Green Plains Inc
NASDAQ:GPRE
Earnings Call Analysis
Q4-2023 Analysis
Green Plains Inc
The recent quarter marked a significant achievement in renewable corn oil production, hitting the highest yield yet. Additionally, there was a strategic completion of Green Plains Partners' acquisition, which involved issuing Green Plains stock and cash. This move was aimed at better positioning the company for stronger storytelling to shareholders and an improved balance sheet.
The company reported a decrease in depreciation and amortization expenses by $2.4 million from the previous year, totaling $24.3 million for the quarter, and anticipates a uniform depreciation and amortization moving into 2024. The consolidated crush for the fourth quarter showed a substantial jump to $49.7 million from $7.9 million year-over-year, reflecting effective performance in the face of operational challenges.
The company strengthened its liquidity position, with end-of-quarter liquidity surpassing previous quarters thanks to effective execution and favorable industry fundamentals. The acquired cash position and credit facilities provide substantial financial flexibility, with average borrowing costs held at around 7% and no immediate debt maturities until 2026.
Capital allocation for the quarter amounted to $31 million, with intentions to increase annual expenditures to between $125 million and $150 million. Focused investments are anticipated to rapidly yield results and drive transformative changes across their operations.
The company reported the strongest quarter for 50% protein production and sales, with plans to expand into 60% protein products. There is a particular focus on achieving better pricing in international markets, suggesting a strategic shift towards global customer diversification for the future.
A major strategic emphasis for the company is on the decarbonization of its platform and the creation of low carbon alcohol products. With several carbon capture initiatives under way, especially in Nebraska, the company is positioned for an early competitive advantage in carbon capture.
The company remains on track with its 2025 transformation targets, adjusting to market movements, timing, and capital allocation. Leveraging the Inflation Reduction Act's incentives, the company sees an upside potential in its strategies, with Nebraska carbon reduction alone presenting a $100 million annual opportunity by 2025.
The company is evaluating its plant portfolio to determine the potential for conversions to clean sugar production and enhancing dextrose capabilities. By repurposing existing plants and focusing on high-value production technologies, the company expects to significantly increase its earnings potential beyond 2025.
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Good morning, and welcome to the Green Plains Inc. Fourth Quarter and Full Year 2023 Earnings Conference Call. Following the company's prepared remarks, instructions will be provided for Q&A. [Operator Instructions] I will now turn the call over to your host, Phil Boggs, Executive Vice President, Investor Relations. Mr. Boggs, please go ahead.
Thank you, and good morning, everyone. Welcome to Green Plains Inc.'s Fourth Quarter and Full Year 2023 Earnings Call. Participants on today's call are Todd Becker, President and Chief Executive Officer; Jim Stark, Chief Financial Officer; and several other members of Green Plains senior leadership team. There is a slide presentation available, and you can find it on the Investor page under the Events and Presentations link on our website.
During this call, we will be making forward-looking statements, which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's press release and the comments made during this conference call and in the Risk Factors section of our Form 10-K, Form 10-Q and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement.
Now I'd like to turn the call over to Todd Becker.
Thanks, Phil, and good morning, everyone, and thanks for joining our call today. We reported a solid quarter this morning with $44.7 million of EBITDA and a plant utilization rate of 95%. In addition, this was our highest quarter yet of ultra-high protein production, along with our highest ever corn oil yields, but we still have further to go and more to unlock. Our team continues to execute on maximizing the opportunity across our entire platform, and we believe there is additional upside on our portfolio of assets that we aim to achieve as we move through 2024.
This quarter and the start of 2024 had many events that has led us to this point where our structure has been simplified, and we are ready to bear the fruits of our labor on the path we laid out a few years ago and feel highly confident in our ability to achieve goals. Before I dive into the quarter, we also announced a strategic review this morning. As you can see in the 8-K we filed, we have entered in a cooperation agreement with Ancora. Our Board believes our company is undervalued and we will embark on a strategic review to best determine how to maximize our value for all shareholders as we aim to achieve new milestones over the coming months, what Jim will talk about later in the call. These are, as you know, far-reaching processes, and we'll explore all paths to value realization. We will have nothing further to announce or discuss regarding the strategic review at this time.
Moving on to the results. We were largely open and unhedged in the fourth quarter, which started out quite strong as we talked about, and then rapidly tailed off as the quarter progress. Market fundamentals remained weak in the start of the year with higher stocks numbers and production has remained stubbornly high with the exception of some weather-related slowdowns, although this cold snap tempered this weakness it may have been the recipe we needed to change the 2024 outlook back to a more normal environment and more positive. As we get into spring maintenance and summer driving season, we anticipate that the base margin could strengthen as it has historically with our strong run rates and simplified structure, we are well positioned for this opportunity.
Our team has done a great job bringing consistency back to our operating metrics, but we still have opportunities to further improve efficiencies and bring our operating cost per gallon down as inflation is tempering across our plant stack. Plants across the industry are getting older, which we believe -- and we've been articulating for the last year, more and more, we believe, others in the industry are experiences as run rate seem unable to sustain the peak at 1.1 million barrels per day.
We believe this represents a great opportunity to drive additional margin to the bottom line. We are really excited for our protein production in 2024, and the fourth quarter was another good quarter of production with 66,000 tons of sales and a bit of a build on inventory because we produce 60% protein at a commercial scale in Wood River, and we have now just started to ship some early adopters, some volumes. I will get more into that after Jim's comments, but great progress is being made.
Looking forward, we are excited for the opportunity to add these volumes with our JV -- add to these volumes with our JV at zero and ethanol beginning commissioning as we speak and set to start protein production in the next couple of months. This will be the world's largest flu equipped MSC system, and we are eager to apply our learnings from prior start-ups to this partnership. The conversion of 735 million gallons of capacity, including the Tharaldson JV to ultra-high protein has set us up well to service a global demand base, whose demands have not waned or wavered one bit.
Our renewable corn oil production saw another impressive quarter with the highest yield for our platform yet. We benefited from pricing some of our fourth quarter early before veg oil prices came under further pressure as well. start-ups have been slower than expected from the new R&D capacity coming online, but we still expect them to start or ramp production over the next quarter or 2. Liquidity in the fourth quarter improved again as our platform ran consistently, and we are able to capture the available margins.
