Greetings, and welcome to the REX American Resources Fiscal 2019 First Quarter Conference Call. I would now like to turn the conference over to Doug Bruggeman, Chief Financial Officer. Please go ahead..

Thank you. Good morning and thank you for joining REX American Resources' fiscal 2019 first quarter conference call. We'll get to our presentation and comments momentarily, as well as your Q&A session, but first I'll review the Safe Harbor disclosure.

In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements that involve risks and uncertainties within the meanings of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements reflect the company's current expectations and beliefs, but are not guarantees of future performance. As such, actual results may vary materially from expectations..

Thank you, Doug. Going forward, we currently in the ethanol business, our current projection is somewhere between the small loss and breakeven for the current quarter -- for the second quarter. For refined coal, we expect to be -- the income to be down significantly from last year's production as down.

This won't be particularly significant to the company. So we're currently carrying lower tax credits significant amount of tax credits..

Good morning. I will keep my remarks brief. As I mentioned in our previous call, the first quarter, challenging environment has continued in the second quarter. The company is facing a number of logistic issues due to the weather-related problems and unpredictable.

Our plant productions were interrupted 18 days in March, 14 days in April, and continued with some interruptions in May at this -- at the South Dakota facility. For all those reasons, we could be facing a loss or breakeven in the second quarter of 2019, as Stuart mentioned earlier.

On top of that, we're experiencing continued uncertainty because of the trade dispute and the small refineries exemption. Over production of ethanol had lead to a decline in the crush margin. Ethanol producers produced over 16 billion gallons in 2018 according to EIA.

Ethanol exports were very healthy, last year 1.7 million gallon, but during the first three months of 2019 exports fell to 382 million gallons compared to 512 million gallons during the same period last year. Brazil, Canada, India were the top three importers although exports of ethanol are running behind last year's volume.

We expect ethanol export will be close to 2018 level as more countries began to blend ethanol into their fuel supplies due to -- because of their growing concerns about air quality, hopefully the European market will open up soon for ethanol export..

Let’s just open the questions at this time..

Sorry. In conclusion, we dramatically outperformed most of the industry in difficult times. We were dealing with a period of low crush spreads caused by low RINs effect. So low RIN pricing, higher than normal basis corn pricing, and we still like, as Zafar said, managed overall after-tax profitable quarter.

We have among the best plants in the industry, they're Fagan/ICM plants, and that’s allowed us to outperform the industry. But the most important thing and its going to become even more important over the next year, it's our people.

We have good relationships with the farm -- we have the best people in the industry who will maintain great relationships with farmers. Some of those farmers are shareholders in our plants. And that's going to, in my opinion, be a huge benefit going forward. Our people will set us apart and will make us, in my opinion, even better than we are now.

So again, I think, I applaud our people, and that's what really sets us apart from the rest of the industry..

Our first question comes from the line of Pavel Molchanov with Raymond James. Please proceed..

Let me ask about M&A. I think in your comments, you said that you do not have any eminent ethanol plant acquisitions, but you also talked about how the entire industry is struggling and your margins are holding up better than the rest.

In that context, would it not make sense to bubble up some of the plants that maybe struggling in particular are even facing some distressed situation. It seems like this is very much a buyer's market at the moment..

To answer your question, it is the buyer's market, but we don't believe in gobbling up plants that have historically not been profitable. It’s a regional businesses, it's start to corn prices, it start to rail, it's start to a number of different things. And we don't believe just by consolidating an industry you can improve margins.

We believe that to make money in this business you have to have the very best of best plants. And those don't come on the market very often. If one did come on the market, we would absolutely try to gobble up. And we have in the past and have been unsuccessful in those efforts. But that doesn’t mean that we don’t try.

We also don't want to pay -- we're pretty, and I think our shareholders appreciate this about us. We don't, if we're going to gobble up someone, we're not going to over pay to do it.

And maybe one of those great plants came on the market, now we might have the opportunity, but to my knowledge there is no plants that are on the -- the plans that people are trying to sell today, to my knowledge, at least what's been brought to me, have not been their best plants. They have been marginally best.

I wouldn’t say marginally best, but plants that only make money during high crush spread periods are higher crush spread periods, and we're not into. We're interested in having the best of the best. That’s been our formula. It's worked all these years. And I can't see us deviating from that..

