Executives: John Kraus - Director, Investor Relations Pat Bowe - Chief Executive Officer John Granato - Chief Financial

Officer
Analysts: Farha Aslam - Stephens Heather Jones - The Vertical Group Ken Zaslow - Bank of Montreal Eric Larson - Buckingham

Research
Operator: Good day, ladies and gentlemen. And welcome to the Andersons 2017 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to introduce your host for today’s conference, Mr. John Kraus, Director Investor Relations. Please go ahead, sir.

John Kraus: Good morning, everyone, and thank you for joining us for the Andersons' second quarter 2017 Earnings Call. To aid today's discussion, we have provided a slide presentation that will enhance our talking points.

If you're viewing this presentation via our webcast, the slides and audio will be in sync. This webcast is being recorded, and it and the supporting slides will be made available on the Investors page of our website at andersonsinc.com. Certain information discussed today constitutes forward-looking statements and actual results could differ materially from those presented in the forward-looking statements as a result of many factors, including general economic conditions, weather, competitive conditions, conditions in the company's industries, both in the United States and internationally, and additional factors that are described in the company's publicly filed documents, including its '34 Act filings and the prospectuses prepared in connection with the company's offerings. Today's call includes financial information, which the company's independent auditors have not completely reviewed. Although the company believes that the assumptions upon which the financial information and its forward-looking statements are based are reasonable, it can give no assurance that these assumptions will prove to be accurate.

This presentation and today’s prepared remarks contain non-GAAP financial measures. Reconciliations of the GAAP to non-GAAP measures may be found within the financial tables of our earnings release. Adjusted pre-tax income is our primary measure of period-over-period comparisons, and we believe it is a meaningful measure for investors to use to compare our results from period-to-period. We have excluded the impairment charge related to our wholesale fertilizer business, as we believe it is not representative of our ongoing core operations when calculating adjusted pre-tax income and adjusted net income. On the call with me today are Pat Bowe, Chief Executive Officer; and John Granato, Chief Financial Officer.

Pat, John and I will answer your questions after our prepared remarks. Now I'll turn the floor over to Pat for his opening comments.

Pat Bowe: Thank you, John, and good morning, everyone. We appreciate your joining our call this morning to review our second quarter 2017 performance. I'll start out by providing color on our main reporting segments and our strategic initiatives.

After John Granato provides a business review, I'll conclude our prepared remarks with some comments about our outlook for the balance of 2017. The second quarter results were mixed compared to the second quarter of 2016. While reported net income was down significantly, adjusted net income was up about 6%. Our grain business results continued to be much improved and we think we've rebounded from the recent tough market conditions of the last two years. Grain fundamentals are improving.

We're happy with our grain ownership positions and continue to enjoy wider carrying charges in corn, soybeans, and wheat than we did at this same time last year. Our grain affiliates are also performing better than they did last year. On the flip side, market conditions and delayed field work in the Eastern Corn Belt hurt our Plant Nutrient business during its most important quarter leading to a very disappointing results. When we last spoke in early May, fertilizer application had been delayed due to wet field conditions in the Eastern Corn Belt. The application delays persisted, and this coupled with soft fertilizer markets lead to reduced volumes and lower margins during the important corn planting season.

Value added fertilizers, which traditionally demand higher margins, were especially impacted. During the quarter, we undertook a review of the fertilizer business with a focus on value added fertilizer. We continue to believe that the outlook for value added fertilizer demand is good and we can expect value added fertilizer use to grow faster than base nutrients will grow. The adoption rate of value added fertilizer will not be as rapid as we're expecting due to lower farmer income and tighter balance sheets. This learning as well as our difficult recent results triggered an evaluation of the enterprise value of the wholesale fertilizer business.

Our analysis indicated that a portion of the goodwill associated with this business was impaired. As a result, we took a $42 million non-cash charge in the quarter. The ethanol business was solidly profitable despite lower year-over-year margins, which were driven by higher industry production and stocks. Vomitoxin and DDGS at our three Eastern plants was still an issue, but less so than in the first quarter. Railcar market seems to be slowly recovering.