In early January, we completed the acquisition of Green Plains Partners. In all, we issued 4.7 million shares of Green Plains stock and $29 million in cash, which included the $2 per unit in cash plus the unpaid distribution. In exchange for the outstanding public units of the partnership. We will also look at the assets in this portfolio to determine the right mix and opportunity to strengthen the story and balance sheet and drive value to our shareholders. And now I'll hand the call over to Jim to provide an update on the overall financial results. I'll come back on the call to do a deeper dive on 60 Pro, the start of our Dextrose facility and Shell project as well as the exciting carbon opportunities shaping up in Nebraska.
Thank you, Todd, and good morning. Green Plains consolidated revenues for the fourth quarter were $71.4 million, which was $201.7 million or approximately 22% lower than the same period a year ago. The lower revenue is attributable to lower prices for ethanol and dry distillers grains in Q4 of '23 as compared to the same period a year ago. We saw a drop in our commodity inputs with corn and natural gas down significantly year-over-year, contributing to a solid improvement in operating income for the fourth quarter compared to an operating loss in the same quarter of 2022.
As Todd stated earlier, our plant utilization rate was 95% during the fourth quarter. That compares to a 93.4% run rate reported in the same period last year. and slightly improved from 93.9% from Q3 of 2023. We anticipate our plants to continue to perform in the low to mid-90% range of our stated capacity for 2024, barring any events outside of our control. For the quarter, we reported net income attributable to Green Plains of $7.2 million or $0.12 per diluted share. That compares to a net loss of $38.6 million or $0.66 loss per share for the same period in '22. One thing I'd like to note, our diluted share count for the quarter and year was 58.9 million shares.
This share count excluded the shares representing our outstanding convertible notes because using the asset converted method would have been anti-dilutive for the periods I stated. EBITDA for the quarter was $44.7 million compared to the $5.7 million in the prior year period. Looking at the last 2 quarters of 2023, when our platform utilization was strong and we ran at our targeted level, EBITDA for the 6 months totaled approximately $97 million, a vast improvement over the negative $43 million in EBITDA recorded in the first half of 2023.
Depreciation and amortization expense was lower by $2.4 million versus a year ago and came in at $24.3 million for the quarter. For modeling in 2024, depreciation and amortization should average approximately $24 million in the quarter. We realized $49.7 million in consolidated crush for Q4 2023 compared to the $7.9 million in the prior year. Again, when you add in Q3 of '23, consolidated crush for the back half of the year totaled $98.2 million.
For the fourth quarter, our SG&A costs for all segments was $32.8 million compared to $28.9 million reported in Q4 '22. The increase was driven by higher consulting and professional fees and higher stock-based compensation. Interest expense was $8.7 million for the quarter, which includes the impact of debt amortization and capitalized interest, it was $2.2 million higher than the prior year's fourth quarter.
This increase was primarily due to capitalized interest being recorded in the prior year period as our MSC projects were under construction. Our income tax benefit for the quarter was $0.3 million compared to a tax expense of $4.9 million for the same period in '22. At the end of the quarter, the federal net loss carryforwards available to the company were $37.3 million, which may be carried forward indefinitely. Normalized tax rate for the year, including minority interest, was around 28%. We do anticipate that our tax rate for 2024 will be around 24%.
Our liquidity position at the end of the quarter increased from the prior quarter due to continued strong execution and favorable industry fundamentals, leaving us well positioned to achieve the next steps of our transformation plan. Our liquidity included $378.8 million in cash, cash equivalents and restricted cash, along with approximately $251 million available under our working capital revolver.
I want to note that our acquisition of Green Plains Partners closed in early January. The final vote was supported by 92% of the unitholders that took the time to vote. This provides us with the opportunity to simplify our corporate structure and governance, generate near-term earnings and cash flow accretion and reducing our SG&A expenses related to the partnership, improve our credit quality of the combined enterprise as well as streamlining our reporting structure in 2024.
Going forward, net income from non-controlling interest will be -- will no longer be included in anything from the partnership since we now own 100% of it, which represents about $5 million a quarter. Our non-controlling interest on the balance sheet will be adjusted as well. I do want to give you a reminder that we have no debt maturities until 2026, and our average cost of borrowing during the quarter was approximately 7%. For the quarter, we allocated $31 million of capital across the platform, including $17 million to our clean sugar initiative, about $6 million to other growth initiatives and approximately $8 million towards maintenance, safety and regulatory capital.
Our total capital spend for 2023 was approximately $109 million. As of today and considering the strategic view Todd spoke of earlier in this call, we anticipate CapEx will be in the range of $125 million to $150 million this year. Our plan is to deploy capital and the highest and best returning projects with shorter-term paybacks. Now I'd like to turn the call back over to Todd.
Thanks, Jim. And so we have so many game-changing exciting things happening at Green Plains. I could take a few hours to go over it, but I'll give you some highlights instead. We are in the process of beginning to commission our first and the world's first commercial scale clean sugar technology system that enables a dry grind processing facility to make commercial quantities of dextrose for use in industrial, food and chemical processes, and this is located at our Shenandoah plant in Iowa, and we believe we will be ready to begin delivering product in the beginning of the second quarter. On the customer front, we continue to have strong interest in our low-carbon intensity dextrose products. Stay tuned for some announcements on commercial agreements as we are in late-stage negotiations with several counterparties for a significant portion of our production over the next several years. With up to 40% lower carbon intensity than a wet mill, and we validated that in 2023 and continue to with life cycle assessment for our dextrose compared to life cycle assessments for U.S. corn wet milling industry and the other European industries as well. And we believe, and it's actually happening is it would be a game changer for us and could ultimately reshape our entire company.
We expect to see results quickly and our team is already working on a second, even bigger location where to put it, but we will have further insights on that to share in the future as well. Our protein, we continue to see strong demand for our ultra-high protein products. We are nearing some commercial agreements on 60% protein. But before we get to that, the fourth quarter was our strongest quarter yet on 50% production and sales, and we continue to broaden our domestic and export customer base, yet we feel the international markets are proving to be more valuable to us for realization of better pricing, and we expect that in the future, a larger share of what we do to be in the 50 Pro markets, and that will be offshore.
We have sold some 60% protein commercially in smaller beginning quantities and are in the process of finishing some commercial feed trials with some larger potential customers and have begun price negotiations for a larger share of the recipes and rations that they have. As with any new product brought to market, we are executing the necessary steps to develop a large-scale program, including setting up a global supply chain.
And importantly, we are making sure we get paid for what the product is worth. We continue to believe we are on track to convert 20% to 30% of our portfolio to 60 Pro sales as we exit '24 and expand that in '25. Our current discussions are indicating strong demand for these higher protein levels.
While we all want it to happen today, we believe this is not a matter of if, but a matter of when. Additionally, our innovation team is focused on developing new and exciting product attributes, commonly unaddressable by macro ingredients such as both proteins. For example, the team is in advanced stages, very late stage of some novel product enhancements and expect to start customer specific validation work later in the year. The innovation team is also implementing a new research solution to accelerate fermentation recipe developments for both our core products and our ingredient platform.
Lastly, we are excited to be launching our branded products for 60% protein later in the first quarter, so stay tuned as we move through 2024. So to reflect on what we have accomplished. We have increased 50% protein production and sales in Q4, broadening our domestic and export customer base. completed a commercial run of 60% protein, have verification of great digestibility and Exon Amino Acid profiles and have started to sell 60% protein to Europe, Middle East and Asia with South America as the final price. But let's not forget, it is a brand-new product, and we are also new as a supplier. So a lot of things have to be set up to do a large-scale program, including a brand-new end-to-end supply chain on this product. And we continue to work hard very continue to work every day very hard on this with the team we put in place.
Beyond dextrose protein, probably the most important part of what we are trying to do is focus on the opportunities to decarbonize our platform and produce low carbon alcohols. We have diversified our carbon strategy across multiple carbon capture system pipeline projects and continue to explore alternatives for our non-pipeline locations. Our 3 Nebraska plants which represent 287 million gallons of our production should come online in mid-2025 and we anticipate having some additional updates on the progress of the well permitting and compression equipment in the coming weeks and months.
Given this project already has its main trunk line in the ground as a repurpose natural gas pipeline and that sequestration would occur in Wyoming, which has primacy and has already begun to approve Class 6 wells. We are highly confident that Nebraska biofuels will have an early advantage over ethanol plants at our position for carbon capture at this time. Decarbonizing these plants in the industry as a whole, enables the production of lower carbon intensity ethanol, positioning it to eventually be a feedstock for sustainable aviation fuel production, but also to have lower carbon intensity facilities that still make valuable animal feed ingredients and renewable corn oils.
Our two Iowa and two Minnesota plants, which represent 316 million gallons of production are on the Summit Carbon Solutions project, which we expect to get state level approval in Iowa and North Dakota early this year, they continue to work on a path forward in South Dakota, and we expect this project to be operational in late 2026. That's still in time to participate in the 45Z clean fuel production credit. The Treasury department has indicated that an updated version of the Greek model will be utilized for SAF tax credits and importantly, that CCS and Climate Smart Ag practices will count towards lowering CI.
We expect the updated GREET model in early March, and then we will have a better sense of our role of our decarbonized ethanol can play in a growing market for alcohol to get sustainable aviation fuel. Today, Brazilian ethanol and so-called used cooking oil from China, qualified to be imported for sustainable aviation fuel and receive U.S. tax credit. So it's only right that American corn farmers and soy farmers have the same opportunity after billions of dollars of investments they have made over the years to grow the U.S. biofuels industry.
Remember that under 45Z our renewable corn would be advantaged to other vegetable oils rather than the $1 per gallon blender credit for every RD or biodiesel gallon, these fuels will soon be judged on the CI of the feedstock and we anticipate our corn oil will be in high demand as a low CI feedstock for producing RD and sustainable aviation fuel. With the latest decline in veg oil prices, we have seen those revenues under pressure with current pricing in the mid- to high $0.40 per pound, but 2025 is when we are in advantaged feedstock in totality. So to recap this section, we are very excited about the opportunity right in front of us, starting for our first clean sugar facility commercialization per protein, bringing on our sales on JV online and positioning our Nebraska assets for decarbonization.
Finally, another important milestone upon us is the upcoming commissioning of the collaboration with our Fluid Quip MSC technology, combined with Shell fiber conversion technology at our York, Nebraska location. We haven't talked about this much since we announced it last July, but we are excited about the long-term potential that this game-changing collaboration can have. Combining Shell's fiber conversion technology with MSC from Fluid Quip technologies we expect to be able to extract all available renewable corn oil from the kernel, produce cellulosic sugars from the fiber that can be made into low CI cellulosic ethanol and reduce further our production or further enhance our production of high-protein feed ingredients.
More to come on this as we bring the facility online beginning later this quarter, but now it's really worth paying attention to. When we set out in this transformation several years ago, we had a 2025 target laid out, and this remains intact with some variability on how we get there. Some based on the pricing like veg oils, some based on the timing and some based on allocation of capital to the best returning projects. A lot has happened since then. The biggest thing is the inflammation implementation of the inflation Reduction Act and how products are treated that we produce, but more importantly, the incentive programs. So when we look at 2025 full year and exit rate, we remain in the guidance ranges we had originally laid out with an upside case as well.
The opportunity to achieve early decarbonization, particularly in Nebraska, is leading us to rethink our capital allocation strategy. We are in the process of reviewing additional opportunities to more efficiently decarbonize and even expand production in Nebraska and our three sites. More to come on this as these projects come into view, but with the incentives that are now in place, how do we not participate with the advantage we have geographically at Green Plains.
As we exit '25, carbon alone in Nebraska represents over $100 million a year opportunity and we can reduce our carbon intensity even more. And then when carbon comes online, watch out what the earnings power will have in our carbon strategies business. So think about the business and platform this way. With the cleaned up structure, it's very easy. Our depreciation and interest are approximately $130 million per year at this point. So looking at our 2025 opportunity and beyond, free cash flow generation could be significant with the capital invested in MSC, an additional TST facility, expanded carbon capture in Iowa, Minnesota gets activated and renewable corneal is further advantaged through 45Z, not including the potential upside from our low CI alcohol and our SCT additional ability to grab more of the high-value products.
We are close and getting closer every day to our goals set out a few years ago. The value of our technology portfolio is next, and we believe we have a significant upside there as well. So with that, I'll leave it there, and thanks for joining the call today, and we can start the Q&A session.
[Operator Instructions] we'll go first to Kristen Owen at Oppenheimer.
Todd, I realize the answer to this is probably all of the above. But I want to start here with your comments on just all of the milestones that you're expecting in 2024 on track to the 2025 EBITDA run rate. Given that the stock is now trading below your replacement value, I want to ask you what's the fulcrum that tips the balance for GPRE into this 2.0 transformation. We've kind of seen what is to come on protein? Is it sugar, is it carbon? Like what really tips the scale here? And how do we think about that in the context of this replacement value sort of valuation discussion?
Yes, I think I think when we look at what's the full firm, it's really going to come through free cash flow generation. And when we think about how we cleaned up our structure and we look at the opportunity in '25 and that will begin to start generating significant free cash flow. And by '26, you're not just zero net debt, you're negative -- you're in the positive situation from the standpoint of you continue to build cash.
And I think that's what we really set ourselves up for because when we kind of look at our ability to get to where we want to go, a lot of the capital has been spent, some left to be allocated, but there's also some upside as well. So when you look at all of the segments, the IRA obviously, is a big deal since we started this. And we think that carbon alone has increased in the opportunity. Our ability to commercialize 60 Pro, it's also a big, big opportunity for us.
And then lastly, when we look at our clean sugar technology and our corn oil on top of that, all of that, when you add it all together in '25, it starts to generate significant free cash flow returns and that's really what we set this up for, which is why we simplified this structure or before is a bit convoluted in terms of how do you get the money to the bottom line. And instead of just focusing on EBITDA, we're going to focus on EPS and free cash flow generation.
But look, some things have to happen. We've got to get clean sugar up and running. We got to think about where #2 is going to be. We've got to continue to build out our protein systems and continue to commercialize 60 Pro and we would like to see a bit of a recovery in vegoil prices, but that advantage that comes in is something we're looking forward to in '25.
But I think the bigger thing really is this base ability to get a return on carbon capture is something we didn't really plan on being this interesting. And I think when you add all that together, that's why -- I think at this point, not including the base fuel, which, by the way, we believe, will be more valuable as you decarbonize. When you -- that's why we at this point, we think that 25% range of guidance that we have put out there is still solid and -- but it all comes down to the structure of our income statement. And I think the structural income statement is changing dramatically with our ability to get money to the bottom line very easily now.
Okay. So then I want to ask my follow-up question, a little bit more granularity on the carbon side since that seems to unlock so many of these sort of lift for you. You've talked about the advantaged facilities in Nebraska. You've outlined the EBITDA potential there. Can you get a little bit more specific on the milestones, maybe once we get past that Class 6 well approval, what needs to happen next? And maybe talk about your structure of that participation relative to what we've seen in your structure with Summit?
Yes. We can't really get into because of the -- some of the agreements that are in place with each of the different structures, except to say that what we've laid out in terms of Nebraska, what are the milestones? Their ability to get the Class 6 well permits, which they've already -- which Wyoming has started to issue and this company is next in line for that. our ordering of compression equipment, which we are in process of finalizing what is needed and then the construction of that -- the -- a couple of things we have to do in Nebraska in terms of upgrading their pipeline, which I think they're doing anyway.
It's a very solid company. And then I think when we have all that, it's it looks like a mid-25 startup. And we're not that far away from that because a lot of work is being done already. They already have been building new laterals for their natural gas to move off of different pipelines. So all of it's happening. I mean, the money is being spent. The difference in this project is the pipes in the ground already.
So that's where you think when you look at Nebraska, it's in an advantaged situation in a much earlier starting point, but that doesn't mean the rest aren't going to come as well. It's just timing at this point. But the e-cons in Nebraska or what we've laid out is as we start up mid midyear '25 hopefully, which I think we're on track at this point for somewhere in that range, you start generating baseload earnings over $100 million a year annualized just on the three Nebraska plants, so when you look at that, and I'm looking at it very carefully, when we look at capital allocation, the fastest payback, quite frankly, are trying to get more volume out of some of those sites.
It doesn't mean I'm going to do a double or anything like that of our sites, but adding a fermenter or adding some grind or adding to some capacity to take advantage of these fast-paying projects, that -- you could supercharge those earnings out of Nebraska pretty fast. And that's what we're looking to do. I mean those base earnings are so strong and so powerful that those first couple of years went during 45Z and hopefully, we get 45Z extended has some serious cash generation. That's what we're going to go after pretty hard.
We'll move next to Jordan Levy at Truist.
Todd, I know it's difficult to really give any concrete outlook here with the volatility in cross that. But I'll ask you anyway. You've got clean sugar and barrels starting up, you're getting going on 60 gross sales. utilization generally appears to be trending better. Maybe just help us walk through how you're thinking about the high-level 2024 EBITDA trajectory here.
Yes. I mean the base fuels started out weak and so we have to deal with that. But I think overall, it started out weak last year. But actually, at this point this year, we're better on the market than last year, if that makes any sense. So I mean, and this cold snap was actually a little bit of what this industry needed to draw some stocks pretty hard and get production offline, and it's taking a little bit longer to come back online. That doesn't mean it won't come back online, but we're also seeing an uptick right now in blending in some markets. We're also seeing a uptick right now in some export takeaways with some new interest coming in as well.
And we're trying to assess that to determine on that base fuel and what we do and what the opportunity is. But when you look at it year-over-year at this time, it looks better than it did last year. But again, as we all know, that's a very volatile part of anybody's portfolio. Our key milestones, as I kind of referenced here was we want to be able to make the extra shift expos in commercial quantities. And while the contribution may take a little while.
Once we prove that we can do that, we can do it at scale and we could ship it to customers being used globally or domestically, or not globally. We know that we're off to the races. It's because the margin structure there exceeds everything else that we would be doing in totality. So we think that owning and controlling that technology proving it out at full commercial scale, and you can kind of see it online occasionally when we show pictures to say, this is a game-changing technology that I think redefines Green Plains in the future on top of carbon capture on top of the other things that we're doing. But think about it like this, Jordan.
We have plants that may not be on a pipeline. Well, they may be clean sugar plants. And that's really how we're thinking about this at this point. So the maybe a full or partial conversion to clean sugar at that point, and we're going to increase our dextrose capabilities. We are months away from showing the naysayers who said, "You can't make dextrose to be using industrial production at a dry-grind ethanol facility we aren't a year away, we're months away, and we are highly confident that we will be able to compete and ship product.
On top of everything else that we've outlined. Look, we're well positioned. I wish I had more actually. I wish I could actually have more plants at this point and more production with our platform. We had as many as 17 plants in the past. But I think within our platform, we could see some expansion opportunities for repurposing some plants as well. So net, we don't see a gain in production overall, but we see a gain in our earnings opportunities at 2025 and beyond. So I think we own a very powerful portfolio of technology that is undervalued as well.
And maybe just to kind of hit on something you said about wishing you had more plants or whatever. I'm just curious how you're thinking about the portfolio at this point. You as any portfolio as better or worse plants. I'm just curious your thoughts around downsizing to scale up to your more premium plants? Or how you're thinking about the portfolio overall at this point given the opportunities you see out there?
We're going to look at our plant stack. We do all the time. We have some work to do. I think we have some areas that we wouldn't mind looking at a different opportunity there like the East where we would probably put a sugar build out there. And then in the west, wherever we can take advantage of some of these opportunities. Some of our plants -- these plants are getting older. So we have some CapEx to do to improve these plans. But once these carbon initiatives come into play, there will be plenty of opportunities to make sure that we can upgrade so that we can make as much product as we can. . And so I think we'll -- over the next couple of years, we're going to look at our plant stack to determine what fits, what doesn't, what can we go, elsewhere, what can we expand? What can we divest out to earn more operated money in other areas. And so we're continuing to look at that. That's one of the areas that when we think about the future of Green Plains, we have some fantastic locations and some fantastic plans that quite frankly, could produce more. And we have other locations that depending on that may not fit the future Green Plains depending on how we think about our technology deployment.
But as of right now, we're going to keep the stack we have. You can't buy an ethanol plant. I mean it's not that you can go out and say, to the market, I'd like to buy one, the values are significantly higher than our stock price represents in a replacement perspective. You cannot buy a plant in the market of high quality for the value of what our overall stock price represents today or the value of many portfolios.
So while they certainly have pressured us lately we believe that's unfounded because just the base value of our assets alone, we believe are worth more than what the market is giving us credit for. Before you even talk about the additions of MSC, the additions of clean sugar and the additions of carbon capture equipment as well.
We'll move next to Adam Samuelson at Goldman Sachs.
Yes. Thank you. Good morning, everyone. So maybe just coming back to kind of the framing on 2024, and I appreciate there's a lot of moving pieces between the underlying ethanol market and kind of the different plants that are commissioning, Todd, but can we just maybe, zero in on the contribution from Hy-Pro. And I believe in your script, you said you expect to exit the year kind of with 20%, roughly 20% of Hy-Pro at 60%. What proportion of actual 2024 volumes are going to be sold at 60%? And can you kind of help frame the premiums that you're seeing today? And as we think about '25 volumes, what -- is it only 20% of 25% Hy-Pro volumes that are 60%? Or is it a substantially larger never than that?
Yes. So let's start with what we believe the demand for 60 Pro can be. We are in enough discussions right now and have identified enough demand that would take all of our products if we can get them to buy it. And that's really what it comes down to. And it just takes time. And so whether it's going to be starting in the middle of this year, which is kind of what we're hoping for is to start getting one of our plants sold out for the next 12 months. I mean that's really what we're in negotiations around the world at this point on values, but also in the fact that we're getting a lot of conclusions on some testing that's been taking place over the last several years as well.
So it's hard to predict when it will start. We say we say last -- this year, we want to have 20% to 30% of our production sold at 60 Pro, and that's what we're shooting for every day. And we want to have much more than that in 2025 is what we're shooting for every day. But I can assure you, and I can say this, we are in enough negotiations that could eventually take all of it. We just have to get the buyer on the other side to execute. And with the changes what we're watching here, which is very interesting, which is the changes in the ratios between corn and soy when you have soy coming down, and soy going up and all of a sudden soy meal coming down and corn staying strong. And those ratios have played with buyers' minds a little bit, like how do they put on something versus a kind of corn glutamyl replacement all the way to a fish meal replacement.
It's a long answer to say that we have enough demand identified that could take all of our products. It's just a matter of time now. And so I can't -- we believe this year, we're going to get -- we're going to start the program. And we think in 2025, it will be much stronger.
Okay. And then included in the release in a separate 8-K this morning, you kind of announced Ford is going to do initiate a strategic review process. You had a standstill agreement with kind of a major shareholder. Can you talk about what -- just elaborate a little bit on what you're going to be doing now from a strategic review perspective at the Board and yourself and the management have not been doing over the last 2 years just to clarify what's changing?
Yes, that's a great question. I think from the standpoint of where we're at in the evolution of our cycle, we're not very happy with this latest share price decline. But we also want to do its best in for all of our long-term shareholders as well. And a lot of people have been in the story for quite a while. As we said in our release, it's not limited to acquisitions, divestitures, merger, sales, partnerships and financing is all of those we work on all of the time, plenty of those other than the sale process and the merger process per se. We just think there's a lot of value to unlock here.
We talk to a lot of our shareholders and Ancora was one of them. And I think we came to a good conclusion on how we're going to approach the future. I think they want to achieve as high a value as they can for how they're thinking about it, but so do all of our shareholders. So it's not like we've haven't done some of these things. But I think when we look at Green Plains, we have a very powerful platform that we believe today is significantly undervalued versus our future cash flows, and we're going to have to test the market on that a little bit. And more to come on that, but really -- at this point, I think what's in the press release is what we're going to say at this time. But being on the board and being a large shareholder myself, I strongly believe that there's a lot of value to still achieve out of our platform and Green Plains. And we're going to test that out.
Adam, I can jump and add one thing. I think what is different coming into '24 than previous year is bringing in the partnership really is it's going to allow us to have more flexibility on what we want to do, particularly, as Todd said, if we want to reposition our assets from an ethanol perspective, it's much more easier for us to move forward. So the fact that that's tucked in now and -- we're back to a whole Green Plains corporation. I think it's going to help streamline us how we can move forward on a variety of different things to me. So that's what's probably different today than maybe over the past 2 years.
Okay. And if I could just squeeze one more in on decarbonization. I think Todd talked about $100 million-plus annualized run rate from the Nebraska plants once the pipeline start up next year. So am I interpreting that, that you think that the net value from 45Z to your Nebraska footprint is something on the order of $0.30 to $0.40 a gallon. And if that's correct, kind of what are you assuming the CI score for your ethanol would be next year?
Yes, we have a couple of different plants. Some actually go right on to the 45Z, but one of our plants still goes stays on 45Q in those calculations. So there's upside because we're looking at York and what to do as an old plant with a higher CI score, so they qualify for 45Q plus any carbon credits as well. So what we're looking at first is York to say how do we first decarbonize that plant, and we think we'll probably do it through a distillation and significantly drop that carbon score, so we could actually earn more on top of that. So yes, as a starting point, that's what we're putting out there with upside from there, and some of it will be driven by 45Z. Some of it's driven by 45Q to start going to Z later on to those aren't in the numbers. And then on top of that, the more interesting thing that we're seeing is the interest -- on top of LCFS because LCFS will see where that market goes to, but the interest in the voluntary credits from high-quality carbon sequestration.
And we're just kicking that off -- but right now, we're seeing values in that $30 to $50 a ton range just for good high-quality credits from new projects like this. But I think when you looked at what Summit was able to achieve at $100 a ton, I think there's upside from there as well. So we'll put a little bit in those numbers. But overall, you're right to think about that. But if we can -- and so when we're done, we think that like a central city's carbon score will be somewhere in the mid-20s before you even get into pharma carbon and before you get into post-combustion carbon or some other areas. So that give you an idea of our lowest plant, we'll probably be in the mid to low 20s to start, but York will take a little bit more time to get there. So it will be a range. But mid- to low 20s, absolutely, we believe, is a qualifier for anything that comes out of reach for SAF modeling.
We'll move to our next question from Eric Stine at Craig-Hallum.
Just a few questions on my end. Maybe just starting on clean sugar, Obviously, Shenandoah coming online, that's a near-term event. I'm curious what that does for commercial discussions. Do you have customers that are waiting on that they don't need to -- they need to see it. It's rather short in terms of the time period and then they get going and take volume pretty quickly? Or is this something where you have a trial period and it's -- it will take some time.
Now our product, it's a little bit of both of what you're saying. So for the food guides, we got to wait to get -- some of them want to see the plant, the product, what you're running, get our final certification. So that always takes a little bit longer because what we can show them out of York isn't necessarily [ serially ] what they're going to buy out of Shenandoah. So food takes a little bit longer on the industrial side, we have already been approved as a product in industrial processes for some of the customers we're talking to and others are in final stages as well.
But -- and there has not been any negative feedback from a standpoint of anything industrial, which is the largest quantities that we'll start with that this product won't work in their processes. They -- obviously, they want to see the first product out of Shenandoah, but we are negotiating for shipments this year and much larger shipments in '25 and '26. We're on a multiyear negotiations taking place. And we think we'll get some of those completed in the next kind of 30 to 45 days. And it's a little bit different, I think, than when we started out on protein because protein, we were kind of bringing a new product on -- it wasn't Soy 48. It wasn't corn good meal is somewhere in between. Nobody's ever used it. So that one took probably a little bit longer on clean sugar on dextrose, it's a carbon copy of what you buy every single day, except you get a lower CI.
And even though maybe sustainability has taken a back seat in some stories, the buyers still want to buy a low CI feedstock because they're getting -- still getting, for example, in industrial products they're still getting requests for them to lower their carbon score of their product as well, so that -- so the retailer may be able to lower that. So it's a very different process for us. We just have to make the product now.
It's a $200 million plus capability per pound per year. We'll start it up slow, but it will immediately go to 50% and then work to get to 100%. That's kind of our plan. So this is the year where we kick it off. And then as soon as we see that product come out, I think that gives us the confidence to say that we're going to go full bore on where do we go with #2.
Got it. That color is helpful. Maybe just turning to hy-pro, you mentioned that the international demand for 50 Pro is quite high, but also talking about there's enough demand that eventually you could be completely at 60 Pro. So just thinking about that dynamic as the market kind of evolves and as you look at the market, I mean, do you think that those foreign markets will pay for 60 Pro? Or is that more of a domestic sale when all is said and done?
Well, first of all, on the 50 Pro, what I said is we're earning higher returns internationally than domestically at this point, but we're selling to both markets as we develop our 50 Pro market globally, but we definitely get a higher value for the product when it goes offshore. On the 60 Pro market, I would say it's a mix of domestic and export to achieve success. You remember that a lot of Aqua's done globally, not necessarily in the U.S. So most of everything we do Aqua other than some areas in the U.S. is going to be foreign in terms of pet, it's a combination of both domestic and foreign and export markets. And then also when we look at kind of -- we -- those are really the two big markets that we're focused on 60 Pro, but we have enough identified demand and in discussions that could take all of it if they all call it today, we have some work to do to ramp up.
But that's actually -- as we often laugh to ourselves, what if they all call today, right? So I mean, we have 50 Pro on for the rest of the year. We've got things committed in pet for the rest of the year. So -- but we are -- we have a team that constantly works every day with global demand to place 60 Pro. And again, it's not a matter of if it's going to be a matter of when and it's going to be a matter of how fast.
And as I said, I'll say it one more time, we have enough identified demand to take all of our products. We just got to get it to that next point.
We'll take our next question from Ben Bienvenu with Stephens.
So network capacity utilization at 95% in the quarter, very strong. It seems like the network is running efficiently now. I know you guys have had a lot of work that you've been doing through the transformation. As you look forward to 2024, should we expect a similar run rate as we move forward, absent seasonality and maintenance and the like. Or should we expect more variability as you commission ramp new projects?
No. I mean, our goal is to have this or better as we move forward. We think there's more to unlock in our platform still the January freeze, we slowed down a little bit, but it might cost us a point or two. But generally, we're back up and running this morning with everything running every dryer running every system running this morning. So -- we had a team -- and we're not done. We still have -- we find things every single day. These are getting older. So -- but we are pushing these assets as hard as we can. And we would think there's some more breakthroughs to come to unlock more capacity just that we even have today, whether it's moving enough corn, conveyors or getting old, those type of things.
So we're not done with achieving run rates. Yes, could there be a down quarter here in there, sure. But generally speaking, from where we started the year to where we ended the year, made a lot of progress, but there's a long way -- still a long way to go. And Christian, the operations team across the whole company, understand it and are fully focused on getting the most out of our assets every day. But I don't think you should expect that our utilization will go down.
Okay. As it relates to the review of strategic alternatives and kind of broadening the scope of what you look at, does that preclude you from continuing to advance any of these transformational initiatives in terms of, hey, sugar first ramp in sugar is quite successful, and you want to do a second one. Or is that not the case and it's more a context for thinking beyond maybe some of the things that you've been doing already and it's incremental, not constraining.
Well, we're not -- it's business as usual on every single thing we've laid out. There's nothing changing from that perspective. It's a -- just to make sure that we believe, the Board believes, I believe some of our shareholders believe that we're just undervalued first versus replacement value second versus the value of our future cash flows, third versus the simplification that Jim outlined. And when you -- it's very simple now to get money to the bottom line. We just -- we need the market to help us with that. But we're -- no, nothing is changing in terms of its business as usual.
If we are already looking at clean sugar #2, we want to make sure we can make it in clean sugar #1. We've got to make sure we pick the best sites, make sure we have utilities, the wastewater, all the things that we need, that we discover. We are still fully focused on 60 Pro. We are still fully focused on decarbonization. It's business as usual. But I think this is a good time sometimes to also pause to make sure that what else should we be looking at from a portfolio mix from the location of our company, from the value of our company from everything that we've outlined in the press release.
We'll go next to Salvator Tiano of Bank of America.
Yes. So firstly, I want to come back to the Nebraska project. and understand a little bit some of the economics. I mean, you mentioned the $100 million, which certainly sounds pretty good, but I think for the Summit pipeline, you have disclosed a little bit some information. How would it work here in terms of 45Z and 45Q that you mentioned will benefit you? Do you have to actually share this with the pipeline operator and who is incurring the cost of the carbon capture equipment that you said you're ordering right now?
And the last part is here, just a little bit on the time line. You said you're finalizing the order, and I was under the impression that usually the backlog wouldn't allow something to be ready within a year, but you seem to have a start-up date in mid-2025. What gives you confidence that you will receive equipment and be able to install by that time frame?
Well, that backlog, first let's address the backlog. That backlog has certainly come down a lot just because of the different delays in different projects around the United States with Navigator not building anymore as well as some of the enthusiasm that was early enthusiasm. I think when we look at startup dates for all the different projects that are out there, Nebraska project being the first earliest start-up date, compression equipment is available. And so we're confident that as we put the order in, we'll be able to be up in time for the start-up. The e-cons, we can't in the different contracts, we really never put out there what each of those would represent nor at this point would we do that, except to say that we're giving you a range of what Nebraska is capable of in terms of starting points with upside from there.
The key is get no matter what project is, get it in the ground to earn some 45Zs, try to extend 45Z if we can, and then you move to 45Q and then carbon credit value. So generally speaking, the e-cons for Nebraska are what we've outlined, the total e-cons kind of when we look forward for '26 and beyond and especially when you get into the 45Qs era, they'll come down a little bit. But generally speaking, you want to attack anything you can to get on in the 45Z area.
If we were today fully operating across the Western plants that we have on different pipelines, we would be significantly higher than that relative to our carbon earnings for that. Not on top of the path, we strongly believe that we strongly believe that those earnings are going to come and they're not being appreciated quite frankly, in the valuation of our company. And the reason I say that is because, three years ago, nobody wanted to talk about it. Nobody believed it. We're a year away from the first project coming online. So when you look at carbon strategies earnings, as you get into just on 45Qs, based on the -- and the end of 45Z, you're talking about full rate at Green Plains in the 150 to 200 rate for the first couple of years of Z when all the projects are online in terms of EBITDA and then dropping a little bit after that when 45Q takes over.
So there's some serious earnings power that I think nobody wanted to talk about a year ago, but it's definitely what we're talking about today because we year--we're only -- really only 1 year away or so from the first project starting up. And the -- and by the way, lastly, that's a long answer, but there is a project already operating at an ethanol plant in direct inject that is earning all of the money that we talked about relative to Zs and or relative to the 45Q today, well, 45Z comes online. But it's happening. Money is being earned already on some of these projects.
Okay. Perfect. And I wanted to touch base a little bit on your con calls. Clearly, the market has been -- has not been very tight recently, and we're still going to get a lot of [indiscernible] probably in 2024. What are you seeing in terms of the core base you're paying this year, what you're expecting for '20 -- sorry, what are you seeing about the [indiscernible] you're paying right now and for the full year? And Generally, when we're thinking about $0.18, $1 or more income basis in the past year 2023, Shouldn't that be a very meaningful tailwind for your core ethanol margins this year?
Well, it's a combination of everything. I mean, ethanol is down significantly as well. So while the corn basis is down year-over-year, ethanol is down, but flat prices down, which means distillers grains are down. So -- but generally speaking, we just manage the margin. If you take a look at some of the big processors, and I'll give you the generalities and honestly what we're at our plant. Nebraska is a 10 to 20 over basis market today.
Middle Iowa processors is a 5 to 15 over basis market today. and Central Illinois is about 10 to 15 over. So a lot of people are modeling much lower corn costs generally, because they're going back to historical basis in some areas, but generally, across the bigger processor market, we're still sitting a little bit over corn. But that's still significantly lower than $1 or $1.50 over corn than we were a year ago or 2 years ago. So that is a nice thing to have. But generally speaking, it all just goes into the equation to come up with a margin. And that's really how you achieve your goals.
Well, I guess what I'm trying to understand is on mix, as you said, $0.10, $0.20 versus $1 before. So if we think about the [ $0.90 ] improvement in your corn calls setting aside the axle corn price, which is also deflating that would seem to add a very, very meaningful amount of your -- I don't think we saw before. So that's...
But you're not -- again, it's 4 components. It's natural gas, it's corn, it's ethanol, it's distillers grains. And you can't just look at one of those components to think just because there's a $1 less corn cost which is $0.30 a gallon, Ethanol has adjusted for that. It's not like they -- what corn give is, ethanol can take it away. So that's kind of what happens is the market that you see. You don't just get to earn the full a gallon or $1 a bushel gain just because your input costs dropped, it all goes into the margin. It's corn ethanol, natural gas instilled less your operating cost gets you to an EBITDA margin. So it's all just part of the calculation.
I know that's exactly what I'm trying to get to because when we look at the corn prices and the ethanol price, if you add the base that you said $0.30 for example, Benefit for gallon, the ethanol profits appear to so they probably should be stronger than they are. That's what I'm trying to get to. And that's why I'm trying to figure out what I may be missing here.
Yes. But remember, often, what you see is we take a -- when we look at our EBITDA, we take our we adjust for our SG&A because we are an independent company. And while you may see others that don't have to necessarily adjust for SG&A, our plans right now, because we have a different type of plant stack than maybe the best producer, it costs us a little bit more. But generally speaking, a little more OpEx, but generally speaking, it's all a combination of and you're not going to -- you're not -- the market is not getting the full benefit of this corn input cost breaking hard because everything else has adjusted around it.
We'll move next to Craig Irwin at ROTH MKM.
So most of what was top of mind has already been put out there. So maybe, Todd, can we talk a little bit about private market transactions and really what's going on around some of the plants that are being offered out there. So we've heard that there's actually a pretty intense level of interest because of SAF and the anticipated language is March, ethanol to aviation fuel is something that's pretty simple by a couple of pathways. I mean, I like the pathway you're working on. But I understand that the asking price for a lot of these plants is pretty rich, and they also have demands for tails on carbon, et cetera. Can you maybe just update us on what you're seeing in the private market and you did mention the strategic review, so that always does include a potential sale. Would you expect those conditions to maybe be a part of the consideration for Green Plains as well.
So the private market isn't really existing today. There's definitely a lot of interest for plants. But if you have a good operating high-quality plant in a good location, it's above -- it's in that $1.80 to $2 range before you could even get somebody to even talk to you a gallon of replacement. To replace a client today, it's a net dollar, well, probably 200 to 250 a gallon range to build a plant today from scratch. When you look at our -- what we think is 950 million gallons or so of capacity and you look at that without -- that's without protein without dextrose, without carbon without anything today, that's what it would take, I think, in the private market to even think about clearing a plant of any good quality. I think that's some of the bigger issues that we see.
When you look at that compared to our market cap and our net debt position, which is lower, we're -- the public markets are a significant discount. And it's not just us, it's others that are in public or significant discount to the valuation of the private market. But that's been going on really since the beginning of time. So we see that often. And so we're well positioned. But when we look at it from the perspective of decarbonized alcohol, that isn't even being valued yet. So I mean, absolutely, the calls come in to say, how do we partner with you, how do we look at your decarbonized alcohol, how do we get supply agreements. Those are just starting, but they want to see obviously the carbon capture happen. But decarbonized alcohol will be a very valuable asset, and that's why we believe we're well positioned in Nebraska.
Excellent. And just a macro question around SAF and the potential deletion or diversion of ethanol -- corn and ethanol capacity into the aviation fuel market. For many years, we were talking about exports to Canada to Mexico to China, India, and potentially tightening economics of the benefit of ethanol producers. Would you expect the diversion of 1 billion gallons of production into SAF markets, ethanol production into SAF markets to have a similar impact to what was optimistically look for around exports in the last many years.
Well, if you take a look at SAF capabilities, and the demand for SAF, it could be significantly higher than that. Remember, a gallon of ethanol gets cut down by 1/3. So it's only 2/3 of a gallon of SAF. And when you look at that, take 1 billion gallons, ethanol, 600 million gallons of aviation fuel, which is a drop and it doesn't need to be blended in a $30 billion, $40 billion gallon domestic market. I mean it's a drop in the bucket to get to those numbers.
Again, somebody has to build it. They're going to be expensive. You need billions of dollars to build SAF. I think it's going to come. I think it first comes out of the [ bed ] oils, which is what we're seeing. But if you really want to get real scale, it's going to have to come out of alcohol. But it starts and ends with decarbonized alcohol. If you don't have decarbonized alcohol, you don't have a discussion. And that's why we believe, first and foremost, Nebraska is very valuable within our platform, totally undervalued but it starts with decarbonized alcohol and the first to market, we'll get some of the best benefits.
And so that's why we're pushing so fast on these projects. But no, I think it would be like to say that if successful 1 billion gallons would be diverted, I think it would be billions of gallons. And then the market will have to figure out how do they get to what they need just to satisfy everybody else's needs because it's not like the world needs us to take 2 billion or 3 billion gallons of ethanol off the fuel market that would have a significant impact to price.
Okay. And the last question, if I may, is I guess, most investors know you just can't get a catalytic converter on a jet, right? That technology would be great, but it's not available. But I think people really don't understand that aviation emissions are not tracked above 2,500 feet. And can you maybe share with us what you're hearing from investors are people educated on the fact that you've got 500, 600 ppm of sulfur in jet-fuel that's needed for the lubricity while on [ roadies ] is supplied, right? So are you hearing a more educated complete discussion around this from investors as they look at the responsible environmental investment in sustainable aviation fuels?
That's -- you stopped me a little bit. But I would only tell you that, look, the carbon intensity is very important. It's measured and monitored. I think people understand if you make sustainable aviation fuel, you're going to lower your carbon intensity of an aircraft, and it's a demand pull and not a demand push. I think that's the most -- so somebody is realizing it, I don't know that I understood much of what you were saying, but somebody is realizing it. So -- because we are getting -- we continue to get calls in for decarbonized alcohol to SAF, how do we commercialize it and how do we get it into the demand that's there for it today. And obviously, waiting for greet and the government to give us a bit more guidance on it as well.
So maybe I can restate that. Do you think investors understand how incredibly dirty Jet fuel is versus on-road fuel and take carbon out of the equation, the responsibility we have for equal treatment the airlines versus trucking and commercial and retail transportation.
I don't know if that's the case or not. I do know that it's been proven that Ethanol reduces carbon emissions by over -- almost over 50% in automobiles. So I'm assuming it would be the same at minimum, the same in Jet in particular, emissions as well.
And that does conclude the question-and-answer session. I would like to turn the conference over to Todd Becker for closing remarks.
Yes. Thanks, everybody. Look, we're in a really good place. Financially, we're strong as a company. We remain strong. We're not going anywhere. We continually to prove that we come out of our the first half of the year where our plants definitely had some problems, and we've fixed a lot of those, but we have more to go, show our operating run rates continue to be steady. I think we've shown the market that we are commercializing products and while some people may have different timelines , we're right on the time line, we thought we would be relative to our initial '25 guidance and where we're sitting for '24.
We have great products coming. We've got great technology portfolio. We're excited to realize the value of this company, and we'll keep you informed on the progress that we're making, and we've got some great stuff happening in this quarter with start-up Shenandoah. With the CST system, the start-up of SSCT and continue to work on 60 Pro. So keep watching us, we're excited about the future. Thank you.
And this concludes today's conference call. Thank you for your participation. You may now disconnect.