects in terms of size, scope, and talent. We anticipate completing construction in 2022; however, if delays occur depending on weather, we may hold off on starting operations until it warms up a bit. If the weather is favorable, we want to get this running towards the end of the year, but otherwise, it could take until 2023 to fully realize.

Benjamin Bienvenu, Analyst

Awesome. I’ll wait for warmer weather. Good luck with the rest of the year. Thanks, guys.

Todd Becker, CEO

Appreciate it.

Operator, Operator

Our next question comes from the line of Jordan Levy from Truist Securities. You may begin.

Jordan Levy, Analyst

Good morning all. You've talked a lot so far, but I have a higher-level question. The recent volatility in earnings is tied to ethanol. I wanted to see if you could provide your thoughts on moving into this next phase of the transformation plan as it relates to the confidence investors can have—not only in an earnings ramp, but also in the stability of that ramp given the transformation and ability to mitigate some ethanol volatility that we've seen in recent quarters as protein and other initiatives scale up.

Todd Becker, CEO

As we move into 2023 and 2024 with our builds expected for completion, we anticipate that our earnings will stabilize around $150 million per year from our base of 50 protein production levels, which compares directly to current soy protein market pricing. Adding in the earnings from corn-oil positions over and above that yields in the region of $0.30 per gallon return. This means that whether ethanol pricing is negative or positive (like -10 or +10), we will start to see earnings acceleration, particularly as we prioritize the addition of protein production. Once we shift to 60% and higher concentrations, aiming for $800 a ton as a benchmark compared to soy protein concentrates, we will see another quick exclusive earnings ramp. The core strategy to shift further away from traditional alcohol production into clean sugar will also diversify our revenue streams. We note that while 2022 may still witness volatility, we know where our earnings will come from while continuing to require management through the ups and downs of ethanol margins. We’ve also observed the consumer uptake in driving demand globally; U.S. export interest is returning and could be an advantageous bonus through 2022. Our core values and base income streams are solid, as we view 2023 and beyond as an exciting journey in diversifying revenue streams.

Jordan Levy, Analyst

That’s a productive response. I’d like to speak more about the protein side of things, specifically about trials with customers outside of pet and how they’re aligning with the J-curve profile you outlined before, regarding the value uplift you’ve seen there.

Todd Becker, CEO

Yes, we have conducted trials over the past year across many species, including beef cattle. Our products have made their way into that market, and we're also observing encouraging results in aquaculture as demand for clean protein feeds expands. Our effort has broadened to pet foods as various clients move towards semi-truck and rail quantities. As of now, the majority of demand is still in the pet sector, but we’re working hard on including more poultry, dairy, and swine into our portfolio. Our goal is to stay offloading too much focus onto aquaculture until we can move higher than 60 percent; at which point, we will take that fully into account within the customer percentages for sales. With a complete pallet of approaches across sectors, we are looking forward to significant opportunities for our protein focus.

Jordan Levy, Analyst

And I thought I could sneak in one more. You mentioned Aqua a bit ago, but I wanted to ask how essential the 60% protein trial is to Optimal and its implications for scaling the business moving forward.

Todd Becker, CEO

Optimal is a small business focused on specialty feeds and trophy ponds. That effort is crucial for our mission as they are running trials with higher inclusion rates of 56 and 58 percent. Our differentiation lies with the results they report, and achieving over 60 percent will create a significant value proposition in aquaculture. We are engaged in formulation and providing commercial aqua feed alongside our partners. We are looking forward to some exciting announcements on progress and ongoing partnerships in this space.

Jordan Levy, Analyst

Thank you, Todd.

Todd Becker, CEO

Thank you.

Operator, Operator

Our next question comes from the line of Steve Byrne from Bank of America. You may begin.

Steve Byrne, Analyst

If your clean sugar technology is successful, what fraction of your ethanol capacity would you convert over to it? Is there a limit there? If not all of it, do you have interest in developing technologies to convert ethanol into gasoline or aviation fuel?

Todd Becker, CEO

Today, we estimate our demand for clean sugar will double or higher in the coming five to ten years. We expect that our plants will continue converting to produce greater clean sugar outputs—our plan focuses on that aspect. It is essential to note that when converting a facility, we can toggle between producing dextrose and ethanol, selecting which is more beneficial. This optionality creates value, with initial conversion planned around clean sugar production before considering transitioning back to ethanol or jet fuel, based on economic viability. Our primary focus for the initial conversion will be clean sugar first. Whilst options exist for exploring renewable jet production, we acknowledge that investment in those solutions would require more capital than our clean sugar and alcohol depende on existing infrastructure. We are methodically vetting technologies and advances as we evaluate potential positioning in that market.

Steve Byrne, Analyst

Based on what you said, are there concerns about how the increasing ethanol-crushing capacity might lead to a glut, affecting how well your protein initiatives will expand?

Todd Becker, CEO

That's a great question; we need to monitor this closely. The cadence for these new builds will possibly take years to see results. However, I don’t believe companies currently constructing plants have any fears over their ability to sell the corresponding meal through the soybean crush. They seem optimistic, and while Argentina faces notable issues, there's also ongoing uncertainty around whether China will continue purchasing whole soybeans or switch to buying meal. Differences in the exchange market could further enhance demands tied to soy products. In short, while some years may see variance, the market will demonstrate ample capability to handle protein supply meeting demands competitively. At Green Plains, we focus on specific demands, and this helps us differentiate ourselves while maintaining a sense of urgency within our partnerships. While we are certainly aware of construction increases, we genuinely believe that the demand for proteins is at an all-time high and will remain strong, causing products we introduced to tap into accords consistent with the expected growth manner.

Steve Byrne, Analyst

Thank you.

Operator, Operator

Our next question comes from the line of Ken Zaslow from Bank of Montreal. You may begin.

Ken Zaslow, Analyst

Hi guys. Easy question. If your base case for protein is $125 million to $150 million. If you were to hit 60% protein, what does that translate to? I think 60% protein, if you just look at that piece, there’s a big J-curve out there that certainly has several pricing benefits; but that may take time. So to start, if I replace a product that is $800 a ton, that would be about a $0.30 to $0.35 uplift from traditional distiller's grains. That could compound to a $300 million to $350 million uplift at 60% pro.

Todd Becker, CEO

What it translates to is that at $800 a ton, it adds somewhere between $0.30 and $0.35 a gallon. You can expect earnings of about $300 million to $350 million from 60% pro at first. Clearly, the opportunity extends beyond that, since it will take time to build that market. However, what’s important to highlight is your initial estimation of $800 per ton will then rise higher as we shift into various new markets on this product over time. There’s a notable limited quantity of our product to meet these demands; we anticipate having more significant traction with that before long-term projections take shape.

Ken Zaslow, Analyst

Okay. I’m not that smart so wait, $125 to $150 was under 50% protein? I understand you’re going to go beyond the 60% and I see that connection, but relative to the transition to actual pricing, what would that be like for a simple estimate?

Todd Becker, CEO

That suggests an uplift of around $250 million to $300 million in direct revenue if we're plugging in estimates at the current point first, as we deliver that pathway to higher value proteins moving from 50% to 60% to higher through the J-curve. That summarizes your projection fairly well. You want to remain realistic about the protein, allowing expansion in feeding programs. Still, growth in demand will happen once we introduce these new products, and weigh it against competitors. In a nutshell, 60% pro availability will be the first step for higher-value markets and we’ll be using every opportunity to accelerate these efforts.

Ken Zaslow, Analyst

Your $300 to $400 million EBITDA pace starts to seem more reasonable and less marginal. Is that at least a fair statement?