As we expected, a quarter ago, our utilization rate rose compared to the first quarter. We purchased more than 700 cars with leases attached to them making this quarter the largest quarter in terms of number of cars purchased in two full years. We also continued scrapping mostly older underutilized cars. The combination of these actions has helped us increase the size and the average remaining life of the fleet. I’d like to update you on our ongoing strategic initiatives including the closure of our retail stores, productivity, and cost saving efforts, our systems refresh and achieving a zero harm safety culture that are all adding to shareholder value.

We have closed our remaining four retail stores. We're working through the disposition of the group’s real estate assets. We’ve already sold one of the four properties and expect to close on another shortly. We expect to be completely divested of these retail properties by early 2018. We are continuing our efforts to create a productivity culture.

We are making good progress on our second $10 million run rate savings goal, which we expect to reach by the end of 2018. We expect the benefit from a start-up of a new indirect purchasing system later this year. Our broader IT system refresh is performing well in the Grain Group and we plan to go live with the first wave of our Plant Nutrient locations later this year. We also continue to vigorously promote our zero harm safety culture and those efforts are paying dividends. In June, we recorded the first calendar month without one recordable injury, which is our best result in more than 30 years that we’ve been keeping records on this safety measurement.

I’m very proud of our teams’ improvement and safety. I will speak later in the call about our outlook for the remainder of 2017. Now, John Granato, will walk you through a more detailed review of our financial results.

John Granato: Thanks, Pat, and good morning, everyone. In the second quarter of 2017, the company reported a net loss attributable to The Andersons of $26.7 million or a loss of $0.94 per diluted share and adjusted net income attributable to The Andersons of $15.3 million or $0.54 per diluted share on revenues of $1 billion.

Adjusted results exclude the non-cash, goodwill impairment charge for the wholesale fertilizer business Pat discussed in his opening remarks. These adjusted results were 6% higher than in the second quarter of 2016, when our revenues of $1.1 billion generated net income of $14.4 million or $0.51 per diluted share. The 2017 second quarter results also include $3.5 million in pretax charges associated with the company’s exit from its retail business. We next present bridge graphs that compare 2016 reported pretax income and 2017 adjusted pretax income year-over-year for the second quarter and for six months. The graphs reflect an adjustment for the $42 million non-cash goodwill impairment charge.

I want to spend just a minute on the tax impact of the goodwill impairment charge. Because the impacted goodwill was acquired in connection with stock purchases, there was no tax basis in those assets, thus the goodwill impairment charge was not tax deductable. No tax benefit on such a large expense resulted in an unusually effective tax rate for this quarter and may result in an unusual series of effective rate for the rest of the year. The next slide shows the changes in adjusted pretax income by segment for the same two periods. We significantly improved our Grain Group results in the second quarter.

This was the third consecutive quarter marked by major improvement. Year-to-date grain results are more than $32 million better than for the same period last year. We experienced some second quarter setbacks in the other segment notably in the Plant Nutrient business due to the conditions Pat described earlier and in retail due to our store closing. Rails results lagged last year's numbers, but the year-over-year variance in the second quarter was $2.6 million better than the first quarter’s year-over-year variance. Of note in the quarter was stronger base lease income which was up by $2.3 million over the first quarter.

Ethanol Group’s results for the quarter were lower than in the second quarter of 2016 but they were still better than last year at the halfway point. Unallocated other net expenses were $1.7 million higher for the quarter primarily due to a $1.3 million pension gain in 2016 that did not reoccur in 2017. On a positive note, these net expenses were $1 million lower through the first six months of 2017 compared to the first six months of 2016. Now we’ll move on to review of each of our business units. Our Grain Group continued to improve year-over-year in the second quarter.

