Good day, ladies and gentlemen, and welcome to the Q3 2016, The Andersons Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference Mr. James Burmeister, Vice President, Finance and Treasurer. Sir, you may begin.

Thanks, Crystal. And good morning, everyone. And thank you for joining us today for The Andersons third quarter 2016 conference call. For the purposes of today’s discussion, we have prepared a slide presentation that will enhance our talking points. If you are viewing the presentation via our webcast, the slides and audio will be in sync. This webcast and the supporting slides will be made available on our Investor Relations section 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 1934 Act filings and the prospectuses prepared in connection with the Company’s offerings. Today’s call includes financial information for which the Company’s independent auditors have not completed their review. Although the Company believes that the assumptions upon which the financial information and its forward-looking statements are reasonable, it can give no assurance that these assumptions will prove to be accurate. On the call with me today are Pat Bowe, Chief Executive Officer; and John Granato, Chief Financial Officer. Pat, John, and I will answer questions that you may have at the end of the prepared remarks. Now, I will turn the call over to Pat for his opening comments. Pat?

Thanks, Jim, and good morning, everyone. The Company's third quarter net income was $1.7 million, which was a modest improvement over the prior year. As we entered into the harvest season, we experienced improved performance in our Grain and Ethanol Groups. However, the Plant Nutrient and Rail Groups continued to encounter headwinds. Our Grain Group was profitable in the quarter after working through a very difficult first half of the year. We began to see improving storage margins for wheat in the quarter and fall harvest for corn and soybeans looks to be much better in the Eastern Corn Belt compared to 2015. The rebound in grain production in the Eastern Corn Belt has helped position the business for improved earnings in the fourth quarter and into 2017. The Ethanol business benefited from strong fuel demand through the summer driving season and lower corn prices recently which has improved margins. The third quarter traditionally a lower volume and earnings season for the Plant Nutrient Group. The plan nutrient industry continues to experience compressed margins and spotty demand. Low crop prices, added domestic nitrogen capacity and lower farm profitability creates price uncertainty which has resulted in grower reluctance to buy ahead. In our Rail Group utilization levels have continued to soften. Steadily lower railroad traffic continues to put pressure on rail car demand, as cars in service are able to make more turns. John will now give you more detail review of our financial and business group performance, and then I'll finish up with a few comments on our outlook for the rest of the year before we go to Q&A. I'll turn it over to John.

Thanks, Pat, and good morning, everyone. In the third quarter of 2016, the Company generated net income attributable to The Andersons of $1.7 million, or $0.06 per diluted share on revenues of $860 million. This compares to the third quarter of 2015 when revenue of $909 million generated a net loss of $1.2 million, or a loss of $0.04 per diluted share. Depreciation and amortization in the quarter was $20.9 million compared to $20.8 million in the third quarter of 2015. Earnings before interest, taxes, depreciation, and amortization, or EBITDA was $28.1 million, compared to $24.2 million in the third quarter last year. Year-to-date EBITDA was $83.2 million compared to $125.1 million for the same period in 2015. Unallocated corporate expenses were $6.5 million, down from the $8.8 million in the prior year. The decrease was driven by increased capitalization of IT costs related to the next wave of system deployments and lower interest expense due to changes in interest rate swap valuations year-over-year. For the third quarter of 2016, the Company recorded income tax expense of $1.1 million and an effective tax rate of 24.8% down from the third quarter of 2015. We are projecting our full-year 2016 effective tax rate to be about 31%. Long-term debt less current maturities at the end of the quarter was $396 million down from $414 million a year-ago. Leverage remains modest with long-term debt-to-equity at the end of the quarter at 0.51-to-1 compared to the 0.52-to-1 at this time last year. Next, I would like to walk you through the $5.6 million improvement in pretax income from the third quarter of 2015 in the third quarter of this year. Results in the Grain and Ethanol Group improve compared to the third quarter of 2015, due to better condition in their markets and…

Thanks, John. We are encouraged to see the improving results in grain and ethanol. As the Grain Group finishes fall harvest, we expect to see improved profitability on our storage. Carrying charges in both corn and soybean markets should generate storage income. The abundant harvest has allowed our team to accumulate grain ownership at attractive levels, which should position us well for the fourth quarter and into 2017. Margins in ethanol are strong, and the group is using the opportunity to take some risks off the table. As of today, we have locked in over 70% of the remainder of our fourth-quarter production at solid margins, and have hedged approximately 30% of the first quarter margins when driving demand falls off and margins are typically softer. Within our Rail Group, we expect to experience continued softening of rail car demand in the near-term, as North American traffic continues to be down and the low GDP-growth environment impacts overall traffic volumes and rail car demand. The group is managing through this softer cycle with lower-duration leases and continuing to keep an eye out for assets to purchase during the cyclical downturn. We see ongoing concerns for the Plant Nutrient Group for the next few fiscal quarters as the industry works through oversupply. On a positive note, strong corn yields and increased acreage in 2016 caused nutrient depletion, which should drive increased demand for 2017. But on the other hand, weak pricing and ample supply in the industry are driving just-in-time buying, and this will continue to stress margins and volumes. In the longer-term, we remain committed to our strategy of growing specialty nutrients that support precision agriculture, sustainable farming practices, and improved crop performance for our customers. I'm also encouraged to see the significant progress that we're making in both our IT infrastructure refresh, and our cost-reduction initiatives. We are well on our way to meeting our $10 million productivity goal early, and we will discuss this in more detail at the yearend. On last quarter's call, we shared that we thought the Company would finish the year ahead of our analysts' consensus at that time, which was $0.81 per share. However, the third quarter was more challenging than we expected, and the fourth quarter is not without some risks. And Plant Nutrient margins have been more depressed for a longer period of time than we anticipated. In Rail, we foresee some softening in lease rates in addition to lower utilization rates. Our core grain business is recovering, though not quite as quickly or as robustly as we expected. On another positive note, third quarter ethanol margins were solid. And we expect that continue during the fourth quarter. On balance our expectations have softened. I'll now hand it back to our operator so we can take your questions.

Thank you. [Operator Instructions] And our first question will come from Farha Aslam from Stephens Inc. Your line is open.

Thank you. Good morning.

Good morning, Farha.

I just wanted to understand what's happening in grain, in particular with your Tennessee elevator and the variable VSR, as well as kind of how should we think about what your storage income is in terms of your longer-term outlook for that grain division?

Thanks, Farha. So, to answer them in the order you asked, so first of all, in Tennessee, we've had some good results in Tennessee in past years. This year it was a tougher market condition. Exports are very sharp right now and values for the export market at the Gulf are high, and thus that kind of sucks grain towards the river location to load down to the Gulf, which made it a little difficult for us to buy the kind of normal grain we would like to in Tennessee. So Tennessee was not ideal for us as it had been in the past, where we could buy ample supplies of grain. There were a little tougher market conditions in Tennessee this season with the strong export demand. On the positive note of that, for the whole country, having a good export demand is good for premiums across the country. In the rest of our areas, as we noted earlier, we had a very strong production of both corn and soybeans. Soybean yields were really strong in a lot of our areas, and farmers are selling some beans at harvest because of high prices, so we've had a good soybean program. We've exported quite a bit of corn and beans out of the Lakes this season, our highest number of boats we've shipped for many years, so we're having a robust exports season out of the Cleveland Maumee complex. And across the rest of the Grain Belt, we've been filling our capacity as much as we can and buying grain at very reasonable levels, and so that's overall a big rebound from last year's crop conditions in the Eastern Corn Belt. There were some spotty areas in East that weren't perfect on corn yields as compared to some great areas…

That's helpful. And if we could talk about Plant Nutrients, you have highlighted that margins are likely compressed for the next few months. But then, as you look out into next year, how should we think about that business in terms of demand? And if we had to model it, in terms of timing, should we put in more kind of variability within the quarters and in particular the third quarter, because Kay-Flo has just fundamentally higher costs? How should we think about that Plant Nutrients business?

Yes, I think the Plant Nutrients story is a little bit of a complex one, because you have a very interesting compressed margin situation going on in the industry with new capacity coming on in nitrogen, and we've had - you know there's big activity going on in the marketplace on the supply side. Farmers have been reluctant to buy. Last season, they would go hand-to-mouth with low profitability at the farm level, and what they've seen is weak prices, so they don't want to take inventory and have buying late in the season would make it more difficult for resellers like ourselves. So obviously we're disappointed with the margin environment in the industry this year, given the falling prices and the nutrient oversupply. But we believe that the acquisition we made in Nutra-Flo is on trend. We like the strategy of Specialty and in specific the low-salt liquid fertilizers and micronutrients. We still feel that is key to the long-term pursuit of higher yields and through this precision agriculture we've talked about. The challenge you have there is, when margins go down, we do have three times the margin in the Specialty products, but those go down in concert when all of the market goes down. So it hasn't delivered what we'd like, but we still feel it is the right business, the right ownership, and we feel our long-standing relationship with our key suppliers is intact, and our long-standing relationship with our key distributor customers as well as our farmer customers is intact. We just need to work harder in this lower-margin environment in the fertilizer industry. So, modeling is tough because we'll have to see how things go forward and how the farmer reacts to planting into next year related to the current corn bean ratio and prices. But it's a more difficult time than we anticipated a quarter ago.

That's helpful. And my final question is again related to modeling. There's two key factors that are going to occur over the next six months for The Andersons. You are closing a store and you're opening the second half of that Albion facility. How should we think about any one-time charges that you'll take for this store, or for construction at Albion?

Yes, the store impact will be in the fourth quarter, and I would just say it would be relatively small, if any impact at all. And in terms of Albion, there really won't be any material charges at all, or any charges associated with opening. It's a capital project and the cost of that construction is capitalized for the most part. We are allowed. And we will be - as that comes on line, obviously depreciation associated with opening. It's a capital project and the cost of that construction is capitalized for the most part. We are allowed. And we will be - as that comes on line, obviously depreciation associated with that asset, the new portion of that asset will flow through the P&L. But that is really it.

But don't you have to take a plant down for a couple of days to link the two, like the old facility and the new facility? And will that impact the gallons produced at that plant?

That's a fair question, Farha. We've obviously been doing sometimes as we go, so we took our normal shutdown this year in Albion. We took a little bit more extended one in Albion as we made some key, like gas line tie-ins, et cetera. We expect to have the plant started in the second half of next year, and will do a normal scale up I’m sorry first half I said second half. The first half of next year is 2017. We will have a normal ramp-up period. We shouldn't have an extended shutdown period. We will have a short tie-in when we do right before start up, but it won't cause a major production shortfall.

Okay, great. Thank you so much.

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

Hey, good morning everyone.

Good morning, Ken.

Just to understand, what actually changed in the grain business relative to your initial expectations?

Well, I think we had a very strong opinion of what we could earn during the period. I think we still feel good about where we're at. We're going to have a big recovery from where we were a year ago. As far as the crop size, it's good. There were no big surprises. In fact, if anything, the surprise was we had great weather at harvest time. The good news of that is the crop comes off in good condition. The bad news is you don't get much drying income for that, but I'll take the good crop coming off anytime. So, overall, as far as the fundamentals of the grain business are good. The timing of when you earn those storage incomes and when that will happen in your spreads that can differ. But we didn't have a knock it out of the park quarter, but we had a very solid quarter, and we feel good about where the fundamental grain business is going forward.

I mean, on the future outlook, did you - I guess I kind of thought that you felt like maybe the outlook for grains were better than not just this quarter but going forward. Were you not able to buy corn at the steep discount that you expected? Or were there any other changes in actually the outlook, not so much the upcoming - this quarter?

No, we bought corn at very good rates and soybeans were very - we probably had a little better soybean program as far as volume and a little lesser corn program. But overall the volumes were solid and we filled all our storage capacity. I did mention margins and volume were a little bit weaker in Tennessee. That was an area of a little bit tougher marketplace. And in some areas in the West, like Nebraska, margins, elevation margins, have been lower with a lot of new shuttle loaders online out there and margins are little bit weaker, which impacts a lot of players in that region. But out here in the East, we feel good about our position. I mentioned we had a very active Lakes season one of the best we've had in many years. So fundamentally we feel good about the grain business, I said just maybe it wasn't as outstanding as we would like from an earnings perspective, but, from a fundamentals, it feels very solid. And I mentioned in Farha's question, I see us getting back into that lower end of the normal storage range.

And can you talk about Lansing, and what your plans are for that and how that kind of plays out over the next call it year to two years?

Yes, in the case of Lansing Trade Group, I think, as you've followed us for a long time, they've been a very strong contributor to earnings as we've owned that company. We're just a little over 30% equity stake in Lansing Trade Group. And they had a very difficult year that original challenges with some part of the frac sand business that they are involved in. They had exposure to DDG exports to China, which was very difficult for them. And they had some trading challenges during the year. So this was a tough year for Lansing, which in the past would give us a lot of extra lift on our earnings. This year, that wasn't the case, and it hurt us a little bit. We have a very bright team and good traders at Lansing. We have a lot of confidence in the traders there and their management ability, and we think they'll get back to a more normal year next year, but we don’t know any exact projections about where that could come in.

And my last question is ethanol exports, can you talk about the potential for China and Mexico, and where we are in the evolution of that, given that China came in strong and then they stopped, and maybe they come back a little bit? And then what do you think about the Mexican change in policy as well? Thank you.

Right. I think the good news - and when you just think about the U.S. now, with reasonable corn prices and plants running very strong and efficiently, we are the best global oxidative supplier to global customers. In Brazil, we see, with high sugar prices and they've been increasing putting their sugarcane grind towards sugar instead of ethanol, it makes the U.S. corn-based ethanol the choice of the global market. So we still expect exports to be between 900 million gallons and 1 billion gallons which is going to be good for our industry. China is probably a wildcard. As you mentioned, we've seen them come in before. What is China's long-term stance for importing ethanol is a question that I don't know the answer to. I wish I did, like a lot of things with China. But we would love to see China as a consistent player on the import side of ethanol. And right now, they are little bit of a - came in for a while and have been quiet. Many times, we may not be the exporter to - for exports. We are mainly a domestic player, but obviously exports impacts the whole global and U.S. supply. So we'd love to see China come in for more. And given our corn pricing and where things stand right now versus Brazil, we are an attractive source. So I guess we're just going to have to see.

Thank you. Our next question comes from Brent Rystrom from Feltl. Your line is open.

Thank you. Good morning as well. From the perspective of the Plant Nutrient Group, how should we think about inventory risk in the fourth quarter and first quarter? Are you guys - as the farmer have shifted to more spot purchasing, is that something that you're able to do as well, or are you taking inventory long more than you normally would?

Look, we've talked about our risk-management approach to buying nutrients and storing them. And obviously, we have to have nutrients positioned, particularly as we go into the spring season. If you don't have them positioned, you can't reach the field at the time you need to. So I don't - it's our normal process around risk-management. Obviously, we go through every quarter and look at whether there's a potential for lower cost-to-market activity. And at this time, we didn't see anything in the third quarter, and we plan on managing our inventories as the market evolves.

Brent, just to add on that. This is Pat - obviously, this time of year is a very low time of the year in the fertilizer cycle, so we obviously manage it very hand-to-mouth, as does the grower. Sometimes there might be some bigger cords of wood, take a position and we can do that back to back. There are some imports that we bring in that come by the vessel, that take a long-term scheduling. And as John said, the big thing is really, as we build the pipeline for the spring build, that will be key to see how pricing stands at that time, and if there's security in the market. And that will be important to see the timing of the farmers' buying decision and our buildup of working capital in the form of NPK at the time of the spring season.

And I guess the only other thing I would add is we've seen pretty good size corn crop in the last couple of years, which do pull nutrients out of the soil. And at least from what our group is seeing, we are not seeing a lot of banking of nutrients. So, depending on obviously where corn prices are in the spring, you know, and given nutrient prices overall, we do feel that there is some potential for a good spring there.

Kind of as a follow-on to that, for either you, John, or Pat, or both of you, when you're thinking about the psychology of the farmers in your market, to kind of get out of this cycle of less pre-buying, you kind of need a very exaggerated spot market in the spring, I would assume. If you see that market jump, that might return some discipline from to the farmer to buy earlier.

And that's been the problem, though there hasn't been any shocks with anything, we've had shocks to the downside in the last year and a half, so farmers waiting and seeing - when those prices are going to fall or when will be another reset. There are some signs that say maybe some markets had reset; there's some bottoming. But that's really up to the miners and big producers. So I think that story is yet to be told, how that's going to play out next season.

And then a follow-on question somewhat related to that. So, CF last week, their internal economists said that they see 88 million acres being planted with corn next year, down from 94 million? Have you guys looked and analyzed how you see that reduction falling? I would imagine you would have a less reduction in your footprint than CFCs nationally.

Well, we haven't really pegged an exact number now, but we're not as low as that. I think our guys' early thinking number is around 90 million. We'll see a reduction from this year probably overall just with higher bean prices, but probably more normal rotations. So we’ll be coming up with a firmer number on our corn acreage later, but I wouldn't be on the low - that probably bearish on it at this time.

And then this probably more for you, Pat, just thinking big-picture and thinking a lot about some of the stuff coming out of China. A couple of months ago, China announced that they were going to end subsidies for corn. They also announced that they are drawing down substantially their corn inventories. And then, as they are doing that, there's a lot of news coming out that their corn inventory is bad as far as feed or food base. When I look at this and I think about the long-term impact of China doing something similar with soybeans 20 years ago, when they used to be self-sufficient on soybeans and now they import half their soybeans - do you guys look at what's happening there and see long-term decisions that you should be making relative to that change in policy in China?

There are no specifics to changes we would make because of Chinese policy to our business or assets, but on a macro level, you are correct. I used to travel in the corn region in the Jilin Providence quite a bit in China, and the government program has created subsidies to keep people in rural communities. There's still upside potential to their agronomy and having better production in China, but you can't have a distorted price to the world market like they've had. It just kind of creates a challenge in the global grid of export flows. So, getting China to have a more normal grain policy and have normal imports of both corn and soybeans would be good for the U.S. farmer and the U.S. grain companies, and that would be good for us. And that could be - however, that grain will be flowing to those export markets. In the short-term, like you said, you can get quality issues there and there may be some flight to quality as they go through for food standards there. But I think, short-term, it is something that won't impact us that directly. It's just an overall more positive outlook for the grain industry in general. And that's good for us, and then puts value on space and handle for companies like The Andersons.

Thank you very much guys.

Thank you. [Operator Instructions] And our next question comes from Sandy Klugman from Vertical Research. Your line is open.

Good morning. There's been some favorable commentary across the rail industry regarding a potential improvement in 2017 volumes. What's your expectations for volumes and utilization rates in 2017? And any color you could provide by market would be helpful.

Yes, Sandy, this is John. I think, if you look at American Associated Railroad reports, we're starting to see a slowdown in the rate of decline relative to total carloads. And so we see that as a positive sign that maybe we're getting more towards the bottom. I mean, if you look at the numbers this week and if you take our coal, year-over-year, we are down somewhere around 2.5% on total carloads. So we do see that rate of decline slowing, and we will look for 2017 to hopefully keep us back in kind of the utilization rates that we've been used to this year in the mid-80s%.

And by segment, in particular what car parts we like and the equipment we like, we particularly like the plastic cars and plastic-pellet industry. Chemical cars have been good for us. Boxcars have been particularly attractive, as well as we're targeting those mid-life and newer cars for the better value. But I think this is going to be dependent on how the overall economy does post-election, given this is election day, and how GDP looks going into 2017. And we could see, like you said, a modest improvement through the latter half of the year. So we don't see it falling off a cliff from the current, as John said, kind of mid-80s%. We see it kind of bottoming in that area.

