Good morning. My name is Jennifer and I will be yourconference operator today. At this time, I would like to welcome everyone tothe MGP Ingredients Fiscal 2008 First Quarter Earnings Release Conference Call.All lines have been placed on mute to prevent any background noise. After thespeakers' remarks, there will be a question-and-answer period. (OperatorInstructions) Thank you. It is now my pleasure to turn the floor over toyour host, Ladd Seaberg. Sir, you may begin your conference.

Good morning, everyone, and thank you for joining us on thisconference call to discuss our fiscal 2008 first quarter results. With me ontoday's call are President, Tim Newkirk; also Robert Zonneveld, Chief FinancialOfficer; and Brian Cahill, who is Vice President of Distillery Products Segment. I will begin with a brief review of our quarter'sperformance. Robert will provide more details on our financials. We will thenturn it over to Tim for updates on our operations. After that, we will open upthe call to your questions. As you can see from our results, some key factors andconditions have changed from those experienced during most of our better fiscal2007 year. But, before significant top-line growth was driven by our DistilleryProducts segment, results in this area of our business in the current year'sfirst quarter were affected by lower selling prices and reduced unit sales for ourfuel-grade alcohol. Compared to the first quarter year ago, total Distillerysales declined about 6.7%, while pre-tax profits in this segment dropped$679,000 from $15.2 million in sales in our Ingredient Solutions segment, and onthe other hand, rose by more than 50%, which showed pre-tax profits of$311,000, versus the loss of approximately $2.5 million in the same period ayear ago. Most of this gain was due to higher volumes and pricing in vitalwheat gluten. We do show some nice gains in sales of our specialty starches andproteins. With wheat prices up over 20% from year ago, however, our profitmargins were somewhat constrained. As reported in today's news release a negative earningsperformance in our other segment, which primarily consists of developingbusiness lines for pet and plant-based biopolymer applications, more thanoffset the combined profitability in Distillery and Ingredient segments. For the first quarter of fiscal 2008, we had a pre-tax loss of$1,050,000 which was slightly better than the pre-tax loss of a $1,099,000…

Thank you, Ladd. As reported in today's news release, ourfiscal 2008 first quarter loss of $318,000, or $0.02 in diluted earnings pershare, compares with a net income a year ago of $6.9 million or $0.41 in dilutedearnings per share. Net sales were $88 million for the first quarter of 2008, representinga 3.5% increase over net sales of $85 million in the first quarter of 2007.Significantly, lower fuel ethanol prices and unit sales were key factors. Thedecline in fuel ethanol results for partial offset by improved pricing for ourfood grade alcohol. Sales revenue in our Ingredients Solutions segmentexperienced an increase of $7.9 million over the prior first year's quarter.This is partially a result of executing our strategy to increase sales ofspecialty starches and proteins, which rose by $2.3 million. We also took theopportunity to sell additional volume of vital wheat gluten at improved prices.Sales of wheat gluten increased about $5.7 million over the last year's firstquarter. You have seen from the press release, that starting thisfiscal year, we expanded our operating segment, purporting to be more effectiveof our business strategy. Our Ingredients Solutions segment consists of specialtyproteins and starches, vital wheat gluten, commodity starch and mill by-products.Our Distillery Products segment includes fuel grade alcohol and food gradealcohol for both beverage and industrial applications. Finally, as Ladd stated previously, we grouped our resin andplant-based polymer technologies into segment called other. So, these productsare more representative of developmental areas of our business. We provided a tablein the press release showing the new reporting segments with the year agocomparisons. Our SG&A was up about $1.4 million over last year, muchof that related to our enhanced financial reporting systems and higherprofessional fees. You will also note that in the press release that we startedto provide EBITDA information. Our inventories at quarter end were higher about $10.3million, partially due to holding higher fuel grade alcohol inventory, since wemade a decision to hold the gallons in inventory to wait for improvement inpricing that has now started to take place. Our inventory for IngredientSolutions business also increased, reflecting our plans for continue growth inthis segment. Capital expenditures for the first quarter wereapproximately $1.4 million. For the entire current fiscal year, we areprojecting capital expenditures in the range of $9 million to $10 million orabout the amount we spend on annual base in recent years. About $5 million ofthis is for sustaining CapEx, while the rest of the CapEx is for smallerprojects. We've also added an exhibit outlining our capital structure.We continue to believe that the strength of our balance sheet will provide usstability to invest in Ingredient Solutions business, provide the flexibilityto take advantage of expansion opportunities and also allow us to weather suchconditions as the recent downturn in fuel grade alcohol pricing. That completes my financial review. Let me now turn the callover to Tim Newkirk for his update.

Thanks, Robert. I am out of the office today and have todial in. I hope you can all hear me clearly. As Ladd and Robert have laid outfor you, this was a very tough operating environment for MGPI. The impact ofcommodity price changes on our business is very clear. If you do the basicmath, you can see what we gave back in sales and profits on the distillery sidecompared to a year ago. You can also see that we have the opportunity to recapturethose profits when ethanol and corn pricing become more favorable. In the meantime, we are on a strict path to improve thevalue created throughout this organization, both through higher value productsand a more efficient operating structure. While our operating expense line itemsmay look the same on the income statement, I can assure you that the people andthe business process behind these represent an entirely new philosophy andapproach for our company. Our goal is to better inform our business decisions andto improve our ability to measure our results by product line in terms ofprofitability and return on investment. I would like to wrap up my formal comments with a few wordson the progress we are making with our ingredient solution. With the costreduction moves largely behind us, we have in place a new team focused ongrowing this business. MGPI has always had a solid footprint in the foodbusiness. However, there is a light variation in the amount of work we do witheach of the major food processors. Therein lays our greatest opportunity togain a greater share at each customer's business. With a major focus on healthy food, our slate of fiberenhancing resistant starches alone provides a key entry point for developingnew products. This is all about solving problems. Our new configuration of combiningR&D and application into a stronger customer facing team is already payingoff with the growing pipeline. Let me conclude my remarks by saying that we weredisappointed in reporting our first quarterly loss in quite some time. We won't,however, let this distract us from our current operating plan. With that Iwould like to turn the call back over to Ladd.

Thanks, Tim. That concludes our prepared remarks. Beforetaking any questions this morning, I need to add that any forward-lookingstatements we might make today are qualified in the following respect. Thereare number of factors in addition to those already mentioned that could causeour actual results and guidance to vary materially from expectations. Additional information about these factors can be found inreports that we file with the Securities and Exchange Commission, including ourAnnual Report in Form 10-K and quarterly reports in 10-Q. We are now ready toopen the line for questions.

(Operator Instructions). Your first question comes from SteveDenault of Northland Securities.

Good morning, everyone.

Hi, Steve.

Good morning, Steve.

The SG&A level at $6.3 million in the quarter. Is that agood run rate to use as going forward?

Robert, could you field that one for us, please?

Sure. We expect SG&A to be in the range of $24 millionto $26 million for the year. Mainly related to providing for improved financialreporting and operating reporting to set the stage for our continued growth.Our increase in professional fees are in part related to those efforts. So,yeah, we are looking at that's being a pretty good run rate.

Okay. And if I remember correctly, was your average price oncorn in this quarter, was it $3.40, the hedge piece of it?

We were in the area of -- had different layers of the,Steve. But we were at about $3.50, is about what we had hedged the grain at$3.40 to $3.50.

Okay. Got you. And then, in terms of this December quarterbeing 66% hedged at what level?

I would say we are slightly below current values on corn.

Okay.

And Brian, you might want to clarify for Steve too that 66%,is it there for the remainder for the year?

Yes. That's correct. That's for the rest of this fiscalyear.

It's for the fiscal amount, this fiscal year.

Okay. Slightly below the current spot price today?

That's correct.

Okay. How about in terms of contracted sales on the fuelgrade side, what kind of contracts in terms of percent of production have youentered into at this point in time for the balance of the year?

Why not go ahead and take that one. The fuel alcoholcontracts, really we do contracting through the end of the second quarter andthere is a very small percentage of those contracts going forward after that.

What percent of your contracts are final in the Decemberquarter?

Roughly about 30%.

Okay. So, you're sort of betting on an improvement in thespot market.

There are a couple of factors in that Steve. Number one, alot of it is depending on the type of pricing that you can get with customers.Over the last year a lot of customers have not been willing to go through alonger-term contract without a significant discount on pricing. And so, yes, weare really looking at, with the spread between gasoline and fuel ethanol rightnow, we are looking at some increase in pricing, which we've seen over the lastprobably 30 to 45 days.

Okay. Well, I guess first of all, what portion of your wheatimport cost were hedged in September quarter?

Again, we basically went into the quarter pretty well hedgedin the first and second quarter for this current fiscal year. So, quite a bitwas hedged in that first quarter.

Which quarter, yeah, at what level?

Pretty high percentage, I would say about 70% to 75% washedged.

Okay. Would you mind sharing what price it was hedged out?

Below market, obviously, where the market has taken us overthe last three months.

Okay. And so that's the same kind of hedge you've got inplace for the December quarter?

Yeah, and typically as we go forward we have less hedged.But, we are significantly hedged in the current second quarter.

Okay. And will just ask one final. What are the latesttrends on vital wheat gluten in terms of your production and current pricing?

Steve, this is Tim. As we talked about over the last coupleof earnings calls, we hope to be running at a rate similar around three timeswhat we had done in the first half of FY'07. Similar to that based, of course,on what occurred with the Chinese imports and just overall generalstrengthening in the USmarket. Where we really ended up kind of this in this first quarter andprobably most of the second quarter looks about a 2 to 2.5 time run rate, sortof, all the way to the 3 time run rate, which is what we had hoped to get to. We are not quite all the way where we hope to be, but prettyclose. And a lot of that's been driven by a slower return of the pet market. Itwas hurt pretty bad and there are still some people that, some of our customersthat have not returned to expected run rate, when we had talked with them aboutreserving some capacity for him. The other is that imports are still prettystrong. So, we are quite happy that we got up. We did dramatically increase itand as we talked about in the release and in our prepared comments, obviously,it had an accretive effect for us in this quarter. On a pricing basis, Steve, I would say, year-over-year,anyway, we are probably on gluten prices 80% to 90%. Now, you have to realizethat wheat is up probably almost a 100%, so some of that that price increasehas been mitigated. But, again, we have the largest installed capacity in the US. And we aregoing to continue to be opportunistic with that capacity and where it makessense to sell the gluten and run the pounds, we are going to doit. And we are staying ready again to supply the US market with what they need, whenthere are appropriate values for our business.

Okay. Thank you.

(Operator Instructions). Your next question comes from [PaulDa Vall] of UBS.

Hi. Hello.

Hi. Paul.

Hi. Yeah. Actually, most of my questions are about thehedging, which you have already answered. So, thank you.

Okay.

Thank you. (Operator Instructions). There appears to be nofurther questions at this time. I would like to turn the floor. I am sorry,there is a late question. Corey Johnson of Kingsford.

Hi, guys. I hope you will help me out a little more. Youtalked a lot about the opportunity for what you thought would be people notwilling to import Chinese gluten. I just wonder what you really see -- give usa little more color on that market. It sounds like it hasn't really shut up theway you thought it would, but may be it's happening a little ahead, that'sunclear to me. Can you give me some color on that that would be really helpful?Thank you.

Yes. Sure. I will take a stab at that. As I said, we arerunning at probably double the rate of 2 to 2.5 times the rate that we had runin the first half of FY'07 and prices are up 80% to 90%. So, certainly we'veseen an impact from reduced Chinese imports, but again what's probably kept theUSmarket from being even stronger on the gluten price side is demand hasn't beenthere. And the part of the reason demand hasn't been at the rates that we hadexpected is, because the pet food manufacturers are still struggling to comeback from the mess of recalls that we all remember from the March/April period.So, we stand ready. We have capacity ready. We've hired back the folks that weneeded to, to be ready to run back at the rates that MGP used to run back inthe 90s and in the early 2000s and this demand hasn't been there. So that's thereal driver.

Can I also ask just may be an elementary question, as mostof who are on the call knows, but I don't. Your food grade alcohol, what kindof alcohol is that going into or you guys making, gin, vodka, what is it?

Brian, you want to answer that one please.

I am sorry. Could you repeat that?

Yeah. What products do your food grade alcohol end up in?Does, in the percentage of sale would be helpful

Really approximately 40% of our sales are in the highquality alcohol and we are in the beverage alcohol, which are vodkas and gins,and industrial ingredient products that include, food ingredients,pharmaceutical products, a wide gamut of products in that area.

Are there any brand names that would be important to followor anything that you can keep track when these kind of results trend?

Well, we sell to lot of the major consumer products groups,but we really -- what the ingredient that goes in to the brand name and reallydon't put out the brands that our products go into.

Sorry. That's such an elementary question, but I you appreciateguys. Thanks a lot.

You're welcome.

There appear to be no further questions at this time. Iwould now turn the floor back over to management for any finishing remarks.

Okay. We admit that we've had a rough bump in the road thispast quarter. However, we are confident that our current course is the rightone, particularly, if we can continue to execute on the ingredient side of ourbusiness, we would expect further positive contribution to our bottom-line. Well, thank you for joining us this morning. We look forwardto talking you again when we report our second quarter earnings. This concludesour call at this time.

Thank you. And this does conclude today's MGP Ingredientsconference call. You may now disconnect, and have a wonderful day.