The group reported pretax income of $6.9 million, nearly $20 million improvement over the pretax loss of $13 million in the same period of 2016. Solid grain merchandising efforts in all three commodity, corn, soybeans and wheat coupled with stronger storage income drove the group’s performance. Base grain earned pretax income of $4.1 million in the second quarter compared to a pretax loss of $9.8 million for the second quarter in 2016. The nearly $14 million improvement well exceeds the nearly $10 million year-over-year improvement in base grain operating results we realized in the fourth quarter of 2016 and the first quarter of 2017. Grain affiliates Lansing Trade Group and Thompsons Limited also improved their year-over-year showing combining from pretax income of $2.8 million in the second quarter compared to a pretax loss of $3.2 million for the same period of 2016.

The Ethanol Group's performance fell short of their second quarter 2016 results due to lower average margin. The group earned second quarter pretax income attributable to the company of $4.7 million or $1.5 million less than the $6.2 million pretax income attributable to the company, the group reported in the second quarter of 2016. Margins were hampered by higher ethanol production in inventory. The group also continues to be negatively impacted by lower DDG margins due to both lower export demand and Eastern Corn Belt vomitoxin issue. We are pleased to note however vomitoxin issues abated somewhat during the quarter.

The Plant Nutrient Group earned adjusted pretax income of $16.2 million in the second quarter compared to pretax income of $23.5 million in 2016 second quarter. Base nutrient tons were down just under 3% year-over-year and margins were down by 12%. Value-added volume was down by 12% and margins were down by 18% due to field application this spring creating an oversupplied market. Following the $42 million non-cash impairment charge taken in the second quarter, approximately $17 million of goodwill related to the wholesale fertilizer business remain. We will perform our regular annual goodwill impairment testing in the fourth quarter.

The Rail Group generated $5.9 million of pretax income in the second quarter compared to $6.6 million last year. Utilization rates averaged 84.4% for the quarter compared to 83.6% last quarter and 88.6% in 2016. Average lease rates were flat year-over-year. Lower utilization was offset in part by lower maintenance cost that produce base leasing pretax income of $2.9 million which was slightly higher than last year's result. The group recorded income from car sales of $1.4 million, down from the $2.3 million of pretax income earned from car sales in the second quarter of 2016.

We still expect income from car sales for the full year to be comparable to 2016 result. The group is actively managing the fleet by scrapping older underutilized cars and taking advantage of higher scrap prices. The group's repair and fabrication businesses continued their strong performance as they set a second consecutive quarterly record for pretax income. We closed Retail’s remaining four retail stores and exited the Retail business in early June. During the quarter, the group incurred $6.7 million loss that included $3.5 million in exit cost mostly for employee separation expenses.

Overall we expect to record pretax charges near the midpoint of the $9 million to $14 million range we have communicated since the announced the closure. I'll now turn the call back over to Pat for a few comments on our outlook for 2017. Pat?

Pat Bowe: Thanks, John. As we look forward to the rest of the year, we still expect our adjusted 2017 net income to be better than our 2016 results. The Grain Group had a third consecutive significant year-over-year quarterly improvement with mostly good crop conditions in our asset footprint dry areas, the balance of the year will likely show improved results compared to 2016.

As we expected, an excellent 2016 harvest has greatly improved 2017 space income year-to-date. We expect to continue to earn good space income through the 2017 harvest and in addition we expect to have ample merchandising opportunities as harvest approaches. Nationally, corn and soybean crop conditions are reasonably good with some spots in the west dealing with hotter and drier conditions. In the Eastern Corn Belt, the crop as a whole is in good condition. Large U.S.

and global stocks and a good fall harvest will create continued space income opportunities for the group later this year and into 2018. The Ethanol Group is doing a good job driving production efficiency. All four plants are running well. In the second quarter, the industry out produced demand but in late July margins began to rebound. Declining stocks, moderating corn prices, record exports, strong gasoline demand and a favorable 2018 proposed RVO are all good signs as we move forward.

We expect the group’s results to improve in the second half of the year. Our Plant Nutrient Group continues to be impacted by unfavorable combination of oversupply, low prices and margins, and an ultimate grower customer base that is making very conservative purchasing decisions. The fertilizer industry needs to move towards a supply and demand balance to stabilize prices. It should lead to more normal buying patterns. A good summer fill program and fall application season would help improve our position.

We continue to believe in this business and especially in the growing role that value-added nutrients play in sustainable agriculture. Rail continues to be impacted by the oversupply of market. While there are some signs that we have seen the bottom of the downturn, the recovery of our utilization rates maybe a little more gradual than we thought earlier in the year. On a more positive note, we've been able to make our fleet younger buying almost 1,400 cars in the first half of the year and scrapping some older underutilized cars taking advantage of a higher scrap market. We'll continue to work on our productivity initiatives across the company.

We feel confident about hitting our targeted additional $10 million of pretax run rate savings by the end of 2018. We continue to put processes and disciplines in place that will make us a leaner and stronger organization. I'm pleased to announce that Srikanth Dasari has agreed to join the company as our new Vice President and Treasurer. Srikanth brings extensive public company treasury experience to our team. I'd also like to let you know that Bill Wolf, President of the Plant Nutrient Group, has announced that he'll be retiring at the end of the year.

We want to thank Bill for his 23 years of service to the Andersons and over 37 years of service to the agriculture industry. We’ve commenced an external search for the Plant Nutrient President role. In closing, our 2017 company results to date were disappointing. While our Grain business has rebounded and our Ethanol and Rail groups are performing well. We look forward to stronger finish to 2017.

I'll now turn it over to our operator who will help us in receiving your questions.

Operator: Thank you. [Operator Instructions] Our first question is from the line of Farha Aslam of Stephens. Your line is open.

Farha Aslam: Hi, good morning.

Pat Bowe: Morning, Farha.

Farha Aslam: My question is really focused on the Grain Group. Could you share with us the VSR, if it’s still in place and how long do you expect that to stay in place?

Pat Bowe: Good question, Farha. We had wheat harvested here in acres as you know and wheat were down a little bit this year, we have pretty big global supplies of wheat. There has been some troubles in the Australian crop off late, but in general we still have big burdensome stocks around the world.

We did a good job at harvest in wheat this year, and it was a very good quality soft white wheat crop which we like to see, and so our bins are full. VSR has been where the board is trading, keeping that two tick number in place. We feel it'll hold that two tick level. We don't see it probably going up to three nor do we see it dipping back to one for the near term.

Farha Aslam: That’s helpful.

And then you highlighted better base income on a per bushel basis, could you just kind of share with us the pick up that you’ve seen in corn and wheat and in soy? Just kind of more color on what – how much that’s improved and how sustainable is that improvement?

Pat Bowe: Sure. Probably, it’s hard to put a specific per penny bushel number on each commodity, but we have all of our space across all of our facilities as chock-a-block full and we feel good about our positions going into the upcoming fall harvest. Spreads have widened across all three commodities; corn, wheat, and beans to get more of - close to full carry or at full carry, so we're taking advantage of that storage income which is a good thing for us. We really had a good merchandising season for our team. Early in the year, where farmers sold beans, when prices had spiked up, and we were able to merchandise those beans and we kept storing wheat through that period.

I think an important point to make here is, volatility is really important for us as it is for everyone in the grain industry, and the market volatility in the second quarter really presented some nice opportunities for our farmer customers to get sales on at higher prices for corn and beans, so it's a great illustration of how we bring value with our grain account representatives working with these customers kind of in a disciplined, marketing plan to put in place contracts and just awhile back ago when we did have that spike $4 corn we bought a lot of bushels on that day and we were happy for our farmer customers who've been working with us on that.

Farha Aslam: That’s helpful. And my final question is on the U.S. grain situation. So you have better conditions in the east, a bit more difficult condition at west for corn, is that a benefit for The Andersons?

