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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2024-03-14 compared with 2023-03-14 · 51 added, 56 removed, 9 unchanged (92% of the section changed)

Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to various market risks, including

changes in commodity prices, as discussed below.

Market risk is the potential loss arising from adverse changes in market rates and prices.

In the ordinary course of business, we may enter into various types of transactions involving financial instruments to manage and reduce

the impact of changes in commodity prices.

We do not have material exposure to interest rate risk.

We do not expect to have any exposure

to foreign currency risk as we conduct all of our transactions in U.S.

We produce alcohol and essential ingredients.

business is sensitive to changes in the prices of ethanol and corn.

In the ordinary course of business, we may enter into various types

of transactions involving financial instruments to manage and reduce the impact of changes in ethanol and corn prices.

We do not enter

into derivatives or other financial instruments for trading or speculative purposes.

We are subject to market risk with respect to ethanol

and corn pricing.

are exposed to various market risks, including changes in commodity prices, as discussed below.

Market risk is the potential loss arising

from adverse changes in market rates and prices.

In the ordinary course of business, we may enter into various types of transactions

involving financial instruments to manage and reduce the impact of changes in commodity prices.

We do not have material exposure to interest

We do not expect to have any exposure to foreign currency risk as we conduct all of our transactions in U.S.

produce and distribute specialty alcohol, fuel-grade ethanol and essential ingredients.

Our business is sensitive to changes in the prices

of ethanol and corn.

In the ordinary course of business, we may enter into various types of transactions involving financial instruments

to manage and reduce the impact of changes in ethanol and corn prices.

We do not enter into derivatives or other financial instruments

for trading or speculative purposes.

are subject to market risk with respect to ethanol and corn pricing.

Ethanol prices are sensitive to global and domestic ethanol supply;

crude-oil supply and demand;

crude-oil refining

crude-oil refining capacity;

carbon intensity;

government regulation;

and consumer demand for alternative fuels.

Our alcohol sales are priced using contracts

that are either based on a fixed price or an indexed price tied to a specific market, such as the CBOT or the Oil Price Information Service.

Under these fixed-priced arrangements, we are exposed to risk of a decrease in the market price of ethanol between the time the price

is fixed and the time the alcohol is sold.

We satisfy our physical corn needs, the principal

raw material used to produce alcohol and essential ingredients, based on purchases from our corn vendors.

Generally, we determine the

purchase price of our corn at or near the time we begin to grind.

Additionally, we also enter into volume contracts with our vendors to

fix the purchase price.

As such, we are also subject to market risk with respect to the price of corn.

The 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 supply and demand.

Under the fixed price arrangements, we assume the risk of a decrease

in the market price of corn between the time the price is fixed and the time the corn is utilized.

Essential ingredients are sensitive to various

demand factors such as numbers of livestock on feed, prices for feed alternatives and supply factors, primarily production of ethanol

co-products by ethanol plants and other sources.

As noted above, we may attempt to reduce the market

risk associated with fluctuations in the price of ethanol or corn by employing a variety of risk management and hedging strategies.

include the use of derivative financial instruments such as futures and options executed on the CBOT and/or the New York Mercantile Exchange,

as well as the daily management of physical corn.

These derivatives are not designated for special

hedge accounting treatment, and as such, the changes in the fair values of these contracts are recorded on the balance sheet and recognized

immediately in cost of goods sold.

We recognized net gains of $19.3 million, $21.6 million and $14.8 million related to the change in

the fair values of these contracts for the years ended December 31, 2022, 2021 and 2020, respectively.

We prepared a sensitivity analysis as of December

31, 2022 to estimate our exposure to ethanol and corn.

Market risk related to these factors was estimated as the potential change in pre-tax

income resulting from a hypothetical 10% adverse change in the prices of our expected ethanol and corn volumes.

The analysis uses average

CBOT prices for the year and does not factor in future contracted volumes.

The results of this analysis for the year ended December 31,

2022, which may differ materially from actual results, are as follows (in millions):

and consumer demand for alternative

Our ethanol sales are priced using contracts that are either based on a fixed price or an indexed price tied to a specific market,

such as Chicago Ethanol (Platts) or the Oil Price Information Service.

Under these fixed-priced arrangements, we are exposed to risk

of a decrease in the market price of ethanol between the time the price is fixed and the time the alcohol is sold.

satisfy our physical corn needs, the principal raw material used to produce alcohol and essential ingredients, based on purchases from

our corn vendors.

Generally, we determine the purchase price of our corn at or near the time we begin to grind.

Additionally, we also

enter into volume contracts with our vendors to fix the purchase price.

As such, we are also subject to market risk with respect to the

price of corn.

The 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 supply and demand.

Under the fixed price

arrangements, we assume the risk of a decrease in the market price of corn between the time the price is fixed and the time the corn

ingredients are sensitive to various demand factors such as numbers of livestock on feed, prices for feed alternatives and supply factors,

primarily production of ethanol co-products by ethanol plants and other sources.

noted above, we may attempt to reduce the market risk associated with fluctuations in the price of ethanol or corn by employing a variety

of risk management and hedging strategies.

Strategies include the use of derivative financial instruments such as futures and options

executed on the CME and/or the New York Mercantile Exchange, as well as the daily management of physical corn.

derivatives are not designated for special hedge accounting treatment, and as such, the changes in the fair values of these contracts

are recorded on the balance sheet and recognized immediately in cost of goods sold.

We recognized net losses of $8.0 million, net gains

of $19.3 million and net gains of $21.6 million related to the change in the fair values of these contracts for the years ended December

31, 2023, 2022 and 2021, respectively.

prepared a sensitivity analysis as of December 31, 2023 to estimate our exposure to ethanol and corn.

Market risk related to these factors

was estimated as the potential change in pre-tax income resulting from a hypothetical 10% adverse change in the prices of our expected

ethanol and corn volumes.

The analysis uses average CME prices for the year and does not factor in future contracted volumes.

of this analysis for the year ended December 31, 2023, which may differ materially from actual results, are as follows (in millions):

Unit of Measure

Adverse Change to

1 unchanged sentence

Financial Statements and Supplementary Data.

Reference is made to the financial

statements, which begin at page F-1 of this report.

is made to the financial statements, which begin at page F-1 of this report.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk