AEMETIS, INC 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to various market risks, including changes in interest rates, commodity prices and currency translation. Market risk is the potential loss arising from adverse changes in market rates and prices. In the ordinary course of business, we enter into various types of transactions involving financial instruments to manage and reduce the impact of changes in commodity prices and interest rates. We enter into no market risk sensitive instruments for trading purposes. At December 31, 2021 we did not have any open firm-price purchase commitments with our feedstock suppliers. At times in our Indian biodiesel business, we reduce our exposure to fluctuations in feedstock prices and the price of biodiesel by entering into fixed price contracts to buy and sell commodities. At the time we enter into a purchase commitment for feedstock, our goal is to also enter into an off-take arrangement with our customer to purchase the biodiesel at a set price. Commodity Price Risk In our US operations we produce ethanol, distillers grains and corn oil from corn and our business is sensitive to changes in the prices of each of these commodities. The price of corn is subject to fluctuations due to unpredictable factors such as weather; corn planted and harvested acreage; changes in national and global supply and demand; and government programs and policies. We use natural gas in the ethanol production process and, as a result, our business is also sensitive to changes in the price of natural gas. The price of natural gas is influenced by such weather factors as extreme heat or cold in the summer and winter, or other natural events like hurricanes in the spring, summer and fall. Other natural gas price factors include North American exploration and production, and the amount of natural gas in underground storage during both the injection and withdrawal seasons. Ethanol prices are sensitive to world crude-oil supply and demand; crude oil refining capacity and utilization; government regulation; and consumer demand for alternative fuels. Distillers grains prices are sensitive to various demand factors such as numbers of livestock on feed, prices for feed alternatives, and supply factors, primarily production by ethanol plants and other sources. Even though our commodity outputs and input are sensitive to changes in market prices, we only opportunistically pursue fixed contract arrangements on a limited basis with regard to the various commodities used in our business. Ethanol Production A sensitivity analysis has been prepared to estimate our ethanol production exposure to ethanol, corn, distillers grains and natural gas price risk. Market risk related to these factors is estimated as the potential change in net income resulting from hypothetical 10% changes in prices of our expected corn and natural gas inputs, and ethanol and distillers grains outputs for a one-year period from December 31, 2021. The results of this analysis, which may differ from actual results, are as follows (in millions): Commodity (000s) Estimated Total Volume Requirements for the Next 12 Months (1) Unit of Measure Net Income Effect of Approximate 10% Change in Price Ethanol 55.0 Gallons $ 15.7 Corn 19.6 Bushels $ 14.8 Distillers grains 0.4 Tons (2) $ 4.0 Natural gas 1.4 MMBTU (3) $ 0.9 (1) Volume requirements assume production at full capacity. (2) Distillers grains quantities are stated on an equivalent ton basis. (3) Millions of Thermal Units 43 Table of Contents Corn Oil A sensitivity analysis has been prepared to estimate our corn oil production segment exposure to corn oil price risk. Market risk related to these factors is estimated as the potential change in net income resulting from hypothetical 10% changes in prices of our expected corn oil output for a one-year period from December 31, 2021. The corn oil market risk at December 31, 2021, based on the estimated net income effect resulting from a hypothetical 10% change in such prices, was approximately $0.8 million. In our India operations we are subject to market risk with respect to the price and availability of the main raw materials we use to produce our products including refined palm oil, palm stearin, animal fats, waste oils, crude glycerin, and chemicals. Unfavorable commodity margins result from a narrowing or surpassing of the feedstock costs over finish goods sales revenues, which represents an unfavorable market condition. This is especially true when market conditions do not allow us to pass along increased feedstock costs to our customers due to the commodity nature of our finished goods sales. The availability and pricing of feedstock for our biodiesel plant fluctuate with unpredictable factors such as global demand and supply of raw materials, weather conditions, governmental policies toward agriculture and biofuels, and international trade agreements. Interest Rate Risk We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from issuing term loans, revolving loans, and liabilities that bear variable interest rates. Specifically, we had $99.6 million US Dollar denominated outstanding variable interest-rate liabilities as of December 31, 2021. Interest rates on our variable-rate liabilities are determined based upon the market interest rate of the prime rate. A 1% increase in the prime rate would increase our interest cost on such debt by approximately $1.1 million per year in the aggregate. Other details of our outstanding debt are discussed in the notes to the consolidated financial statements included as a part of this report. Foreign Currency Exchange Rate Risk We do expect to have exposure to foreign currency risk as we conduct most of our India business in Indian Rupees. Our India subsidiaries use the Indian Rupee local currency as their functional currency. Our primary exposure with respect to foreign currency exchange rate risk is the change in the Indian Rupee (INR) to US Dollar (USD) exchange rate. For consolidation purposes, assets and liabilities are translated at month-end exchange rates. Items of income and expense are translated at average exchange rates. Translation gains and losses are not included in determining net income (loss), but are accumulated as a separate component of shareholders’ equity. Gains (losses) arising from foreign currency transactions are included in determining net income (loss). For the twelve months ended December 31, 2021, 2020 and 2019, we recognized a loss of $0.2 million, $0.3 million, and $0.2 million, respectively, associated with foreign currency translation adjustments to other comprehensive loss. We prepared a foreign currency exchange rate risk sensitivity analysis to estimate our exposure to currency fluctuations. Using our 2021 Indian subsidiary financials and applying the appropriate actual weighted average or end exchange rate and then incrementing by 10 points each respective INR to USD exchange rate resulted in a $0.2 million impact to Net Income (loss), a $0.1 million change in Total Liabilities, a $1.4 million change in Stockholders’ equity (deficit), and a $1.5 million change in Total Assets in our Indian subsidiary. As of December 31, 2021, we did not have any outstanding material derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. Item 8. Financial Statements and Supplementary Data Financial Statements are listed in the Index to Consolidated Financial Statements on page 48 of this Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.