UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated filer" ” “accelerated filer,” “smaller reporting company,”and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act:Act.

The aggregate market value of the membership units held by non-affiliates of the registrant as of March 31, 20172023 was $35,052,383.$34,969,920.  There is no established public trading market for our membership units.  The aggregate market value was computed by reference to the most recent offering price of our Class A units which was $1 per unit.

 

DOCUMENTS INCORPORATED BY REFERENCE

The registrant has incorporated by reference into Part III of this Annual Report on Form 10-K portions of its definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Annual Report.

INDEX

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

AVAILABLE INFORMATION

PART I

Red Trail Energy, LLC was formed as a North Dakota limited liability company in July of 2003, for the purpose of constructing, owning, and operating a fuel-grade ethanol plant near Richardton, North Dakota in western North Dakota. References to "we," "us," "our" and the "Company" refer to Red Trail Energy, LLC. We began production in January 2007.

Principal Products

The principal products that we produce are ethanol, distillers grains, and corn oil. The table below shows the approximate percentage of our total revenue which is attributed to each of our primary products for each of our last three fiscal years.

In March 2012, we commenced operating our corn oil extraction equipment.equipment to separate corn oil contained in our distillers grains for sale. The corn oil that we are capable of producing is not food grade corn-oil and it cannot be used for human consumption. The primary uses of the corn oil that we produce are for animal feed, industrial uses, and biodiesel production.

Principal Product Markets

We expect our product marketer to explore all markets for our products, including export markets. However, due to high transportation costs, and the fact that we are not located near a major international shipping port, we expect a majority of our products to continue to be marketed and sold domestically.

Distribution Methods

Our ethanol plant is located near Richardton, North Dakota in Stark County, in the western half of North Dakota. We selected the Richardton site because of its proximity to existing coal supplies, the initial fuel source for our ethanol plant, and accessibility to road and rail transportation. Our plant is served by the Burlington Northern and Santa Fe Railway Company.

 

We sell and market the ethanol, distillers grains, and corn oil produced at the plant through normal and established markets, including local, regional, and national markets. Our products are primarily shipped by rail and by truck in our local market. We have separate marketing agreements with RPMG for our ethanol, industrial ethanol, distillers grains, and corn oil. Whether or not our products are sold in local markets will depend on decisions made by RPMG, except for the E85/E30 and the modified distillers grains which we internally market locally. Local markets are evaluated on a case-by-case basis.

 

We have an exclusive marketing agreement with RPMG for the purposes of marketing and distributing all of the ethanol we produce at the ethanol plant. Because we are an owner of RPMG, LLC, our marketing fees are based on RPMG's actual cost to market our ethanol. Our ethanol marketing agreement provides that we can sell our ethanol either through an index arrangement or at a fixed price agreed to between us and RPMG. The term of our ethanol marketing agreement is perpetual, until it is terminated according to the terms of the agreement. The primary reasons the ethanol marketing agreement would terminate are if we cease to be an owner of RPMG, LLC, if there is a breach of the agreement which is not cured, or if we give advance notice to RPMG that we would like to terminate the agreement. Notwithstanding our right to terminate the ethanol marketing agreement, we may be obligated to continue to market our ethanol through RPMG for a period of time after the termination. Further, if the agreement is terminated, following the termination, we have agreed to accept an assignment of certain railcar leases which RPMG has secured to service us. If the ethanol marketing agreement is terminated, it would automatically trigger a redemption of our ownership interest in RPMG, LLC.

On August 29, 2013, we executed a distillers grain marketing agreement with RPMG effective startingwhich started on October 1, 2013. Pursuant to the marketing agreement, RPMG markets all of the dried distillers grains we produce and we will continue to internally market our modified distillers grains. Due to the fact that we are a part owner of RPMG, LLC, RPMG will only charge us its actual cost of marketing our distillers grains to its customers.  The initial term of the marketing agreement was one year and thereafter the agreement renews for additional one year periods unless we elect not to renew the agreement. The agreement may be terminated by either party based on certain events described in the agreement or based on the bankruptcy or insolvency of either party.

We market and sell our modified distillers grains internally.  Substantially all of our sales of modified distillers grains are to local farmers and feed lots.

In March 2012, we executed a corn oil marketing agreement with RPMG to sell all of the corn oil that we produce. We pay RPMG a commission based on each pound of corn oil that RPMG sells on our behalf. The initial term of the corn oil marketing agreement was one year and the agreement automatically renews for additional one year terms unless either party gives notice that it will not extend the agreement past the current term.

New Products and Services

We did not introduce any new products or servicesstarted capturing carbon dioxide during our 20172022 fiscal year. During our 2023 fiscal year, we were able to monetize the carbon capture program through the sale of carbon tons and tax credits.

