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The Andersons, inc (ANDE) Q3 2021 Earnings Call Transcript

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ANDE earnings call for the period ending September 30, 2021.

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The Andersons, inc (ANDE 1.13%)
Q3 2021 Earnings Call
Nov 3, 2021, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen. And welcome to The Andersons 2021 Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your host today, Mike Hoelter, Vice President, Corporate Controller and Investor Relations. Please go ahead.

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Michael T. Hoelter -- Vice President, Corporate Controller and Investor Relations

Thanks, Sarah. Good morning, everyone, and thank you for joining us for The Andersons third quarter 2021 earnings call. We have provided a slide presentation that will enhance today's discussion. If you are viewing this presentation via our webcast, the slides and commentary will be in sync. This webcast is being recorded and the recording and the supporting slides will be made available on the Investors page of our website at andersonsinc.com shortly.

Please direct your attention to the disclosure statement on Slide 2 of the presentation as well as the disclaimers in the press release related to forward-looking statements. Certain information discussed today constitutes forward-looking statements that reflect the company's current views with respect to future events, financial performance and industry conditions. These forward-looking statements are subject to various risks and uncertainties. Actual results could differ materially as a result of many factors which are described in the company's reports on file with the SEC. We encourage you to review these factors.

This presentation and today's prepared remarks contain non-GAAP financial measures. Reconciliations of non-GAAP measures to the most directly comparable GAAP financial measure are included within the appendix of this presentation.

On the call with me today are Pat Bowe, President and Chief Executive Officer; and Brian Valentine, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will be happy to take your questions.

I will now turn the call over to Pat.

Patrick E. Bowe -- President and Chief Executive Officer

Thank you, Mike. And good morning, everyone. Thank you for joining our call this morning to review our third quarter results. We are extremely pleased with our overall third quarter results, which included an all-time record performance in the Trade Group and continued our strong momentum. Along with solid ag fundamentals, we have executed well, trading through an inverse market and addressing supply chain and labor challenges in a period of significant volatility.

The company recorded its best third quarter since 2014 with the sale of our rail leasing business in August. I'm also excited to note that our trailing 12-month adjusted EBITDA from continuing operations exceeded $294 million, not including the rail segment. Across the company, our teams are working hard to provide extraordinary service to our customers in these favorable markets.

Trade had a great quarter, executing well in dynamic grain markets where low grain stocks have provided excellent merchandising and elevation opportunities. We had especially strong elevation margins in a number of regions. Our Louisiana locations were not impacted by the recent hurricanes and we were able to continuously serve customers. Idaho also benefited from strong basis appreciation in its wheat inventory. Our propane distribution business continue to perform very well. Wheat harvest receipts were better than expected and we are seeing storage income return to the corn and wheat markets.

We also saw incremental gross profit from new profit centers in the quarter, including our Swiss trading office. Although our ethanol segment had a loss in the quarter, board crush margins were improved and US ethanol stocks ended the quarter very low. As we predicted in our last earnings call, we were negatively impacted in the third quarter by high corn basis at our ethanol plants but have seen relief as we started the corn harvest.

We completed scheduled shutdowns and increased quarterly production of ethanol. Co-products, especially distillers corn oil and high protein feeds, were sold at improved values. Third-party merchandising of ethanol and related products nearly doubled 2020 results. The quarter also included mark-to-market losses of $6.8 million, but we expect the majority of these to reverse in the fourth quarter.

Plant nutrient quarterly results were comparable to prior year and in line with our expectations for the seasonal business. Our year-to-date numbers are strong and we've been well positioned in this high-priced and limited supply ag fertilizer market. Our agricultural product lines performed well, while our turf and specialty manufacturing business margins were negatively impacted by rising input costs and labor challenges.

Our rail leasing business was sold in August and we announced the intent to sell the rail repair business. We have used a portion of the rail's sale proceeds to reduce debt. I'm very proud of our team and the performance over the past quarter and for the entire year, executing well in these volatile markets and staying focused on serving our customers.

I'm now going to turn things over to Brian to cover some key financial data and, when he's finished, I'll be back to discuss our outlook for the rest of 2021. Brian?

Brian A. Valentine -- Executive Vice President and Chief Financial Officer

Thanks, Pat. And good morning, everyone. We're now turning to our third quarter results on Slide number 5. In the third quarter of 2021, the company reported net income attributable to The Andersons from continuing operations of $13.9 million or $0.41 per diluted share and adjusted net income from continuing operations of $5.2 million or $0.15 per diluted share and revenues of $3 billion. This compares to a net loss attributable to the company of $1.5 million or $0.04 per diluted share and an adjusted net loss of $2.9 million or $0.08 per diluted share and revenues of $1.9 billion in the third quarter of 2020.

Adjusted EBITDA from continuing operations for the third quarter of 2021 was $56.3 million, an increase of 20% when compared to third quarter 2020 EBITDA of $47 million. Adjusted EBITDA from continuing operations for the trailing 12 months was $294.3 million, an increase of nearly $130 million. Each of our three business units has significantly improved year-to-date EBITDA compared with 2020.

Our effective tax rate varies each quarter based on the amount of income or loss attributable to the non-controlling interests. We recorded taxes for the quarter at an effective rate of 24.7% and are currently forecasting a full year effective tax rate of between 22% and 25%.

Next, we'll move to Slide 6 to discuss cash, liquidity and debt. We generated third quarter cash flow from continuing operations before changes in working capital of $55.6 million compared to $52.8 million in 2020. Year-to-date cash flow has already exceeded our full-year of 2020.

We've seen an expected seasonal reduction in short-term debt as the balance of readily marketable inventories has declined somewhat and we have paid down our revolver. Futures prices in the grain markets remain high but are down from the levels earlier this year. Typically our highest borrowings occur in the spring as a result of our seasonal businesses. And we have seen a reduction from the $915 million borrowed at March 31 as inventories have been reduced. We continue to take a disciplined approach to capital spending, which we will expect will be about $85 million for the year.

We have reduced long-term debt by more than $300 million since year-end and have met our stated target of a long-term debt to EBITDA ratio of less than 2.5 times. With lower leverage and a stronger balance sheet, we are well positioned to invest in our core agricultural businesses. We also ended the quarter with more cash than is typical, a portion of which will be used for our fourth quarter tax payment, which we expect will be approximately $90 million to $100 million resulting from the significant asset sales.

Now, we'll move on to review of each of our business segments beginning with Trade on Slide number 7. Trade had record third quarter adjusted pre-tax income of $27.6 million compared to pre-tax income of $6.9 million in the same period of 2020. Elevation margins from early harvest dry areas were particularly strong. Merchandising gross profit was about 50% higher than the prior year and includes $7 million related to new businesses.

Storage income opportunities have returned for wheat as we were able to accumulate larger-than-expected new crop bushels. In addition to the organic growth we just mentioned, we also closed on the acquisition of Capstone Commodities just after the end of the quarter, which will help to extend our feed ingredient supply chain to Southwestern US dairies. Trade's adjusted EBITDA for the quarter was $43.9 million, nearly double the adjusted EBITDA of $22.3 million in the third quarter of 2020.

Moving to Slide 8. Ethanol had a third quarter pre-tax loss attributable to the company of $3.6 million compared to third quarter 2020 pre-tax income of $1.1 million. Improving board crush margins were reduced by high corn basis prior to the fall harvest. This was partially offset by strong co-product values and third-party trading results. As Pat mentioned, our third quarter results included unrealized mark-to-market losses from hedge activities of nearly $7 million, most of which we expect to reverse in the fourth quarter. As of this call, we have completed all of our planned maintenance shutdowns for the year. Ethanol generated EBITDA of $19.2 million in the third quarter of 2021 compared to $24.4 million in the third quarter of last year.

Turning to Slide 9. The Plant Nutrient business recorded a pre-tax loss of $5.8 million in the third quarter compared to a third quarter 2020 pre-tax loss of $5.4 million. Similar to last quarter, well positioned inventory with continued demand led to solid margins per ton in our agricultural product lines. Our turf and specialty business experienced a small volume increase but was challenged by inflation in labor and raw material costs. Plant nutrient's EBITDA for the quarter was $1.8 million compared to $2.2 million in the third quarter of 2020.

