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Good morning, and welcome to the Green Plains Inc. and Green Plains Partners First Quarter 2023 Earnings Conference Call. [Operator Instructions]
I would now like to turn the call over to your host, Phil Boggs, Vice President (sic) [ Executive Vice President ], Investor Relations. Mr. Boggs. Please go ahead.
Thank you, and good morning, everyone. Welcome to Green Plains Inc. and Green Plains Partners First Quarter 2023 Earnings Call. Participants on today's call are Todd Becker, President and Chief Executive Officer; Jim Stark, Chief Financial Officer; and Leslie van der Meulen, EVP of 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'd like to turn the call over to Todd Becker.
Thanks, Phil, and good morning, everyone, and thanks for joining our call today. Concurrently, with our earnings announcement this morning, we announced an offer to acquire all of the publicly held common units of Green Plains Partners. We believe the proposed transaction will simplify our corporate structure and governance, generate near-term earnings and cash flow accretion, reduced SG&A expense related to the partnership, improve the credit quality of the combined enterprise and align strategic interest between Green Plains Inc. shareholders and the partnership unitholders by regaining full ownership and control of Green Plains total platform, including our terminals.
All of this will allow us to be more flexible with our long-term asset and company strategy. This is as much commentary as we can provide on this potential transaction at this time. So let's get the first quarter results out of the way. As indicated, ethanol margins were very weak in the first quarter and began to recover too late for us to take advantage if we look backwards.
But since we are looking forward, things have changed significantly from the lows we saw in January as market fundamentals look very interesting for the remainder of the year for all of our products, and we'll get to that later. This was further validated with yesterday's EIA data. Our overall consolidated crush margin was negative $0.07 for the quarter, leading to a negative EBITDA of $27.7 million. Corn basis has continued to be high, particularly in the West. We experienced a basis that was approximately $0.25 a bushel over the prior year and $0.40 over the prior 5-year average. Ultimately, margins needed to adjust to this, and they have started to in the Western Corn Belt for the rest of the year based on the current forward curves and markets. Veg oil pricing was weaker than the highs we experienced in 2022, which was also a factor during Q1, even though we had most of our corn oil presold for the quarter.
I'll give you some insight on current events later as it is starting to get interesting for low carbon intense oils again, which is where we sit with our product. We also saw weak driving demand in the quarter and coupled with continued excess ethanol production, which resulted in a challenging margin environment. For the last 15 years, we made sure we owned our natural gas for our winter production, and that was the right thing to do historically. But with the unusually warm winter we saw, natural gas pricing decreased below our cost, causing a drag on the spot crush margin.
Because of this, we are limited in our ability to benefit from the reduction in spot pricing. Having our natural gas purchase early impacted our cross margins negatively as well, we will assess the best coverage strategy in the future for winter, but we believe this ownership is and always was the prudent approach. Recently, we have experienced significant improvement in overall ethanol margins as U.S. production has trended lower, while gas and driving demand moved above pre-COVID levels in some of the reporting weeks. Now we have to see if that holds. We believe since 2019, our inputs have driven to lower margins overall as an industry other than a few quarters as the world balance sheet for corn tightened between COVID and the Ukraine situation as well and weather.
This may turn in our favor in 2023 and 2024. We are seeing strong early indications that this year's corn acreage will be expanded and get planted in a very timely fashion as we have a near perfect spring shaping up. We all know the ethanol margin can move quickly and on paper, it is well off the lows experienced in Q1.
Going forward, we will choose our spots to lock in available ethanol crush margins to our hedging strategy as there are opportunities along different parts of the curve to lock in a positive base margin even before corn oil and protein contribution. Yes, this can happen in ethanol as well. But it's been a while since we've been able to say this about the forward curve.
But this is really a great setup. Our main focus continues to be on executing on the transformation to add incremental recurring margins and cash flow opportunities from our biorefinery platform through expanded protein and ingredients, low carbon renewable corn oil, clean sugar and decarbonization to insulate us from the volatility that we've experienced. While the first quarter was tough, we are well underway. With approximately 10% of our plant utilization capacity offline during the first quarter because of margins, our overall production utilization came in about 87%. Improvements in the margin gave us the opportunity to bring back all of our facilities back online. But it was just in time for us to enter maintenance and turnaround season.
So we anticipate only slightly higher run rates nearby and strong run rates for the third and fourth quarter, where the actual highest margins are. Second quarter will be impacted from having Wood River offline for a period of time as we had an explosion of a whole stillage tank when the plant was not operating because of routine maintenance.
With current engineering and construction estimates to complete repairs, we are targeting to bring that facility back online by the end of the quarter, at which time we will return to full rates across our platform. Anything longer than that will be covered by business interruption insurance, so we don't believe this will ultimately have a material effect on 2023, but we hope to be up and running before that kicks in as demand for ultra-high protein from Wood River continues to be very strong. As we exited the first quarter and early in the second quarter, our transformation strategy began to hit an important inflection. With improved ethanol margins, we brought our ethanol production capacity fully back online and all 5 of our MSC systems were lined out and producing high-quality, high-protein products to benefit our animal nutrition customers and business. For 21 days at the end of March, at the end of the quarter and into the first half of April, we averaged over 900 tons per day of ultra-high protein production with some days achieving over 1,000 tons of production.
Some of these days exceeded our initial investment and expected volumes, and we still have more to go as we've just begun to truly optimize our process. We have achieved yields that exceeded 4 pounds per bushel pushing close to 5. We believe the MSC technology is the best and only system to ever see these type of yield numbers and the most consistent in producing high-quality suite of animal nutrition products, continuing to optimize these systems to maximize production provides opportunities to further enhance the potential of our assets.
Our platform was performing as designed and at rate and demonstrates the annual run rate exceeding 330,000 tons per year for these 5 locations only and is achievable and more. After the events that occurred in Wood River location in mid-April, the protein location has been offline. And when we start it back up, we believe we will once again be running at 900 tons per day, plus or minus day in and day out. Our anticipated MSC volumes for the second quarter are on the 60,000 to 70,000 ton range and as a result of this downtime, moving to 80,000 to 90,000 tons per quarter going forward. Later in the call, I will review our pricing and financial metrics associated with protein production.
As you can see in the volume table in the press release, we added a line for ultra-high protein, and when we get the full production, we will give you more breakout of financial outcomes as well. I will also review some of the things we are seeing for the last half of the year sales channels and higher proteins as well. But even more exciting than this is our clean sugar facility in Shenandoah is making great progress, and we have recently gone vertical, which we have posted pictures online, and you can see the walls of the saccharification tanks are being installed.
It's very exciting to see this progress, and we hope to share our vision with what this project can do for the future and our company, and later in the call, I will go deeper on this topic. I won't spend a lot of time on the regulatory front except to say things are trending our way as well between RVO staying steady on ethanol and potential upside for renewable diesel, higher blends like E15 taking hold as we enter into our fifth straight summer of year-round sales along with the Midwest E15 waiver, which, by the way, becomes permanent next year, which is very exciting. Renewable diesel supported by state-level programs to help our low-carbon renewable corn oil production achieve higher values, all the way to the IRA, which we have spent a lot of time on our past calls, and you could see it could be quite an interesting market for us to take advantage of. I will cover decarbonization briefly later in the call, but I'm happy to announce June 15 at 10 a.m. Central Time for our teach-in that we have been promising on the IRA and the impact of the future of our company.
Our decarbonized alcohol will be a valuable feedstock to produce alcohol to jet and sustainable aviation fuel at scale, but that is the end game. In the meantime, there are many positives to unpack for our shareholders, and we are excited to educate all of you on this. Our balance sheet and liquidity remained strong, ending the quarter with $408 million in cash. Jim will provide a summary of our financial results and an update to our capital allocation for the balance of 2023.
And now I'll hand the call over to Jim to provide an update on the overall financial results.
Thanks, Todd, and good morning to everybody. Green Plains consolidated revenues for the first quarter were $832.9 million. That was $51.5 million higher than the same period a year ago driven by higher run rates, which enabled us to produce more ethanol, high-protein ingredients and renewable corn oil. Our plant utilization rate improved year-over-year to 87.5% during the first quarter as compared favorably to the 83.1% run rate reported in the same period last year.
As Todd mentioned, we are working to restart our Wood River plant, which will have a minor impact on the second quarter utilization rate as that plant represents nearly 13% of our stated capacity. For the quarter, we reported a net loss attributable to Green Plains of $70.3 million or a loss of $1.20 per diluted share. That compares to a loss of $61.5 million or a loss of $1.16 per diluted share for the same period in 2022.
When we look at the bigger cost variances between the 2 periods, higher corn and natural gas prices, combined with higher railcar lease expense were the main drivers. Higher railcar expense as a result of moving to a compliant DOT-117 fleet of rail tankers, which was common across the industry. Adjusted EBITDA for the quarter was a negative $27.7 million, which was in line with the prior year. We did experience a $4.5 million increase in depreciation and amortization expense versus a year ago. Our current expectation is that D&A will remain in the range of $23 million to $25 million per quarter for 2023. The increase is mainly due to the addition of MSC technology bills at 5 of our locations.
We realized a negative $0.07 per gallon consolidated crush for Q1 of 23%, which was in line with the prior year. On a sequential quarter-to-quarter basis, we saw the consolidated crush margin per gallon weakened $0.10 per gallon when compared to the fourth quarter of '22, and that tends to be the seasonal pattern that we see with the first quarter of the year traditionally being the weakest.
Our Ag & Energy segment recorded $5.2 million in EBITDA, about $5.5 million lower than the prior year. This decline was driven by market volatility in our merchant trading and distribution businesses and our distillers grain flows and natural gas storage, yet we expect the year to come in largely in line with previous years.
For the first quarter, our SG&A costs for all segments was $31.8 million compared to $30.9 million reported in Q1 of 2022. This approximately 3% increase was driven by higher wages across the platform, especially at our industrial sites as competition is fierce for plant employees, in addition to higher consulting and professional fees. Interest expense was $9.7 million for the quarter, which includes the impact of debt amortization and capitalized interest. This was higher than the $8.8 million reported in the first quarter of last year. This is due to rising interest rates on floating rate debt and reduced capital interest in the quarter as certain projects have been completed. The majority of our outstanding debt is at a fixed rate and higher interest rates did not have a significant impact on our balance sheet.
We have no near-term maturities for the next 3 years and also note that our cash interest paid in the quarter was $10.1 million. We do continue to anticipate interest expense for 2023 to be approximately $40 million with the current interest rate environment and anticipated debt balances in '23.
With our strong cash balance, we did realize interest income of $3.2 million in the first quarter, which did offset the increase in interest expense. Our income tax expense for the quarter was $3.4 million compared to a tax benefit of $1.2 million for the same period of '22, even though we incurred a loss during the quarter.
At the end of the quarter, the net loss carryforwards available to the company were $108.2 million, which may be carried forward indefinitely. We do anticipate that our normalized tax rate for Green Plains for 2023, excluding minority interest should be around 21%. Our liquidity position at the end of the quarter included $408 million in cash and cash equivalents and restricted cash, along with approximately $159 million available under our working capital revolver. We remain well positioned to execute on the 4 pillars of our transformation. On Slide 9 of the earnings deck, we do provide a summary of our company's balance sheet. As shown, we ended the quarter with $376.9 million of cash and working capital, net of working capital financing compared to $464.4 million at the end of 2022. For the first quarter, we allocated $33 million of capital across the platform, including $24 million to our MSC protein initiative, about $4 million to other growth initiatives and approximately $5 million towards maintenance, safety and regulatory capital.
For the remainder of 2023, we anticipate CapEx will be in the range of $120 million to $160 million, and that will depend on the spend at Madison and when it wraps up. For Green Plains Partners, we reported net income of $9.9 million and an adjusted EBITDA of $12.5 million for the quarter. That was in line with the $12.6 million reported for the same period a year ago.
Again, our plant utilization rates at Green Plains were higher than the prior year, increasing the storage and throughput volumes for the partnership by 5.5% for the quarter versus the same period a year ago. The partnership declared a quarterly distribution of $0.455 per unit with a 1x coverage ratio for the quarter.
For the partnership, again, distributable cash flow was $10.8 million for the quarter, slightly lower than $11.2 million for the same quarter of 2022. Over the last 12 months, the partnership produced adjusted EBITDA of $51 million, distributable cash flow of $44.1 million and declared distributions of $43.1 million, resulting in a 1.02x coverage ratio, and that excludes any adjustment for the principal payments made in the past year.
Now I'll turn the call back over to Todd.
Thanks, Jim. We are making great progress in customer acceptance moving into new species, new parts of the ration and targeting new product replacements. Over the past 6 months or so, we've experienced a 25% increase in annual commitments from our pet space customers and have sold out approximately 75% of our 2023 anticipated production through a combination of contracted and repeatable committed customer sales.
And we have included some customers, as we have had some customers start small before becoming much more strategic to us. As we continue to earn repeat business for our ingredients, we are beginning to see improvements in overall pricing, which we always believed would be the case.
We believe there's a huge opportunity to move into and substitute corn gluten meal and soy protein concentrate in parts of the ration and anticipate having a portion of our portfolio dedicated to that late in the year as we move into 2024 with a 60% protein product, which will start to show the real earnings power of this technology upgrade and product suite. Our MSC operations continue to work towards expanding our average daily production close to 1,000 tons per day from our first 5 installs as I indicated earlier, which should put us on track to hitting our original MSC volume goals for the entire platform without converting all of our locations, increasing the capital efficiency of our investments. From a financial point of view, as we indicated, our premium achieved was approximately $200 per ton since inception, and that basically held in Q1. In Q2, we have widened that premium out to $217 a ton based on the current book, and we are seeing $230 a ton in Q4 as corn has gone down, while meal and equivalent pricing has remained steady.
Our path forward for the next MSC protein build is becoming clearer. We are on track to receive our permit in Illinois for our Madison location late in the third or very early in the fourth quarter of this year based on current discussions with the state. Our turnkey JV with Tharaldson is on track for an early 2024 startup.
And finally, we're still working through the permitting with the State of Minnesota for Fairmont but we have seen some more optimistic paths on this process than previously discussed.
As we indicated, the best locations for protein technologies will be larger plants, so we continue to explore reshuffling of the portfolio to capitalize on that strategy. This is a multipronged approach. We will look to expand at MSC sites, protein sites in order to increase ultra-high protein production, corn oil production and as a result, some ethanol production, unless it's a CST site at which point that grind will help us use the back end of the plant, which would not be used for additional ethanol. We will look to partner or potentially acquire larger plants where we can permit quickly and efficiently to get our technology installed. We are early engineering grind expansions right now. So more to come on this over the next few quarters as we find the right locations to discuss. We will not install protein systems at plant less than 100 million gallons per year until we move into much higher value products like 60 Pro and expand the suite of animal nutrition products that the MSC platform can deliver.
As many of you have seen through the visits to our plants and innovation centers, we have a strong pipeline of proof points and products that will increase the value of the ingredients we can produce with our systems. Remember, this is more than a protein system. It is a precision separation technology, which we believe is global leading, where we can isolate many different high-value products, which we could never tap into in the past.
Another very appealing point of this is the carbon intensity of our products. We are getting significant attention because of the volumes we produce today and the plan to increase over the next several years from companies who remain concerned with the carbon intensity of their products that they put into the diet of pets and animals. Like we have mentioned in the past, we did not build these systems just to produce and sell 50% protein. That was only the initial investment justification. What we have learned, we can do with our technology that we believe very few in the world can is produced fermented clean proteins as just one example.
We have been working on augmenting specific functional characteristics of our protein in conjunction with our partners that will make the product even more attractive. We are in final stages of development of this project and believe that this work is unique in the world of Animal Nutrition, let alone the U.S. grain processing industry. This is another example of the power of our fermentation platform over traditional solvent extracted feed ingredients.
We have now developed a clean fiber fraction for a variety of animal feed markets, paving the way to add fermented fiber to our portfolio of animal nutrition ingredients and offering yet another new and scalable source of feed to markets, both domestic and international. Scientific validation and fingerprinting of the clean fiber fraction for a variety of animal feed market is ongoing, and this can add a significant financial uplift to a plant where our precision separation technology is installed. Overall, our commercial product testing and validation activities have created significant traction in the aquaculture opportunity. The supporting science portfolio on both 50 and 60 Pro continues to show areas of real value differentiation between our fermented products and traditional solvent extract and the concentrated ingredients.
We are being very careful to make sure that we get the real value for our products in agriculture and not buy our way into this ration. We just completed a trial on specific species with significant global demand and have once again confirmed that our products nutritionally perform as designed, but are seeing increased availability of key certain nutrients in our products that continue to differentiate us and add value to aquaculture farmers far beyond just fish performance and growth.
While we have been delayed in some of our builds by a quarter or 2 or it took longer to get to full rate than we originally thought, including now having our Wood River facility offline through the end of the quarter, we are seeing the full potential of this product long term. While the first half of the year has been challenging, the back half of the year is in line with our original projections with an opportunity to go higher if we are successful at hitting higher production goals and moving more towards the 60 Pro product.
Demand for renewable low-carbon corn oil continues to grow, and we believe the incremental renewable diesel capacity that comes online throughout the year, this market will tighten up and be bullish for vegetable oils pricing overall. We continue to discuss monetizing our corn cash flows, and we would do that in the right situation with the right economics, but it's worth letting the demand for low CI feedstock to accelerate later in the year with a significant increase in demand right around the corner. Our corn oil is advantaged to other feedstocks due to its lower carbon intensity and will be a crucial feedstock for these start-ups. However, with pricing coming off of 2022 highs and now in the low to mid-50s per pound for soy oil, we've also seen a drop in corn oil pricing as well, but most interesting is as of late, we started trading at a premium to soy again as high as $0.07 or $0.08 a pound for a while during the first quarter and early in the second corn was trading at a discount to soy, which is absolutely crazy.
