What changed in this filing

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Item 1A. Risk Factors

2021-05-04 compared with 2020-11-06 · 83 added, 58 removed, 6 unchanged (96% of the section changed)

5 unchanged sentences

The following risk factors supplement and/or update risk factors previously disclosed and should be considered in conjunction with the other information included in, or incorporated by reference in, this quarterly report on Form 10-Q.

Our business continues to be adversely impacted by the COVID-19 outbreak.

The outbreak of the coronavirus, or COVID-19, which has been declared by the World Health Organization to be a pandemic, has spread across the globe and continues to impact worldwide economic activity.

COVID-19 poses a risk on all aspects of our business, including how it will impact our employees, customers, vendors, and business partners.

We are unable to predict the impact that COVID-19 will have on our future financial position and operating results, due to numerous uncertainties.

These uncertainties include, but are not limited to:

 the severity of the virus;

 the duration of the outbreak;

 federal, state or local governmental regulations or other actions which could include limitations on our operations;

 the effect on customer demand resulting in a decline in the demand for our products;

 impacts on our supply chain and potential limitations of supply of our feedstocks;

 interruptions of our distribution systems and delays in the delivery of our products;

 the closure or extended shutdown of one or more major cattle packing plants, leading to depressed cattle prices or the inability in extreme cases to process such cattle;

 the health of our workforce, and our ability to meet staffing needs which is vital to our operations;

 volatility in the credit and financial markets.

The COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in the energy industry.

We are unable to predict the overall impact these events will have on our future financial position and operations.

We continue to actively manage our response in collaboration with customers, government officials, team members and business partners and assessing potential impacts to our future financial position and operating results, as well as adverse developments in our business.

It is not possible for us to predict whether there will be additional government-mandated shelter-in-place and similar government orders that could affect our business, how long the existing orders will remain in place, and how these measures will impact our operations.

The ability or willingness of OPEC and other oil exporting nations to set and maintain production levels has a significant impact on oil and natural gas commodity prices.

The Organization of Petroleum Exporting Countries and their allies (collectively, OPEC+), is an intergovernmental organization that seeks to manage the price and supply of oil on the global energy market.

Actions taken by OPEC+ members, including those taken alongside other oil exporting nations, have a significant impact on global oil supply and pricing.

For example, OPEC+ and certain other oil exporting nations have previously agreed to take measures, including production cuts, to support crude oil prices.

In March 2020, members of OPEC+ considered extending and potentially increasing these oil production cuts, however these negotiations were unsuccessful.

As a result, Saudi Arabia announced an immediate reduction in export prices and Russia announced that all previously agreed oil production cuts will expire on April 1, 2020.

These actions led to an immediate and steep decrease in oil prices.

There can be no assurance that OPEC+ members and other oil exporting nations will agree to future production cuts or other actions to support and stabilize oil prices, nor can there be any assurance that they will not further reduce oil prices or increase production.

Uncertainty regarding future actions to be taken by OPEC+ members or other oil exporting countries could lead to increased volatility in the price of oil, which could adversely affect our business, future financial condition and results of operations.

Future demand for ethanol is uncertain and changes in federal mandates, public perception, consumer acceptance and overall consumer demand for transportation fuel could affect demand.

While many trade groups, academics and government agencies support ethanol as a fuel additive that promotes a cleaner environment, others claim ethanol production consumes considerably more energy, emits more greenhouse gases than other fuels and depletes water resources.

While we do not agree, some studies suggest ethanol produced from corn is less efficient than ethanol produced from switch grass or wheat grain.

Others claim corn-based ethanol negatively impacts consumers by causing the prices of meat and other food derived from corn-consuming livestock to increase.

Ethanol critics also contend the industry redirects corn supplies from international food markets to domestic fuel markets, and contributes to land use change domestically and abroad.

There are limited markets for ethanol beyond the federal mandates.

We believe further consumer acceptance of E15 and E85 fuels may be necessary before ethanol can achieve significant market share growth.

Discretionary and E85 blending are important secondary markets.

Discretionary blending is often determined by the price of ethanol relative to gasoline, and availability to consumers.

When discretionary blending is financially unattractive, the demand for ethanol may be reduced.

Demand for ethanol is also affected by overall demand for transportation fuel, which is affected by cost, number of miles traveled and vehicle fuel economy.

Miles traveled typically increases during the spring and summer months related to vacation travel, followed closely behind the fall season due to holiday travel.

Global events, such as COVID-19, have greatly decreased miles traveled and in turn, the demand for ethanol.

Consumer demand for gasoline may be impacted by emerging transportation trends, such as electric vehicles or ride sharing.

Additionally, factors such as over-supply of ethanol, which has been the case for some time, could continue to negatively impact our business.

Reduced demand for ethanol may depress the value of our products, erode its margins, and reduce our ability to generate revenue or operate profitably.

Our insurance policies do not cover all losses, costs or liabilities that we may experience, and insurance companies that currently insure companies in the energy industry may cease to do so or substantially increase premiums.

We are insured under property, liability and business interruption policies, subject to the deductibles and limits under those policies.

We have acquired insurance that we believe to be adequate to prevent loss from material foreseeable risks.

However, events may occur for which no insurance is available or for which insurance is not available on terms that are acceptable.

Loss from an event, such as, but not limited to war, riots, pandemics, terrorism or other risks, may not be insured and such a loss may have a material adverse effect on our operations, cash flows and financial position.

Certain of our ethanol production plants and our related storage tanks, as well as certain of our fuel terminal facilities are located within recognized seismic and flood zones.

We believe that the design of these facilities have been modified to fortify them to meet structural requirements for those regions of the country.

We have also obtained additional insurance coverage specific to earthquake and flood risks for the applicable plants and fuel terminals.

However, there is no assurance that any such facility would remain in operation if a seismic or flood event were to occur.

Additionally, our ability to obtain and maintain adequate insurance may be adversely affected by conditions in the insurance market over which we have no control.

In addition, if we experience insurable events, our annual premiums could increase further or insurance may not be available at all.

If significant changes in the number or financial solvency of insurance underwriters for the ethanol industry occur, we may be unable to obtain and maintain adequate insurance at a

reasonable cost.

We cannot assure our unitholders that we will be able to renew our insurance coverage on acceptable terms, if at all, or that we will be able to arrange for adequate alternative coverage in the event of non-renewal.

The occurrence of an event that is not fully covered by insurance, the failure by one or more insurers to honor its commitments for an insured event or the loss of insurance coverage could have a material adverse effect on our financial condition, results of operations, cash flows and ability of the partnership to make distributions to its unitholders.

Our margins are dependent on managing the spread between the price of corn, natural gas, ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil .

Our operating results are highly sensitive to the spread between the corn and natural gas we purchase, and the ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil we sell.

Price and supply are subject to various market forces, such as weather, domestic and global demand, shortages, export prices, crude oil prices, currency valuations and government policies in the United States and around the world, over which we have no control.

Price volatility of these commodities may cause our operating results to fluctuate substantially.

Increases in corn or natural gas prices or decreases in ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil prices may make it unprofitable to operate.

No assurance can be given that we will purchase corn and natural gas or sell ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil at or near prices which would provide us with positive margins.

Consequently, our results of operations and financial position may be adversely affected by increases in corn or natural gas prices or decreases in ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil prices.

We continuously monitor the margins at our ethanol plants using a variety of risk management tools and hedging strategies, when appropriate.

In recent years, the spread between ethanol and corn prices has fluctuated widely, narrowed significantly and been negative at times.

Fluctuations are likely to continue.

A sustained narrow spread or further reduction in the spread between ethanol and corn prices as a result of increased corn prices or decreased ethanol prices, would adversely affect our results of operations and financial position.

Should our combined revenue from ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil fall below our cost of production, we could decide to slow or suspend production at some or all of our ethanol plants, which also could adversely affect our results of operations and financial position.

The commodities we buy and sell are subject to price volatility and uncertainty.

Our operating results are highly sensitive to commodity prices.

We are generally unable to pass increased corn costs to our customers since ethanol competes with other fuels.

We have seen considerable price volatility in corn prices not experienced in recent years.

At certain corn prices, ethanol may be uneconomical to produce.

Ethanol plants, livestock industries and other corn-consuming enterprises put significant price pressure on local corn markets.

In addition, local corn supplies and prices could be adversely affected by prices for alternative crops, increasing input costs, changes in government policies, shifts in global markets, supply or demand, or damaging growing conditions, such as plant disease or adverse weather, including drought.

Our revenues are dependent on market prices for ethanol which can be volatile as a result of a number of factors, including:

the price and availability of competing fuels;

the overall supply and demand for ethanol and corn;

the price of gasoline, crude oil and corn;

and government policies.

Ethanol is marketed as a fuel additive that reduces vehicle emissions, an economical source of octanes and, to a lesser extent, a gasoline substitute.

Consequently, gasoline supply and demand affect the price of ethanol.

Should gasoline prices or demand decrease significantly, our results of operations could be materially impacted.

Ethanol imports also affect domestic supply and demand.

Imported ethanol is not subject to an import tariff and, under the RFS II, sugarcane ethanol from Brazil is one of the most economical means for obligated parties to meet the advanced biofuel standard.

Industrial-grade alcohol is produced by further distillation processing of the 200-proof alcohol.

Further distillation removes impurities from fuel-grade ethanol to allow for production of industrial-grade alcohol which can be used as an ingredient for sanitation products.

Should industrial-grade alcohol prices or demand decrease significantly, our results of operations could be negatively impacted.

Distillers Grains.

Increased U.S.

dry mill ethanol production has resulted in increased distillers grains production.

Should this trend continue, distillers grains prices could fall unless demand increases or other market sources are found.

The price of distillers grains has historically been correlated with the price of corn.

Occasionally, the price of distillers grains will lag behind fluctuations in corn or other feedstock prices, lowering our cost recovery percentage.

Additionally, exports of distiller grains could be impacted by the enactment of foreign policy.

Distillers grains compete with other protein-based animal feed products.

Downward pressure on other commodity prices, such as corn and soybeans, will generally cause the price of competing animal feed products to decline, resulting in downward pressure on the price of distillers grains.

The price and availability of natural gas are subject to volatile market conditions.

These market conditions are often affected by factors beyond our control, such as weather, drilling economics, overall economic conditions and government regulations.

Significant disruptions in natural gas supply could impair our ability to produce ethanol.

Furthermore, increases in natural gas price or changes in our cost relative to our competitors cannot be passed on to our customers which may adversely affect our results of operations and financial position.

Industrial corn oil is generally marketed as a renewable diesel and biodiesel feedstock;

therefore, the price of corn oil is affected by demand for renewable diesel and biodiesel.

Expanded profitability in the renewable diesel and biodiesel industry due to the extended blending tax credit and low carbon fuels standards could impact corn oil demand.

In general, corn oil prices follow the prices of heating oil and soybean oil.

Decreases in the price of corn oil could have an unfavorable impact on our business.

Business disruptions due to unforeseen operational failures or factors outside of our control could impact our ability to fulfill contractual obligations.

Natural disasters, pandemics, transportation issues, significant track damage resulting from a train derailment or strikes by our transportation providers could delay shipments of raw materials to our plants or deliveries of ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil to our customers.

If we are unable to meet customer demand or contract delivery requirements due to stalled operations caused by business disruptions, we could potentially lose customers.

Shifts in global markets, supply or demand changes, as well as adverse weather conditions, such as inadequate or excessive amounts of rain during the growing season, overly wet conditions, an early freeze or snowy weather during harvest could impact the supply of corn that is needed to produce ethanol.

Corn stored in an open pile may be damaged by rain or warm weather before the corn is dried, shipped or moved into a storage structure.

Government mandates affecting ethanol could change and impact the ethanol market.

Under the provisions of the Energy Independence and Security Act (EISA), Congress expanded the Renewable Fuel Standard (RFS II).

The RFS II mandated the minimum volume of renewable fuels that must be blended into the transportation fuel supply which affects the domestic market for ethanol and each year, the Environmental Protection Agency (EPA) undertakes rulemaking to set the Renewable Volume Obligation (RVO) for the following year.

Further, the EPA has the authority to waive the requirements, in whole or in part, if there is inadequate domestic renewable fuel supply or the requirement severely harms the economy or the environment.

After 2022, volumes shall be determined by the EPA in coordination with the Secretaries of Energy and Agriculture, taking into account such factors as impact on environment, energy security, future rates of production, cost to consumers, infrastructure, and other factors such as impact on commodity

prices, job creation, rural economic development, or impact on food prices.

However, on December 19, 2019, the EPA announced it would not be moving forward with a reset rulemaking in 2020.

It is unclear when or if they will propose a reset rulemaking.

Volumes can also be impacted as small refineries can petition the EPA for a SRE which, if approved, waives their portion of the annual RVO requirements.

The EPA, through consultation with the DOE and the USDA can grant them a full or partial waiver, or deny it outright within 90 days of submittal.

A small refinery is defined as one that processes fewer than 75,000 barrels of petroleum per day.

Our operations could be adversely impacted by legislation, administration actions, EPA actions, or lawsuits, that may reduce the RFS II mandated volumes of conventional ethanol and other biofuels through the annual RVO, the 2022 reset rulemaking, EPA E15 or other rulemaking, the point of obligation for blending, or small refinery exemptions.

A number of lawsuits are pending involving the RVO, the point of obligation, E15 and small refinery exemptions.

Similarly, should federal mandates regarding oxygenated gasoline be repealed, the market for domestic ethanol could be adversely impacted.

Economic incentives to blend based on the relative value of gasoline versus ethanol, taking into consideration the octane value of ethanol, environmental requirements and the RFS II mandate, may affect future demand.

A significant increase in supply beyond the RFS II mandate could have an adverse impact on ethanol prices.

Moreover, changes to RFS II could negatively impact the price of ethanol or cause imported sugarcane ethanol to become more economical than domestic ethanol.

Likewise state and regional low carbon fuel standards (LCFS) like that of California could be favorable or harmful to conventional ethanol, depending on how it is crafted.

Future demand may be influenced by economic incentives to blend based on the relative value of gasoline versus ethanol, taking into consideration the octane value of ethanol, environmental requirements and the value of RFS II credits or Renewable Identification Numbers (RINs).

A significant increase in supply beyond the RFS II mandate could have an adverse impact on ethanol prices.

Moreover, any changes to RFS II, whether by legislation, EPA action or lawsuit, originating from issues associated with the market price of RINs could negatively impact the demand for ethanol, discretionary blending of ethanol and/or the price of ethanol.

Recent actions by the EPA to grant small refiner exemptions without accounting for the lost gallons has resulted in lower RIN prices.

Flexible-fuel vehicles (FFVs), which are designed to run on a mixture of fuels, including higher blends of ethanol such as E85, receive preferential treatment to meet corporate average fuel economy (CAFE) standards in the form of CAFE credits.

There are approximately 21 million FFVs on the road in the U.S.

today, 16 million of which are light duty trucks.

FFV credits have been decreasing since 2014 and will be completely phased out in 2020.

Absent CAFE preferences, auto manufacturers may not be willing to build flexible-fuel vehicles, which has the potential to slow the growth of E85 markets.

To the extent federal or state laws or regulations are modified and/or enacted, it may result in the demand for ethanol being reduced, which could negatively and materially affect our financial performance.

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 1A. Risk Factors