CARDINAL ETHANOL, LLC Overview
We produce ethanol, distillers grains and corn oil at our plant located near
Results of Operations for the Fiscal Years Ended
The following table shows the results of our operations and the percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our statement of operations for the fiscal years endedSeptember 30, 2022 and 2021: 2022
2021
Statement of Operations Data Amount %
Amount %
Revenues $ 546,691,371 100.0 $ 404,002,166 100.0
Cost of Goods Sold 460,306,891 84.2 369,373,828 91.4
Gross Profit 86,384,480 15.8 34,628,338 8.6
Operating Expenses 8,083,150 1.5 7,179,061 1.8
Operating Income 78,301,330 14.3 27,449,277 6.8
Other Income (Expense), net 7,402,534 1.4 (339,399) (0.1)
Net Income $ 85,703,864 15.7 $ 27,109,878 6.7
Revenues
We have two reportable segments-the Ethanol Division and the Trading Division.
Our revenues from operations from our Ethanol Division come from three primary
sources: sales of fuel ethanol, distillers grains and corn oil. Revenues from
operations of our Trading Division are derived from procuring, transporting and
selling grain commodities. Revenues in each division also include net gains or
losses from derivatives related to products sold.
The following table shows the sources of our total revenue from the two
segments and the approximate percentage of revenues to total revenues in our
consolidated statements of operations for the fiscal years ended September 30,
2022 and 2021:
2022 2021
Revenue: Amount % of Total Revenues Amount % of Total Revenues
Ethanol division $ 451,720,815 82.6 % $ 328,245,934 81.2 %
Trading division 94,970,556 17.4 75,756,232 18.8
Total Revenue $ 546,691,371 100.0 % $ 404,002,166 100.0 %
Ethanol Division
The following table shows the sources of our ethanol division revenue for the
fiscal years ended
2022 2021
Revenue Source Amount % of Revenues Amount % of Revenues
Ethanol Sales $ 359,726,018 79.6 % $ 251,922,325 76.7 %
Distillers Grains Sales 63,798,998 14.2 57,818,038 17.7
Corn Oil Sales 27,656,525 6.1 17,966,544 5.5
Carbon Dioxide Sales 473,449 0.1 484,752 0.1
Other Revenue 65,825 - 54,275 -
Total Revenues $ 451,720,815 100.0 % $ 328,245,934 100.0 %
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Ethanol
Our revenues from ethanol increased for our fiscal year endedSeptember 30, 2022 , as compared to our fiscal year endedSeptember 30, 2021 . This increase in revenues is primarily the result of a higher average price per gallon of ethanol sold and an increase in gallons of ethanol sold for the fiscal year endedSeptember 30, 2022 , as compared to the same period in 2021. Revenue also includes the net gains or losses from derivatives related to the commodities purchased. Our average price per gallon of ethanol sold for the fiscal year endedSeptember 30, 2022 , was 36.2% higher than our average price per gallon of ethanol sold for the same period in 2021. An increase in foreign and domestic demand, shipping disruptions attributed to labor shortages, and higher corn and oil prices have contributed to higher ethanol market prices for the current period. These increases were partially offset by higher ethanol production levels in the industry due to positive operating margins. In addition, corn and oil prices decreased towards the end of the period primarily due to increasing concerns of an economic slowdown which had a negative effect on ethanol prices. Management believes that ethanol prices will continue to be influenced by corn and energy prices, shipping disruptions, inventory levels, and inflationary factors. If corn and oil prices further decrease that would likely contribute to lower ethanol prices. Industry over-production due to positive operating margins could also have a negative effect on ethanol prices unless foreign or domestic demand reduce inventory levels. In addition, the Russian invasion ofUkraine and resulting sanctions bythe United States and other countries have led to significant market disruptions and volatility in commodity prices. The impact on ethanol prices of this volatility coupled with increasing signs of a global economic slowdown is difficult to predict. We experienced an increase in ethanol gallons sold of 4.9% for the fiscal year endedSeptember 30, 2022 , as compared to the same period in 2021 resulting primarily from increased ethanol production rates. We are currently operating at a rate of approximately 135 million gallons annually. We have installed an ethanol recovery system which we expect will result in an increase in efficiencies allowing us to achieve higher ethanol production rates going forward. However, we expect this will likely be offset by temporary shutdowns of our plant from time to time during our 2023 fiscal year in connection with the installation of our high protein feed system which could result in an overall reduction in gallons of ethanol produced during the fiscal year endedSeptember 30, 2023 as compared to the same period in 2022. In addition, management continues to monitor economic conditions carefully. If market conditions worsen affecting our ability to profitably operate the plant, we may be forced to reduce our ethanol production rate or even temporarily shut down ethanol production altogether.
Distillers Grains
Our revenues from distillers grains increased in the fiscal year endedSeptember 30, 2022 , as compared to the same period in 2021. This increase in revenues is primarily the result of an increase in the average price per ton of distillers grains sold for the period endedSeptember 30, 2022 , as compared to the same period in 2021. The average market price per ton of distillers grains sold for the fiscal year endedSeptember 30, 2022 , increased by 11.8% compared to the average price per ton of distillers grains sold for the same period in 2021. Distillers grains prices, while lower during the first three months of the period compared to 2021, have increased substantially sinceJanuary 2022 . This increase in the market price of distillers grains is primarily due to higher corn and soybean meal prices which resulted in end users seeking out distillers grains as the lower cost alternative. Management anticipates that distillers grains prices will continue to be affected by the price of corn and soybean meal. A plentiful corn crop in the fall or an oversupply of soybean meal could lead to lower corn and soybean prices having a negative effect on distillers grains prices. Trade disputes with foreign countries, such asChina , will continue to have a negative effect on distillers grains prices unless additional demand can be sustained from domestic or other foreign markets. In addition, the impact of the Russian invasion ofUkraine coupled with signs of a global economic slowdown on commodity prices is difficult to predict. We sold 1.3% less tons of distillers grains in the fiscal year endedSeptember 30, 2022 , as compared to the same period in 2021 due to decreased distillers grains production rates during the fiscal year. This decrease can be attributed to a slightly lower yield for the period. An increase or decrease in ethanol production rates in the future would result in a corresponding change in distillers grains production. 26
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Corn Oil
Our revenues from corn oil sales increased by 53.9% in the fiscal year endedSeptember 30, 2022 , as compared to the same period in 2021 which was mainly the result of an increase in the average price per pound of corn oil sold for the fiscal year endedSeptember 30, 2022 , as compared to the same period in 2021. The average price per pound of corn oil sold for the fiscal year endedSeptember 30, 2022 , increased by 54.8% as compared to the same period in 2021. Higher soybean oil prices along with increased biodiesel production had a positive effect on corn oil prices for the period. Soybean oil is the primary competitor with distillers corn oil. Management anticipates that corn oil prices will continue to follow soybean oil prices. Corn oil prices are also likely to be negatively affected by an industry increase in corn oil supply due to improved operating conditions. However, the extension of the biodiesel tax credit byCongress is likely to continue to have a positive impact on demand from biodiesel producers and corn oil prices. In addition, the impact of the Russian invasion ofUkraine coupled with signs of a global economic slowdown on commodity prices is difficult to predict. We experienced a decrease of 1.8% in pounds of corn oil sold during the fiscal year endedSeptember 30, 2022 , as compared to the same period in 2021 due to a slightly lower corn oil yield on production for the period coupled with timing of shipments. An increase or decrease in ethanol production rates in the future would result in a corresponding change in corn oil production.
Trading Division
The following table shows the sources of our revenues from our Trading
Division for the fiscal year ended
2022 2021
Revenue Source Amount % of Revenues Amount % of Revenues
Soybean Sales $ 94,854,225 99.9 % $ 75,635,032 99.8 %
Other Revenue 116,331 0.1 121,200 0.2
Total Revenues $ 94,970,556 100.0 % $ 75,756,232 100.0 %
Soybeans
During the fiscal year ended September 30, 2022 , revenues from our Trading
Division were derived primarily from transporting and selling soybeans. Our
revenues from soybean sales increased for the fiscal year ended September 30,
2022 , as a result of an increase in bushels of soybeans sold of 8.2% during the
fiscal year ended September 30, 2022 , as compared to the same period in 2021.
The increase in bushels of soybeans sold is primarily due to more conducive
market conditions for selling for the fiscal year ended September 30, 2022 .
We also experienced an increase of 15.2% in the average price per bushel of
soybeans sold for the fiscal year ended September 30, 2022 , as compared to the
same period in 2021 primarily due to a comparatively short national supply of
soybeans resulting in higher futures prices. The average price per bushel of
soybeans sold was $14.94 based on sales of approximately 6,313,000 bushels for
the fiscal year ended September 30, 2022 .
Cost of Goods Sold
Ethanol Division
Our cost of goods sold for this division as a percentage of its total revenues was 81.7% for the fiscal year endedSeptember 30, 2022 , as compared to 90.1% for the same period in 2021. This decrease in cost of goods sold as a percentage of revenues was the result of was the result of a substantially improved relationship between the prices of ethanol and corn, offset by increased natural gas costs for the fiscal year endedSeptember 30, 2022 , as compared to the same period in 2021. Our two largest costs of production are corn and natural gas. Cost of goods sold also includes net gains or losses from derivatives related to commodities purchased as well as our additional expense for our estimate of our rail car rehabilitation expense described below. 27
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Corn
Our largest cost associated with the production of ethanol, distillers grains and corn oil is corn cost. During the fiscal year endedSeptember 30, 2022 , the bushels of corn we used to produce our ethanol, distillers grains and corn oil was nearly the same compared to the same period in 2021 due to slightly higher ethanol production levels coupled with improved ethanol yield for the fiscal year endedSeptember 30, 2022 , compared to the same period in 2021. During the fiscal year endedSeptember 30, 2022 , our average price paid per bushel of corn increased 18.7% as compared to the same period in 2021 due primarily due to smaller ending stocks from the 2021 harvest, concerns regarding predictions of the corn crop for fall of 2022 and increased export demand fromChina . In addition, global economic uncertainty, market disruptions and increased volatility in commodity prices due to the Russian invasion ofUkraine have contributed to higher corn prices during the period. However, towards the end of the current period, corn prices decreased somewhat due to a more favorable outlook for the size of the 2022 crop and increasing concerns of an economic slowdown. Weather, world supply and demand, current and anticipated stocks, agricultural policy and other factors can contribute to volatility in corn prices. If corn prices rise, it will have a negative effect on our operating margins unless the price of ethanol and distillers grains out paces rising corn prices. Volatility in the price of corn could significantly impact our cost of goods sold.
Natural Gas
Our natural gas cost was higher during our fiscal year endedSeptember 30, 2022 , as compared to the fiscal year endedSeptember 30, 2021 . This increase in the cost of natural gas for the fiscal year endedSeptember 30, 2022 , as compared to the same period in 2021 was primarily the result of an increase of 79.3% in the average price per MMBTU of natural gas due to increased demand, an increase in the price of crude oil, and increased volatility in prices due to the Russian invasion ofUkraine . However, towards the end of the period endedSeptember 30, 2022 , natural gas prices decreased due to increasing concerns of an economic slowdown. We also used 0.9% more MMBTUs of natural gas for the fiscal year endedSeptember 30, 2022 , as compared to the same period in 2021 which was primarily due to slightly higher ethanol production. Management expects that natural gas prices will be dependent upon government policy and the severity of the winter weather. If the nation were to experience a recession this could also influence natural gas prices. In addition, natural gas supply shortages due to a catastrophic weather event or the Russian invasion ofUkraine could continue to have a negative effect on natural gas prices.
Rail Car Rehabilitation Costs
We lease 180 hopper rail cars under a multi-year agreement which ends inNovember 2023 . Under the agreement, we are required to pay to rehabilitate each car for "damage" that is considered to be other than normal wear and tear upon turn in of each car at the termination of the lease. We have evaluated the condition of the cars and believe that it is probable that we may be assessed for damages incurred. Management has estimated total costs to rehabilitate the cars atSeptember 30, 2022 , to be approximately$2,037,000 . During the year endedSeptember 30, 2022 , we have recorded an expense in cost of goods of approximately$317,000 . We accrue the estimated cost per railcar damages over the term of the lease. The accrued liability for these rehabilitation costs is approximately$2,037,000 atSeptember 30, 2022 .
Trading Division
The following table shows the costs incurred to procure various agricultural commodities for our Trading Division for the fiscal year endedSeptember 30, 2022 and 2021: 2022 2021 Amount % of Revenues Amount % of Revenues Soybeans$ 91,224,755 96.1 %$ 73,774,703 97.4 % Total Cost of Goods Sold$ 91,224,755 96.1 %$ 73,774,703 97.4 % Soybeans During the fiscal year endedSeptember 30, 2022 , our cost was primarily the procurement of soybeans sold. During the fiscal year endedSeptember 30, 2022 , our average price paid per bushel of soybeans was 22.8% more as compared to the same period in 2021 due to concerns over a smaller carryout of soybean inventory from the 2021 harvest and increased demand 28
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fromChina . We also purchased 12.8% more bushels of soybeans during the fiscal year endedSeptember 30, 2022 , as compared to the same period in 2021 due to a cash price that was conducive to producer selling.
Derivatives
We enter into hedging instruments to minimize price fluctuations in the prices of our finished products and inputs. As the current market price of our hedge positions changes, the realized or unrealized gains and losses are immediately recognized in our revenues and our cost of goods sold. These commodity-based derivatives are not designated as effective hedges for accounting purposes. Please refer to "Item 7A - Quantitative and Qualitative Disclosures About Market Risk-Commodity Price Risk" for information on our derivatives.
Operating Expense
Our operating expenses as a percentage of revenues were 1.5% for the fiscal year endedSeptember 30, 2022 , as compared to operating expenses of 1.8% of revenues for the same period in 2021. Operating expenses include salaries and benefits of administrative employees, insurance, taxes, professional fees, depreciation of trading division fixed assets, property taxes and other general administrative costs. Our efforts to optimize efficiencies and maximize production may result in a decrease in our operating expenses on a per gallon basis. These expenses generally do not vary with the level of production at the plant; we expect our operating expenses to remain consistent with 2022 into and throughout our 2023 fiscal year.
Operating Income
Our income from operations for the fiscal year endedSeptember 30, 2022 , was 14.3% of our revenues compared to operating income of 6.8% of revenues for the same period in 2021. The increase in operating income for the fiscal year endedSeptember 30, 2022 , was primarily the result of a positive corn to ethanol spread.
Other Income (Expense)
We had other income for the fiscal year endedSeptember 30, 2022 of 1.4% of revenues compared to other expense of 0.1% of revenues for the same period in 2021. Other income for the fiscal year endedSeptember 30, 2022 consisted of a grant received from the USDA Biofuel Producer Program, along with the receipt of insurance proceeds from an inventory write off in the prior period. This income was partially offset by payments made during the fiscal year endedSeptember 30, 2022 for items related to ourCCS Project . Other expense for the fiscal year endedSeptember 30, 2021 , consisted primarily of a loss on the disposal of the boiler and a loss from tainted soybeans offset by the receipt of Paycheck Protection Program loan forgiveness.
Results of Operations for the Fiscal Years Ended
The following table shows the results of our operations and the percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our statement of operations for the fiscal years endedSeptember 30, 2021 and 2020: 2021
2020
Statement of Operations Data Amount %
Amount %
Revenues $ 404,002,166 100.0 $ 244,718,562 100.0
Cost of Goods Sold 369,373,828 91.4 239,426,482 97.8
Gross Profit 34,628,338 8.6 5,292,080 2.2
Operating Expenses 7,179,061 1.8 6,773,264 2.8
Operating Income (Loss) 27,449,277 6.8 (1,481,184) (0.6)
Other Income (Expense), net (339,399) (0.1) 340,751 0.1
Net Income (Loss) $ 27,109,878 6.7 $ (1,140,433) (0.5)
Revenues
We have two reportable segments-the Ethanol Division and the Trading Division.
Our revenues from operations from our Ethanol Division come from three primary
sources: sales of fuel ethanol, distillers grains and corn oil. Revenues from
operations of our Trading Division are derived from procuring, transporting and
selling grain commodities. Revenues in each division also include net gains or
losses from derivatives related to products sold.
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The following table shows the sources of our total revenue from the two segments and the approximate percentage of revenues to total revenues in our consolidated statements of operations for the fiscal years endedSeptember 30, 2021 and 2020: 2021 2020 Revenue: Amount % of Total Revenues Amount % of Total Revenues Ethanol division$ 328,245,934 81.2 %$ 211,573,718 86.5 % Trading division 75,756,232 18.8 33,144,844 13.5 Total Revenue$ 404,002,166 100.0 %$ 244,718,562 100.0 % Ethanol Division Our revenues from operations come from three primary sources: sales of fuel ethanol, distillers grains and corn oil. The following table shows the sources of our ethanol division revenue for the fiscal years endedSeptember 30, 2021 and 2020: 2021 2020 Revenue Source Amount % of Revenues Amount % of Revenues Ethanol Sales$ 251,922,325 76.7 %$ 157,704,059 74.5 % Distillers Grains Sales 57,818,038 17.7 41,687,109 19.7 Corn Oil Sales 17,966,544 5.5 9,640,523 4.6 CO2 Sales 484,752 0.1 493,500 0.2 Other Revenue 54,275 - 2,048,527 1.0 Total Revenues$ 328,245,934 100.0 %$ 211,573,718 100.0 % Ethanol Our revenues from ethanol increased for our fiscal year endedSeptember 30, 2021 , as compared to our fiscal year endedSeptember 30, 2020 . This increase in revenues is primarily the result of a higher average price per gallon of ethanol sold and an increase in gallons of ethanol sold for the fiscal year endedSeptember 30, 2021 , as compared to the same period in 2020. Revenue also includes the net gains or losses from derivatives related to the commodities purchased. Our average price per gallon of ethanol sold for the fiscal year endedSeptember 30, 2021 , was 53.2% higher than our average price per gallon of ethanol sold for the same period in 2020. Ethanol market prices were higher for the fiscal year endedSeptember 30, 2021 due to an increase in fuel demand, lower ethanol production due to some plants in certain areas curtailing production in response to poor market conditions, and higher oil and corn prices during the period. In addition, ethanol prices were negatively impacted in the fiscal year endedSeptember 30, 2020 by industry-wide production in excess of demand due to a variety of factors including theEPA granting small refinery waivers, trade barriers resulting from disputes with foreign governments and a collapse in both domestic and foreign demand as a result of restrictions put in place in response to the COVID-19 pandemic.
We experienced an increase in ethanol gallons sold of 4.2% for the fiscal year
ended
Distillers Grains
Our revenues from distillers grains increased in the fiscal year endedSeptember 30, 2021 , as compared to the same period in 2020. This increase in revenues is primarily the result of an increase in the average price per ton of distillers grains sold for the period endedSeptember 30, 2021 , as compared to the same period in 2020. The average market price per ton of distillers grains sold for the fiscal year endedSeptember 30, 2021 , increased by 34.0% compared to the average price per ton of distillers grains sold for the same period in 2020. This increase in the market price of distillers grains is primarily due to higher corn and soybean meal prices which resulted in end users seeking out distillers grains as the lower cost alternative during the fiscal year endedSeptember 30, 2021 .
We experienced an increase of 3.5% in distillers grains tons sold in the
fiscal year ended
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Corn Oil
Our revenues from corn oil sales increased by 86.4% in the fiscal year endedSeptember 30, 2021 , as compared to the same period in 2020 which was mainly the result of increased volume of sales and an increase in the average price per pound of corn oil sold for the period endedSeptember 30, 2021 , as compared to the same period in 2020. We experienced an increase of 13.5% in pounds of corn oil sold during the fiscal year endedSeptember 30, 2021 , as compared to the same period in 2020 due to higher corn oil yield on average resulting in higher corn oil production for the period. The average price per pound of corn oil sold for the fiscal year endedSeptember 30, 2021 , increased by 68.0% as compared to the same period in 2020. Higher soybean oil prices along with increased biodiesel production had a positive effect on corn oil prices for the period, particularly towards the beginning of fiscal year 2021. Soybean oil is the primary competitor with distillers corn oil. Trading Division
The following table shows the sources of our revenues from our Trading
Division for the fiscal year ended
2021 2020
Revenue Source Amount % of Revenues Amount % of Revenues
Soybean Sales $ 75,635,032 99.8 % $ 33,057,394 99.7 %
Other Revenue 121,200 0.2 87,450 0.3
Total Revenues $ 75,756,232 100.0 % $ 33,144,844 100.0 %
Soybeans
During the fiscal year ended September 30, 2021 , revenues from our Trading
Division were derived primarily from transporting and selling soybeans. Our
revenues from soybean sales increased for the fiscal year ended September 30,
2021 , as a result of an increase in bushels of soybeans sold of 61.3% during the
fiscal year ended September 30, 2021 , as compared to the same period in 2020.
The increase in bushels of soybeans sold is primarily due to more conducive
market conditions for selling for the fiscal year ended September 30, 2021 .
We also experienced an increase of 41.3% in the average price per bushel of
soybeans sold for the fiscal year ended September 30, 2021 , as compared to the
same period in 2020 primarily due to smaller carryout for the 2020 harvest
driving the remaining stock price higher. The presence of exports to China
during the fiscal year ended September 30, 2021 was also a contributing factor
to higher prices. The average price per bushel of soybeans sold was $12.96 based
on sales of approximately 5,834,000 bushels for the fiscal year ended September
30, 2021 .
Cost of Goods Sold
Ethanol Division
Our cost of goods sold for this division as a percentage of its total revenues
was 90.1% for the fiscal year ended September 30, 2021 , as compared to 98.3% for
the same period in 2020. This decrease in cost of goods sold as a percentage of
revenues was the result of increased ethanol prices relative to the price of
corn and natural gas for the fiscal year ended September 30, 2021 , as compared
to the same period in 2020. Our two largest costs of production are corn and
natural gas. Cost of goods sold also includes net gains or losses from
derivatives related to commodities purchased.
Corn
Our largest cost associated with the production of ethanol, distillers grains and corn oil is corn cost. During the fiscal year endedSeptember 30, 2021 , the bushels of corn we used to produce our ethanol, distillers grains and corn oil increased by 4.6% as compared to the same period in 2020. More bushels were used in production due to higher overall ethanol production levels for the fiscal year endedSeptember 30, 2021 , compared to the same period in 2020. During the fiscal year endedSeptember 30, 2021 , our average price paid per bushel of corn increased 45.1% as compared to the same period in 2020 due primarily due to smaller ending stocks from the 2020 harvest, concerns that the anticipated planting acres for 2021 would be insufficient to compensate for the smaller 2020 crop, and increased export demand fromChina . 31
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Natural Gas
Our natural gas cost was higher during our fiscal year endedSeptember 30, 2021 , as compared to the fiscal year endedSeptember 30, 2020 . This increase in the cost of natural gas for the fiscal year endedSeptember 30, 2021 , as compared to the same period in 2020 was primarily the result of an increase of 13.5% in the average price per MMBTU of natural gas primarily due to increased demand. In addition, natural gas prices were higher towards the end of the period as a result of an increase in the price of crude oil. We also used 5.7% more MMBTUs of natural gas for the fiscal year endedSeptember 30, 2021 , as compared to the same period in 2020 which was primarily due to higher ethanol production.
Rail Car Rehabilitation Costs
We lease 180 hopper rail cars under a multi-year agreement which ends inNovember 2023 . Under the agreement, we are required to pay to rehabilitate each car for "damage" that is considered to be other than normal wear and tear upon turn in of each car at the termination of the lease. We have evaluated the condition of the cars and believe that it is probable that we may be assessed for damages incurred. Management has estimated total costs to rehabilitate the cars atSeptember 30, 2021 , to be approximately$1,751,000 . During the year endedSeptember 30, 2021 , we have recorded an expense in cost of goods of$298,000 . We accrue the estimated cost per railcar damages over the term of the lease. Trading Division The following table shows the costs incurred to procure various agricultural commodities for our Trading Division for the fiscal year endedSeptember 30, 2021 and 2020: 2021 2020 Amount % of Revenues Amount % of Revenues Soybeans$ 73,774,703 97.4 %$ 31,415,693 94.8 % Total Cost of Goods Sold$ 73,774,703 97.4 %$ 31,415,693 94.8 % Soybeans During the fiscal year endedSeptember 30, 2021 , our cost was primarily the procurement of soybeans sold. During the fiscal year endedSeptember 30, 2021 , our average price paid per bushel of soybeans was 23.5% more as compared to the same period in 2020 due to concerns over a smaller crop and smaller ending stocks from the 2020 harvest. We also purchased 58.9% more bushels of soybeans during the fiscal year endedSeptember 30, 2021 , as compared to the same period in 2020. Derivatives We enter into hedging instruments to minimize price fluctuations in the prices of our finished products and inputs. As the current market price of our hedge positions changes, the realized or unrealized gains and losses are immediately recognized in our revenues and our cost of goods sold. These commodity-based derivatives are not designated as effective hedges for accounting purposes. Please refer to "Item 7A - Quantitative and Qualitative Disclosures About Market Risk-Commodity Price Risk" for information on our derivatives.
Operating Expense
Our operating expenses as a percentage of revenues were 1.8% for the fiscal year endedSeptember 30, 2021 , as compared to operating expenses of 2.8% of revenues for the same period in 2020. Operating expenses include salaries and benefits of administrative employees, insurance, taxes, professional fees, depreciation of trading division fixed assets, property taxes and other general administrative costs. Our efforts to optimize efficiencies and maximize production may result in a decrease in our operating expenses on a per gallon basis. These expenses generally do not vary with the level of production at the plant; we expect our operating expenses to remain consistent with 2021 into and throughout our 2022 fiscal year.
Operating Income (Loss)
Our income from operations for the fiscal year endedSeptember 30, 2021 , was 6.8% of our revenues compared to operating loss of 0.6% of revenues for the same period in 2020. The increase in operating income for the fiscal year endedSeptember 30, 2021 , was primarily the result of a positive corn to ethanol spread. 32
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Other Income (Expense) We had other expense for the fiscal year endedSeptember 30, 2021 of 0.1% of revenues compared to other income of 0.1% of revenues for the same period in 2020. Other expense for the fiscal year endedSeptember 30, 2021 consisted of a loss on the disposal of a boiler and a loss from tainted soybeans. These losses were offset by the receipt of Paycheck Protection Program loan forgiveness during the fiscal year endedSeptember 30, 2021 . Other income for the fiscal year endedSeptember 30, 2020 , consisted primarily of insurance proceeds from the DDGS silo explosion being received inJanuary 2020 .
Changes in Financial Condition for the Fiscal Year Ended
The following table highlights the changes in our financial condition for the
fiscal years ended
September 30, 2022 September 30, 2021
Current Assets $ 102,033,729 $ 76,439,260
Current Liabilities 27,431,166 23,741,046
Long-Term Liabilities 14,254,170 3,460,301
Members' Equity 147,270,492 124,737,578
We experienced an increase in our current assets at September 30, 2022 as
compared to September 30, 2021 . This increase was primarily driven by an
increase in our cash, cash equivalents, and restricted cash at September 30,
2022 compared to September 30, 2021 due to improved profitability along with
varying cash requirements with derivative trading counter-parties. This increase
was partially offset by a decrease in accounts receivable and inventories at
September 30, 2022 compared to September 30, 2021 . Accounts receivable decreased
due to the timing of rail shipments of ethanol and soybeans. Inventory values
also decreased due to a slower start to the harvest season resulting in lower
inventory on hand at September 30, 2022 , as compared to September 30, 2021 .
We experienced an increase in our current liabilities at September 30, 2022 ,
as compared to September 30, 2021 . This increase is primarily due to the
increase in our grain accounts payable at September 30, 2022 , as compared to
September 30, 2021 , which resulted from higher commodity prices as well as the
timing of harvest for the fiscal year ended September 30, 2022 , as compared to
September 30, 2021 .
We experienced an increase in our long-term liabilities as of September 30,
2022 , as compared to September 30, 2021 as a result of obtaining additional
financing to fund the construction and installation of the high protein feed
system as of September 30, 2022 .
Liquidity and Capital Resources
We have engagedICM, Inc. to install a system to produce high protein feed which is currently expected to cost approximately$50,000,000 , including recent change orders. The agreement calls for a down payment and scheduled payments at key points during the construction and installation process, which began during the fourth quarter of fiscal 2022. The prices of ethanol, corn, natural gas and soybeans have risen substantially over the last several months. We believe that we have sufficient cash and credit facilities to provide liquidity over the next twelve months. However, if the prices continue to rise, we may explore options with our primary lender to expand the funding of our working capital.
Based on financial forecasts performed by our management, we anticipate that we will have sufficient cash from our credit facilities and cash from our operations to continue to operate the ethanol plant for the next 12 months. However, should operating conditions in the ethanol industry deteriorate or continue for a prolonged period, we could have difficulty maintaining our liquidity and may need to rely on our revolving lines of credit or seek to increase our limits for operations.
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Comparison of Cash Flows for Fiscal Years Ended
The following table shows cash flows for the fiscal year ended
2022 2021
Net cash provided by operating activities $ 103,979,005 $ 32,148,142
Net cash used for investing activities (20,464,388) (3,846,527)
Net cash used for financing activities (54,170,950) (11,319,650)
Net increase in cash, cash equivalents &
restricted cash 29,343,667 16,981,965
Cash, cash equivalents & restricted cash,
beginning of period 33,895,947 16,913,982
Cash, cash equivalents & restricted cash, end
of period $ 63,239,614 $ 33,895,947
Cash Flow from Operations
We experienced an increase in our cash flow from operations for the fiscal year
ended September 30, 2022 , as compared to the same period in 2021. This increase
was primarily due to improved margins on our primary products for the fiscal
year ended September 30, 2022 , as compared to the same period in 2021 coupled
with decreased inventory on hand and decreased deferral of payments for grain
until January at September 30, 2022 compared with September 30, 2021 . This lower
inventory and smaller deferral can be attributed to a later start to the 2022
harvest season.
Cash Flow used for Investing Activities
We used more cash in investing activities for the fiscal year endedSeptember 30, 2022 , as compared to the same period in 2021. This increase was primarily the result of increased capital expenditures for the installation of our high protein feed system byICM, Inc. for the fiscal year endedSeptember 30, 2022 , as compared with the same period in 2021.
Cash Flow used for Financing Activities
We used more cash for financing activities for the fiscal year endedSeptember 30, 2022 , as compared to the same period in 2021. This increase was the result of using more cash for distributions to our members coupled with obtaining additional financing to fund the construction and installation of our high protein feed system during the fiscal year endedSeptember 30, 2022 , as compared with the same period in 2021. Our liquidity, results of operations and financial performance will be impacted by many variables, including the market price for commodities such as, but not limited to, corn, ethanol, soybeans and other energy commodities, as well as the market price for any co-products generated by the facility and the cost of labor and other operating costs. Assuming future relative price levels for corn, ethanol, distillers grains and soybeans remain consistent with the relative price levels as ofSeptember 30, 2022 , we expect operations to generate adequate cash flows to maintain operations.
Comparison of Cash Flows for Fiscal Years Ended
The following table shows cash flows for the fiscal year ended
2021 2020
Net cash provided by operating activities$ 32,148,142
Net cash used for investing activities (3,846,527)
(2,796,452)
Net cash used for financing activities (11,319,650)
(8,059,957)
Net increase (decrease) in cash & restricted cash 16,981,965
(5,120,138)
Cash & restricted cash, beginning of period 16,913,982
22,034,120
Cash & restricted cash, end of period$ 33,895,947 $ 16,913,982 Cash Flow from Operations We experienced an increase in our cash flow from operations for the fiscal year endedSeptember 30, 2021 , as compared to the same period in 2020. This increase was primarily due to improved margins on our primary products for the fiscal year endedSeptember 30, 2021 , as compared to the same period in 2020 coupled with a greater deferral of payments for 34
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grain until January as of
Cash Flow used for Investing Activities
We used more cash in investing activities for the fiscal year endedSeptember 30, 2021 , as compared to the same period in 2020. This increase was primarily the result of increased capital expenditures for the fiscal year endedSeptember 30, 2021 , as compared with the same period in 2020.
Cash Flow used for Financing Activities
We used more cash for financing activities for the fiscal year endedSeptember 30, 2021 , as compared to the same period in 2020. This increase was the result of using more cash in distributions to our members during the fiscal year endedSeptember 30, 2021 , as compared with the same period in 2020. Our liquidity, results of operations and financial performance will be impacted by many variables, including the market price for commodities such as, but not limited to, corn, ethanol, soybeans and other energy commodities, as well as the market price for any co-products generated by the facility and the cost of labor and other operating costs. Assuming future relative price levels for corn, ethanol, distillers grains and soybeans remain consistent with the relative price levels as ofSeptember 30, 2021 , we expect operations to generate adequate cash flows to maintain operations.
Short and Long-Term Debt Sources
We have a loan agreement consisting of two loans, the Declining Revolving Loan
("Declining Loan") and the Revolving Credit Loan. In exchange for these loans,
we granted liens on all property (real and personal, tangible and intangible)
which include, among other things, a mortgage on the property, a security
interest on commodity trading accounts, and assignment of material contracts.
Please refer to Item 8 - Consolidated Financial Statements, Note 9 - Bank
Financing for additional details.
Declining Loan
The maximum availability of the Declining Loan was formerly$5,000,000 and such amount was to be available for working capital purposes. However, the maximum availability of the Declining Loan was increased from$5,000,000 to$36,000,000 in order to provide financing to fund the construction and installation of a new high protein feed system at the plant. The interest rate on the Declining Loan is currently based on the prime rate minus five basis points (.05%) subject to a floor of 2.85%. The interest rate on the Declining Loan atSeptember 30, 2022 was 6.20%. We will be required to make monthly interest payments on the Declining Loan during the draw period. The principal balance of the Declining Loan is expected to be converted to term debt on or beforeFebruary 1, 2024 , to be repaid in 60 equal monthly installments based on a ten year amortization period. In addition, we will be required to make mandatory annual prepayments on the term debt within 120 days following the end of each fiscal year beginning with the fiscal year endedSeptember 30, 2024 . The annual prepayment will be in the amount of the lesser of 40% of excess cash flow (as defined in the agreement) or$7,200,000 , up to an aggregate prepayment amount of$18,000,000 . We had borrowings outstanding of$9,000,000 on the Declining Loan atSeptember 30, 2022 and no borrowings onSeptember 30, 2021 .
Revolving Credit Loan
The Revolving Credit Loan has a limit of$20,000,000 supported by a borrowing base made up of our corn, ethanol, dried distillers grain, corn oil and soybean inventories reduced by accounts payable associated with those inventories having a priority. It is also supported by the eligible accounts receivable and commodity trading account excess margin funds. The interest rate on the Revolving Credit Loan is the prime rate minus twenty-five basis points (.25%) and is subject to a floor of 2.75%. The interest rate atSeptember 30, 2022 was 6.00%. There were no borrowings outstanding on the Revolving Credit Loan atSeptember 30, 2022 orSeptember 30, 2021 . The Revolving Credit Loan is set to mature onFebruary 28, 2023 . Covenants During the term of the loans, we will be subject to certain financial covenants. Our minimum working capital is$15,000,000 , which is calculated as our current assets plus the amount available for drawing under our long-term revolving note, less current liabilities. Our minimum fixed charge coverage ratio is no less than 1.15:1.0 measured on a rolling four 35
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quarter average basis. However, for any reporting period, if our working capital is equal to or more than$23,000,000 , we will be subject to maintaining a debt service charge coverage ratio of no less than 1.25:1.0 in lieu of the fixed charge coverage ratio. Our loan agreement also requires us to obtain prior approval from our lender before making, or committing to make, capital expenditures exceeding an aggregate amount of$5,000,000 . The cost of the high protein feed system is excluded from the capital expenditures calculation until the principal balance of the Declining Loan converts to term debt. We are complying with our financial covenants and the other terms of our loan agreements atSeptember 30, 2022 . Based on current management projections, we anticipate that future operations will be sufficient to generate enough cash flow to maintain operations, service any new debt and comply with our financial covenants and other terms of our loan agreements for the next twelve months. Should market conditions deteriorate in the future, circumstances may develop which could result in us violating the financial covenants or other terms of our loan agreements. Should we violate the terms or covenants of our loan or fail to obtain a waiver of any such term or covenant, our primary lender could deem us in default of our loans and require us to immediately repay a significant portion or possibly the entire outstanding balance of our loans if we have a balance outstanding. In that event, our lender could also elect to proceed with a foreclosure action on our plant.
Capital Improvements
We are planning various capital projects scheduled for the 2023 fiscal year in order to make certain improvements to the ethanol plant and maintain the facility. These improvements include updates to the 190 condenser, rail siding, sieve vaporizer, cyber security, grain scales, spare parts storage, and other small miscellaneous projects. We have also invested in an ethanol recovery system, costing approximately$2,400,000 . The project was funded through operations and was completed and placed into service during the first quarter of fiscal year 2022. We have also engagedICM, Inc. to install a system to produce high protein feed which is currently expected to cost approximately$50,000,000 , including recent change orders, and be funded from operations and from and our current credit facilities as amended. We will also license from ICM technology to use, operate and maintain the system and expect to pay license fees of$10 per ton of PROTOMAX™ produced for a period of 10 years. Installation of the system commenced during the fourth quarter of our 2022 fiscal year. This project is expected to be completed by Fall of 2023.
Development Agreement
InSeptember 2007 , we entered into a development agreement withRandolph County Redevelopment Commission ("the Commission") to promote economic development in the area. Under the terms of this agreement, beginning inJanuary 2008 throughDecember 2028 , the money we pay toward property tax expense is allocated to an expense and an acquisition account. The funds in the acquisition account can be used by the Commission to purchase equipment, at our direction, for the plant. We do not have title to or control over the funds in the acquisition account, no amounts have been recorded in the balance sheet relating to this account. During the fiscal years endedSeptember 30, 2022 andSeptember 30, 2021 , no amounts were refunded to the Company and used to offset costs of capital expenditures.
Grants
OnMay 23, 2022 , we received an award from the USDA Biofuel Producer Program of approximately$7,652,000 . The Biofuel Producer Program was created as part of the Coronavirus Aid Relief and Economic Security Act. TheUSDA announced that the funds were made available to provide economic relief to biofuels producers who faced unexpected market losses due to the COVID-19 pandemic and support a significant market for agricultural producers who supply products used in biofuel production.
Contractual Cash Obligations
In addition to our long-term debt obligations, we have certain other
contractual cash obligations and commitments. The following tables provide
information regarding our contractual obligations and approximate commitments as
of
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Payment Due By Period
One to Three to
Less than Two Five After Five
Contractual Cash Obligations Total One Year Years Years Years
Long-Term Debt Obligations $ 9,000,000 $ -
7,149,690 3,842,130 3,307,560 - -
Purchase Obligations 59,048,072 39,765,065 19,283,007 - -
Total Contractual Cash Obligations
$ 24,213,213 $ 5,358,589 $ 2,018,765 The operating lease obligations in the table above include our hopper and tank railcar lease obligations as ofSeptember 30, 2022 . Purchase obligations consist of forward contracted corn and soybean deliveries and forward contracted natural gas purchases.
Critical Accounting Estimates
Management uses various estimates and assumptions in preparing our consolidated financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Accounting estimates that are the most important to the presentation of our results of operations and financial condition, and which require the greatest use of judgment by management, are designated as our critical accounting estimates. We have the following critical accounting estimates: We enter into derivative instruments to hedge the variability of expected future cash flows related to commodity markets. We do not typically enter into derivative instruments other than for economic hedging purposes. All derivative instruments are recognized on theSeptember 30, 2022 balance sheet at their fair market value. Changes in the fair value of a derivative instrument that is designated as and meets all of the required criteria for a cash flow hedge are recorded in accumulated other comprehensive income and reclassified into earnings as the underlying hedged items affect earnings. As ofSeptember 30, 2022 , we have open short (selling) positions for 11,045,000 bushels of corn and long (buying) positions for 965,000 bushels of corn on theChicago Board of Trade , open short (selling) positions of 36,960,000 gallons of ethanol and long (buying) positions of 24,570,000 gallons of ethanol on theChicago Board of Trade . We have no open positions for soybean oil on theChicago Board of Trade . We also have open short (selling) positions for 1,240,000 bushels of soybeans and 5,000 long (buying) positions of bushels of soybeans on theChicago Board of Trade . These derivatives have not been designated as an effective hedge for accounting purposes. Corn, ethanol, and soybean positions are forecasted to settle throughDecember 2023 ,March 2023 , andNovember 2023 , respectively. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding as disclosed above. We carry our long-lived assets at the original acquisition cost as required by current generally accepted accounting principles. Due to business conditions and the business environment in which our industry operates, the fair market value of those assets could, theoretically, fall below the amount which we carry them in our consolidated financial statements. In such cases, those assets would be known as impaired. Thus, we periodically perform an assessment of the fair value of these assets. Given the significant assumptions required and the possibility that actual conditions will differ, we consider the assessment of the useful lives of property and equipment to be a critical accounting estimate. Our assessment shows us that the fair value of our long-lived assets as a group is substantially in excess of its carrying value. Inventories consist of raw materials, work in process, finished goods, grain inventory and parts. Corn is the primary raw material. Finished goods consist of ethanol, dried distiller grains and corn oil. For the Ethanol Division, we state inventories at the lower of weighted average cost or net realizable value. For our Trading Division, we state our grain inventories at market price less estimated disposition costs. Net realizable value is the estimated selling prices in the normal course of business, less reasonably predictable costs. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. These valuations require the use of management's assumptions which do not reflect unanticipated events and circumstances that may occur. In our analysis, we consider future corn costs and ethanol prices, break-even points for our plant and our risk management strategies in place through our derivative instruments and forward contracts. Given the significant assumptions required and the possibility that actual conditions will differ, we consider the valuation of the lower of cost or net realizable value on inventory to be a critical accounting estimate. 37
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We enter into forward contracts for grain purchases and natural gas to supply the two divisions. These contracts represent firm purchase commitments which must be evaluated for potential losses. We have determined that there are no losses that are required to be recognized on these firm purchase commitments related to contracts in place atSeptember 30, 2022 . Our estimates include various assumptions including the future prices of ethanol, distillers grains, corn, natural gas and soybeans. We lease 180 hopper rail cars under a multi-year agreement which ends inNovember 2023 . Under the agreement, we are required to pay to rehabilitate each car for "damage" that is considered to be other than normal wear and tear upon return of each car at the termination of the lease. We have estimated total costs to rehabilitate the cars atSeptember 30, 2022 , to be approximately$2,037,000 . This is based on our estimate of incurred damages as of the end of the fiscal year, on expected total car damages at the lease termination, and upon damage claims charged to industry peers with similar leasing arrangements. During the year endedSeptember 30, 2022 , we have recorded an expense in cost of goods sold of$317,000 . We accrue the estimated cost of damage to the rail cars over the term of the lease, but because the actual cost is not finalized until the lease termination, it is reasonably possible that there will be a change in the estimate in the future.
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