Pat Bowe: Yes.

We’ve seen – unfortunate for farmers especially up in the high plains in the Curtis, and similar to that we have these hot dry conditions. Overall, U.S. crop conditions in our appendix is actually not as good as last year at the same time. I think it shows 62% versus 74%. We are fortunate and I've been driving a lot in our Eastern Belt recently, we're good shape and we haven't had any really high temperatures to stress the crop in the East, and we've gotten pretty regular rains as I look out the window right now, the thunderstorm on the horizon.

So I’d say that beans have really benefited from some rains. We were a little bit wet in parts of Southern Illinois and Indiana early which there's some replanting. But in general I think what you're saying is true, having good crop conditions in the east, it's good for us and the way we are different is even while we export out of the Great Lakes through Toledo, we’re really a domestic merchandiser to the southeast and other regional markets for flour millers or poultry processors or ethanol players, and we feel very good in the position that, that crop will put us in as we go into next year.

Farha Aslam: That’s helpful. Thank you.

Operator: Thank you. Our next question is from Heather Jones of the Vertical Group. Your line is open.

Heather Jones: Good morning.

Pat Bowe: Hi, Heather.

John Granato: Hi, Heather.

Heather Jones: So one detailed question, I don’t think if I heard you correctly. John, in your remarks, did you say that you think the Rail Group is going to put up similar numbers to last year on a full year basis?

John Granato: We didn't say that. What we specifically referenced was sales from rail cars and we thought that would be similar. I can add a little color right to the full year.

I think we feel things are going well in rail, we have seen that turn in utilization albeit very, very slow, so we do feel good about the second half of the year. I don't think we feel it's going to be a blow out but we feel comfortable that it'll be in line to maybe slightly better than the first half of the year.

Heather Jones: Okay.

Pat Bowe: If I can add on to that, I think on the strategic side as we made in our comments that adding to our fleet – we've added 1,300 cars now with a younger on average car life and then scrapping older cars is something strategically we've been trying to do by bringing a little more and more youth to our fleet and also the diversification of that fleet. There are 23,500 cars today and there's some interesting shifts and demand, it’s funny how things turn, small cube hopper cars for frac sands are back in vogue.

So in just a year ago, those were in oversupply. While some other areas, plastics which was quite hard has come down a little and grain could return this fall demand if we have good crop. So general purpose cars or boxcars are steady so demand is okay and they’re starting to see a little light from what was a very quiet market six, nine months ago.

Heather Jones: Okay, awesome. Fertilizer, so I understand the issues that are impacting that segment but like – and we're thinking about the back half and clearly there's a lot of variables, harvest importantly weather, but assuming the weather cooperates and farmers apply at their normal times, given where margins are and given where demand for value add is versus more basic, it sounds as if you think that the back half could be worse in the back half of 2016 for fertilizer or how should we think about that?

Pat Bowe: First of all, I think you're right.

If we look at kind of across the broad spectrum of base nutrients, we are at lows that we haven't seen in 10 to 15 years for some of these products and in certain cases look at ammonia 20 year lows or close to 20 year low. So there is really no silver bullet that we see to kind of raise the market conditions. We need demand and supply to come together and get a more disciplined market. Some specific factors that occurred last year if you recall we did have some charges in the back half of last year for the Plant Nutrient Group overall. If you remember, we repositioned our Cob group specifically.

So at just point based on what we know I would say we don't see it being worse than the back half of last year but we don't see really anything on the horizon that would improve it significantly. Obviously we’ll continue to look for opportunities to efficiently run that business. In this economic environment, so that's kind of where we are heather? Anything more specific we can get into?

Heather Jones: No, that's perfect. Vomitoxin, I know we are early but I don't even know if you can tell right now but if you can and you're stumping the state of the copy you mentioned that you haven't had any severe heat in the Eastern Corn Belt. Is it your expectation of the Vomitoxin issue should be better with the new crop for your plants.

Pat Bowe: Yes, Heather, I think if you look at historically here, Vomitoxin that occurred in similar markets of Eastern markets was unusual. Actually the detection levels are better in the second quarter they were in the first quarter. I think it's because harvest we had to take some of the higher levels that the farmer had to move at that time and now the stuff that's been stored is a little better condition. So we've abated a little bit of the Vomitoxin challenge, it’s still there and next year the crop in the east looks good. So if we continue this pace, we’re optimistic and be nice to have them behind us next year.

It’s a little fall in our side last year, it’d be nice to not have anymore.

John Granato: Yeah, and if I can just add getting a little more granular as we look at each of the four ethanol facilities, we are not seeing outstanding crops, but we are seeing good to average crops there. So we don’t see any negative conditions around any of our facilities today as we look forward relative to corn supply or corn quality or condition. So, that’s a positive.

Heather Jones: And my final question is, one of your competitors reported earlier this week and there was some interesting commentary on that call regarding the possibility of processes that would enrich the protein content of DDGS, basically makes a much higher protein level and he mentioned the concept of the ethanol industry running for protein as opposed to ethanol at some point.

So my question is, is this a technology that you guys have considered for any of your plans and if so, what are the implications from a profitability standpoint?

Pat Bowe: Heather, we are very well aware of these technologies and have looked at this extensively and we have plans going forward, we don’t have anything that we can announce at this time, but you are right. There’s been some good breakthroughs and value added feed technologies on the dry mill side. And when you look at markets that were – especially when DDGS have been depressed and you move up the chain and you go to soybean meal value or higher in aquaculture and pet or markets of course that’s attractive. It’s something we are seriously interest and working on, but just not that we can state at this time.

Heather Jones: So you are – did I misunderstand, you are saying that not only you could get to soy meal values but you actually in some instances could get a higher premium because they were going to the aquaculture market?

Pat Bowe: Well, we have to crawl before we can walk right.

I’m [indiscernible] talking up the food chain of the feed ingredients market. And I’ve had a lot of experience with that in my previous life, it takes a lot of acceptance especially when you go to pet or aqua, which are very finicky customers, but the point is there is technology and opportunities to add additional value to DDGS. That’s going to take considerable capital too. So, it’s something we are extensively looking at right now, but it’s nothing we become public with an announcement yet.

Heather Jones: Okay.

My last question on that because I’m just trying to think through the implications here. What – besides a considerable capital costs, what are the drawbacks, like does it reduce your ethanol yield, are you only able to apply it to a portion of the DDGS in a plant or, I mean, what are the – what are the puts and takes of it?

Pat Bowe: Yeah, I’m not sure I understand the structure of your question, but the point is this is how you can separate the different parts of the corn kernel and get the most value in the right places. So it’s really – not making comment in detail at this time, but the point is change or die in this industry, right, so you got to look at how we can optimize and create better value for our co-products and some markets and exports have been stunted, so we need to look for other avenues for our co-products to ethanol.

Heather Jones: Okay. Thank you so much.

I appreciate it.

Pat Bowe: Thanks, Heather.

Operator: Thank you. Our next question is from Ken Zaslow of Bank of Montreal. Your line is open.

Ken Zaslow: Hey, good morning, everyone.

Pat Bowe: Good morning, Ken.

John Granato: Hi, Ken.

Ken Zaslow: A couple of questions. One is, how do you think that the nutrient business fits within your portfolio and you think that it’s something that you would think maybe going in the same of the retail business and you think you can actively seek to – does it really fit in your portfolio and you need it?

Pat Bowe: It absolutely fits, Ken, and I appreciate you asking the question.