I think if you translate utilization into lease rates, I think we are anticipating some softening or additional softening in lease rates as we kind of work through the bottoming of this utilization cycle sandy.

Okay, thank you. And then, in the past, you've discussed utilizing the downturn to build out your fleet and potentially diversify into adjacent businesses. Could you discuss the types of opportunities that you might be seeing materialize in the current environment?

I think Pat talked about the type of opportunities we will be looking for a second ago and specific car types. We have continued to see and we actually have seen more portfolios come to market recently. So that probably as a pretty good sign in terms of our ability to buy the cars, the type of cars we like. Prices today, relative to where we like to buy, are still a little bit on the high end. So, we've always been disciplined in the way we buy in the rail business and will continue to be disciplined, but you are seeing more portfolios come to market, which should provide opportunities for us to buy right.

Another little high point, although it's a smaller part of the business, has been our rail repair-shop business. So we’ve record a year on earnings in our rail shops, and that business is solid because of the amount of cars that need come through for repair and maintenance. So, that's been a nice little business for us that we continue to add on to. So if there's opportunities to grow by adding a shop in a strategic rail channel, we would do that. I didn't know when you asked about adjacencies, you were talking all of the businesses or just rail, but I'll answer for all the businesses. In the past we’ve mentioned the adjacencies in Plant Nutrient of the Specialty business and what let us to Nutra-Flo, we still like the long-term trends that fit in for precision agriculture and this low salt liquid fertilizer business to add micronutrients. And kind of the key pursuit of higher yields in using precision agriculture we think that as a good focus for us. We are still looking in that area. And in fluid as we mentioned, we’re still working on grain origination for specialty grain crops, non-GM, organic, natural. And we're doing work with food companies on the front end of a transparent supply chain, albeit that's not a huge, big business, but it's an area that has growth and it's an area where we can work directly with our farmer customers to create a different channel and opportunity for them. So, those are two areas we've mentioned in the past and are still pursuing those two adjacencies.

Thank you. I was referring to rail but the additional color is very helpful. I appreciate the insight.

Thank you. And our final question comes from Eric Larson from Buckingham Research. Your line is open.

Yes. Thank you for taking the question guys. The first question I have is really kind of drilling down on grain. You know, you've kind of said, hinted more toward the lower end of storage rates next year. Help me kind of get to some of this. You obviously are not going to have the drag of the Iowa assets, which penalized your numbers for a few years. You'll have probably a better wheat income. You've got 700-plus million bushels of higher production in your key states this year. So why could that be - maybe it's the basis. Why could you not get to a more normalized grain-storage income number in 2017?

I think that's a fair question. So, a lot of our conditions are very good, as you mentioned. So, we had ample wheat crop. The total volume in wheat wasn't as high as it has been in previous years, but the storage income should be good as spread widen and we earn more a percent of full carry. So we are optimistic about the ability to earn storage on wheat, as you mentioned earlier. We did have ample supplies of both corn and soybeans, and we were able to elevate quite a bit of soybeans right at harvest time. And it remains to be seen what earned income will be on storage base for corn and beans for the rest of the year, but we're optimistic about it. Some elevations in the interior are a little bit narrower, as we mentioned, like in the West. So we'll need to see, as we get into the new year, what that looks like from maybe the export elevations that go to the Gulf, but what will interior elevations do when the poultry producer comes to market et cetera. We think there is upside to that, but we don’t want to get over-frothy on what we think the grain business income is. It's a business that moves slowly as it churns ahead, and we're feeling good about our position, but we just don't want to get too over optimistic about it. And then like I said we are in good position and we think will be in that lower quartile we've talked about in the past, but it will be a very solid improvement in our grain business, especially from the very difficult year we had last year.

Okay. Then the next question, it kind of goes to some of Brent's questions, but it's really kind of fourth-quarter nutrient. You know, I suspect that you're going to have - I don't know how fall application has been going for you folks so far this fall, but it seems like your fourth quarter - a fourth-quarter loss in Nutrient shouldn't be as large as what you experienced in Q3. Is that a fair comment?

Well, we didn't actually I think comment that we were going to have a loss in the fourth quarter, but I think we would expect improved results in the fourth quarter in our Nutrient business relative to the third quarter.

Okay. All right. I guess we can drive a truck through that. I'm just teasing. But the next question, then, John, for you is how should we view corporate expense for the remainder of this year and 2017? You did mention that you're capitalizing kind of the second round of IT development. And then when would those capitalization rates become an expense? Is it the second half of 2017? How should we model your corporate overhead?

We did have a better performance in the second quarter as we talked about - excuse me, in the third quarter. I think we expect to be slightly better than last year. We were about $31.3 million of Corporate and Other last year, and I think we would be a little bit better this year. And as we go into looking forward, I would tell you that we expect probably 2017 to be relatively similar. The IT refresh project and the next phase of the go-live for our Plant Nutrient group will be in the latter half of next year, so you won’t see the amortization of those capitalized expenses or the depreciation associated with those until the latter half of the year.

In general, on the cost side, it won't - this my first year here, but one of my focuses has been on reducing costs and improving our capabilities, both in our people and our processes and, as John mentioned, our systems. So, we've made good progress on that. We put forward a two-year goal for a $10 million run rate cost take-out. We stated to all of you earlier, I mentioned in my comment earlier, we're making good progress. We've had headcount reductions through spans and layers work throughout the Company. We are getting synergies now from our new ERP system. We are getting cost reductions due to more efficiency in our supply chain. We're even seeing higher yields in our ethanol production. So, across the board, this initiative around productivity is taking hold, and we'll talk more about that in our year-end call when we can finalize the numbers for the year.

Okay. And then, related to that, Pat, where would we see roughly that $10 million showing up? If some of it's coming in the division side, which would - you obviously would - it would depend on what's going on with margins in the various businesses as well, and then we some in corporate, overhead, is it a 50/50 type place where we'll see those cost benefits, those savings…

It's mostly in the businesses, because that's where most of our people are, right, and most of our costs are. So in general, it's going to be in the businesses. And our biggest two businesses when it comes to cost and people would be Plant Nutrient and Grain. So, those are probably the bigger areas because we have higher costs and more people in those areas. So, that will probably be our biggest area for improvement. But it is across the whole Company, including Corporate and all areas of the Company, so everyone is directly focused on this.

Okay. And then the final question I have, in the quarter, at various times in the quarter, you got 2 VSR ticks. Can you give us a rough quantification of what that incremental income was in the third quarter?

Eric, it’s John. I think you saw just a little bit of that showing up in the third quarter. And as you mentioned, the first tick happened towards the end of July and the second tick in the back half of September. And in the prepared remarks and in the press release, we talked to the fact that you're seeing, if you look at the carry showing up and if you look forward to March or to June, in that 50% to 70% range or that max potential that a VSR tick gives you, we are encouraged to see that. I mean, it's not probably the irrational exuberance you saw and the VSR program first coming in and place back in 10 to 11 [indiscernible] were in place and it really ran it up. But it is a good additive to these storage levels.

And I think in the general instead of just focusing just on the VSR, you really need to look at just storage and carrying charges for wheat in general. So, we’re currently at about 56% of full-carry and you can watch this March and July and see how our carries improve. So we're some improved carries in wheat that represents little over a half of the full variables storage rate max rate materialized and spread. And there's opportunities for that to widen. Like we said, a third tick is not likely, but we feel good about the wheat we own and think we are in a good position, so we will discuss to see how the market plays out going forward.

Okay, great. Thanks everyone.

Thanks.

Thank you. And I'm showing no further questions from our phone lines. I would now like to turn the conference back to James Burmeister for any closing remarks.

Thank you, Crystal. We want to thank all of you for joining us this morning. I also wanted to mention, for those that are interested, that the presentation and the appendix slides with additional support information will be available on the Investors section of our website, AndersonsInc, shortly. Our next earnings call is scheduled for Thursday, February 16, at 11 AM Easter Standard Time when we will review our fourth quarter and full-year results. We hope to talk to you then. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may now disconnect. Everyone have a wonderful day.