Item 1. Business
Item 1. Business.
Business Overview
We are a leading producer and distributor of specialty
alcohols, renewable fuels and essential ingredients in the United States.
We operate five alcohol production facilities.
Three of our production facilities are located in Illinois, one is located in Oregon and another is located in Idaho. We have an annual
alcohol production capacity of 350 million gallons, including both renewable fuels and specialty alcohols ranging from industrial-, pharmaceutical-,
and high-quality food- and beverage-grade alcohols. Of this amount, we can produce up to 110 million gallons annually of specialty alcohols,
depending on our product mix among high-quality beverage-grade alcohol and other quality specification alcohols. We market and distribute
all of the alcohols produced at our facilities as well as alcohols produced by third parties. In 2024, we marketed and distributed approximately
386 million gallons combined of our own produced alcohols as well as fuel-grade ethanol produced by third parties, and over 1.4 million
tons of essential ingredients on a dry matter basis.
We also own and operate a liquid carbon dioxide,
or CO 2 , production facility adjacent to our plant in Oregon for the offtake of CO 2 gas from the plant for conversion
to liquid CO 2 and subsequent sale. We acquired this facility on January 1, 2025.
In addition, we break bulk and distribute
specialty alcohols, produced by us and third parties, through our Eagle Alcohol business.
We report our financial and operating performance
in three distinct segments:
● Pekin
production , which includes the production and sale of alcohols and essential ingredients
produced at our three production facilities located in Pekin, Illinois, which we refer to
as our Pekin Campus;
● Marketing
and distribution , which includes marketing and merchant trading for company-produced
alcohols and essential ingredients on an aggregated basis, and sales of fuel-grade ethanol
sourced from third parties; and
● Western
production , which includes the production and sale of renewable fuels and essential
ingredients and, beginning in 2025, liquid CO 2, produced at our western production
facilities, including our liquid CO 2 plant, on an aggregated basis, none of which
are individually so significant as to be considered a separately reportable segment.
Our mission is to produce the highest quality,
sustainable ingredients that make everyday products better. We intend to accomplish this goal in part by investing in our specialized
and higher value specialty alcohol production and distribution infrastructure, expanding production in high-demand essential ingredients,
expanding and extending the sale of our products into new regional and international markets, building efficiencies and economies of
scale and by capturing a greater portion of the value stream.
- 1 -
Production Segments
We produce specialty alcohols, renewable
fuels and essential ingredients, focusing on five key markets: Health, Home & Beauty ; Food & Beverage ; Industry
& Agriculture ; Essential Ingredients ; and Renewable Fuels . Products for Health, Home & Beauty
markets include specialty alcohols used in mouthwash, cosmetics, pharmaceuticals, hand sanitizers, disinfectants and cleaners.
Products for Food & Beverage markets include grain neutral spirits used in alcoholic beverages and vinegar and corn germ
used for corn oils. Products for Industry & Agriculture markets include alcohols and other products for paint
applications, vehicle fluids and fertilizers. Products for Essential Ingredients markets include dried yeast, corn protein
meal, corn protein feed, corn germ, distillers grains, liquid CO 2 and liquid feed used in commercial animal feed and pet
foods. We also sell yeast and liquid CO 2 for human consumption. Our products for the Renewable Fuels markets
include fuel-grade ethanol and distillers corn oil used as a feedstock for renewable diesel and biodiesel fuels. Our specialty
alcohols for the Industry & Agriculture, Food & Beverage and Health, Home & Beauty markets represented
approximately 12%, 7% and 3%, respectively, of our sales in 2024 from these three markets.
We produce our alcohols and essential ingredients
at our facilities described below. Our production facilities located in Illinois are in the heart of the Corn Belt, benefit from relatively
low-cost and abundant feedstock and enjoy logistical advantages that enable us to provide our products to both domestic and international
markets via truck, rail or barge. Our production facilities located in Oregon and Idaho are near their respective fuel and feed customers,
offering significant timing, product transportation cost and logistical advantages.
All of our production facilities, other than our
Magic Valley plant, were operating for all of 2024, subject to scheduled and unscheduled downtimes to address facility repair and maintenance.
In January 2024, we temporarily hot-idled our
Magic Valley facility to minimize losses from negative regional crush margins and to expedite the installation of additional equipment
to achieve the intended production rate, quality and consistency from our corn oil and high protein system at the facility. We restarted
our Magic Valley facility in July 2024 and by October 2024, the facility consistently achieved average ethanol production rates at full
capacity, the protein content yield from the plant reached 50% or greater, and we were able to expand our corn oil yields. Increases
in regional corn basis and declining market prices for protein and corn oil resulted in overall margin compression, outweighing the economic
benefits of our plant improvements. As a consequence, we cold-idled our Magic Valley facility on December 31, 2024 to minimize financial
losses. We continue to provide terminal services at the plant and intend to resume operations at the facility when the economic environment
in the region sustainably improves. We believe that the cold-idling of our Magic Valley facility will have a positive impact on our overall
financial results in 2025 compared to 2024.
As market conditions change, we may increase,
decrease or idle production at one or more operating facilities or resume operations at any idled facility.
Marketing and Distribution Segment
We market and distribute all the alcohols and
essential ingredients we produce at our facilities. We also market and distribute alcohols produced by third parties.
We have extensive and long-standing customer relationships,
both domestic and international, for our specialty alcohols and essential ingredients. These customers include producers and distributors
of ingredients for cosmetics, sanitizers and related products, distilled spirits producers, food products manufacturers, producers of
personal health/consumer health and personal care hygiene products, and global trading firms.
Our renewable fuel customers are located throughout
the Western and Midwestern United States and consist of integrated oil companies and gasoline marketers who blend fuel-grade ethanol
into gasoline. Our customers depend on us to provide a reliable supply of fuel-grade ethanol and manage the logistics and timing of delivery.
Our customers collectively require fuel-grade ethanol volumes in excess of the supplies we produce at our facilities. We secure additional
fuel-grade ethanol supplies from third-party ethanol producers. We arrange for transportation, storage and delivery of fuel-grade ethanol
purchased by our customers through our agreements with third-party service providers in the Western United States as well as in the Midwest
from a variety of sources.
- 2 -
We market food-grade essential ingredients to
human and pet food markets, our feed products (such as distillers grains) primarily to export markets from our Pekin Campus, and other
feed products to dairies and feedlots, in many cases located near our production facilities. These customers use our feed products for
livestock as a substitute for corn and other sources of starch and protein. We sell our corn oil to poultry, renewable diesel and biodiesel
customers.
See “Note 4 – Segments” to our
Notes to Consolidated Financial Statements included elsewhere in this report for financial information about our business segments.
Company History
We are a Delaware corporation formed in 2005.
Our common stock trades on The Nasdaq Capital Market under the symbol “ALTO.” Our Internet website address is http://www.altoingredients.com.
Information contained on our website is not part of this Annual Report on Form 10-K. Our Annual Reports on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K and any amendments to such reports filed with or furnished to the Securities and Exchange Commission
and other Securities and Exchange Commission filings are available free of charge through our website as soon as reasonably practicable
after the reports are electronically filed with, or furnished to, the Securities and Exchange Commission.
Business Strategy
The key elements of our business and growth strategy
include:
● Focus
on our customer relationships. Our primary business focus is to expand the production
and sale of specialty alcohols and essential ingredients. Our business is now more service-oriented
and focused on specialty products that yield premium prices compared to commodity products
that yield predominantly passive, market-driven prices. We strive to make our business ever
more customer-centric to enable our premium services to support premium prices and new differentiated
and higher-margin products.
● Implement
carbon capture and storage at our Pekin Campus, lowering our carbon footprint . The Inflation
Reduction Act of 2022 raised the carbon capture tax credit to $85 per metric ton, reflecting
the section 45Q tax incentive benefits established under the Act. Section 45Z low carbon
fuel tax credits are also available under the Act. We produce over 600,000 metric tons of
CO 2 per year at our Pekin Campus, which sits atop the Mount Simon formation, identified
as one of the best and largest carbon storage locations in the country. We are prioritizing
our carbon capture and storage, or CCS, project over other long-term capital projects. We
believe the financial benefits under the Inflation Reduction Act and the substantial additional
economic benefits of the environmental attributes associated with low carbon ethanol will
result in excellent returns on investment. In furtherance of this project, in November 2024,
we entered into a CO 2 Transportation and Sequestration Agreement with Vault 44.01, or Vault,
to provide transportation, injection and sequestration into the Mount Simon sandstone formation
in Illinois of CO 2 produced at our Pekin Campus. In December, Vault submitted the formal application to the EPA for
our CCS project to obtain the Class VI permit required to begin construction of the CCS pipeline and for long-term CO 2 storage in deep
geological formations.
- 3 -
● Expand
product offerings. We are pursuing initiatives to broaden our product offerings to appeal
to a wider range of customers and uses in our key markets. For example, on January 1, 2025,
we acquired a liquid CO 2 production facility located adjacent to our Oregon plant
and now offer liquid CO 2 for sale. Our liquid CO 2 facility and our
food-grade yeast plant are both FSSC 22000 certified, meeting the Global Food Safety Initiative
(GFSI) benchmarking requirements. In addition, we maintain ISO 9001, ICH Q7 and EXCiPACT
certifications for all United States Pharmacopia, or USP, grade alcohol products. These certifications
appeal to customers with stringent quality demands and enable us to offer alcohol certified
for use as an active pharmaceutical ingredient, or API, and as an excipient—an inactive
component of a drug or medication, such as solvents, carriers or tinctures—in the pharmaceutical
industry. All ingredients we produce for use in beverages, human and pet foods are third-party
certified for ISO 9001 and hazard analysis and critical control points (HACCP). In addition,
all of our animal feed production, including at our Oregon and Idaho facilities, has undergone
third-party Food Safety Modernization Act (FSMA) auditing. We are reviewing additional certifications
and product positioning within our key markets to expand the range of customers we serve
and the uses our products support.
● Implement
new equipment and technologies. We are evaluating and plan to implement new equipment
and technologies to increase our production yields, improve our operating efficiencies and
reliability, reduce our overall carbon footprint, diversify our products and revenues, and
increase our profitability as financial resources and market conditions Left these investments.
● Evaluate and pursue strategic opportunities . We are exploring opportunities to expand our business. For example, when the
opportunity arose, we moved quickly to acquire the liquid CO 2 production facility adjacent to our Oregon plant and
establish an improved, long-term liquid CO 2 sales agreement with a leading reseller of liquid CO 2 . We intend
to pursue these and other strategic opportunities as financial resources and business prospects make these opportunities desirable.
We are also exploring divestiture opportunities for certain properties in an ongoing effort to continue to optimize our asset
portfolio and as part of our ongoing efforts to maximize shareholder value. For example, we have engaged an investment banking firm
to explore the sale of our production facilities located in Oregon and Idaho. In addition, with the assistance of our financial and legal advisors, we are considering a broad range of other
options, including asset sales, a merger or other strategic transactions to better align our long-term value potential.
Competitive Strengths
We believe that our competitive strengths include:
● Strong
customer and supplier relationships . We have strong, extensive and long-standing close customer and supplier relationships, both
domestic and international, for our specialty alcohols, renewable fuels and essential ingredients. We have an excellent reputation for
developing specialty alcohols under stringent quality control standards. Our quality management systems are supported by ISO 9001, FSSC
22000, ICH Q7 and EXCiPACT certifications which are viewed by our customers as important attestations of our quality control.
● Diverse
product mix . We offer a wide range of specialty alcohols, essential ingredients and other
products to meet customer demand. We offer multiple alcohol quality grades ranging from industrial-grade
alcohol to the highest beverage grade low moisture 200 proof alcohol available. We also offer
a wide variety of essential ingredients and other products for food, feed and other markets.
- 4 -
● Barriers
to entry . Our production facilities use specialized equipment, technologies and processes
to achieve stringent quality controls, higher yields and efficient production of alcohols
and essential ingredients. Our specialized equipment, technologies and processes, together
with our quality management certifications, strict regulatory requirements, and close customer
and supplier relationships create significant barriers to entry to new market participants.
● Our
experienced management . Our senior management team has a proven track record with significant
operational and financial expertise and many years of experience in the alcohol production
industry. Our senior executives have successfully navigated a wide variety of business and
industry-specific challenges and deeply understand the business of successfully producing
and marketing specialty alcohols, renewable fuels and essential ingredients.
● The
strategic location of our Midwest production facilities . We operate three distinct but
integrated production facilities at our Pekin Campus in the Midwest. We are able to participate
from that location in the largest regional specialty alcohol market in the United States
as well as international markets.
◾ We believe that our
Midwest location enhances our overall hedging opportunities with a greater correlation to
the highly liquid physical and paper markets in Chicago.
◾ Our Midwest location
provides excellent logistical access via rail, truck and barge. In particular, barge access
via the Illinois River to the Mississippi River enables us to efficiently bring our products
to international markets.
◾ The relatively unique
wet milling process at one of our production facilities at our Pekin Campus allows us to
extract the highest use and value from each component of the corn kernel. As a result, the
wet milling process generates a higher level of cost recovery from corn than that produced
at a dry mill.
◾ Our Midwest location
allows us deep market insight and engagement in major specialty alcohol, fuel-grade ethanol,
pet food and feed markets, thereby improving pricing opportunities.
◾ Our Midwest location
sits atop the Mount Simon formation, identified as one of the best and largest carbon storage
locations in the country potentially allowing us to benefit from this close proximity to
store CO 2 .
Overview of Our Key Markets and Market Opportunity
We produce specialty alcohols, renewable fuels
and essential ingredients, focusing on five key markets: Health, Home & Beauty ; Food & Beverage ; Industry &
Agriculture; Essential Ingredients ; and Renewable Fuels .
Health, Home & Beauty
Our products for the health, home and beauty markets
include specialty alcohols used in mouthwash, cosmetics, pharmaceuticals, hand sanitizers, disinfectants and cleaners. We offer a variety
of specialty alcohols for the health, home and beauty markets, depending on usage and regulatory requirements, including API-grade or
USP-grade ethyl alcohols, and industrial-grade ethyl alcohol.
- 5 -
We have ISO 9001, FSSC 22000, ICH Q7 and EXCiPACT
certifications, all of which are viewed as important attestations of quality control standards. In particular, our ICH Q7 certification
qualifies our specialty alcohols for use as an API, and our EXCiPACT certification qualifies our specialty alcohols for use as an excipient
in the pharmaceutical industry. These certifications enable us to offer products to a wider group of customers and generally at more
profitable margins.
Food & Beverage
Our products for the food and beverage market
include specialty alcohols used in alcoholic beverages, flavor extracts and vinegar as well as corn germ used for corn oils and CO 2
used for beverage carbonation and dry ice. We offer grain neutral spirits, or GNS, alcohol as our primary specialty alcohol for
beverage-grade products. In addition, we sell FCC 190 and USP 190 Ultra into vinegar markets. We also sell high-quality 192 proof and
low-moisture 200-proof GNS products to customers in the beverage, food, flavor and personal care industries.
We believe the key drivers in the food and beverage
market include consumer preferences for the social currency of brand authenticity and heritage; consumers seeking unique and personalized
experiences; improved consumer access to spirits products; the growth of craft distillers; and the ability to meet wide-ranging consumer
preferences through a broad diversity of spirits categories and cocktails.
Industry & Agriculture
Our products for the industry and agriculture
market include alcohols and other products for paint applications, vehicle fluids and fertilizers.
Essential Ingredients
Our essential ingredients include dried yeast,
corn protein meal, corn protein feed, and distillers grains and liquid feed used in commercial animal feed and pet foods. In addition,
we sell yeast for human consumption. We also produce and sell liquid CO 2 . The raw materials for our essential ingredients
are generated as co-products from our production of alcohols. These co-products are further manufactured, altered and refined into our
essential ingredients, including for special customer applications.
Many of our essential ingredients are used in
a variety of food products to affect their nutrition, including protein and fat content, as well as other product attributes such as
taste, texture, palatability and stability. Our high quality and high purity manufacturing enables our customers to use some of our essential
ingredients in human foods while others are used solely in pet foods and animal feed.
We expect the essential ingredients market to
grow significantly due to global demand for higher-grade protein feed, such as feed used in fisheries and other applications for plant-based
proteins.
Renewable Fuels
Our renewable fuels products include fuel-grade
ethanol primarily used as a transportation fuel additive and distillers corn oil used as a renewable diesel and biodiesel feedstock.
Our renewable fuels business is supported by our own production of fuel-grade ethanol as well as fuel-grade ethanol produced by third
parties.
Renewable fuels, primarily fuel-grade ethanol,
are used for a variety of purposes, including as octane enhancers for premium gasoline and to enable refiners to produce greater quantities
of lower octane blend stock; for fuel blending to extend fuel supplies and reduce reliance on crude oil and refined products; and to
comply with a variety of governmental programs, in particular, the national Renewable Fuel Standard, or RFS, enacted to promote alternatives
to fossil fuels. Under the RFS, the mandated use of all renewable fuels rose incrementally and peaked at 36.0 billion gallons in 2022,
of which production of 15.0 billion gallons was required from conventional, or corn-based, ethanol. The RFS allows the Environmental
Protection Agency, or EPA, to adjust the annual requirement based on certain facts and circumstances. The EPA set its annual requirement
for conventional ethanol to 15.0 billion gallons for 2025. See “—Governmental Regulation.”
- 6 -
According to the Renewable Fuels Association,
the domestic fuel-grade ethanol industry produced over 16.1 billion gallons of ethanol in 2024, up from 15.5 billion gallons of ethanol
in 2023. According to the United States Department of Energy, total annual gasoline consumption in the United States is approximately
137 billion gallons and total annual fuel-grade ethanol blended with gasoline represented approximately 10.4% of this amount in 2024.
We anticipate that continued limited opportunities for gasoline refinery expansions and the growing importance of reducing CO 2
emissions using renewable fuels will generate additional growth in the demand for fuel-grade ethanol.
Overview of Alcohol Production Process
Alcohol production from starch- or sugar-based
feedstock is a highly efficient process. Modern alcohol production requires large amounts of corn, or other high-starch grains, and water
as well as chemicals, enzymes and yeast, in addition to natural gas and electricity.
Dry Milling Process
In the dry milling process, corn or other high-starch
grain is first ground into flour, then slurried with water to form a mash. Enzymes are added to the mash to convert the starch into dextrose,
a simple sugar. The mash is processed through a high temperature cooking procedure, which reduces bacteria levels prior to fermentation.
The mash is then cooled and transferred to fermenters, where yeast is added and the conversion of sugar to alcohol and CO 2 begins.
After fermentation, the resulting “beer”
is transferred to distillation where the alcohol is separated from the residual “stillage.” The resulting alcohol is concentrated
to 190 proof using conventional distillation methods. It can then be dehydrated to approximately 200 proof, representing 100% alcohol
levels, in either a molecular sieve system or a grits system. For fuel-grade ethanol, the resulting anhydrous alcohol is then blended
with up to 2.5% denaturant, usually gasoline, and then shipped to renewable fuels markets. For specialty alcohols, the products can be
sold pure or as one of the Alcohol Tobacco Tax & Trade Bureau (TTB) approved specially denatured alcohol (SDA) formulations to meet
customer specifications.
The residual stillage is separated into a coarse
grain portion and a liquid portion through a screw press or centrifugation process. The soluble liquid portion is concentrated to about
40% dissolved solids by an evaporation process. This intermediate state is called condensed distillers solubles, or syrup. The coarse
grain and syrup portions are then mixed to produce wet distillers grains with solubles, or WDGS, or can be mixed and dried to produce
dried distillers grains with solubles, or DDGS. Both WDGS and DDGS are high-protein animal feed products.
Wet Milling Process
In the wet milling process, corn or other high-starch
grain is first soaked or “steeped” in sulfurous acid for approximately 24 hours to soften the whole corn kernel prior to
milling. After steeping, the grain is coarse milled to gently open the kernels to separate the corn germ and from which corn oil is further
extracted in a separate process. The remaining fiber, protein and starch components are further separated and sold.
- 7 -
The stillage from the fermentation process is
concentrated in an evaporator and is co-dried with the fiber component and sold as corn protein feed. The protein component is
separated from the starch, filtered and dried to produce corn protein meal, a product with greater than 60% protein content. The
starch component is processed into alcohol through fermentation. The fermentation process for alcohol at this stage is similar to
the dry milling process. In addition, we separate and dry yeast to produce distillers yeast.
Overview of Distillers Grains Market
Distillers grains are produced as a co-product
of alcohol production and are valuable components of feed rations primarily to dairies and beef cattle markets, both nationally and internationally.
Our plants produce both WDGS and DDGS. WDGS is sold to customers proximate to the plants and DDGS is delivered by truck, rail and barge
to customers in domestic and international markets. Producing WDGS uses up to one-third less process energy, thus reducing production
costs and lowering the carbon footprint of our Western production facilities.
Historically, the market price for distillers
grains has generally tracked the price of corn. We believe that the market price of WDGS and DDGS is determined by a number of factors,
including the market prices of corn, soybean meal and other competitive ingredients, the performance or value of WDGS and DDGS in a particular
feed formulation and general market forces of supply and demand, including export markets for these essential ingredients. The market
price of distillers grains is also often influenced by nutritional models that calculate the feed value of distillers grains by nutritional
content, as well as reliability of consistent supply.
Customers
Our Kinergy Marketing LLC, or Kinergy, subsidiary
sells all of our produced alcohols and also markets fuel-grade ethanol produced by third parties. Our Alto Nutrients, LLC subsidiary
sells all of the essential ingredients we produce. Our Alto Carbonic, LLC subsidiary sells all of the liquid CO 2 we produce
and our Eagle Alcohol business sells our alcohols and third-party alcohols in break bulk quantities to customers in the beverage, food,
industrial and related-process industries.
We have extensive and long-standing customer relationships,
both domestic and international, for our specialty alcohols and essential ingredients, including yeast for pet food and human foods.
These customers include producers and distributors of ingredients for cosmetics, sanitizers and related products, distilled spirits producers,
food products manufacturers, producers of personal health/consumer health and personal care hygiene products, and global trading firms.
Our renewable fuel customers are located throughout
the Western and Midwestern United States and consist of integrated oil companies and gasoline marketers who blend fuel-grade ethanol
into gasoline. Our customers depend on us to provide a reliable supply of fuel-grade ethanol and manage the logistics and timing of delivery.
We secure additional fuel-grade ethanol supplies from third-party fuel-grade ethanol plants.
We market our essential ingredient feed products
to dairies and feedlots, in many cases located near our production facilities. These customers use our feed products for livestock as
a substitute for corn and other sources of starch and protein. We sell our corn oil to poultry, renewable diesel and biodiesel customers.
- 8 -
Our Pekin Campus production segment generated
$416 million, $502 million and $521 million in net sales for the years ended December 31, 2024, 2023 and 2022, respectively, from the
sale of alcohols. Our Pekin Campus production segment generated $169 million, $218 million and $226 million in net sales for the years
ended December 31, 2024, 2023 and 2022, respectively, from the sale of essential ingredients.
During 2024, 2023 and 2022, our Pekin Campus production
segment sold an aggregate of approximately 214 million, 209 million and 205 million gallons of alcohols and 906,300, 878,400, and 850,300
tons of essential ingredients, respectively, on a dry matter basis.
Our Western production segment generated $115
million, $167 million and $254 million in net sales for the years ended December 31, 2024, 2023 and 2022, respectively, from the sale
of alcohols. Our Western production segment generated $37 million, $57 million and $90 million in net sales for the years ended December
31, 2024, 2023 and 2022, respectively, from the sale of essential ingredients.
During 2024, 2023 and 2022, our Western production
segment sold an aggregate of approximately 61 million, 67 million and 92 million gallons of alcohols and 514,600, 642,300 and 787,100
tons of essential ingredients, respectively, on a dry matter basis.
Our marketing and distribution segment generated
$217 million, $263 million and $229 million in net sales for the years ended December 31, 2024, 2023 and 2022, respectively, from the
sale of our own alcohols and third-party produced alcohols.
Our Corporate and other segment, which includes
Eagle Alcohol’s business, generated $11 million, $16 million and $16 million in net sales for the years ended December 31, 2024,
2023 and 2022, respectively, and sold 3.6 million, 4.0 million and 4.0 million gallons of alcohols, respectively, for those years.
During 2024, 2023 and 2022, we produced or purchased
from third parties and resold an aggregate of 386 million, 383 million and 419 million gallons of alcohols to approximately 85, 88 and
114 customers, respectively. For 2024, 2023 and 2022, sales to our two largest customers, Chevron Products USA and Shell Trading (US)
Company represented an aggregate of approximately 18%, 16% and 20% of our net sales, respectively. For 2024, 2023 and 2022, sales to
each of our other customers represented less than 10% of our net sales.
Suppliers
Pekin Campus and Western Production Segments
Our production operations depend upon various
raw materials suppliers, including suppliers of corn, natural gas, electricity and water. The cost of corn, including delivery costs,
is the most important variable cost associated with our alcohol production. We source corn for our plants using standard contracts, including
spot purchase, forward purchase and basis contracts. When resources are available, we seek to limit the exposure of our production operations
to raw material price fluctuations by purchasing forward a portion of our corn requirements on a fixed price basis and by purchasing
corn and other raw materials futures contracts and options.
During 2024, 2023 and 2022, purchases of corn
from our three largest suppliers represented an aggregate of approximately 29%, 26% and 38% of our total corn purchases, respectively,
for those periods. Purchases from each of our other corn suppliers represented less than 10% of total corn purchases in each of 2024,
2023 and 2022.
- 9 -
Marketing and Distribution Segment
Our marketing and distribution operations include
alcohols and essential ingredients we produce but also depend upon various third-party producers of fuel-grade ethanol. In addition,
we provide transportation, storage and delivery services through third-party service providers with whom we have contracted to receive
fuel-grade ethanol at agreed upon locations from our third-party suppliers and to store and/or deliver the ethanol to agreed-upon locations
on behalf of our customers. These contracts generally run from year-to-year, subject to termination by either party upon advance written
notice before the end of the then-current annual term.
During 2024, 2023 and 2022, we purchased and resold
from third parties an aggregate of approximately 108 million, 103 million and 118 million gallons, respectively, of fuel-grade ethanol.
During 2024, 2023 and 2022, purchases of fuel-grade
ethanol from our four largest third-party suppliers represented 79%, 86% and 69%, respectively, of our total third-party ethanol purchases
for each of those periods. Purchases from each of our other third-party ethanol suppliers represented less than 10% of total third-party
ethanol purchases in each of 2024, 2023 and 2022.
Production Facilities
We operate five alcohol production facilities.
Three of our production facilities are located in Illinois, one is located in Oregon and another is located in Idaho. We have an annual
alcohol production capacity of up to 350 million gallons, including both fuel-grade ethanol and specialty alcohols ranging from industrial-,
pharmaceutical-, and high-quality food- and beverage-grade alcohols. Of this amount, we are able to produce up to 110 million gallons
annually of specialty alcohols, depending on our product mix among high-quality beverage-grade alcohol and other quality specification
alcohols. We also own and operate a liquid CO 2 production facility adjacent to our plant in Oregon for the offtake of CO 2
gas from the plant for conversion to liquid CO 2 and subsequent sale.
The tables below provide an overview of our five
alcohol production facilities and our liquid CO 2 production facility. As market conditions change, we may increase, decrease
or idle production at one or more operating facilities or resume operations at any idled facility.
Pekin Campus Production Facilities
Pekin
Wet Facility
Pekin
Dry Facility
Pekin
ICP Facility
Location
Pekin, IL
Pekin, IL
Pekin, IL
Current operating status
Operating
Operating
Operating
Approximate maximum annual alcohol production capacity (in millions of gallons)
100
60
90
Approximate maximum annual specialty alcohol production capacity (in millions of gallons)
74
—
66
Production milling process
Wet
Dry
Dry
Primary energy source
Natural Gas
Natural Gas
Natural Gas
- 10 -
Western Production Facilities
Magic Valley
Facility
Columbia
Facility
Liquid CO 2
Facility
Location
Burley, ID
Boardman, OR
Boardman, OR
Current operating status
Cold-Idled
Operating
Operating
Approximate maximum annual fuel-grade ethanol production capacity (in millions of gallons)
60
40
-
Approximate maximum annual liquid CO 2 capacity (in thousands of tons)
-
-
70
Production milling process
Dry
Dry
N/A
Primary energy source
Natural Gas
Natural Gas
Electricity
Commodity Risk Management
We employ various risk mitigation techniques.
For example, we may seek to mitigate our exposure to commodity price fluctuations by purchasing forward a portion of our corn and natural
gas requirements through fixed-price or variable-price contracts with our suppliers, as well as entering derivative contracts for fuel-grade
ethanol, corn and natural gas. To mitigate fuel-grade ethanol inventory price risks, we may sell a portion of our production forward
under fixed- or index-price contracts, or both. We may hedge a portion of the price risks by entering exchange-traded futures contracts
and options. Properly executing these risk mitigation strategies can reduce the volatility of our gross profit margins.
Specialty alcohols have relatively low price volatility
and are usually priced at significant premiums to fuel-grade ethanol. The market price of fuel-grade ethanol is volatile, however, and
subject to large fluctuations. Given the nature of our business, we cannot effectively hedge against extreme volatility or certain market
conditions. For example, fuel-grade ethanol prices, as reported by the Chicago Mercantile Exchange, or CME, ranged from $1.38 to $2.12
per gallon during 2024, from $1.58 to $2.67 per gallon during 2023 and from $2.00 to $2.88 per gallon during 2022; and corn prices, as
reported by the CME, ranged from $3.62 to $4.71 per bushel during 2024, from $4.50 to $6.85 per bushel during 2023 and from $5.64 to
$8.18 per bushel during 2022.
Climate-Related and Other Risks
Short- to medium-term climate-related and other
risks include high sensitivity to certain commodity prices such as corn and natural gas; regulatory changes and political volatility,
both domestic and international; ethanol supply and demand imbalances; logistics and storage constraints from river access during inclement
or volatile weather conditions; lack of automation of process optimization; high repair, maintenance and production costs resulting from
older facilities; poor cooling capacity of our older facilities as water temperatures increase; and international market competition.
Long-term climate-related risks include water
resource limitations; lower or volatile grain availability in local markets; market transition away from combustion fuels that include
renewables; and the energy cost impact of technology such as wet milling and multiple distillation processes for high-quality alcohol.
We also may be impacted by costs and regulatory burdens associated with carbon emissions from our production and distribution as well
as truck transport and packaging associated with Eagle Alcohol’s use of drums and totes. See “Risk Factors.”
Marketing Arrangements
We market all the alcohols and essential ingredients
produced at our facilities. We also market and distribute alcohols produced by third parties.
- 11 -
Competition
We are a leading producer of specialty alcohols
in the United States.
Other significant producers of specialty
alcohols in the United States are Archer-Daniels-Midland Company, Grain Processing Corporation, BioUrja Renewables, LLC, CIE and
Greenfield Global Inc., which collectively make up a significant majority of the total installed specialty alcohol production
capacity in the United States along with many smaller producers.
The largest producers of fuel-grade ethanol in
the United States are POET, LLC, Valero Renewable Fuels Company, LLC, Archer-Daniels-Midland Company and Green Plains Inc., collectively
with approximately 39% of the total installed fuel-grade ethanol production capacity in the United States. In addition, there are many
mid-sized fuel-grade ethanol producers with several plants under ownership, smaller producers each with one or two plants, and several
fuel-grade ethanol marketers that create significant competition. Overall, we believe there are over 200 fuel-grade ethanol production
facilities in the United States with a total installed production capacity of approximately 18 billion gallons and many brokers and marketers
with whom we compete for sales of fuel-grade ethanol and its co-products.
Our fuel-grade ethanol also competes on a global
market against production from other countries, such as Brazil, which may have lower production costs than United States producers. Lower
feedstock input costs such as sugarcane used in Brazil as compared to corn used in the Unites States may give foreign producers a competitive
advantage. In addition, fuel-grade ethanol from sugarcane feedstock qualifies as an advanced biofuel, unlike corn ethanol, allowing certain
producers to economically satisfy an advanced biofuel standard. Moreover, new products and production technologies are under continuous
development, many of which, if adopted by competitors, could harm our ability to compete.
We believe that our competitive strengths include
our customer and supplier relationships, our diverse product mix, the barriers to entry to our most profitable lines of business—including
our certifications at our production facilities—our experienced management, and the strategic location
of our Midwest production facilities. See “—Competitive Strengths.”
Governmental Regulation
Our business is subject to a wide range of federal,
state and local laws and regulations directed at protecting public health and the environment, including those promulgated by the Occupational
Safety and Health Administration, or OSHA, the U.S. Food and Drug Administration, or FDA, the EPA, and numerous state, local and international
authorities. These laws, their underlying regulatory requirements and their potential enforcement, some of which are described below,
impact, or may impact, nearly every aspect of our operations, including our alcohol production (including distillation), our liquid CO 2
production, our essential ingredient production, our storage facilities, and our water usage, wastewater discharge, disposal of
hazardous wastes and emissions, and other matters pertaining to our existing and proposed business by imposing:
● restrictions
on our existing and proposed operations and/or the need to install enhanced or additional
controls;
● special
requirements applicable to food and drug additives;
● the
need to obtain and comply with permits and authorizations;
● liability
for exceeding applicable permit limits or legal requirements, in some cases for the remediation
of contaminated soil and groundwater at our production facilities, contiguous and adjacent
properties and other properties owned and/or operated by third parties; and
● other
specifications for the specialty alcohols and essential ingredients we produce, market and
sell.
- 12 -
In addition, some governmental regulations are
helpful to our production and marketing business. The fuel-grade ethanol industry in particular is supported by federal and state mandates
and environmental regulations that favor the use of fuel-grade ethanol in motor fuel blends in North America. Some of the governmental
regulations applicable to our production and marketing business are briefly described below.
Food and Drug Regulation
Our products for the Health, Home & Beauty ,
Food & Beverage and Essential Ingredients markets are subject to regulation by the FDA as well as similar state agencies.
Under the Federal Food, Drug, and Cosmetic Act, or FDCA, the FDA regulates the processing, formulation, safety, manufacture, packaging,
labeling and distribution of food ingredients, vitamins, cosmetics and pharmaceuticals for active and inactive ingredients. In 2022,
The Modernization of Cosmetics Regulation Act (MoCRA) was added to the FDCA. This was a significant expansion to the FDCA, and established
requirements for cosmetic product facility registration and product listing, widening regulatory oversight of many more of our customers’
products. Many of the FDA’s and FDCA’s rules and regulations apply directly to us as well as indirectly through their application
in our customers’ products. For proper marketing and sale in the United States, an applicable product must be generally recognized
as safe, approved and not adulterated or misbranded under the FDCA and relevant regulations issued under the FDCA. The FDA has broad
authority to enforce the provisions of the FDCA. Failure to comply with the laws and regulations of the FDA or similar state agencies
could prevent us from selling certain of our products or subject us to liability.
Renewable Fuels Energy Legislation
Under the RFS, the mandated use of all renewable
fuels, including fuel-grade ethanol, rose incrementally and peaked at 36.0 billion gallons in 2022, of which 15.0 billion gallons are
required from conventional, or corn-based, ethanol for 2025. Under the provisions of the Energy Independence and Security Act of 2007,
the EPA has the authority to waive the mandated RFS requirements in whole or in part. To grant a waiver, the EPA administrator must determine,
in consultation with the Secretaries of Agriculture and Energy, that there is inadequate domestic renewable fuel supply or implementation
of the requirement would severely harm the economy or environment of a state, region or the United States as a whole.
Various bills in Congress introduced from time
to time are also directed at altering existing renewable fuels energy legislation, but none have passed in recent years. Some legislative
bills are directed at halting or reversing expansion of, or even eliminating, the renewable fuel program, while other bills are directed
at bolstering the program or enacting further mandates or grants that would support the renewable fuels industry.
The EPA has allowed fuel and fuel-additive manufacturers
to introduce into commercial gasoline up to 15% fuel-grade ethanol by volume, or E15, for vehicles from model year 2001 and after. According
to the Renewable Fuels Association, E15 is explicitly approved by the manufacturer for use in approximately 95% of model year 2024 and
newer cars and light trucks based on its annual review of vehicle owner’s manuals and warranty statements. Commercial sales of
E15 have begun in a majority of states. E15 has historically been prohibited in most states during the summer driving season due to concerns
over evaporative emissions and to meet federal clean air standards. For the 2024, 2023 and 2022 summer driving seasons, the EPA issued
emergency fuel waivers to allow the sale of E15 to help alleviate high gasoline prices. E15 may, however, be sold year-round in states
that have a reformulated gasoline program. In addition, the EPA proposed in late 2023 that E15 be permitted for sale year-round in various
Midwestern states effective in April 2024. The U.S. Office of Management and Budget approved the proposal in February 2024 but deferred
the effective date to April 2025.
- 13 -
Various states including California, Oregon and
Washington, and other regions such as the Canadian province of British Columbia, have implemented low carbon fuel standards focused on
reducing the carbon intensity of transportation fuels. Other states, including New York, Vermont, Massachusetts, Michigan, Illinois,
Colorado and New Mexico, currently have proposed legislation or policies that would establish a low carbon fuel standard program. Blending
fuel-grade ethanol into gasoline is one of the primary means of attaining these goals.
Additional Environmental Regulations
In addition to the governmental regulations applicable
to the alcohol production and marketing industry described above, our business is subject to additional federal, state and local environmental
regulations, including regulations established by the EPA and state regulatory agencies related to water quality and air pollution control.
We cannot predict the manner by which, or extent to which, these regulations will harm or help our business or the alcohol production
and marketing industry in general.
Human Capital Resources
As of March 12, 2025, we had approximately 393
full-time employees. Our human capital resources objectives include attracting and retaining well-qualified and highly skilled and motivated
employees and executives. As of that same date, approximately 51% of our employees were represented by a labor union and covered by a
collective bargaining agreement. We have never had a work stoppage or strike and we consider our relations with our employees to be good.
Our compensation program is designed to attract,
retain and motivate our personnel. We use a mix of competitive salaries and other benefits to attract and retain employees and executives.
Some of these benefits include matching 401K contributions of up to 6% of salary, health and wellness programs and a paid service day
for employees to give back to their communities. At the direction and with the involvement of our Sustainability and Governance board
committees, we have established a Sustainability working committee that draws from our many administrative and operational departments
to review key policies and procedures, conduct employee engagement surveys, champion volunteering and charitable drives, develop and
implement formalized recruiting and training efforts to prioritize collecting data and improving on key metrics from industry frameworks
such as the Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB) standards which are maintained by
the International Sustainability Standards Board of the IFRS Foundation.
- 14 -