Welcome to the REX American Resources Fiscal 2020 Second Quarter Conference Call. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. I would now like to turn the conference over to Doug Bruggeman, Chief Financial Officer. Please go ahead.

Good morning and thank you for joining REX American Resources fiscal 2020 second quarter conference call. We'll get to our presentation and comments momentarily, as well as your questions and answers. But first, I'll review the Safe Harbor disclosure. In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements that involve risks and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the company's current expectations and beliefs, but are not guarantees of future performance. As such, actual results may vary materially from expectations. The risks and uncertainties associated with the forward-looking statements are described in today's news announcement and in the company's filings with the Securities and Exchange Commission, including the company's reports on Form 10-K and 10-Q. REX American Resources assumes no obligation to publicly update or revise any forward-looking statements.

Thank you, Doug. Going forward, ethanol is currently profitable with our plants open. The ethanol prices are low -- or excuse me, are up over last quarter. Corn appears to be plentiful with hopefully a good harvest in sight. The only negative that we see -- or that I see is, at this current time, the biggest negative I see is, there is 98 refineries that have applied for RIN exemptions. And if they were given all 98, that would have an impact on our business. Or, if the government does not follow the law, RINs could have an impact on our business.

Thank you, Stuart. Good morning, and thank you for joining us today for the second quarter 2020 earning calls. As we all note, 2020 fiscal year started in a challenging environment, including a decline in the crude and ethanol demand price, COVID-19 pandemic and shut down of business and stay-at-home orders by government. That resulted in a decrease in the fuel demand and negatively impacted the ethanol industry. Several ethanol facilities across the country were shut down, including both of our majority-owned plants. As I mentioned in the first quarter call, that challenging environment led to decision to shut down the NuGen plant on March 17 and One Earth at March 31. By April 2020, we had idled both of our majority-owned plants. We have experienced some improvements in business activity at late May as COVID-19 shutdown order relaxed. That created increase in demand for the gasoline and ethanol. As the demand of ethanol increased, that led to reopening of One Earth Energy in late May and NuGen Energy in late June. Since One Earth Energy's second quarter ended on June 30 and NuGen's second quarter ended on July 31, due to that reason, second quarter financial results have approximately one month of production activities for each location. We also gone through usual restart-up production problem, but these problems are behind us now. We have seen further improvements so far in third quarter and steady flow of corn at both of our majority-owned locations and improved crush margin. We believe this could lead to a profitable third quarter provided economic condition, crush margin, availability of corn continues to improve and COVID-19 threat further reduced.

Thanks, Zafar. In conclusion, it looks like the worst is behind us. The ethanol business is now currently profitable. We have great plants, great locations, among the best in the industry. Most important, we have great people, and that's the biggest thing that allowed us to navigate this difficult time and become profitable again. I'll now leave it open to questions.

Thank you. Our first question comes from the line of Jordan Levy with Truist Securities. Please proceed with your question.

Morning, Stuart, Doug and Zafar.

Hi.

Just to start off, just on the industry as a whole, just curious to get your thoughts on how you kind of view the discipline of the overall ethanol industry here in the US? And then we've seen a nice bounce back in production and demand on the ethanol, and subsequently gasoline fronts. And with that, just given that we could see more volatility, however you view it. What sort of things can you guys do at the corporate level to buffer or better position yourself to go through that volatility versus your peers?

Well, there's very little discipline in the ethanol industry. When it's profitable, everyone produces like crazy. And there's no real discipline. People - plants never go away permanently. They just - maybe one or two, yeah, but virtually none ever got - they close down for a little while. Even if they're very, very inefficient plants, they seem to never - they seem to come back. And so there's very, very little discipline. What we do and where we think we do better and what Zafar is really good at is we try to be the low-cost producer in the industry. We work really hard at that. And I think we're among the - depending on the price of corn, we're - we have among the most efficient plants in the industry, and that's allowed us over the years to way, way outperform the industry. Many other companies have, if you look at their retained earnings on their income statement, they have negative retained earnings. We, of course, have made money virtually every year. This year is a very, very difficult year for something none of us expected. But we try to - we feel if we're the low-cost producer, we'll always be okay. And so far, that's worked well for us. I hope that answers your question.

Yeah. Absolutely does. And I think that you guys showed your ability to kind of handle those low cost and drive those costs down this quarter as well. Along the same lines of thought, just - you discussed briefly kind of ethanol investments and trying to look for the right price. Is there something - is there a market signal that you would look for that would make you comfortable expanding the ethanol footprint, or something on the price or the crush margin side? Or, is it just about getting the right plant at the right price?

I think, for sure, we would look at whether it's - we're better off buying our own plants. Our plants are valued at very - we have $30 a share in cash. Our plants by the market are valued, we feel, at a very, very low price. So if we're better off buying our shares or what we call buying back our plants for our shareholders, we would much - that would be a trigger - or that would be something we would, compared to - we would not want to pay if we can help it, unless - and we don't think there are better plants than us. But unless it was a better plant than ours, we certainly would not want to pay more than what our plants are selling for on the market. Do you have the next…

I think that makes a lot of sense. Yeah, absolutely. If I could, just one more. You've mentioned kind of the ability to realize more value from some of the by-products that some of your peers are looking into. Just kind of - we've seen a couple of players in the ethanol industry discuss high-protein from the DDG stream and that sort of investment. Just kind of thinking about what the potential for that investment is, and what you see kind of the upside and downside of pursuing something like that might be?

Well, there's two places where we've seen people make it, the high-protein and the sanitizer, and we're looking at both. We'd rather be - we'd rather follow and see other people do well in it before we made the investment, but it's something - both things are things that other people have done or are doing. We're watching that very, very closely. And if it is a good - corn oil was a good example. We weren't the first in corn oil, but we got in fairly early, and it became a good by-product for us. So we'll watch and see, and we are definitely studying everything. And Zafar, do you want to - I think that pretty much sums it up, unless you have anything else you want to say on that Zafar.

Yeah. Only thing I will add to that is, protein market is not mature enough yet, and we believe that it will going to take a little bit longer period to become mature that market. And as it gets a little bit mature, at that time, we will evaluate that investment of $40 million to $50 million and see how quickly the return on investment is there too. So - and the other thing is that as people are shifting to this protein market, that also - actually supply of the DDG market is also shrinking at the same amount. So that's going to result, hopefully, the price of DDG goes a little bit higher since that particular - that not will be - DDG will not be available.

Right. No, I think that makes total sense. If I could just squeeze in one more. Just looking at crush margins, where they are now and moving into the back half of the year and things have improved, as you guys kind of mentioned, and the plants are back online, just curious how you see kind of the rest of the year playing out in terms of production at the plants, or just in general, trend directionally on volumes from both your operated and non-operated entities?

Zafar?

Yeah. I think, as you can see, as I mentioned earlier, we see the third quarter will be - expected to be profitable. So we certainly see that things have improved compared to last six months, and we believe that if it's continued to improve, as I mentioned that, we don't see any COVID-19 further threat, or any kind of availability of corn or something happened to the corn conditions, and going forward if these conditions stay at this - like this, then I think with - seems to be, at this time, look like we will be profitable through the year.

Great. I really appreciate the answers, guys.

Thank you. Thanks.

Our next question comes from a line of Chris Sakai of Singular Research. Please proceed with your question.

Hi everyone. Just - I had a question regarding globally and - your sales globally, which countries are you currently seeing an increased demand for ethanol, and which countries have not and why? And how has the pandemic affected these countries?

Stuart, do you want to me to…

Zafar…

As I mentioned previously, I think the export has dropped to 731 million gallons compared to last year's 764 million. And Brazil is always top. Last year, it was about 210 million gallons compared to this year 177 million, and Canada is also dropped. And Canada - Brazil, Canada, India, I think South Korea, these were the last year, in 2019, they were also top four countries. They are still top four countries, but ethanol, they have dropped - the export is dropped compared to last year. So I think there's certainly that impacted. Also, the other reason is, we were also - mostly plants were shut down during the March, April or May, and there was not enough production. When there was not enough production, it's hard to export something also. So that's certainly affected in both ways. But these are the top four countries who's always really importing from US.

And one thing…

Okay…

I'll add is driving because of COVID-19 spread affected throughout the world, people aren't using as many gallons of gasoline or ethanol for driving as they were because of the COVID, or at least they weren't in the second quarter.

Right, but so is it a fair, I guess it would be a fair assumption to say that as in driving is increasing, then - so is the demand for ethanol and so are your sales?

In the US, I think that's a fair hope that if driving increases, but we're still up against last year. And I don't know that driving - I don't have the latest figures, Zafar might. But that - the other issue that we deal with that we pay attention to is, wholesale price of gasoline is fairly low because demand has been low, and we have to compete with that on an export basis too. So that's another thing that hurts export business when wholesale price of gasoline is low.

Right. Okay. Well, thanks for that. Appreciate it.

Yeah, thank you. Thanks for the question.

There are no further questions registered at this time.

If that's it. I’d like to thank everyone for attending our call and I’ll talk to you in a few months. Thank you very much. Bye.

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