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Item 3. Quantitative and Qualitative Disclosures About Market Risk

2024-05-08 compared with 2023-11-08 · 52 added, 54 removed, 6 unchanged (95% 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 particularly 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.

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, including governmental mandates for renewable fuel use;

government regulation;

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 the CBOT or the Oil Price Information Service.

Under these fixed-priced arrangements, we are exposed to the risk of a decrease

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

We satisfy our physical corn needs, the principal

raw material used to produce our alcohols 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, including trade and other sanctions that may be levied against grain producing countries, 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 the production of alcohol

co-products by 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 supplies.

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 $2.5 million and $20.2 million related to the changes in the fair values

of these contracts for the nine months ended September 30, 2023 and 2022, respectively.

At September 30, 2023, we prepared a sensitivity

analysis 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 nine months ended September

30, 2023, which may differ materially from actual results, are as follows (in millions):

Volume Unit of

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.

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.

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

executed on exchanges under the Chicago Mercantile Exchange Group, 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 gains of $3.3 million and net losses

of $1.8 million related to the changes in the fair values of these contracts for the three months ended March 31, 2024 and 2023, respectively.

We prepared a sensitivity analysis as of March 31, 2024 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 Chicago Mercantile

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

The results of this analysis for the three months ended

March 31, 2024, which may differ materially from actual results, are as follows (in millions):

Unit of Measure

Adverse Change

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-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk