General Overview and Recent Developments

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our financial condition, results of operations, and material cash requirements. This discussion should be read in conjunction with the financial statements included herewith and notes to the financial statements thereto and the risk factors contained herein.





The Company is an Iowa limited liability company located in Council Bluffs,
Iowa, formed in March, 2005. The Company was permitted to produce 140 million
gallons of ethanol.  We began producing ethanol in February, 2009 and sell our
ethanol, distillers grains, and corn oil in the United States, Mexico and the
Pacific Rim.



On November 26, 2019, the EPA approved the Company's petition as an "Efficient
Producer" to increase the D-6 RINs generated for up to 147 million gallons of
ethanol produced annually, provided the non-grandfathered ethanol produced
satisfies the 20% lifecycle GHG ("Greenhouse gas" impacts) reduction
requirements specified in the Clean Air Act for renewable fuel. The Company must
comply with all registration provisions in order to register for the production
of non-grandfathered ethanol, and the registration application must be accepted
by the EPA before the facility is eligible to generate RIN's for
non-grandfathered ethanol produced. The Company completed the registration
process during Fiscal 2022.



On December 6, 2022, our Board of Directors declared a distribution of $2,500
per unit to its members. The distributions are expected to be paid on or around
December 23, 2022 to members of record on December 6, 2022. Based on the current
number of units outstanding, the aggregate payment will be approximately $22.4
million.

Industry Factors Affecting our Results of Operations





For the fiscal year ended September 30, 2022 ("Fiscal 2022") compared to the
fiscal year ended September 30, 2021 ("Fiscal 2021"), the average price per
gallon of ethanol sold increased by 36.9% due to reduced stocks, increasing
demand and higher corn and energy prices. There have also been increased prices
for crude oil and gasoline in Fiscal 2022 compared to Fiscal 2021 due to reduced
supply world-wide, and an increase in driving compared to Fiscal 2021 when there
were lockdown orders and restrictions on travel imposed by many authorities.



Corn prices increased 17.6% during Fiscal 2022 compared to Fiscal 2021 due to
the anticipated high demand for corn in China and portions of the United States
experiencing severe droughts. Weather, world supply and demand, current and
anticipated stocks, agricultural policy and other factors can contribute to
volatility in corn prices, and such changes have a material effect on our cost
of goods sold with corn being one of our primary inputs.



Management anticipates that ethanol prices will continue to change in relation
to changes in corn and energy prices. If corn, crude oil and gasoline prices
remain high or further increase, that could have a significant impact on the
market price of ethanol and our net income, particularly should ethanol stocks
remain low.



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During Fiscal 2022, the Company faced significant challenges with respect to
inflation of both tangible goods, primarily experienced in the cost of chemicals
needed for the ethanol production process, and payroll costs due to labor
shortages and a general increase in wages due to inflation.



The average market price per ton of distillers grains sold in Fiscal 2022,
increased by 25.6% compared to the average price per ton of distillers grains
sold in Fiscal 2021. This increase in the market price of distillers grains is
primarily due to higher corn and soybean meal prices. Management anticipates
that distillers grains prices will continue to be affected by the price of corn
and soybean meal. If there continues to be an oversupply of soybean meal, that
could have a negative effect on the price of distillers grains. An increase in
supply as certain ethanol plants return to higher production levels as operating
conditions improve could also have a negative effect on distillers grains
prices.





Results of Operations

The following table shows our results of operations, stated as a percentage of revenue for Fiscal 2022 and Fiscal 2021.





                                                  Fiscal 2022                           Fiscal 2021
                                      Amounts in                               Amounts in
                                        000's           % of Revenues            000's         % of Revenues

Income Statement Data
Revenues                              $  387,125                    100.0 %    $  302,820               100.0 %
Cost of Goods Sold
Material Costs                           274,870                     71.0 %       245,478                81.1 %
Variable Production Expense               33,686                      8.7 %        28,145                 9.3 %
Fixed Production Expense                  17,802                      4.6 %        13,872                 4.6 %
Gross Margin (Loss)                       60,767                     15.7 %        15,325                 5.1 %
General and Administrative Expenses        7,241                      1.9 %         5,733                 1.9 %
Other Income (Expenses), net               4,236                      1.1 %         1,008                 0.3 %
Net Income (Loss)                     $   57,762                     14.9 %    $    8,584                 2.8 %




Revenues



Our revenue from operations is derived from three primary sources: sales of
ethanol, distillers grains, and distillers corn oil. The chart below displays
statistical information regarding our revenues. The increase in revenue from
Fiscal 2022 compared to Fiscal 2021 is primarily attributable to increased price
for ethanol due to increased demand but a reduced supply. For our main product
ethanol, there was a 36.9% increase in the average price per gallon of ethanol
in Fiscal 2022 as compared to Fiscal 2021 driven by the tight supply of ethanol
coupled with rising demand post-pandemic, and a 2.46% decrease in the volume of
ethanol sold during Fiscal 2022 compared to Fiscal 2021. There was also
a decrease of 2% in the volume of distillers grains sold and an increase in the
average price per ton of distillers grains of approximately 25.6% primarily
attributable to the prevailing prices of distillers grains compared to competing
feed products. Distillers corn oil revenue also increased 66% in Fiscal 2022
compared to Fiscal 2021 due to an increase of 10.7% in tons sold in Fiscal 2022
as compared to Fiscal 2021, along with an increase of 51.6% in the price of
distillers corn oil due to biodiesel processors utilizing higher quantities of
distillers corn oil, thereby substantially increasing demand.



 In Fiscal 2022, we witnessed a greater recovery in ethanol prices, distillers
grains prices and distillers corn oil prices driven by strong demand for each
product coupled with lower supply attributable to industry slowdowns in 2020 and
early 2021.  Ethanol prices are typically directionally consistent with changes
in corn and energy prices, and in Fiscal 2022, we did see the price of ethanol
increase 36.9% over the course of the year with an increase in the cost of corn
of 17.6%.

The 25.6% increase in the average price of distillers grains was tempered with a 2% decrease in tonnage sold resulting in a 14.9% increase in this revenue category.





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During Fiscal 2022, corn oil prices increased 51.6% and pounds sold increased
10.7% compared to Fiscal 2021, due to biodiesel processors utilizing higher
quantities of corn oil. Although management believes that corn oil prices will
remain relatively steady at the current price levels, prices may decrease if
there is an oversupply of corn oil production resulting from increased
production rates or if biodiesel producers begin to utilize lower-priced
alternatives such as soybean oil.



On December 18, 2019, Congress extended the biodiesel tax credit through 2022
with retroactive application to January 1, 2018. The extension of the tax credit
has increased demand for distillers corn oil, which is a feedstock for renewable
diesel, and could continue to have a positive impact on distillers corn oil
prices for the remainder of Fiscal 2022.  The Inflation Reduction Act of 2022
(the "IRA") provided for the further extension of the biodiesel tax credit until
December 31, 2024 which could result in continued positive impact on the value
of our distillers corn oil.



                                                    Fiscal 2022                        Fiscal 2021
                                           Amounts in                         Amounts in
                                             000's         % of Revenues        000's         % of Revenues
Product Revenue Information
Ethanol                                    $  289,812                74.9 %   $  227,036                75.0 %
Distiller's Grains                             63,840                16.5 %       55,561                18.3 %
Corn Oil                                       31,532                 8.1 %       18,996                 6.3 %
Other                                           1,941                 0.5 %        1,227                 0.4 %




Cost of Goods Sold



Our cost of goods sold as a percentage of our revenues was 85% and 95% for
Fiscal 2022 and 2021, respectively, and decreased due to the increase in prices
for ethanol, distillers corn oil and distillers grains. Our two primary costs of
producing ethanol and distillers grains are corn and energy, with natural gas
and electricity as our primary energy sources. Cost of goods sold also includes
net (gains) or losses from derivatives and hedging relating to corn. Material
costs increased as a result of the average price of corn used in ethanol
production per bushel increasing by 17.6% in Fiscal 2022 from Fiscal 2021 on
a 5% decrease in ethanol production in Fiscal 2022 compared to Fiscal 2021.



Realized and unrealized (gains) or losses related to our derivatives and hedging
related to corn resulted in a decrease of $16.6 million in our cost of goods
sold for Fiscal 2022, compared to a decrease of $4.4 million in our cost of
goods sold for Fiscal 2021.  We recognize the gains or losses that result from
the changes in the value of our derivative instruments related to corn in cost
of goods sold as the changes occur.  As corn prices fluctuate, the value of our
derivative instruments are impacted, which affects our financial performance.
We anticipate continued volatility in our cost of goods sold due to the timing
of the changes in value of the derivative instruments relative to the cost and
use of the commodity being hedged.



Our average natural gas energy cost increased 19.5% per MMBTU comparing
Fiscal 2022 to Fiscal 2021 due to the increased cost of natural gas during
Fiscal 2022. Natural gas on the spot market increased 69% when comparing Fiscal
2022 to Fiscal 2021.  We were able to mitigate the full impact of the rise in
the natural gas spot market through locking in MMBTU's during the fiscal year.
Variable production expenses increased when comparing Fiscal 2022 to Fiscal 2021
due to higher energy costs and higher chemical costs.  Fixed production expenses
also increased when comparing Fiscal 2022 to Fiscal 2021 due to higher
maintenance costs and increased lease costs.

General & Administrative Expense





Our general and administrative expenses as a percentage of revenues were 1.8%
for Fiscal 2022 and 1.9% for Fiscal 2021. General and administrative expenses
include salaries and benefits of administrative employees, professional fees and
other general administrative costs. Our general and administrative expenses for
Fiscal 2022 increased 26.3% compared to Fiscal 2021. The increase in general and
administrative expenses from Fiscal 2021 to Fiscal 2022 is due mainly to higher
legal and professional fees and dues and subscription costs which include annual
software licensing fees.



Other Income (Expense)



Our other income (expense) was approximately $4.2 million for Fiscal 2022 and
($1) million for Fiscal 2021, and were approximately 1.1% and (0.3%) of our
revenues for Fiscal 2022 and Fiscal 2021, respectively. The increase in other
income (expense) during Fiscal 2022 was due to the USDA COVID relief payment we
received in May for $3.1 million. The remainder is due to patronage dividends we
receive from our lending partners and the forgiveness of the PPP loans.





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Key Operating Measures



                                  Fiscal 2022       Fiscal 2021
Production (denatured gallons)           121.9             129.8
Ethanol Yield (den gal/bu)               2.915             2.931
Ethanol Price (per gal)                   2.41              1.76
Corn Price (per bu)                       6.43              5.47
Corn Oil Yield (lbs/bu)                  1.093             0.942
BTU's / gallon                          21,395            22,154
Steam / Nat Gas Cost per MMBTU           3.947             3.302
kWh/gallon                               0.695             0.642
Chemical Cost ($/gal)                    0.127             0.095




Our production decreased 6% when comparing Fiscal 2021 to Fiscal 2022 due to
extended maintenance shutdowns to make various repairs. The average ethanol
price per gallon increased 36.9% year over year due to the increased demand and
constraints on supply and transportation. The price of corn increased 17.6% on
average due to input costs, drought conditions and transportation constraints.
While the overall cost of natural gas went up 19.5%, the Company was able to
reduce its BTU's per gallon by 3.4% due to energy efficiency improvements
throughout the plant.  The cost of chemicals increased 33.7% year over year due
to reduced supply, higher natural gas prices (impacting nitrogen based
chemicals) and labor shortages.

Paycheck Protection Program Loan





On April 14, 2020, the Company received $1.1 million under the new Paycheck
Protection Program legislation passed in response to the economic downturn
triggered by COVID-19 and on January 28, 2021, the Company received an
additional $1.1 million under Phase II of the PPP legislation (collectively the
"PPP Loans"). Our PPP Loans may be forgiven based upon various factors,
including, without limitation, our payroll cost over an eight-to-twenty-four
week period starting upon our receipt of the funds. Expenses for approved
payroll costs, lease payments on agreements before February 15, 2020, and
utility payments under agreements before February 1, 2020 and certain other
specified costs can be paid with these funds and eligible for payment
forgiveness by the federal government. At least 60% of the proceeds must be used
for approved payroll costs, and no more than 40% on non-payroll expenses. PPP
loan proceeds used by a borrower for the approved expense categories have
generally been fully forgiven by the lender if the borrower satisfies certain
employee headcount and compensation requirements.  The Company applied for
forgiveness on its PPP Loans from the Small Business Administration ("SBA") and
was notified on December 24, 2021 that the PPP Loans had been forgiven in full.
The gain on the debt extinguishment was recorded in other income.

Liquidity and Capital Resources





As of September 30, 2022, we had a cash balance of $7.2 million, $39.6 million
available under the Revolving Term Loan (defined below) and working capital (per
the definition stated within the "Restated Credit Agreement") of $71.7 million.



The Company has certain loan agreements with Farm Credit Services of America,
FLCA, ("FLCA"), Farm Credit Services of America, PCA ("PCA") and CoBank, ACB,
("CoBank") (collectively, the "FCSA Credit Facility"), which provide the Company
with a term loan in the amount of $30 million (the "Term Loan") which matures
November 15, 2024, a revolving term loan in the amount of $18.75 million (the
"Term Loan") which matures September 1, 2027 and a $40 million revolving line of
credit (the "Revolving Credit Loan") which matures February 1, 2023. The FCSA
Credit Facility is secured by a security interest on all of the Company's assets
and requires the Company to comply with specified financial covenants related
to minimum current working capital, a minimum debt service coverage ratio and
limitation on unit holder distributions.

As of September 30, 2022, there was $15 million outstanding under the Term Loan, $442 thousand outstanding under the Revolving Term Loan with $39.6 million available under the Revolving Credit Loan.





The Term Loan provides for semi-annual payments by the Company to FCSA of $3.75
million, on March 1 and September 1, beginning September 1, 2020. The Term Loan
was amended in February 2021 to only require a single principal payment of $3.75
during 2021. All remaining amounts due under the Term Note are due and payable
on the maturity date of November 15, 2024.



Effective July 18, 2022, the Company, FLCA, PCA and CoBank entered into the
First Amendment and Restated Credit Agreement (the "Restated Credit Agreement")
which amended and restated the Company's Credit Agreement dated as of June 24,
2014, as amended by Amendment No. 1 dated as of February 11, 2015, Amendment No.
2 dated as of February 11, 2015, Amendment No. 3 dated as of January 25, 2016,
Amendment No. 4 dated as of November 14, 2019, Amendment No. 5 dated as of
February 26, 2021, Amendment No. 6 dated as of July 30, 2021, Amendment No. 7
dated as of October 29, 2021 and Amendment No 8. dated February 25, 2022
(collectively the "Original Credit Agreement").



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The Restated Credit Agreement amended and restated the Original Credit Agreement
to incorporate all of the prior amendments to the Original Credit Agreement into
the Restated Credit Agreement. The Restated Credit Agreement and continues to be
secured by substantially all of the Company's assets.  The Restated Credit
agreement also:

• Replaced the Second Amended and Restated Term Note dated February 26, 2021 in

its entirety with the Third Amended and Restated Term Note dated July 18,

2022 (the "Third Restated Term Note") and provided for a maximum principal

amount of $18,750,000 and for all borrowings thereunder to bear interest at a

Daily Simple SOFR Rate plus a spread equal to 3.25% per annum. The maturity

date of the Third Restated Term Note remains November 15, 2024.

• Replaced the First Amended and Restated Revolving Term Note dated November 8,

2019 in its entirety with the Second Amended and Restated Revolving Term Note

dated July 18, 2022 (the "Second Restated Revolving Term Note"). The Second

Restated Revolving Term Note continues to provide for a maximum principal

amount of $40 million but was amended to provide for all borrowings

thereunder to bear interest at a rate of Daily Simple SOFR plus a spread of

3.25% per annum.

• Replaced the Third Amended and Restated Revolving Credit Note dated February

25, 2022 in its entirety with the Fourth Amended and Restated Revolving Term

Note dated July 18, 2022 (the "Fourth Restated Revolving Credit Note"). The

Fourth Restated Revolving Credit Note continues to provide for a maximum

principal amount of $10 million and all borrowings thereunder bear an

interest rate equal to the Daily Simple SOFR rate plus a spread of 3.10%. The

maturity date of the Fourth Restated Revolving Credit Note remains February


    1, 2023.




Effective September 21, 2022, the Company entered into Amendment No. 1 to the
Restated Credit Agreement. The amendment amended and restated the Company's
Second Restated Revolving Term Note in its entirety replacing it with the Third
Amended and Restated Revolving Term Note dated September 21, 2022 (the "Third
Restated Revolving Term Note").  The Third Restated Revolving Term Note extended
the maturity date to September 1, 2027 and also:

• amended the definition of Permitted Indebtedness to increase the aggregate

principal amount of indebtedness the Company may incur to $5 million (less

the current balance of any Existing Indebtedness).

• amended the negative covenant related to the payment of dividends or other

distributions to include the purchase, redemption, retirement or acquisition

of the Company's units.

• increased the amount of payments the Company can make under its Operating


    Leases to $1 million.

Primary Working Capital Needs





Cash provided by operations for Fiscal 2022 and Fiscal 2021 was $64.8 million
and $6.4 million, respectively. This change is primarily due to the increased
price received for ethanol and co-products.  For Fiscal 2022 and Fiscal 2021,
net cash (used in) investing activities was $(4.8) million and $(8.2) million,
respectively, primarily for fixed asset additions. For Fiscal 2022 and
Fiscal 2021, net cash flows provided by (used in) financing activities was
$(54.7) million and $2.7 million, respectively due to significant debt paydowns
made possible as a result of the increased sale price of ethanol and
co-products.



We believe that our existing sources of liquidity, including cash on hand,
available revolving credit and cash provided by operating activities, will
satisfy our projected liquidity requirements, which primarily consists of
working capital requirements, for the next twelve months. However, in the event
that the market experiences significant price volatility and negative crush
margins at or in excess of the levels experienced in previous years, we may be
required to explore alternative methods to meet our short-term liquidity needs
including temporary shutdowns of operations, temporary reductions in our
production levels, or negotiating short-term concessions from our lenders.



Commodity Price Risk



Our operations are highly dependent on commodity prices, especially prices for
corn, ethanol and distillers grains and the spread between them ( the "crush
margin"). As a result of price volatility for these commodities, our operating
results may fluctuate substantially. The price and availability of corn are
subject to significant fluctuations depending upon a number of factors that
affect commodity prices in general, including crop conditions, weather,
governmental programs and foreign purchases. We may experience increasing costs
for corn and natural gas and decreasing prices for ethanol and distillers grains
which could significantly impact our operating results. Because the market price
of ethanol is not directly related to corn prices, ethanol producers are
generally not able to compensate for increases in the cost of corn through
adjustments in prices for ethanol. We continue to monitor corn and ethanol
prices and manage the "crush margin" to affect our longer-term profitability.



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We enter into various derivative contracts with the primary objective of
managing our exposure to adverse price movements in the commodities used for,
and produced in, our business operations and, to the extent we have working
capital available and available market conditions are appropriate, we engage in
hedging transactions which involve risks that could harm our business. We
measure and review our net commodity positions on a daily basis. Our daily net
agricultural commodity position consists of inventory, forward purchase and sale
contracts, over-the-counter and exchange traded derivative instruments.  The
effectiveness of our hedging strategies is dependent upon the cost of
commodities and our ability to sell sufficient products to use all of the
commodities for which we have futures contracts. Although we actively manage our
risk and adjust hedging strategies as appropriate, there is no assurance that
our hedging activities will successfully reduce the risk caused by market
volatility which may leave us vulnerable to high commodity prices.
Alternatively, we may choose not to engage in hedging transactions in the
future. As a result, our future results of operations and financial conditions
may also be adversely affected during periods in which price changes in corn,
ethanol and distillers grain to not work in our favor.



In addition, as described above, hedging transactions expose us to the risk of
counterparty non-performance where the counterparty to the hedging contract
defaults on its contract or, in the case of over-the-counter or exchange-traded
contracts, where there is a change in the expected differential between the
price of the commodity underlying the hedging agreement and the actual prices
paid or received by us for the physical commodity bought or sold. We have, from
time to time, experienced instances of counterparty non-performance but losses
incurred in these situations were not significant.



Although we believe our hedge positions accomplish an economic hedge against our
future purchases and sales, management has chosen not to use hedge accounting,
which would match any gain or loss on our hedge positions to the specific
commodity purchase being hedged. We are using fair value accounting for our
hedge positions, which means as the current market price of our hedge positions
changes, the realized or unrealized gains and losses are immediately recognized
in the current period (commonly referred to as the "mark to market" method). The
immediate recognition of hedging gains and losses under fair value accounting
can cause net income to be volatile from quarter to quarter due to the timing of
the change in value of the derivative instruments relative to the cost and use
of the commodity being hedged. As corn prices move in reaction to market trends
and information, our income statement will be affected depending on the impact
such market movements have on the value of our derivative instruments. Depending
on market movements, crop prospects and weather, our hedging strategies may
cause immediate adverse effects, but are expected to produce long-term positive
impact.



In the event we do not have sufficient working capital to enter into hedging
strategies to manage our commodities price risk, we may be forced to purchase
our corn and market our ethanol at spot prices and as a result, we could be
further exposed to market volatility and risk. However, during the past year,
the spot market has been advantageous.



Credit and Counterparty Risks



Through our normal business activities, we are subject to significant credit and
counterparty risks that arise through normal commercial sales and purchases,
including forward commitments to buy and sell, and through various other
over-the-counter (OTC) derivative instruments that we utilize to manage risks
inherent in our business activities. We define credit and counterparty risk as a
potential financial loss due to the failure of a counterparty to honor its
obligations. The exposure is measured based upon several factors, including
unpaid accounts receivable from counterparties and unrealized gains (losses)
from OTC derivative instruments (including forward purchase and sale
contracts).  We actively monitor credit and counterparty risk through credit
analysis (by our marketing agent).

Impact of Hedging Transactions on Liquidity





Our operations and cash flows are highly impacted by commodity prices, including
prices for corn, ethanol, distillers grains and natural gas. We attempt to
reduce the market risk associated with fluctuations in commodity prices through
the use of derivative instruments, including forward corn contracts and
over-the-counter exchange-traded futures and option contracts. Our liquidity
position may be positively or negatively affected by changes in the underlying
value of our derivative instruments. When the value of our open derivative
positions decrease, we may be required to post margin deposits with our brokers
to cover a portion of the decrease or we may require significant liquidity with
little advanced notice to meet margin calls. Conversely, when the value of our
open derivative positions increase, our brokers may be required to deliver
margin deposits to us for a portion of the increase. We continuously monitor and
manage our derivative instruments portfolio and our exposure to margin calls and
while we believe we will continue to maintain adequate liquidity to cover such
margin calls from operating results and borrowings, we cannot estimate the
actual availability of funds from operations or borrowings for hedging
transactions in the future.



The effects, positive or negative, on liquidity resulting from our hedging
activities tend to be mitigated by offsetting changes in cash prices in our
business. For example, in a period of rising corn prices, gains resulting from
long grain derivative positions would generally be offset by higher cash prices
paid to farmers and other suppliers in local corn markets. These offsetting
changes do not always occur, however, in the same amounts or in the same period.



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We expect that a $1.00 per bushel fluctuation in market prices for corn would
impact our cost of goods sold by approximately $48 million, or $0.34 per gallon,
assuming our plant operates at 100% of our capacity and assuming no increase in
the price of ethanol. We expect the annual impact to our results of operations
due to a $0.50 decrease in ethanol prices will result in approximately a $70
million decrease in revenue.

Summary of Critical Accounting Policies and Estimates





Note 2 to our financial statements contains a summary of our significant
accounting policies, many of which require the use of estimates and
assumptions. Accounting estimates are an integral part of the preparation of
financial statements and are based upon management's current judgment. We used
our knowledge and experience about past events and certain future assumptions to
make estimates and judgments involving matters that are inherently uncertain and
that affect the carrying value of our assets and liabilities. We believe that of
our significant accounting policies, the following are noteworthy because
changes in these estimates or assumptions could materially affect our financial
position and results of operations:



  • Revenue Recognition




             The Company recognizes revenue when a customer obtains control

of


promised goods or services in an amount that reflects the consideration the
entity expects to receive in exchange for those goods or services. In addition,
the standard requires disclosures of the nature, amount, timing and uncertainty
of revenue and cash flows arising from the contracts with customers. The Company
applies the five-step method to all contracts with customers.



             The Company sells ethanol (pursuant to a marketing agreement)

and


related products (direct sales). Revenues are recognized when the control has
been transferred to the marketing company (or direct buyer) and the marketing
company or direct buyer has taken title to the product, prices are fixed or
determinable and collectability is reasonably assured.



             The Company's products are generally shipped Free on Board

("FOB")


shipping point, and recorded as a sale upon delivery of the applicable bill of
lading and transfer of control. The Company's ethanol sales are handled through
an ethanol purchase agreement (the "Ethanol Agreement") with Bunge North
America, Inc. ("Bunge"). The Company markets and distributes all of the syrup,
distillers grains and distillers corn oil it produces directly to end users at
market prices.  Carbon dioxide is sold through a Carbon Dioxide Purchase and
Sale Agreement (the "CO2 Agreement") with Air Products and Chemicals, Inc.
Shipping and handling costs are booked as a direct offset to revenue for ethanol
sales. Marketing fees, agency fees, and commissions due to the marketer are
calculated separately from the settlement for the sale of the ethanol products
and co-products and are included as a component of cost of goods sold. Shipping
and handling costs for co-products are included in cost of goods sold.



  • Accounts Receivable




              Accounts receivable are recorded at original invoice amounts

less


an estimate made for doubtful receivables based on a review of all outstanding
amounts on a quarterly basis. Management determines the allowance for doubtful
accounts by regularly evaluating customer receivables and considering the
customer's financial condition, credit history and current economic conditions.
As of September 30, 2022 and September 30, 2021, management had determined an
allowance of $0.2 million was necessary.  Receivables are written off when
deemed uncollectible and recoveries of receivables written off are recorded when
received.

• Investment in Commodities Contracts, Derivative Instruments and Hedging


    Activities




The Company's operations and cash flows are subject to fluctuations due to
changes in commodity prices. The Company is subject to market risk with respect
to the price and availability of corn, the principal raw material used to
produce ethanol and ethanol by-products. Exposure to commodity price risk
results from its dependence on corn in the ethanol production process. In
general, rising corn prices result in lower profit margins and, therefore,
represent unfavorable market conditions. This is especially true when market
conditions do not allow the Company to pass along increased corn costs to
customers. The availability and price of corn is subject to wide fluctuations
due to unpredictable factors such as weather conditions, farmer planting
decisions, governmental policies with respect to agriculture and international
trade and global demand and supply.



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To minimize the risk and the volatility of commodity prices, primarily related
to corn and ethanol, the Company uses various derivative instruments, including
forward corn, ethanol and distillers grains purchase and sales contracts,
over-the-counter and exchange-trade futures and option contracts. When the
Company has sufficient working capital available, it enters into derivative
contracts to hedge its exposure to price risk related to forecasted corn needs
and forward corn purchase contracts.



Management has evaluated the Company's contracts to determine whether the
contracts are derivative instruments. Certain contracts that literally meet the
definition of a derivative may be exempted from derivative accounting as normal
purchases or normal sales. Normal purchases and normal sales are contracts that
provide for the purchase or sale of something other than a financial instrument
or derivative instrument that will be delivered in quantities expected to be
used or sold over a reasonable period in the normal course of business.  Gains
and losses on contracts that are designated as normal purchases or normal sales
contracts are not recognized until quantities are delivered or utilized in
production.



The Company applies the normal purchase and sale exemption to forward contracts
relating to ethanol and distillers grains and solubles and therefore these
forward contracts are not marked to market. As of September 30, 2022, the
Company had 4.6 million gallons in open contracts for ethanol, 58 thousand tons
of open contracts on dried distillers grains, 94 thousand tons of wet distillers
grains, 4.8 million pounds of corn oil on open contracts, and 2.9 million
gallons of 190 proof undenatured ethanol.



Corn purchase contracts are treated as derivative financial instruments. Changes
in fair value of forward corn contracts, which are marked to market each period,
are included in costs of goods sold. As of September 30, 2022, the Company was
committed to purchasing 3.6 million bushels of corn on a forward contract basis
resulting in a total commitment of $23.6 million.  In addition, the Company was
committed to purchasing 55 thousand bushels of corn using basis contracts.



In addition, the Company enters into short-term cash, options and futures
contracts as a means of managing exposure to changes in commodity prices. The
Company enters into derivative contracts to hedge the exposure to volatile
commodity price fluctuations. The Company maintains a risk management strategy
that uses derivative instruments to minimize significant, unanticipated earnings
fluctuations caused by market volatility. The Company's specific goal is to
protect itself from large moves in commodity costs. All derivatives are
designated as non-hedge derivatives and the contracts will be accounted for at
fair value. Although the contracts will be effective economic hedges of
specified risks, they are not designated as and accounted for as hedging
instruments.



  • Inventory

Inventory is valued at the lower of average cost or net realizable value. In the valuation of inventories and purchase commitments, net realizable value is defined as estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation.

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