But with our new increased production from existing renewable diesel capacity, that changed very quickly to our advantage. These lower overall prices have reduced the contribution from oil overall, but it remains one of the biggest value drivers above base crush for quite a while. But we have seen a recent resurgence of interest in premiums.
So let's see where this actually settled out for the year and next. Our clean sugar technology construction is in full swing right now in Shenandoah, as I mentioned, and on track to be completed by the end of the year. Even more exciting are the potential commercial partners and the progress we are making in those discussions.
We are building a first-of-its-kind clean sugar facility sized initially to produce 200 million to 300 million pounds with options to expand that to 500 million pounds in a quick manner. By diverting a portion of the corn grind, we can separate the starch and convert the dextrose while sending the remaining protein fibers and oils back into fermentation to produce other high-value products. While certain volume buyers will want to validate the product once this facility starts up, we are confident in our ability to meet and even exceed our customer expectations because of the success we've had producing these innovative ingredients at our innovation center at York and many discussions with potential customers who have trialed our products, which meets or exceeds other wet milling dextrose performance products on the market today. The gating item has been electrical gear and continues to be so.
We are trying every which way we can to accelerate as our construction will outpace the gear delivery. Mechanical completion is tracking for year-end and MCC gear will determine when we turn it on. Let me give you a few updates on this initiative. Our lower carbon intensity of our clean sugar product has been reaffirmed by life cycle associates even lower than originally thought, with opportunities to reduce even more.
In the month of May, we have devoted the York CST semi-works facility to finalize our capability to produce 43 DE products, which is used in confectionery and fruit products at a much higher value. We already know when we turn the plant on, we can produce a 95 DE from the start, both refined and unrefined. The last step we will explore is using our systems to make crystal in dextrose, and we believe we can crack that as well. It will take 3 to 6 months after startup to get food safety certified.
So our initial customers will be industrial, and we are seeking in discussions on early offtake agreements as we speak. Remember, we're already food safety certified in New York. So getting Shenandoah there will just be a process and time as it will be the most modern and efficient facility in the world producing this product. More to come on that, but customer engagement is high. And by the way, margins are even higher as evidenced by recent validation of this by current companies that own and operate wet mills. Our decarbonization strategy remains on track. The Summit Carbon Solutions pipeline project, which continues to make progress, has over 2/3 of the right-of-way purchase, and we anticipate this pipeline to be operational sometime in 2025, which can benefit from early days of the 45Z clean fuel production credit. The future of this industry is low carbon, and we are at the forefront of these efforts.
Our JV with United Airlines and Tallgrass, Blue Blade Energy is in the process of optimizing the catalyst for our exclusive ketone technology from PNNL, and depending on the success of key gating items could be constructing a pilot facility as early as 2024. We continue to evaluate other technologies out there as well, and there are many promising that we are looking at. All roads lead to SAF and ATJ, though it is a second half of the decade story.
Bottom line, it provides a valuable additional outlook for ethanol volumes and increases the value of our assets significantly when we get there. With bipartisan support for certain provisions in the IRA bill, such as the 45Z clean fuel production credit, we remain confident that decarbonization will be a crucial factor driving the future of our industry. We are developing strategies to deploy combined heat and power systems, direct injection for carbon capture and sequestration in certain locations and more. At the teach-in, we will do a deep dive on all of this, so I'll leave it with the programs that are place. What you have heard today have some common intersections. The value of our IP portfolio embedded in Fluid Quip Technologies truly separates Green Plains from anyone else. We believe this is truly underappreciated. Some examples additionally that we are working on are 70% protein upgrades, there is an ongoing initiative to achieve this level and could accelerate in late 2023, which will be a big value driver to the future. Increased oil yields as we continue to use our technology portfolio to press towards 1.5 pounds per bushel with a goal of proof of concept in mid-2024 moving to an engineered solution. We believe Blue Blade has the world's leading precision separation technology for growth in synthetic biology and other industrial applications.
In almost all cases, solids need to be separated from the process, and we have some of the largest solutions operating today in the world, quite frankly, it's our MSC systems. This part of the business alone can be very valuable. We expect in the last half of 2023 to be able to deliver some exciting news on several initiatives we are working on. I assure you that's going to be very exciting, please stay tuned. Lastly, when we deliver our first load of dextrose from a dry grind facility, the world will know what the value of our IP portfolio is and in turn, the value of Green Plains. Through our 4 pillars of protein oil, sugar and decarbonization combined with our Gen 1 platform and the potential for Alcohol to Jet Sustainable Aviation Fuel, it sounds like we have a lot going on, but first and foremost, we are focused on delivering right now. These initiatives are complementary and aligned with one another, and we have confidence in this strategy and we remain squarely dedicated to achieving our vision.
Thank you all for joining the call today. I know it was a little long, but we can start the Q&A session now.
[Operator Instructions] Our first question comes from the line of Adam Samuelson from Goldman.
I'm trying to catch -- to get my notes down from the litany of things that you just led through Todd. But I guess, maybe if I was to pick out a few of the newer items there. I think this was the first time we heard you allude to maybe thinking about expanding corn grind capacity. And I was hoping you could just clarify that just in terms of thinking about the size of what that would entail and the incremental just how much that's actually of that starch is actually ethanol versus thinking about clean sugar just new ethanol capacity on its own has not been something that we've needed much in the United States in the last decade really. So I just want to make sure I'm understanding kind of where the capital is going there.
No, I understand. So we have probably 3 plants where we have MSC installed today, where we'd like to get more grind. But if you take a plant like Shenandoah, where we're going to have some of that grind diverted to clean sugar but when we do that, the protein and the oil and the feed stays the same.
So you're really just diverting some of that starch from ethanol into sugar, it does free up some of the back half of the plant, which will go unused. And really, the key at that point is while you might make a little more ethanol of you and grind expansions are not very high in CapEx. So while you expand the grind, the most important thing to expanding grind is, as I said, you make a little more ethanol, but you make a lot more protein and oil. And that's really what pays for it.
While you're also then increasing potentially down the road, moving that back and forth between making more dextrose as well. With dextrose margins so high, obviously, the more grind we can convert to dextrose, the better at Shenandoah and other plants, but it does free up other capacity to increase as well. So we kind of mentioned that on the last call and have been talking about it for probably 6 months or so. So it shouldn't be anything new. We're starting to look at really plants like Shenandoah, plants like Obion and plants like Central City, which are easily expandable, have the corn that they need. And then looking at our other parts of the platform where we have maybe some smaller suboptimal plants that either can look at monetizing those or using those for other ingredients as well. So we're just starting to look at it. But when you look at the paybacks just from protein and oil alone to expand a little grind, it will certainly take care of the rest.
And then in the prepared remarks as well, there was some discussion around the realized premiums that you were getting on your Hi-Pro sales, both in the first quarter and those expanding to -- I believe you said $230 a ton in the fourth quarter. As we think about that level of premium on your fourth quarter volumes, I mean, how should we think about the protein concentration of that sales book? Just trying to think about how much further there is to go as you push towards a corn gluten meal or soy protein concentrate replacement at 16% protein?
That's still based solely on the 50 Pro premium. So when we look at what's happened in the market, with our inputs going down on forward corn. And really, we've seen soybean meal equivalent go down as well, but not quite as much as the input side. So that's widened out the margin on paper, and that doesn't include any uplift from any other products. When we look at -- we made some early small sales of 60 Pro, and we've seen those premiums at another $300 to $400 a ton over what we're selling the products today just for the 50 Pro product.
So that's really the juice of the opportunity is that if we can start to make an impact into those products. And we're pricing them right now. We're in valuations with several very large customers right now for 2024 to use our products as a replacement to gluten meal and to soy protein concentrate in their rations. And that will just widen out those margins as we get later in the year. We do have initiatives for this year to sell some 60 Pro, and we're in those discussions as we speak. But none of that is included in that forward guidance.
And if I could just squeeze one more in as you -- maybe just on Summit, as we think about their permitting and getting the rights of way necessary to move forward, how are you currently thinking about the timing of when you could start actually shipping on that and thinking about the contributions from the low CI and 45 that might come with that?
I mean they're making great progress. Their numbers are in the high 60s now across their platform from what I understand. They've gone into South Dakota to go and start to increase those numbers as well through certain programs and they have their for space.
And I think that's the key and is a project that doesn't have their port space lined up today probably doesn't have much of a chance to get operating in 2025. So it's really going to be a function of can they continue on with their right of ways, get the permitting that any they need later, hopefully, later this year, get in front of the agencies in these states and then from there, start construction and start to move very fast.
But I would say, if I had to estimate, hopefully it sometime in 2025, when we start to achieve some of these values. Remember, the 45 is 2025 through 2027. So you want to make sure you get some of that. And our view is the 45 does get extended, it's going to be a battle, but I don't -- I think there's a lot of interested parties, not just the ethanol industry. It's the -- it's everybody from airlines to refiners to everybody in between.
So strange bedfellows where we all want the 45 expanded. But we're hoping and we're optimistic that sometime in 2025, some of these projects will be online. And we're working on other projects as well. And when we do our teach-in, we hopefully have some interesting discussions around other carbon intensity reduction projects and partners that we're working with to do that as well.
Your next question comes from the line of Kristen Owen with Oppenheimer.
So can you just give us a sense of the moving parts that you've identified for 2Q between the ethanol crush, Wood River being down, some of the maintenance. Just help us understand what the buildup for crush margin can look like in 2Q? And then how we should think about any changes in baseline EBITDA bridge exiting 2023? And if we could start there, that would be great.
Yes. So with Q2, it's a shutdown. The first thing we start with Q2 is that's typically a shutdown quarter for us. So that traditionally impacts Q2 for really the industry as well, and we've seen that in the recent EIA numbers. On paper, if we kind of look at the next 3 quarters, including base crush and everything else we're doing, you have to remember that when we started probably the last call we had, last earnings call, margins were significantly negative out on the forward curve for the whole industry. And they've really moved a lot since then. We believe they still have room to go.
When we kind of take a look at, at least on paper today, and let's just call that unhedged on paper, what we're seeing in Q2 is a fully loaded margin of everything kind of in that $0.12 to $0.17 a gallon range just depending on what we -- what part of the quarter we can get some of these shutdowns finished and get Wood River back up and running.
In Q3 on paper, fully loaded with the ethanol crush kind of coming back at least is for us $0.15 to $0.20 a gallon on paper today. And in Q4 on paper today, it's $0.22 to $0.25 a gallon with some volatility every day just depending on the movements of the window in Chicago. But right now, it feels like it's tighter. It's nice to have a baseline crush somewhere near positive or more than positive in the last half of the year. And as we exit 2023, we'll have to wait and see what translates. I think the interesting thing about this industry, and again, I may be wrong on this, but these plants are getting older. So while everybody gets excited about running at a 1.1 million barrel per day rate, and I think that's going to be there forever. It's a lot easier to run it at 950 to 1 million barrel a day rate, keep your plants running than it is to push towards 1.1 million barrels, which that was the debottleneck number that kind of was the maximum we've seen.
I think that's going to be very limited. As this industry gets older, shutdowns take longer. Everything is a little more expensive, and it's just harder to run these plants with the labor that we have. So it's really an interesting dynamic that we're seeing right now. Again, I may be off a little bit on that, but it kind of feels that way from an industry perspective because we should be running harder with the margins that we have on paper as an industry, but I think that all those come into play.
So overall, as we at 2023, I don't know that this industry has a carrying capacity of 1.1 million barrels on a 355 day rate anymore. I think as these assets get a little bit older, it's harder to run that heart, which is beneficial to, I think, overall, and then driving season is driving demand is very, very helpful right now.
And then you mentioned the potential for a new fiber product. I'm just wondering, where does that sit within your overall ingredient opportunity? How easy is that to pull off the line? And how should we think about something -- a sales process around something like fiber? How should we think about that process evolving?
I'll talk a little bit about how it evolves, and I'll Leslie kind of come in and talk a little bit about the product overall. So what we've discovered is and around our IP only, we can come up with a clean fiber fraction that we've been able to modify through fermentation and then use our precision separation and add a component to that to make a fraction that is more valuable than, say, a traditional distillers grain, but maybe less valuable than the high proteins, but a lot more volume of it.
So we have -- it's part of our patented process, and we are now working with customers domestically and globally on this fraction. It can provide significant uplift in the future as we think about protein. Protein again was never just about making 50 Pro and getting a little bit of oil upgrade. It was all about these other fractions that we're going to go after that a wet mill goes after it today and even other companies go after in other things that they do around brain processing. But I'll talk Leslie will talk a little bit about the product that we have and some of the things that we're working on.
So Kristen, in terms of the development cycle, we really look at this as start as indicating as a holistic product development approach. So as we make improvements to the protein because the protein fraction comes from the original distilling fraction, we are keeping a close eye on what the potential is of the fiber.
So it really goes hand in hand, and we are seeing improvements that make the products very interesting for specific markets that would actually be almost companion products to the protein. You asked a question in terms of how we fit this in on the sales force side of things, as we've built out the team and went deep into some of these markets with our Rolodexes of our sales team, this really becomes another product that they can sell to our customers. So we actually expand our opportunity and really build on to the view that we have an animal nutrition platform that really comes off of this precision separation technology.
The next question comes from the line of Manav Gupta with UBS.
I just wanted to talk a little bit more on the policy and macro side. We had all these renewable diesel plants that were supposed to start in 1Q, a number of them faltered. It looks like now they're finally starting to come on. MPC indicated there at 260 million gallons, probably going to 730. And at the same time, now we are finally starting seeing progress on the sustainable aviation fuel side, again, which you will be very integral part of.
So help us understand what you're seeing out there in terms of finally picking up from the IRA benefit where you're actually seeing tangible benefits in terms of demand for both corn oil and eventually ethanol picking up as both RD and SAF start to gain momentum.
Well, let's talk about the oil first. As we indicated, we went from a weak market as the U.S. was importing some offshore used cooking oil, of which some of those are still sitting offshore because they are getting rejected because of quality, which helped us as well.
But that would cause a bit of a weak tone to the fast market earlier in the year. That's changed significantly. I think our low CI oil becomes more valuable over time as more plants start up because of the value from the programs that are in place to monetize that low CI relative to soybean oil. So soybean oil will always be the most volumetrically available for this industry and the easiest to buy and probably the best logistics.
So they will always have their place, and it's the right product to use for some of these processes, but we fit in very well. And as I said, we have seen now moving from soybean oil price to a little bit of a discount to now again a $0.05 to $0.10 a pound premium to soybean oil futures, which is somewhere in that 10% to 15% range above. And that's pretty much not the high that we saw earlier last year, but we're starting to get towards that. And even LCFS coming back, it's going to help us a little bit as well as we've seen those values come back as well. That's helping the value of our oil.
So we have our place. More plants that come on is a good thing. Plants that run better is a good thing. I mean that's what's happening as well is that any industrial process as we've seen through MSC as well, anything that starts up just takes longer than you might think.
And some of these are plants that come online, take a little bit longer than you might think but once they kind of get through that initial debottlenecking bring on the oil, and that's really good for us. Our role in SAF and ATJ at this point, is still limited because we're really not commercialized in any technology across the industry, although there are some really great technologies out there, including what we're trying to develop as well.
So we'll see where that goes. But the first thing is you have to decarbonize your out call we have certainty of that. We're not going to -- what's happening in SAF around vegetable oils and half of feedstocks, that doesn't have a ton of an impact to the alcohol market for us. It does on the veg oil market only. But we're more of a last half of the decade on ATJ and SAF coming out of the ethanol industry.
Perfect. Next is a simple technical question, which sometimes our clients ask us and some would ask you straight away. Sometimes people asking GP would be able to benefit from IRA if the government doesn't change the CI score model from CORSIA to the GREET. So if you could help us understand that a little better?
Yes. No, we need great. I mean, without a doubt, we're pressing for that. I mean it's harder. I mean you make more money with GREET, but even without GREET, the first 35 point -- 30 points of carbon sequestration gets you to a good place. And then on top of that, another 5 to 10 points on our combined heat power systems, which is cogeneration, which are easily financeable or people would just actually put them on your sites and you get all the CI point and credits for that. So there's a lot to do there, but I think it's -- you can't just look at it, say, GREET versus California GREET. It's not quite that easy, while certainly easier with GREET coming from the government side, we'd like that. I think the industry would like that as well. But overall, certainly, we're going to benefit from it either way.
As soon as you sequester, you're in the game. And then beyond sequestration and beyond the combined heating power, there's another 5 to 20 points to go after in multiple different areas, post-combustion fermentation, or post combustion gases that we can -- and carbon that we can sequester that's worth quite a bit. We've got on-farm programs that are worth quite a bit. I think it's a big, long program, but it's not necessarily we have to have it, but we'd like to have it.
Your next question comes from the line of Andrew Strelzik from BMO.
I think if I did the math right, that you mentioned on some of the 4 consolidated crush margins, it gets you to like a run rate of $100 million EBITDA in the back half of the year, if I have that right with the contracts to the low end of the medium-term range you've talked about in the past. So #1, I guess, correct me if I'm wrong there. #2, how much of that do you actually have hedged out over those quarters? And is it at those levels or at different levels? And then #3, excuse me, what are the moving pieces left, I guess, to achieving that type of margin?
Well, I think the moving piece is to start out with the last part of your question, is ethanol crush keeps moving around. Having corn and your input is lower. The last part of it, some of it is where the opportunity may exist as well as basis levels in the West towards the end of the year. We've been able to buy some corn. But we think those have an opportunity, especially late in the third quarter with the crop coming on and getting planted early.
Finally having crop in the United States, that's going to be helpful. Corn oil prices recovering a little bit. Hopefully, in the last half, that's not included in those numbers, getting to a bit of a 60% protein market not included in those numbers. But we think overall, I continue to remind people, even though we've come off the lows that we saw earlier in the year of the deferred curve and the margin relative to what we should have and what we've seen in the past, it's still not high enough.
And I appreciate that people are excited about this movement from the lows to where we're at today. But our belief, and we've seen it, and we saw it last year, and I think we'll see it potentially again this year because I think we have actually a better fundamental backdrop for our fuel than we had last year. I think there's more to go. And I'm sure now that I say that, it's probably going to go straight down, but I don't think it is.
I think there's more fundamentally to take out of this market. And I think that's probably where you can achieve some higher values, both in oil, both on base crush. And hopefully, we start to see even some of our wider expansion of our protein margins in the last half of the year.
Yes, we have begun to hedge as we indicated on the last call. Last year, we reluctantly did not hedge as much as we normally would have. And I think we left some opportunity on the table as evidenced by the movement of the crush. This year, we're not going to take it on our way, but we're also not going to hedge everything.
So I mean right now, we're somewhere between now and end of the year, 50 million to 100 million gallons hedged versus the rest of our production of 600 million or 700 million gallons left to produce. And we'll just take our -- we'll pick our points. I mean, when you look at that fourth quarter right now, it's very interesting using base crush and everything else you know to hedge a $0.22 to $0.25 a gallon margin on paper.
Now you do have some basis record basis risk, but the rest of it's pretty well, you can lock down most of that opportunity. Well, we haven't seen that for quite a while. And we remember 2 years ago in the fourth quarter with similar backdrop and fundamentals, having much higher value. So we're watching it closely, but I think the opportunity is there. I mean we're assessing and moving around and with the moving pieces.
Obviously, the first quarter crushed it and help us relative to some of our guidance. Wood River accident in the second quarter, which is why we want to get further explosion in the second quarter. So I want to get that plant up and running very quickly. That's 20% of our MSC production, and our customers want that product. And so we need to get that plant up and running very quickly.
So yes, we've had some moving pieces. But the fundamental backdrop on every component of what we do today is better than we've seen in quite a while in ethanol and protein margins or protein values related to corn values. And what we're finally seeing again on our oil margin and then finally getting to our sugar start-up. When you look at sugar margins, I wish I had it running today. We're talking about over $1 a gallon contribution margin from dextrose if you had a running today.
So that's where we're heading with this platform. We own the technology. We control the technology, we control the IP. And I think we have to really think about long before we started plant #1 on dextrose. Where is plant #2 going to be because you're -- you can't think about it in a day you ship your first truck, you'll be 2 years behind. And we have to think right now, but we'd like to lock in some offtakes to prove to the market that we can achieve those margins. And then from there, start to think about plan #2 very quickly.
And the second question kind of on offtake agreements. It sounds like from a corn oil perspective, 2024 is kind of the right time for you guys in your view, which I think is maybe a little different than you had talked about waiting for a while. So I'm curious why you think that's the right time? Is it just a function of once we get RD, et cetera, all the plants online that will have reached some steady state of value. And so that will be kind of reasonable or is it something else that's going on there?
Look, how we think about offtakes, if somebody wants to own part of our corn oil cash flows and control and have access to all of it, we want to get paid for that. And we're not just going to do that because we can stay in the spot market for quite a while.
We believe corn oil will trade at a premium for the higher or the most of any given year to soy oil only because what we know why because the CI value is so much more valuable to buy corn oil and uptake. Nobody is going to -- there isn't many people, if any, that are going to do a 5-year offtake at a fixed price today. That's just not how it works.
Now so we get a potential fixed premium. We've had offers on that. Could we get some people that want to take a small amount of our forward curve or forward cash flows and monetize some of that. Sure, that's easy to do, but I think there's better opportunities out there. And I think those opportunities, as you say, will come and the value -- and the true value of our corn oil business, and really, quite frankly, the corn oil business of this industry comes when we get later in this year and those projects turn on, and it's not just the soybean oil play, it's going to be low carbon. And they're going to have to meet low carbon numbers if they want to go into SAF.
So we feel like we're in a very valuable place right now, and I don't want to rush too much into it. We've been in a lot of discussions. But at this point, I think we are being patient has paid off. It wouldn't have mattered if corn oil went to 80 or 50, that's not what these offtakes are all about. It's a matter of the premium, it's a matter of the check upfront.
Your next question comes from the line of Eric Stine with Craig-Hallum.
It's Aaron Spychalla on for Eric. Maybe first, Todd, you talked a little bit about partnering for MSC with other third parties. Can you just give a little bit more color on the opportunity there? Is there an active pipeline? And just what might capital needs look like there, given paybacks?
Okay. I didn't hear that first part of the question. Can you repeat?
Yes. Just on partnering on MSC with third parties.
Yes, we continue to look at that approach. It's not a cheap capital investment when you look at it. But as we gain more proof points and we gain more -- and the industry understands what our system can do because it's a unique system with a unique product that is very, very consistent in what we produce and has other opportunities that we're working on much different than maybe anything they've ever seen.
I think our first proof point on partnerships will be when we turn on our Tharaldson joint venture and have 170,000 tons -- or I'm sorry, 170 million gallons of a new protein system running equivalent where we'll produce over 100,000 tons of protein. And by that point, the benefit of that joint venture is all the work that we put in to date to gain premiums for our products.
And I think when, quite frankly, the market sees that there's some that will want to invest and build their own systems, but a lot of them will just want to potentially partner to access our suite of innovation. And again, as I said, if you've been to Omaha and taken the tours, you see the innovation that's happening around this product, it's just not a protein concentration product. It's well beyond that.
There's so many opportunities that we're working with so many customers on enhancing different opportunities to change taste, texture, profiles, nutritional characteristics, those type of things, which we all can do, which increases the value of our products overall. So it's a step-by-step process. We're actually talking to people not just domestically, but globally as well, on partnerships in different markets where maybe they have unique opportunities around things like non-GMO or other opportunities that we can take advantage of as well.
So this is the beginning stages of what we believe will be a really exciting rollout of this technology. And again, it's not just protein, it's going to be protein. It's going to be clean fiber. It's going to be taste, texture, nutritional changes, those types of things, things we can do in fermentation that nobody else, we believe, can do in the world.
So we're in a very, very good place. But again, it's just a step-by-step process. First thing you do is run your systems well. We got to run Gen 1 well, which is continual -- sometimes a continual challenge on these older plants, but we'll continue to focus on that. And then from there, we just build off of all the initiatives we've talked about.