Okay. And then more about just the macro landscape, obviously, China has not buying any U.S. ethanol for year and half since, I guess, April of 2018. But the embargo on U.S. corn or the restrictions on U.S. corn are a lot more recent. So if the lack of Chinese demand for U.S.

corn is pressuring corn prices, but with ethanol, it's essentially status quo, does that year-over-year comparison in terms of margins actually -- should it look better at some point, because they're one and the same ….

Theoretically, corn prices should be going down, but they're going way up by bigger. And Zafar may not necessary to me. But a bigger impact has been the weather and the lack of corn planting has caused -- corn prices to skyrocket.

Zafar, do you want to comment more on this?.

Yes, Pavel, as you know, I mentioned earlier, only 58% is planted compared to 90%, and five year average is also about 90%. So I think the major problem we see, as I mentioned, South Dakota, the back roads are certainly is making difficult to transportation.

And then river is making difficult, railroad is not performing and farmers are really concerned what's going on at this time. And so if the planting season is not very successful, that's what farmers and funds are looking into it. And that's the reason the continuously prices have -- continues to go up. And ethanol is moving the same direction some.

We are really not major concerned about corn pricing going up and ethanol pricing going -- it goes the same time, because it's all about margins.

But the main problem is that DDG market, DDG market due to the China situation, and the movement of the river, and railroads and trucks is really making the DDG price is not really as good as previously we have. So those are the reasons it is basically the margins are more shrinking due to the movement of DDG and due to the demand of the DDG..

And lastly, what are your expectations for E15 implementation? Is it going to happen this summer or will it take another year?.

I think whether it happens or it doesn't happen, I look at it as a non-expense. I think it's there are so few pumps out there, pumping E15. And everyone acts like these E10, like all of a sudden they're going to start planting newly 15 immediately. That's not the case.

There may be in a year or two, there may be more pumps with E15 and it can make a difference. But anyone that thinks that it's going to make a huge difference overnight is -- I don't think its right. It's just not going to happen.

Then if 2% and I don't even think it's 2% of the pumps offer E15 and 10% of those 2% of their sales are E15, and I don't think it's that when you're talking about such a negligible amount, and that it's irrelevant, in my opinion, a rounding error.

So I think, everyone's think the administration's giving that in place of really hurting us on the RIN side, and acting like it's helping us a lot, and it maybe will help us a lot along way down the future. But if they think there is going to be instant help on that front, I don’t believe it.

Zafar, do you want to comment and give a little more flavor on your opinion?.

Yes. The only thing which I see, basically, right now most of the gas pumps cannot -- they have to change every nine months. So three, four months they cannot use the same pumps. So it's going to make difference little bit. Now if they are able to sell E15 earlier around, and they don’t have to exchange the pumps, idle the pumps.

So that will help to increase incentive for these gas stations to add more E15 pumps over there. That may help to increase it, but I agree with Stuart, it's not going to happen overnight. It's probably -- it's continuing at least six months or year, and after that we may see some changes. But in the beginning, it's not going to be a major impact..

The next question comes from line of Chris Sakai of Singular Research. Please proceed..

This is Robert Maltbie in for Chris Sakai. Chris is tied up at our spring select web call at present. I’m traveling. So apologies if I miss some of the inputs earlier. Question relates to the impact to the current weather on the crush spreads..

It's hurting us a lot, especially in South Dakota. Farmers can't get it to our plants and its going to -- its hurting us. And I’m sure they will dry out at some point of time and basis is we will go back to where they were.

But at the moment, the weather -- and also with the planting season, people are like planting, and Zafar and I both mentioned earlier, so both of us think it's an issue..

And I may have missed it.

Could we have kind of a little bit of a background or update on the coal business?.

Yes. I give a quick overview. It's generated after-tax profits, its slow down the plant where we have our operation, it's slowed down -- I think it has to do Rob. I don't want to speculate why they've slowed down, but they've slowed down.

So we will be generating less credits, we believe in the second quarter running at the current rate of less credits in the second quarter than we did last year. All that being said, it really doesn’t make much difference because we have more than enough tax credits to cover. We're carrying forward tax credits right now.

So it's not -- it really doesn't. It won't from a cash flow standpoint that shouldn’t make much difference, maybe even help it a little bit. There has been less production..

There are no further questions. And Mr. Rose, I will turn the call back over to you..

Okay. I would like to thank everyone for your support. We will talk to you again next quarter. Thank you very much. Bye..

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines..