Andy Foster: Derrick, I think over the last three years we’ve seen a real kind of evolution in this process where when we first started, frankly, I first started talking to dairies back in the summer of 2018 and I was sort of like, what are you talking about? To now going in and them asking us questions about the LCFS price and they’ve become a lot more sophisticated. So I would say that I think most of the dairies that we are targeting, all of the dairies that we are targeting certainly know that this is something they need to move forward with. I think the biggest obstacle for everybody in this business right now is just the fact that the dairy business as a whole is not doing well. Margins in the price of milk is low. And so our approach has always been to look at well capitalized dairies, dairies that can sustain these peaks and valleys.
It’s not altogether too different from the ethanol business, honestly, when you have these peaks and valleys from a margin perspective. So I think the folks that we’re dealing with are nobody is happy right now because it has nothing to do with RNG, it has everything to do with the fact that their milk price is not very great. I’ve heard some encouraging signs about where that’s going, so I bring that into the equation because while RNG is a central business point for us and we come into work every single day beating on RNG and thinking about RNG from a dairy producer perspective, it’s the last thing they’re thinking about. And so our challenge there is just trying to keep people focused and hey, we’re moving forward. We’re paying for all these projects at their facilities and trying to just keep people energized to realize that this will be another stream of revenue for them.
And the faster we get these projects built the more it will help their bottom-line from a revenue perspective and hopefully improving their margins a little bit. So there’s great education about what’s going on and the requirements of the program and their requirements as producers. I think a lot of these — most of the dairymen have really educated themselves, and so we’re dealing with a shorter sales cycle from the perspective of we walk in the door, they’re informed and they’re excited. I think the fact that we have the 40 mile biogas pipeline, it was a significant capital investment for us that has paid off time and time again. When we go in and we talk about it, it’s something that’s real in the ground. They can see it, they saw it being built.
They know that there will be a home for this gas. So it makes it very real. And the fact that it’s connected to the ethanol plant, which they have seen operating for the last 12 years, it kind of completes a nice circle. So I would say no lack of enthusiasm for RNG projects. It’s just overall the environment in the dairy world right now is not super happy just because of the price of milk.
Jordan Levy: That’s really helpful perspective. Appreciate it.
Operator: Your next question is coming from Matthew Blair with Tudor, Pickering, Holt. Please pose your question. Your line is live.
Matthew Blair: Hey, good morning. Thanks for taking my questions here. First one is on the India biodiesel segment. Looks like EBITDA profitability per ton was around 200, which is about half of what it was in the back half of last year. Could you talk about what drove that number lower? And is that a good number going forward or what are your expectations for future profitability?
Andy Foster: The margins in the second quarter reflected higher feedstock prices. We had sort of a global increase. If you track soy prices, for example, for renewable diesel, you would have seen that. We think the margins are sustainable where they are today. But we have some opportunity to expand margins using a proprietary technology we developed over the last half decade or more in India, which allows us to use lower cost feedstocks and generate the same high quality biodiesel we currently produce. And we generate about a 10% additional margin when we use that lower cost feedstock, and about the same yields, actually. So we are going to increasingly have up to a third of our revenues be from this lower cost stock using our proprietary technology.
We’ve expanded the capital investment in that activity over the last roughly four months and have quadrupled that capacity. And so we expect that to have an impact increasingly in third quarter and then as we go into the fourth quarter and into next year. I do expect up to a third of our revenues to have that lower cost structure.
Matthew Blair: Sounds good. And then on the California Ethanol segment, could you help us understand what drove the $4 million EBITDA loss in Q2, was that due to like restart costs or maybe you had to work through higher cost inventory? And as you look into Q3, do you think the EBITDA will be positive for this quarter?