Right. And then just maybe as a follow-up on carbon capture. Can you just talk a little bit about the plans for other plants that are not on the pipeline and potential timing and just capital needs there as well?
Yes. I mean, for the most part, at this point, everything that we have in the West is on a pipeline, and we talked about that a little bit earlier. In the East, we are working on a project in Mount Vernon that hopefully in the kind of next couple of months, will come to fruition where we can determine what we're going to do with that carbon. And I think there's some pretty interesting opportunities there.
Those economics, anytime you can do your own project, if you have something close where you can't sequester are always better. It may take a little longer, but it's certainly worth their way. So we have that going on. We've got -- we're looking at Obion and what the alternatives are there. It's a little far away from some sequestration sites, but there could be rail options. There could be pipe options to the river and then shipping down barges.
We liquefied carbon as well. And so we're looking at those as well as the Osaka Gas Tallgrass partnership, where maybe some of that gets piped not as far away but into some type of synthetic gas that gets then shipped through the LNG terminal in the Gulf. So more to come on most of that, but we are working very hard really in any of those plants, especially in like a Madison and Mount Vernon.
The first thing we want to do there, even before sequestration happens, is look at combined heat power systems, reverse turbines, cogen. And the most interesting thing there is the fact that you can do that with a very investment-light opportunity because others want to build them for you and you get most of the benefit while they're getting a return on cogen. And so it -- it's very capital light for Green Plains to get 85% of the benefit with almost 0 capital investments. So we're looking at that. And that reduces -- we have a very high power cost in our East that makes those plants long-term less competitive with the West. By doing cogen, we will be able to have Western prices in Mount Vernon and Madison and potentially even cheaper than being on the grid. And that's where the next big opportunity, I think, in carbon reduction. That's 5 to 10 carbon points right there, but we still have to get the sequestration to get the max benefit.
Our next question comes from the line of Jordan Levy with Truist Securities.
Maybe just to take a step back quickly and talk to Fluid Quip. I'm curious, you guys clearly have your plate full with plenty of initiatives going on. But I'm curious how you're thinking about Fluid Quip as its own business as we move through the next couple of years, and I know there's turnkey initiatives and that sort of thing, but what's the appetite there to grow that business outside of the work they're doing for you all? Yes.
We have a strategic initiative around Fluid Quip to increase revenues, increase profitability ,continue to have that as a -- it's a stand-alone P&L for us within our system. They can do everything from what we do in our Gen 1 plants through MSC clean sugar hits. That's a big win for Fluid Quip on top of that. There are several initiatives about expanding things like I talked about. If we get to 1.5% yield on oil, that's a Fluid Quip Technology upgrade. They're working on that. We don't work on that at Green Plains. Then we get to 70% protein, that's a Fluid Quip initiative that they're working on. And we'd like to do as much of that mechanically as we can to go as far as we can. We're even looking at different ways to even get closer mechanically to 60 Pro, which we think we have some opportunities to look at that. But fermentation is very interesting as well. They're working with everybody from dry mills to wet mills to other types of industries and separation to sell their technology and sell their machinery.
It's very undervalued, I believe, in our valuation from a portfolio perspective, yet to be proven out for some. But when you look at the value of the IP they have, they have value of potentially what they're developing and it doesn't take a lot of money, allocation and capital allocation to get to some of these end games because a lot of the work has been done prior to acquisition.
They just have a really great franchise. And we just don't have enough salespeople, quite frankly. So if you know anybody that wants to sell our -- some of our technologies, we're hiring at Fluid Quip because we have some great things.
Like I said, we're talking to all different industries domestically and globally from Canada to Europe to Brazil. We help those plants, both in all types of grain processing and everything in between. So we've got a lot of stuff to do there. It's totally in my opinion, an underappreciated asset of Green Plains. But again, you got to wait and see the contribution for that, and it will be -- it's probably a little while away, but they contributed last year, they'll contribute this year. And overall, we think the future is very, very bright for that technology provider.
That's good to hear. And then just a quick follow-up. Any thoughts on the current landscape for ethanol assets? I don't know if you're seeing any ethanol M&A activity or anything there.
Yes. I mean it's hit and miss right now. I think the bigger, more efficient plants are more valuable than the smaller, I would say, substandard size. So you either got to make those bigger or just -- like we said, we assess our portfolio every day. If we can apply some type of technology to any of one of these plants that we have, it probably doesn't fit long term with our portfolio, but we're not worried that somebody else won't take good care of them either.
So we evaluate our portfolio, and we think there's probably room for some optimization of that moving in and out. And we look at what's in the market today. There isn't a lot in the market today for acquisitions of large plants. I think, especially again as this curve has gotten better, attitudes are better in the industry. We still have a ways to go, again, as I said, I try to caution people that while they think that this move is really, really good, I think it could still continue to get better.
So I think there's some opportunities there. But our view is that you got to have a plant that you can apply carbon, protein, oil extraction further, dextrose, fiber, nutritional products. If those plants can't do all of those things, it's probably something we'll look at in the future to say, should it be in our portfolio and how do we go get more that are in our portfolio. One way is for acquisition and one way is through partnerships.
There are no further questions at this time. I would now like to turn the call back over to Mr. Becker for closing remarks.
Yes. Thanks. We really appreciate you being patient for this call. We know they go long sometimes, but we try to give you as much information on what we're working on as we can. There's a lot, and we think it's very valuable for our shareholders and stakeholders to understand what not just the near-term opportunities are, but the future opportunities.
When we look at one of the most valuable opportunities for us is getting this clean sugar system up and running. And our view is that we want to have 200 million to 300 million gallons converted to sugar by 2027, which is a significant increase than from what we are building today, and that really is where the game changing starts to happen relative to everything else that we've been doing.
And so we're working on all of that, and we're working on behalf of all of you, hopefully, in the next couple of months, we have some more good news around the things that are important to you around technology and demand and offtakes and having a nice steady ethanol market for a little while would be nice, too. So we'll see you next quarter, and thanks for all of your support.
Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.