We really like the agricultural supply chain and starting at the farm and Plant Nutrient business is a great extension of that supply chain. The long-term macros are still very positive. Demand for crop nutrients is going to continue to be robust as we have this large production need for selling nutrients over time. Current fertilizer corn – corn prices have been tougher and it hasn’t had the economic incentive to the farmer to really apply additional fertilizers or invest more heavily in his crop, but over the long term with the need for precision ag and the internal applications and the next generation of nutrients, we really want to be part of that business. It fits very well with our grain business and it’s a nice fit for our farmer customers and it’s a good fit for our technology and we have a very successful lawn business albeit small, but it’s been very profitable and we use lots of interesting technologies in that lawn and professional turf business have been quite successful.

So, we like it at The Andersons, it’s a tough trough, we just took a big write-down here, we are not happy about the conditions we are in right now, but we are going to work like heck to get back up and make this a very strong business.

Ken Zaslow: My second question, a couple of your competitors talked in the ethanol industry about rationing capacity. You guys have actually not rationed, you guys have actually expanded. Can you talk about where you will range on being rational in your capacity in ethanol, do you think that there is places where you can reduce your capacity or do you continue to believe that you will expand and if so will it continue to keep the markets from actually making real profitability in the ethanol industry?

Pat Bowe: I understand the points you are making. In our ethanol group, I think there is a very good job of what I would call optimizing the bottom line result and that’s by tweaking run rates up and down and the inputs needed to create ethanol.

I mean you can use higher priced materials to make a higher yielding time or you can move back down and our guys have done a really good job of that. As you know, we got our Albion ethanol plant expanded this past year and that – we have to look at each micro market, so at Michigan there was surplus corn and deficit ethanol, that’s a very good play for us and works out well. We are not looking to put on any big expansions or green fields at this time. But as I mentioned in my comments, there is still strong gas demand, there is strong ethanol exports, we have a favorable RVO and a good corn crop. Those are kind of the four bullets you need to be successful in ethanol.

And we like the position of the ethanol industry. Margins weren’t as good as first half of the year as we would have liked and there is this price volume relationship that needs to be in balance as you mentioned to kind of make it more profitable.

Ken Zaslow: And my final question is with the point of obligation no longer being an issue, how quickly do you think E15 infrastructure will be built and what will be the impact of that over the next 6, 12 and 18 months?

Pat Bowe: Yeah, I agree with you, but I think it’s going to be slow. Anytime when you talk about legislation and adoption and let alone physical adoption, capital that has to come into place in the supply chain and the fuel system, it always takes a little longer than we would like. We are optimistic long term, but I don’t if it’s going to – really fast as far as adoption.

Ken Zaslow: Great. Thank you.

Operator: Thank you. Our next question is from Eric Larson of Buckingham Research. Your line is open.

Eric Larson: Yeah, good morning, everyone. Thanks for grabbing my question. Pat, you’ve talked – we’ve seen a recovery obviously in the grain business, obviously, three – you are really good, but kind of back to back quarters, I thought your second quarter was really good, better than I would have expected. What we did see in my opinion, we did see the bases spread, continue to be fairly attractive in the month of July, so we did see that continue into the third quarter, is that something you saw as well, and is that part your enthusiasm for kind of continued recovery here Q3 and Q4?

Pat Bowe: Yeah, I mean, quite simply that we liked the merchandise and opportunities we’ve had this last year, as you mentioned, with the widening of the spread had allowed for enhanced storage income, which is good for us. John correct me, earlier when I said our bins were full, obviously, we have ground piles from the last harvest that were picked up and gone, so those aren’t full.

But in general we’ve had – we like to see some volatility in the markets. Unfortunately for our farmer customers, this has been a slow drive down here on prices here of late in the last month or so. We are happy for those who worked with us on having good marketing programs and we took good advantage of that when the market spiked. Now it’s kind of U.S. finish to weather market right now, so we will just kind of have to see how crop conditions play out going in harvest.

John Granato: The only other thing I would add is as we look overseas a little bit and the large crops and we know that in Brazil the farmer is still holding a fair amount of crop, I mean, given where we are positioned in the Eastern Corn Belt and the way we play, I mean that along with a good harvest here during the fall should continue to benefit us.

Pat Bowe: The Brazil production alone we are talking 95 million tons in corn and 107 million tons of bean, in Argentina 57 million tons. So the market has paid a lot of attention what’s happened in South America and the real dollar spread, so it’s interesting how the export market is going to fight for corn and feed grains around the world this year.

Eric Larson: Yeah, it definitely will. And that was one of my questions.

Obliviously, it looks like the Brazilians are holding their beans, they are selling their corn, that is going to pressure our U.S. export markets, how is domestic demand in the U.S. and specifically in the Eastern Corn Belt, because you do service more to the Southeast, how has your demand held up, and I guess that’s really a key questions as well.

Pat Bowe: I think demand has been good and I’d call this normal. Again, flour mills for wheat and crushers for beans and poultry and ethanol for corn, we had a big crop, so a lot of people were able to get a good ample supplies at harvest time.

The market is telling us to store grain and not sell it, so that’s what we are doing, because it’s – it tells you hanging onto is better than pushing out the door right now. It’s going to be interesting to see how we get in close to the harvest time as crops get better and grains going to have to move. It’s also interesting to watch how South America grain can price into the Southeast for example, so there is a lot of different market signals right now and there is volatility out there. I think that’s good for us and creates volatility and helps us with trading spreads and cash merchandising.

Eric Larson: Yeah, and I will agree.

The final question I have, in the follow-on season here for your liquids, your micros, per se, have you seen a lot of side dressing. This – in the month of July actual crops submerge, did you see much in that and I kind of think the other overriding question I have is, obviously, we know what the cost of micros and [indiscernible] they are expensive. Is there a level of corn or bean prices that you guys use that generates enough farmer income, so that they will kind of move back toward these higher margin liquid fertilizers?

John Granato: We do do analytics, we don’t share those. Obviously, Pat, referenced that we’ve done a fairly detailed study of the value add space. And when we talk about slower adoption rates, that’s clearly correlated with farmer incomes as well as the current corn price.

As those prices rise, obviously, the value of the products to the farmer also increases. The thing that I would know is that in our analysis the efficacy of the products, do they work and does the farmer believe that they work and add value. That has not been questioned for the most part. And so, we do need slightly higher corn prices and higher farmer incomes to thrive what I would call a more accelerated demand. We do still believe that those higher value added products will have a faster growth rate than base nutrients particularly as you think sustainable agriculture and the ability really to get the nutrient where it needs to be in a very efficient way.

Eric Larson: Yeah, I – that’s why I asked the question. Because when you refer that you’ve done your work, we will have to – I tried at least right, I asked the question, well, maybe to compare notes at some time. I have made a few points on that.

Pat Bowe: We did an extensive market survey talking to significant number of farmers and then as John said, efficacy is real. They know the future of our precision ag is going to be focused on new products and how they can increase your production.

And next generation nutrients are going to be part of that. As you had mentioned [indiscernible] or special new micros and – or those salts have been successfully adopted by major farmers out there. The challenge is total bottom line for them. They have tight balance sheets. Farm incomes have not been great.

So it does – it kind of pushes it out a little bit. We still like it, we think it’s a good business to invest in, but just maybe not in a dip of a – market timing is not as delighting to the farmer as it would be in a higher priced environment.

Eric Larson: Yeah, I agree. Thank you everybody. I appreciate it.

Operator: Thank you. And that does conclude our Q&A session for today. I’d like to turn the call back over to John Kraus for any further remarks.

John Kraus: Thanks, Kristy. We want to thank you all for joining us this morning.

I also want to mention again that this presentation and slides with additional supporting information will be made available later today on the investors page of our website at andersonsinc.com. Our next earnings conference call was scheduled for Tuesday, November 7, 2017 at 11 AM Eastern when we will review our third quarter results. We hope you are able to join us again at that time. Until then, be well.

Operator: Ladies and gentlemen, thank you for participating in today’s conference.

This does conclude today’s program and you may all disconnect. Everyone have a good day.