Todd Becker, CEO

That’s the point we are making every day, which is exactly why we are focused on high pro. You’re right to apply practical evaluations across potential revenues through this process. Achieving a range of high-protein yields indicates significant market acceptance; furthermore, we want to secure all the opportunities that support further expansion beyond that initial value. Thus, we’re driven to deliver on the high-protein targets, and more importantly, we see sustainability giving a long-term advantage to our approach moving forward.

Ken Zaslow, Analyst

On the customer base for protein, what percentage comes from pet food, aquaculture, and looking forward a year from now, will that mix change?

Todd Becker, CEO

Because we only had one plant running until recently, our focus was primarily on pet food, leading us to an absorption of 100% in that space. As we ramp up Wood River, we will extend to other sectors including aquaculture. Due to existing interest, I'd estimate the pet market currently accounts for over 50% of our focus, while we’re starting to branch out into poultry, dairy, and swine as demand increases. We’ve done this cautiously, not wanting to push the 50 pro product into aquaculture before reaching the 60 pro. Once we unlock that potential, we can then pivot our customer strategies.

Ken Zaslow, Analyst

Perfect. Thank you very much.

Todd Becker, CEO

Thank you.

Operator, Operator

Our next question comes from the line of Eric Stine from Craig-Hallum. You may begin.

Eric Stine, Analyst

Hey, everyone. I'll just sneak one in here at the end, just on carbon capture. There’s been more chatter around some permitting issues at state and local levels. Just curious if that changes your outlook there? I think previously, the Summit pipeline was probably first—does the permitting situation push the direct injection opportunity ahead of the pipeline opportunity?

Todd Becker, CEO

No, I think they are still tracking—probably tracking more toward the pipeline. Summit is making excellent progress; we’re very pleased with what they have accomplished thus far. They are moving forward on right-of-ways, undertaking permitting processes across these states, and while there are discussions taking place—generally speaking, we see states encouraging these projects. Importantly, since this is an agriculture-focused enterprise backed by farmers, it carries weight with the community. As we consider various elements, we feel confident about where things stand with not just directly injecting, but also carbon opportunities across other streams—all of which sit aligned with best practices in agriculture moving forward.

Eric Stine, Analyst

Okay, thanks, Todd.

Todd Becker, CEO

Thanks.

Operator, Operator

And our last question will come from the line of Laurence Alexander from Jefferies. You may begin.

Laurence Alexander, Analyst

Good morning. Two quick ones. On the dextrose, how long after the facility is in service do you expect to hit normalized pricing? And secondly, with Fluid Quip, can you give an update on your licensing strategy? And maybe some sense of where licensing revenues could get to in say, three to five years?

Todd Becker, CEO

Our view is that normalized pricing will happen pretty quickly regarding clean sugar technology. We are already discussing possibilities with multiple potential co-location and end-use opportunities that are ahead. These companies fully understand what our product will look like as they’ve assessed it both in pilot and their own production lines. Our view is this process will push effectively because pricing is pretty stable, and many of our early partners are actively involved through this transition. We are expecting revenues from Fluid Quip to increase as we build out our processes. Licensing strategies are a part of this journey along with bolstering the unique processes for protein, oil, and sugar, ensuring we serve the accelerating bio-economy successfully.

Laurence Alexander, Analyst

Thank you.

Operator, Operator

Thank you. There are no further questions in the queue, I'll turn the call back over to Todd for closing remarks.

Todd Becker, CEO

Thanks, everybody, for coming on the call. Obviously, a lot to talk about and many exciting opportunities ahead of us. We're standing up our systems and strategy, and we believe that we possess great technology to achieve those goals. The total value of Green Plains today, alongside the solutions that we have and the opportunities we envision, affirms my belief that the times ahead of us will be substantial for our shareholders as we continue to prove that the value of our assets is increasing. More importantly, the value of our IP and technology portfolio is substantially undervalued compared to the long-term opportunity for the company; and we will continue to execute on this vision. 2022 will be an exciting year for us, with our base-load earnings increasing. We will be excited to grow those base-load earnings as we enter '23 and '24. Appreciate you joining the call today; we'll talk to you next quarter.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.