Greetings, and welcome to the REX American Resources Fiscal 2021 Second Quarter I would now like to turn the over to Doug Brogerman, Chief Financial Officer. Please go ahead, sir.
Good morning, and thank you for joining REX American 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 ks and 10 Q. REX American Resources assumes no obligation to publicly update or revise any forward looking statements.
I have joining me on the call today Stuart Rose, Executive Chairman of the Board and Zafar Rizvi, Chief Executive Officer. I'll first review our financial performance and then turn the call over to Stuart for his comments. Sales for the quarter increased substantially by 3 98%, primarily due to higher production levels as we had idled our Neogen and One Earth plants
for a
portion of last year's Q2 due to the impact of the pandemic amongst other factors. Ethanol sales for the quarter were based upon 69,000,000 gallons this year versus 26,500,000 gallons last year. We also benefited from a significant increase in average selling prices in the ethanol and byproduct segment. We reported gross profit of $14,200,000 for the ethanol and byproduct segment versus a gross profit of $553,000 in the prior year. Gross profit also benefited from certain shipping costs being recorded in SG and A this year based upon contract terms and our placement of outgoing shipping cost in SG and A.
Our refined coal segment had a gross loss of $3,100,000 for the Q2 of fiscal 2021 versus $1,900,000 for the prior year based upon increased volume. These losses are offset by tax benefits from this segment of $5,400,000 and $2,900,000 for the Q2 of fiscal 2021 2020 respectively recorded from the Section 45 credits and the tax benefits operating losses. As a reminder, we currently expect this business to end by November 18, 2021, conference call, as this plant operation will no longer be eligible for tax credits based upon current legislation. SG and A increased for the 2nd quarter to $6,600,000 from $4,400,000 in the prior year. This primarily represents increased shipping costs recorded in SG and A, as mentioned earlier, for certain ethanol contracts in which we pay shipping based upon contract terms as well as higher incentive compensation associated with higher profitability levels.
With income of $1,800,000 from our unconsolidated equity investments in this year's 2nd quarter versus a loss of 50 $7,000 in the prior year, reflecting improved ethanol industry conditions during this time period. Interest and other income decreased to approximately $39,000 versus $197,000 in the prior year, primarily reflecting lower interest rates. We recorded a tax benefit of $3,700,000 for the Q2 of this year versus a benefit of $4,000,000 in the prior year. Fluctuation in rates are largely caused by level of refined coal production and credits in the prior year having a pre tax losses versus pre tax income in the current year. These factors led to net income attributable to REX shareholders of $7,900,000 in this year's 2nd quarter versus net loss of $1,700,000 in the prior year.
In addition, our weighted average shares outstanding declined from $6,216,000 to $6,011,000 from last year's Q2, further benefiting the earnings per share. As we announced this morning, we completed our most recent share repurchase authorization and the Board of Directors has approved an additional 500,000 share repurchase authorization. We currently have approximately 5,971,000 shares outstanding. Stuart, I'll now turn the call over to you.
Thank you, Doug. Going forward, we're currently running in the ethanol business at a profitable rate, conference call. But significantly less than the quarter we just reported. The industry is hampered by high corn prices, corn shortages and a number of other issues, which our CEO, Zafar Rizvi, will discuss in his segment. Also, RINs remain up in the air as the Biden administration has not issued any RINs for the future.
So we still don't know where that exactly stands. In refined coal, coal continues to run at a good rate and should be profitable again on an after tax basis this quarter. This business is scheduled to end in the middle of December, conference call. But we could and shouldn't and I'm sure we'll have significant tax credits to carry forward, which should help our cash flow for for the foreseeable future. In terms of cash, we had a consolidated cash balance of $187,600,000 We have completed the 500,000 share buyback of authorization for another 500,000 shares.
We try to buy on dips and we prefer to return our shareholders money in buybacks versus dividends since it reduces share counts, increases earnings per share and provides liquidity to shareholders looking to possibly sell our stock. We're looking for other opportunities in the ethanol business to buy plants. We've looked at a few things this year. We've had no success in buying anything and we have nothing imminent. In terms of carbon capture, that will be our biggest new project.
We're working hard on it. We have a possibility of being a large player in that industry. We're working with the University of Illinois on a site and we've received the University of Illinois received a grant to help fund these works from the U. S. Government.
Zafar will now discuss more of that in the ethanol business conference. Go ahead, Sofar.
Thank you, Stuart. As I mentioned in our previous calls, our operating environment in 2021 is beginning to improve and production continues to increase. These improved conditions helped in the first and second quarter and resulted in a profitable quarter. But now we are beginning to see a decline in the cash margin due to several factors, including the cash price of corn, As Stuart mentioned, availability of cones, corn export, a decline in the price of dried distill grains, but an increase in the price of non food grade corn oil. Both of our majority owned plants are producing below the capacity due to a number of reasons, a plant shutdown, availability of corn at a reasonable price and logistic problems due to the availability of DDG Containers.
We expect this trend may continue until harvest, but the logistic problem may continue longer. Although we have seen some improvements in logistics lately, we expect the gross margin will continue to be under pressure in the near future, which could adversely affect the Q3. I would also like to share progress in the Cosmo's Quest Station project call as Stuart just discussed. We are working with the University of Illinois to drill a carbon sequestration test well. Call.
The 2 d seismic survey is completed. As I mentioned previously, that it will be supposed to be completed this quarter, so it's completed. And results are expected by the end of September. The well site has been cleared and ready for site preparation, and we expect those site We have applied for a permit for the test wells from the Illinois Department of Natural Resources and expect to receive It will be converted into a Class 6 monitoring grant. The first stage of preparing the Class 6 permit application has been begun, will continue as we begin to receive more information after the test well is completed.
The RFQ for test well It will take approximately 6 weeks to drill and another several weeks of testing. It will require extensive modeling and computer stimulation to predict the behavior of the CO2 when it is injected. This simulation model will determine how much CO2 can be injected at the location, at what rate and its eventual distribution in the subsurface area. Our pre study of the capture of CO2 and the design of the facility is underway. The design of the capture CO2 facility is expected to be completed soon.
As I have mentioned in previous calls, this project is still a preliminary stage, and we cannot predict yet that we will be successful. Our target is to achieve net zero emission. In summary, we are pleased to announce once again a profitable quarter. We are very appreciative and thankful for the hard work of our colleagues to achieve these results. I will get back to Stuart Rose for additional comments.
Thanks, Stuart.
Thanks, Zafar. In conclusion, we've had a successful quarter, but we have a few obstacles in the near term horizon. Still we're running currently at a profitable rate due to good plants, good locations. And most importantly, we feel we have The best people and we're working with the best people in the industry and that's what really makes a difference of why our plants on a long term basis
to acknowledge your request. Jordan Levy with Truist Securities. Please proceed with your question.
Good morning, all.
Hi, Jordan.
Good morning, all. Good morning, Chris.
Good morning,
call. Just first wanted to start out on Zafar, you mentioned the logistics issues with the DDG containers that I don't know if it's one or both of the plans. Can you just expand on that? And is that something that's Specific to one area and what is the extent of that on what we're looking like on utilization into the 3rd Q4?
I think the problem we had last month and beginning up some of that in this month seems to be, as I mentioned, it's Beginning to improve because yesterday we received almost 50 containers and before that we were not receiving that many containers coming back to 1 Latt Energy. That was the concern on because we export mostly DDG at 1 Earth Energy. So they require a lot of containers. So that was the reason. So due to that reason, we have to slow down a little bit because We have so many containers which supposed to be arrived there, they were not arriving and the DDG storage was getting full.
So that But it seemed to be getting a little bit better since yesterday and last night, I checked back and there was approximately 50 containers received. So that's helping to reduce the load a little bit. But certainly, as you know, the shipping problem is all around contract. Even President Biden mentioned that. So those are the things which we are also facing some of those.
Okay, got you. And is that sort of the same situation? You mentioned running at somewhat of a lower utilization and ability to get corn at a reasonable price. We've seen obviously the financial market for corn come down a bit over the last week or 2. Are you starting to see some pressure off on there too?
Yes, I think we have seen the base although the Seaboard price has come down, but I think the base is also beginning to become weakened. We have seen that not only in South Dakota area, in even Illinois. Onetime, the basis was as high as 1.2 of $5.30 plus basis, and now the basis are coming down overall Everywhere in the industry. But yes, due to that reason, there was some concern that Within the next month, hopefully, they're going to be harvest and the base is expected to be minus and now it's still a plus basis. So we are trying to be very careful not to overbuy and not to overpay.
And then we end up with a higher inventory price.
Sure. Thanks for that. That's great color. Stuart, maybe for you, definitely encouraging to see you all continuing to buy back shares and Increase that authorization. I'm just curious if you think about a couple of years down the road, is there a point you get to where It doesn't make sense to continue to buy back shares or is this something you think can remain at the pace it's been at and you all have been pretty opportunistic And when you choose to repurchase.
So is it just kind of a continuation of that? Or I'm just curious how you think about it longer term?
That's a good question, Jordan. I think the way I look at it is there's always times where we think not to buy when the That's performing well on its own. We're there to put a floor on the stock when the stock dips. And that's so hopefully, I'll never have to use the 500,000 shares buyback, but should the stock dip to prices that we think are unrealistic in our minds, that's when we We probably have been buying back for longer than anyone in the I'm sure we have anyone in the industry. And we certainly think we know what we're doing when it comes to buyback.
We don't just buyback to throw money out there. We buy it. We do it opportunistically and we do it on dips and we've historically done it that way. One of the things that I think separates us from the rest of the industry, first of all, we 2nd of all, I think we're good stewards of that money. We don't.
We do have our speculative project, which is a big one, one of the biggest and we hope to be huge in carbon capture. But we also conference. Our shareholders' money like our own money and we try to use it and not just make announcements and throw money at different projects. We like to make sure that we're using it in a wise way. And Consistently, we've done that, which has allowed us, I think, over the years to way outperform almost everyone in the industry.
Yes, absolutely agreed. And then just the last one for me, maybe Zafar for you, the carbon capture project, you mentioned kind of preparing the site for the call this fall and how long that will take some time to get the results in and then monitor it. I'm just curious, When we think about timing, the major kind of milestones we should be looking for to track the progress on that project. Is it early next year we might Have an initial sense of what this looks like and then kind of what the steps after that might be after the test well, assuming things go well?
I I think the test well, we seems to at this stage, at least, we think that it will be test well will be conference call. This year and then it takes, as I said, 6 to 8 weeks. And after the test well is completed, conference. And we will be doing a lot of stimulation and looking at how the subsurface is reacting to it. The Main purpose is to really also not to just to decide, look at the location and decide how much carbon this can store each well.
Because if this well can hold about 2,000,000 ton a year, It can hold only 1,000,000 ton a year. So that will be give us a little bit color on that, how much we can really bring the carbon from different several other different locations or other ethanol facilities, which we have non binding agreement. So that will determine actually how much storage we have. And then we can decide in the same area that can do we need to dig another Well, that will be not also carbon sequestration well, it will not be attached well or something. So those are the really reason we wanted to make sure the test well is define the area and confirm what seismic testing and other areas saying that how much ton it can hold.
So I think by next year, by this June, we will have pretty good idea where exactly we stand with this location.
Our next question comes from Graeme Trice with Raymond James. Please proceed with your question.
Conference. Hi, good morning.
Hi, Glenn.
And thanks for taking my questions.
I guess first off, I was wondering
conference. And maybe just wanted to gauge your expectations there.
Personally, I have no idea. They were supposed to do it long ago. I don't know what they're waiting for. I don't get it. But that's Zafar, do you have any more clarity on when it may come out?
I don't really know. I think you're right, Stuart. It's early. White House has to approve it, and so we don't know when they will There's so many uncertainties and things are going on at the White House right now. There are
a few issues right now that I don't know that this It's top of their agenda, but it should be top of the EPA's agenda. But they may not be able to run it by any who knows what's going on there. But release? It is disappointing, to be honest with you. We at least need would like to know what we're shooting at.
For this year, it makes no sense.
I mean, there's reports out there, the EPA is ready to send their recommendations to the White House, but there's no clarity on how long that will take. But conference. From what I've read, and I'm sure you have read the same thing, there's some speculation that the EPA is going to propose reducing
But I think they're not sure that it's going to be a biodiesel or ethanol. So that's really not clear because Biodiesel is not producing as much as required. So there is rumors it's maybe a biodiesel range need to be reduced
Understood. That's definitely helpful. And then I guess sticking with the EPA, As we look at at least the near term potential for fuel shortages in the wake of Hurricane Ida, no, we've seen that there have been some requests from the EPA to allow more ethanol to be sold in Louisiana, some of the other states impacted by the storm. Just wanted to see what your views are on that situation.
We're always in favor of more ethanol, But I think there's probably a lot less striving than what we see in it too. So who knows what. I don't think that's going to hit on an overall basis, I would Not look at that as being any permanent nature change.
Yes, it's a short term change. I think it's not a long term. So I think Short term, demand may increase and then depends on really how long they continue that. But as we all know, ethanol is a clean fuel, and we encourage people to use that as much as they can.
And our next question is from Chris Sakai with Singular Research. Please proceed with your question.
Conference. I think Stuart mentioned that the you're looking at some acquisitions, but didn't make any this quarter. I wanted to see why, what were the main reasons there? Conference.
I said this year and the main reason was we were outbid. So, Simpliset, we, as I said earlier, good Try to be very, very good stewards of our stockholders' money and we were We did not get what we were looking for, and so we move on. That's all. In truth, we're better off buying our own shares in the price that we've seen of acquisitions out there. We can buy our own shares cheaper.
So that's how we choose to go. We will not spend more than we think we need to spend for an acquisition. And
conference call? There have
been a couple, but we did not get them. And so be it, I think in the long run, Our strategy has worked and that's how we'll continue to do it.
Okay. All right. Thanks. And then I guess internationally, where are the best Countries that are demanding
ethanol. Where is the best countries? I think as you can see that basically This year, we have seen Canada and other countries, it's more ethanol was But compared to Canada and South Korea, Korea and Peru and Mexico, I think China has received Some of them this year, but the problem is that is Brazil was completely off this year compared to last year. And ethanol export this year was $664,000,000 compared to last year, was $31,000,000 and Brazil actually imported only $30,600,000 compared to last year, dollars 177,000,000 and in 2019, almost $211,000,000 So Brazil was not there at this year compared to last several in previous years.
Did you mention China there? How is it going with China?
China did import this year some of them close to I can let's see, China imported close to 100,000,000 gallon this year. Let me confirm that. I think I had somewhere. Let me look at it. I'll get back to you about it.
Okay. Okay, thanks. And then as far as the rest of the year goes, I mean, do you have any idea as far as fresh spreads go?
As I mentioned, I think that in this business, you are really It's a commodity business. It depends on week to week, sometime in month to month. As I mentioned that in earlier previously my prepared remarks That's certainly the crush spread is under pressure at this time. So getting back to your China, yes, China imported almost 100,000,000 gallon this year. So that was correct information.
Okay. All right. Great. Thanks.
Thank you.
Our next question is from Jared Eidolon with South Dakota and Office. Please proceed with your question.
Hi, thanks guys, and thanks for taking the question. I wanted to get a little More color around the dynamic of the drought that's going on this year. And in your corn consuming areas, If you have a sense of if there's going to be any future acute shortages, as occurred in the past for you guys, especially in the NewGen and One Earth facilities?
I think Let's look at the one at a time. I think 1, our synergy facility, if you look at this year, The owned yield for 20 1, 2023 is expected to be 174,600,000 1,000,000 bushels and also approximately 2,000,000 acres were planted more this year compared to last year. But we expect The record yield is expected in Illinois. Illinois in 1 Earth Energy area It's a lot of rain and consistently a lot of rain and it's expected to be really good crops Since Illinois, Indiana and Ohio is expected to be tough yield, But yield in Minnesota, as you were asking, and the North Dakota and South Dakota are expected to be lower than last year due to drought in the area. But the one thing which is we see a little bit positive particularly for South We still think that overall, perhaps, it will be almost better than last year If the yield stay as it is now expected and we have reined approximately 3 to 5 inches last couple of weeks in that area.
The overall New Gin area is not as bad as we have seen North of South Dukada, out of West Northwest of South Dukada and then North of Dukada. So those area is certainly is is pretty bad, but New Gin area is not as bad as compared to other area. So but Overall, it is not as good as last year, but the only thing it can be helpful, We have more acre planted this year than last year.
Wonderful. Thank you. And could you touch a little more on some of the byproducts, mainly dry DDG and modified DDG as well as corn oil and how impactful the price increases have been to your profitability?
I think that we have seen, as I mentioned earlier, that we have seen the Poon oil prices really seem to be going much higher than expected. If you look at even our we will be issuing soon Complete details are even in the press release. You can see that the corn oil price is this year So what we have seen recently even as higher as $0.60 to $0.65 even $0.60 a pound, Our DRG price has came down and it was trading previously close to 100% to 110% of the cone value, But now we have seen somewhere 80%, 85% to 90% of the cone value.
Mr. Rose, I'll turn the call back to you. There are
Great. Thank you so much. I'd like to thank everyone for listening, and we'll look forward to talking to you in our next conference call. Thank you very much. Bye.
Thank you. Bye bye.
That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.