I'd now like to turn things back to Pat for some thoughts about the remainder of 2021 and a preview of our strategy for longer-term growth.

Patrick E. Bowe -- President and Chief Executive Officer

Thanks, Brian. We remain positive in our outlook for 2021. While grain export demand has seasonally slowed, we expect high global demand for US produced crops into 2022. This demand continues to support world grain trade and commodity prices, higher than historical averages. Harvest in dry areas progressing well, farmer income is high and we expect an abundant harvest that will provide us additional merchandising and elevation opportunities into 2022.

Given these conditions, we remain optimistic in the potential for our Trade segment. Worldwide supplies are projected to be tight beyond this 2021 harvest. Some storage income opportunity has returned to corn and wheat and we're able to acquire more of the summer wheat harvest than projected. A large 2021 harvest will reduce but not eliminate the impact of strong worldwide demand. With the broad trade portfolio, the benefits from merchandising grains for consumptive demand as well as by providing storage space, we see continuing complementary opportunities.

We continue to navigate well in these volatile markets and we remain focused and managing risk. While we believe our fourth quarter in Trade could be comparable to 2020, keep in mind that the prior year included some especially high margin soybean sales. We expect good results from the harvest despite some delays from recent wet weather across the corn belt.

In ethanol, gasoline demand has returned to pre-pandemic levels and board crush margins are strong and positive into the first quarter of 2022. Yes, ethanol stocks are currently low but industry production is increasing to meet this demand. Co-product values support our overall margin as the new renewable diesel demand continues to drive high corn oil values. We received approval on our California Air Resources Board application for ethanol sales from our Colwich, Kansas plant. Once verified, we expect to begin shipments to California later this year.

We expect our Plant Nutrient segment to continue to perform well in an ongoing period of tight supply. We have strong relationships with our suppliers and continue to appropriately manage positions and price risk. Demand looks to be strong in all product lines. We're well prepared to execute in volatile markets and have a solid track record in managing risk, logistics and operations. With our strong balance sheet, we're well prepared for this volatility and are committed to maintaining and improving our financial metrics. With a positive nearby outlook, we're excited about our prospects for growth.

Now I'll turn to Slide 11 where I'll summarize key aspects of our growth strategy. Over the past several months, we completed the strategy review with an outside consultant and recently shared the conclusions with our Board of Directors. Included in this work was a deep review of our portfolio and the decision to divest of our rail business and focus on our core agricultural verticals. We're optimistic about the long-term growth prospects in our core ag segments, including adjacent new products and markets.

We're using two trees here to illustrate our two verticals of grain and fertilizer as well as several product lines together with future growth opportunities. Examples of our targeted growth areas include applying our expertise in commodity trading and logistics to exciting new areas with limited investment in fixed assets. This could include strategically redirecting merchandising talent to focus on new products or geographies such as our new Swiss trading office. It also could include bolt-on acquisitions of complementary trading companies that align with our core, like our recently announced Capstone Commodities acquisition. In addition to focusing on current product lines, we're also investigating adjacencies such as finding solutions for carbon and other opportunities in sustainable ag.

We will continue to invest in premium products in food and feed supply chains. We are evaluating both organic and new ingredients for human and animal consumption, including pet food and our expanding organic fertilizer offerings. Biofuels is a rapidly evolving space, especially in supply chain surrounding renewable diesel. We will participate here primarily through input and offtake agreements as well as optimizing our production of feedstocks. In addition, we will continue to improve efficiency in our ethanol plants in order to maintain our strong position.

In addition to expanding our organic fertilizer offering, we are developing innovative new specialty products for consumers and growers of crops beyond traditional row crops. We also consider M&A within our core areas of strength and product line extensions for our manufactured products. We will continue to maintain discipline in our capital allocation and stay true to investing within our core. These are exciting times in the ag industry with favorable evolving trends that align with the Andersons core strengths and capabilities. We are well positioned to capitalize on these opportunities.

With that, I'd like to hand the call back to Sarah, and we'll be happy to entertain your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Ken Zaslow with BMO Capital Markets. Your line is now open.

Ken Zaslow -- BMO Capital Markets -- Analyst

Hey. Good morning guys. Just a couple of questions I have. One is, when you think about the current quarter, what do you think was either transient on the positive side or on the negative side during the quarter and can you discuss the magnitude of that? That will be my first question.

Patrick E. Bowe -- President and Chief Executive Officer

Okay. Good question, Ken. It's only, I think, a week ago or 10 days ago, Ken, we probably had [Phonetic] rain because, as you know, we have those big storms come across the corn belt and we're worried about maybe some delays in harvest. Now this week, we've got really bright sunshine in the Eastern grain belt some frost, which is actually good for harvest condition. So it feels like maybe the weather isn't as big a concern maybe what about 10 days ago.

So that seems to have alleviated on the harvest side. I think probably the biggest swing factor is really about ethanol pricing in [Indecipherable], crush margins right now and production has picked up. So if merchants can stay strong through November and December will be a big factor in our quarterly results.

Ken Zaslow -- BMO Capital Markets -- Analyst

I see. And was there anything from the storm? I think you mentioned that your Louisiana plant was not impacted, but the elevation margins were higher. Is there something that may not -- is that some of that was created because of the storm is kind of -- not one-time in nature and we wouldn't want to minimize your business model, but may not be going forward, is that the way to think about it? But on the flip side, it sounds like there are other things that may have negatively impacted you in terms of supply and logistics, things like that. Just trying to get a base of anything that is extraordinary in the quarter.

Patrick E. Bowe -- President and Chief Executive Officer

That's a fair clarification. I think it's important to note. So, our assets are domestic assets in Northeast Louisiana. So we're not at the Gulf. I'm not talking about export elevators. Unfortunately some of our colleagues in the industry has suffered some severe damage from the hurricanes, which we feel horrible about. These are domestic shippers of rail and storage assets in the northern part of the state. We were able to dodge any damage from any storms and similar weather. So we were able to capture those early premiums, probably higher than normally be because of inverse was so steep this year. So we have really good results in Louisiana. That's the first harvested corn to come off in the country and we're able to take advantage at. So right place, right time. And will that happen again next year? I guess, time will tell. So this is not a very good year Louisiana for us.

Ken Zaslow -- BMO Capital Markets -- Analyst

When you talk about your capital allocation, let's say, bolt-on, you looked at a lot of things. One thing that you didn't say as much is the focus on the high protein feed and where you're going to go on that strategy. Can you talk about -- where you think -- not in the next quarter, but -- like when you think about next year and the year after, how big do you think that could be and how important is that to your growth algorithm and is there any sort of risk of that if all these crushers come on bringing in capacity?

Patrick E. Bowe -- President and Chief Executive Officer

Yeah. That's a good clarification, Ken. And if I didn't mention that, that was the mistake. So we still continue to pursue high protein feed strategy at our ethanol plants. We have it installed in doing very well at our western plants in Kansas and Iowa. And we're working on projects to do additional higher value feed products in our eastern plants. So we see that being a part of the overall crush margin optimization in years going forward and also reducing energy and lowering our CI score as well.

So, there is a big part of our optimization of ethanol assets in the years ahead. Like you said, we're not doing it all in one quarter. We're pecking away at those projects in a logical fashion. We're still very friendly to value-add to DDGs. I think one of the challenges short-term, Ken, as you mentioned. So, the protein complex as crushing will increase, so oil products across the country may keep some pressure on meal and feed values relative to corn. So that could be a little bit of a cap to overall returns on the protein complex in general, but overall improving net corn cost for ethanol plants we feel makes lots of sense long-term.

Ken Zaslow -- BMO Capital Markets -- Analyst

And then my final question is, so you've added the Swiss trading. I think you probably added a couple of other low trading businesses as well as some other new businesses. Can you frame how -- and just take this like a year, and is a hard question. For the last year, the things that you've done, how much incremental either profits were associated with that, but more importantly how much you think it will add in 2022 and 2023? And again, I think about the trading operations that you've added in different locations, different products you've added and is there a way to kind of put some of that together to see, we spent just much capital and this is been so much return is what we expect. And then we can kind of parlay that into the stuff that you're going to do in the future. Just trying to think of it like that. I know it's a hard question, but any sort of clue would be helpful.

Patrick E. Bowe -- President and Chief Executive Officer

And Ken, maybe harder to define in the short-term, but I'd say that this past year, let's even go back a little bit. The acquisition of Lansing back to 2019 was the biggest in our country's history. And that's really paid huge dividends for us and really broadened our portfolio. And so we're really happy about the results of that integration and where we're going with the talent to be able to broaden those product lines. So that's what's leading us to some of these opportunities. I can -- and feed ingredients, so adding with Capstone to take us to the Texas and Southwest markets. The opening of our Geneva office is extending our supply chain mostly to Africa. So those businesses are up and going and going well. Not a big contribution to this year -- this current quarter, but next year, I'd say, maybe I'd say probably 10%, 15%.

Brian A. Valentine -- Executive Vice President and Chief Financial Officer

Ken, I would say, probably $10 million to $15 million of EBITDA is kind of a reasonable range for '22 for those on an incremental basis.

Patrick E. Bowe -- President and Chief Executive Officer

So I think the bigger question you're asking, Ken, is we have some ideas in the pipeline to be able to do more of that. And those are numbers that's harder to project as those are not completed deals, but that's what we'd like to do '22, '23, '24, continue to broaden our supply chains and add new products. And that's what we had to kind of growth capital when we talked in previous discussions to you about growth projects down the road.

Ken Zaslow -- BMO Capital Markets -- Analyst

So let me -- let me just, Brian, one more time because I think it's actually interesting. So, in a capital constraint environment where you were able to only putting capital wherever you could, you got -- probably about $10 million to $15 million. While going forward you will actually have more capital to deploy assuming that you don't do anything poorly and you keep the same strategy, the opportunity should be greater than that $10 million to $15 million because you have more capital to release and your capital discipline should not go down the way it did [Phonetic]. Is that a fair way of looking at it?

Brian A. Valentine -- Executive Vice President and Chief Financial Officer

Absolutely, it's a very fair point. In part of the strategy, I mentioned that we reviewed with our Board and the decision behind the sale of our rail assets was to improve our balance sheet and to create dry capital for those growth plans that we think can we provide high returns, Ken, we're making with the rail business. So, our plan is to continue to grow in those segments. It's likely not one super large acquisition early, so something like we did with Lansing, where probably more mid-sized type of acquisition to be in the $50 million to $250 million kind of range. So we're excited to look at those opportunities. We don't want to be paid too high in a super hot market, but there's opportunities that are quite attractive for many of our segments that we think we can grow with.

Ken Zaslow -- BMO Capital Markets -- Analyst

Great. I really appreciate it. Thanks, guys.

Brian A. Valentine -- Executive Vice President and Chief Financial Officer

Appreciate it.

Operator

Thank you. Our next question comes from the line of Ben Bienvenu with Stephens. Your line is now open.

Ben Bienvenu -- Stephens -- Analyst

Hey, thank you. Good morning, everybody.

Patrick E. Bowe -- President and Chief Executive Officer

Good morning, Ben.

Ben Bienvenu -- Stephens -- Analyst

I want to follow-up -- or maybe ask a similar question to Ken as it relates to the third quarter and also maybe this year a little bit. Where do you think you are in terms of delivering earnings relative to your potential? Do you think you're continuing to -- is that continued opportunity do you think the net of everything is over earning, obviously you've laid out a long-term goal of meaningfully higher EBITDA and you'll invest capital to get there, but you've had a number of kind of puts and takes this year. And so I'm just trying to get a sense of kind of where the equilibrium is?

Patrick E. Bowe -- President and Chief Executive Officer

It's a very fair comment, Ben. I think it's hard to look back. I'd love to say, I think our team did a very good job, especially in the grain markets to navigate the inverse and all the activity this year with shortage of truck drivers and the container challenges. There's a lot of interesting obstacles, I think, in the overall economy right now that everyone is dealing with from labor shortages and manufacturing to transportation challenges. We've been able to navigate through that.

I think it was opportunistic for us to do even better. We haven't had any big negative hits to any of our businesses or important losses. We've done well across the board in all of our product lines. I think there is potential to do even better. Margins aren't at historical highs, like they were back in the 2012 to 2014 period, so you can't say we're trading at some all-time highs. But we've done well this year, especially in our Trade Group. I think our fertilizer business has more potential upside as we continue to have incentives for farmers to really put nutrients into their crops and as we work forward on carbon. I think there will be a lot of interesting opportunities in grain and in fertilizer related to sustainability. We continue to work on transparent food supply chain, that has higher margin opportunities both in human consumptive food as well as pet food ingredients. So, there's a lot of areas that I think we can do even better. And we have more growth potential on volume and margin in those businesses. So answer is, I think the best is still in front of us.

Brian A. Valentine -- Executive Vice President and Chief Financial Officer

Yeah. I think, Bean, a lot of those puts and takes, I think, kind of offset to your point, I mean, in trade when you see some opportunities in Louisiana and also in Idaho with some job conditions up in the Pacific Northwest. I think -- but at the same time, higher corn basis and ethanol offsets that Pat talked about some of the higher input costs and labor costs in plant nutrient. So, I think, on the whole, none of us earlier in the year, I think, [Indecipherable] predicted Terry [Phonetic] is coming back into the wheat market. So, I think on the whole, some of these puts and takes offset and I do think there is opportunity for continued growth from here.

Ben Bienvenu -- Stephens -- Analyst

That's great. Sticking on the topic of future growth, Brian, I think you said you're expecting $85 million of capex this year. Should we expect a little bit more than that next year as you think about investing in the pipeline ahead of you both organic and inorganic growth? What's the reasonable level of capex to be thinking about?

Brian A. Valentine -- Executive Vice President and Chief Financial Officer

I would say so -- I would probably put it in the range of $100 million to $125 million is probably where I would frame it. I would probably say that half of that is sort of maintenance capital and the rest being allocated to growth, would be where go from high level estimates perspective at this point.

Patrick E. Bowe -- President and Chief Executive Officer

I think it's a good clarification that our capex during tighter times during COVID and everything, we tightened our belts. Now we have some upkeep to do in our assets and plan to spend more on our assets to make sure their ship shape as we have good fertilizer and grain opportunities in front of us. But that also includes some significant capital projects where we can really improve our assets. And that's going to become very important for us as we think there'll be stress in the coming years with very busy volumes.

Ben Bienvenu -- Stephens -- Analyst

That's great. That makes sense. If I think about the pipeline of opportunities ahead of you, what is the organizational bandwidth of the Andersons to pursue these future growth opportunities? Do you feel like the company is primed and prepared to go pursue these growth opportunities? You've now fully digested Lansing, and you bolted on a few acquisitions here and there. You've obviously gotten the divestiture of the rail business behind you. What is the bandwidth of the company to go out and pursue growth? Are you -- do you have excess bandwidth to pursue that?

Patrick E. Bowe -- President and Chief Executive Officer

I think we have a really strong bench with, like you said, the acquisition of Lansing. We really broadened our capabilities on merchandising and business development. An example would be, a year ago how we moved people into a virtual trading desk to participate in renewable diesel supply. We've become a pretty important player in that business. I think we have the ability to apply talent to emerging opportunities. The exciting part is, there's lots of opportunities in the sustainability part from the farm gate on all the way up into end customers. A lot of that to new space that everyone in the industry is learning about and applying resources to. So I think we have the capabilities to do we need now. And these new growth opportunities we've got talent to execute against them. So simple answer is, I think we're in a very good position to execute against our growth strategies. When we get into some of the assets and growth opportunities within those assets, we probably have to bring on some additional resources at that time, but excited about the team we have in the opportunities in front of them.

Ben Bienvenu -- Stephens -- Analyst

Okay. Thanks so much. Congrats and best of luck with the rest of the year.

Patrick E. Bowe -- President and Chief Executive Officer

We appreciate it. Thank you.

Operator

Our next question comes from the line of Eric Larson with Seaport Global. Your line is now open.

Eric Larson -- Seaport Global -- Analyst

Yeah. Good morning, everyone. Congratulations on a good quarter. My first question is really current operations specific. So, I knew that you had some decent inventory in wheat and I'm curious what contribution basis appreciation played in your third quarter numbers. And even more important, you got to have some attractive basis going full appreciation going forward. I mean, spring wheat prices have pushed to $10 on the Minneapolis exchange. Can you give us an idea of what your inventories are and maybe what the timing of some of those basis appreciation gains could be realized?

Patrick E. Bowe -- President and Chief Executive Officer

Yeah. That's a fair point. When I talked a little about spring, remember that our inventories are mostly soft red wheat from the Eastern crop, tied to the wheat market overall carries or probably about 70% of storage in soft red wheat. So that's a good thing. We haven't been able to enjoy soft red wheat carry the last couple of years, so we've seen some current charges return to wheat was good. That's why we were excited to buy a little bit more wheat than we originally had in our program. So we like putting wheat into our Toledo complex for storage. Basis appreciation, I think that's very specific question about the market right now. I think it's a good position for us that we will have -- I think that those soft wheat values are going to be valuable over time.

A lot was like we talked about in Idaho, a lot of our situation in Idaho was about quality, right. So having the right quality wheat or blending wheat, those light wheat and hard wheat in the west really had a lot of value this year. So, I think, the point Eric is about the wheat market which sometimes gets overlooked and it seems kind of quiet. Right now it's very interesting from a quality, a blending capability and storage, which is kind of old-fashioned grain business to come back. And I think we have some upside in our earnings on wheat overall.

Eric Larson -- Seaport Global -- Analyst

Yeah. And you had real you had real shortages in the west of wheat and even small grains this last year. I mean, we're talking really tight numbers on carry over. So I suspect that that will be a positive going forward for you.

Patrick E. Bowe -- President and Chief Executive Officer

You mentioned small grains plus we participate in the old market as well as [Indecipherable] so those crops were hurt in Canada and up in High Plains. It's been an interesting trading opportunity and we've done well in merchandising small grains.

Eric Larson -- Seaport Global -- Analyst

Are we going to have enough oats for all the demand next year, Pat, just out of curiosity, what your thoughts are on that?

Patrick E. Bowe -- President and Chief Executive Officer

It's going to be a tight market. So it's going to -- so that's an interesting merchandising trading opportunities, but it's one of our tighter commodity markets this year.

Eric Larson -- Seaport Global -- Analyst

Got it, OK. So, moving on, you provided some very specific guidance of over the next couple of years, Pat, on your forward EBITDA. And what I'm curious about is, can you express your confidence in that guidance? And then number two, related to that, and I don't know if we can even characterize a normalized ethanol market, but you're still pretty far well below, kind of what I would think is your average EBITDA contribution from ethanol. So what could be annual if you normalize the ethanol market, that's a really tough question. But what should you -- what could we expect as an EBITDA contribution from ethanol going forward over the next couple of years?

Patrick E. Bowe -- President and Chief Executive Officer

Well, you had a couple of handful of questions on the sales. [Indecipherable] outlook against our EBITDA targets that we put forward a year ago and a few months ago, I feel very confident in our opportunity to grow. The ag markets now are providing opportunities for companies to be able to look at things like sustainability and the change of renewable diesel impact in the entire oilseed complex has made a big difference. So, I think we have a new period for the grain business and fertilizer business than we did five and six years ago. And so, we have opportunities for growth.

And I think the unique thing that we're positioned well is in things that fit into our strength. Managing supply chains, working with farmers, working with end customers, understanding the environmental landscape as it relates to ethanol, I mean from that business and how the market works for RINs and working in a space that's complicated with government regulations, I think that helps us as we navigate these new market opportunities. So we're kind of excited about those new areas, but probably more importantly it's just the fundamentals back to exports of food and feed grains around the world. Domestic specialty crops and specialty products for human consumptive food as well as pet food have areas for growth. So a lot of our core businesses have some upside and we can do that through bolt-ons, quite expansions, new product lines, things like that to grow. A good example is organic. So, organic fertilizer business is an attractive opportunity for us. So, these are crazy way out their ideas or things we know how to do. And that gives me more confidence that we'll be able to execute against it.

The second question, Brian, do you want to...

Brian A. Valentine -- Executive Vice President and Chief Financial Officer

Eric, just to add to that, we went through -- Pat mentioned that we went through a pretty detailed corporate strategy review this year. And so, I think, our teams really have a lot of focus and a lot of energy on key areas where we really believe that we can add value and are able to be successful and have competitive advantages. I think when we think about our modeling and some of the numbers that are out there going forward, they do include some M&A. We're going to continue to be disciplined in our approach and make sure that we're not overpaying. The markets have been pretty robust, as you know. And so, some of that then -- it certainly won't be linear, but we're going to continue to look for those opportunities.

Patrick E. Bowe -- President and Chief Executive Officer

The second [Technical Issues] Eric, it's just -- I think it's really hard to pinpoint exact numbers on average, as you said, for ethanol. And again, I've been around ethanol evolves and plants for almost 30 years now. It's very difficult to forecast, because it's so many factors. But if you looked at the underlying factors today in ethanol, we have an abundant corn crop. We have very high corn oil values driven by renewable diesel. We have good supporting values for value-added feed products and DDGs in general. We have a global market of higher commodity prices in the energy sector, which supports gasoline prices, which is good for ethanol. We have a new administration that is very focused on clean energy and just recently at the summit talking about CO2 and carbon reductions. So there's a lot of things that could be very favorable to ethanol in the near-term.

So I think there's opportunities for ethanol to be quite profitable this year as we get gasoline demand to come back after being a little bit depressed through the whole COVID period. So there's a lot of things that have lined up on the favor of ethanol short-term. You also heard about recent developments about sustainable aviation fuel and that potentially coming down the pike. So, there's a lot of exciting things that could support ethanol near-term. Long-term, the big question is more about e-vehicle penetration, right. And that's probably the macro longer-term challenge. But near-term, ethanol could be quite good and it's shaping up more trucks on the positive side than on the negative side.

Eric Larson -- Seaport Global -- Analyst

Okay. Yeah, no, I would agree. So, your balance sheet, it's an incredible improvement. Obviously rail -- the rail sale help that a lot, etc. But you also announced a $100 million share repurchase program with your balance sheet right now. Could you not execute both that and your strategic growth --strategic growth of alternatives available to you right now simultaneously or do you think maybe we have some bigger growth opportunities from an opportunistic point of view that require a little bit more capital so you're conservative on your share buyback?

Patrick E. Bowe -- President and Chief Executive Officer

Good question. I think -- and when it comes to share repurchase, it's just as simple as we currently see more opportunities, so we're really excited that to deploy capital for growth to grow the company. And that's our keen focus right now.

Eric Larson -- Seaport Global -- Analyst

Okay. Thank you. I'll pass it on.

Operator

Thank you. [Operator Instructions] There are no further questions. I will now turn the call back to Mike Hoelter for closing remarks.

Michael T. Hoelter -- Vice President, Corporate Controller and Investor Relations

Thanks, Sarah. We want to thank you all for joining us this morning. Our next earnings conference call is scheduled for Wednesday, February 16, 2022 at 11:00 AM Eastern Time when we will review our fourth quarter results. As always, thank you for your interest in The Andersons and we look forward to speaking with you again soon.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Michael T. Hoelter -- Vice President, Corporate Controller and Investor Relations

Patrick E. Bowe -- President and Chief Executive Officer

Brian A. Valentine -- Executive Vice President and Chief Financial Officer

Ken Zaslow -- BMO Capital Markets -- Analyst

Ben Bienvenu -- Stephens -- Analyst

Eric Larson -- Seaport Global -- Analyst

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