Sources and Availability of Raw Materials

During our 20172023 fiscal year, we were able to secure sufficient corn to operate the plant andat capacity. We do not anticipate any problems securing enough corn during our 20182024 fiscal year. Almost all of our corn is supplied from farmers and local grain elevators in North Dakota and South Dakota. CornDuring our 2023 fiscal year, corn prices have beenwere lower in recentthan prior years, mainly due to largeincreased corn crops harvested in each ofsupply. On September 12, 2023, the last four years. Further, growing conditions were favorable during 2017 which led toUSDA released a largereport estimating the 2023 corn crop harvested in the fall of 2017. As a result of these largeUnited States at approximately 15.1 billion bushels, up 10% from last year's production, with yields averaging 173.8 bushels per acre. The USDA forecasted area harvested for corn crops, weat 94.9 million acres, up 1% from 2022. We have not had difficulty securing the corn we require for our operations.operations and we anticipate that we will be able to secure the corn we need to operate the ethanol plant during our 2024 fiscal year, although potentially at a higher price. While we do not anticipate encountering problems sourcing corn, a shortage of corn could develop, particularly if we experience an extended drought or other production problemproblems during our 20182024 fiscal year.  Poor weather can be a major factor in increasing corn prices.prices, including the drought experienced during our 2023 fiscal year.  If the United States were to endure an entire growing season with poor weather conditions, it could result in a prolonged period of higher than normal corn prices.  

Corn prices are also impacted by world supply and demand, the price of other commodities, current and anticipated stocks, domestic and export prices and supports, and the government's current and anticipated agricultural policy.  Corn prices have been volatile in the past and volatility could return to the market in the future. While we have experienced several years of very favorable corn crops with relatively flat corn demand which reduced market corn prices, if poor weather conditions lead to a decrease in the amount of corn produced in the future, it could result in corn price volatility and increased corn prices.

Following our natural gas conversion project which was completed during the second quarter of our 2015 fiscal year, we    We use natural gas as the fuel source to power our ethanol plant. We are using natural gas to produce process steam and to dry our distillers grains products. Due to our close proximity to the Bakken oil field which produces a significant amount of natural gas, we anticipate that natural gas prices in our area will remain lower and the cost to transport the natural gas to our ethanol plant will be low.low compared to our competitors. We entered into a natural gas supply agreement with Rainbow Gas Company which provides a supply of natural gas to the ethanol plant. We do not anticipate any difficulty securing the natural gas we require to operate the ethanol plant.

    

The production of ethanol uses significant amounts of electricity. We entered into a contract with Roughrider Electric Cooperative to provide our needed electrical energy. This contract was renewed in August 2017.2019. This contract automatically renews unless either party gives notice of its intent not to renew the agreement.

To meet the plant's water requirements, we entered into a ten-year contract with Southwest Water Authority to purchase raw water. Our contract requires us to purchase a minimum of 160 million gallons of water per year. We anticipate receiving adequate water supplies during our 20182024 fiscal year.

Patents, Trademarks, Licenses, Franchises and Concessions

We do not currently hold any patents, trademarks, franchises, or concessions. We were granted a perpetual and royalty free license by ICM, Inc. ("ICM") to use certain ethanol production technology necessary to operate our ethanol plant. The cost of the license granted by ICM was included in the amount we paid to Fagen, Inc. to design and build the plant.

Seasonality of Sales

We experience some seasonality of demand for our ethanol, distillers grains, and corn oil. Since ethanol is predominantly blended with gasoline for use in automobiles, ethanol demand tends to shift in relation to gasoline demand. As a result, we experience some seasonality of demand for ethanol in the summer months related to increased driving and, as a result, increased gasoline demand. In addition, we experience some increased ethanol demand during holiday seasons related to increased gasoline demand. We also experience decreased distillers grains demand during the summer months due to natural depletion in the number of animals at feed lots and during times when cattle are turned out to pasture. Finally, corn oil is used for biodiesel production which typically decreases in the winter months due to decreased biodiesel demand. This decrease in biodiesel demand leads to decreased corn oil demand during the winter months.

We primarily use our working capital for purchases of raw materials necessary to operate our ethanol plant and for capital expenditures to maintain and upgrade the plant. OurDuring our 2023 fiscal year, our primary sources of working capital arewere cash from our operations as well as our revolving line-of-creditloan with USCornerstone Bank. Management anticipates that we will have sufficient working capital to operate at capacity during our 2018 fiscal year without seeking additional sources of equity or debt financing. However, if we experience unfavorable operating conditions during our 2018 fiscal year, it is possible we may need to secure additional sources of working capital.

    

Dependence on a Few Major Customers

As discussed above, we rely on RPMG for the sale and distribution of all of our ethanol, dried distillers grains and corn oil. Accordingly, we are highly dependent on RPMG for the successful marketing of most of our products. We anticipate that we would be able to secure alternate marketers should RPMG fail, however, a loss of our relationship with RPMG could significantly harm our financial performance.

power with both customers and raw material suppliers. As of October 27, 2017,November 21, 2023, the Renewable Fuels Association ("RFA") estimates that there are 213approximately 197 ethanol production facilities in the United States with capacity to produce approximately 16.1 billion17,787 million gallons

U.S. FUEL ETHANOL PRODUCTION CAPACITY BY TOP PRODUCERS

Producers of Approximately 500

We anticipate increased competition from renewable fuels that do not use corn as the feedstock. Many of the current ethanol production incentives are designed to encourage the production of renewable fuels using raw materials other than corn. One type of ethanol production feedstock that is being explored is cellulose. Cellulose is the main component of plant cell walls and is the most common organic compound on earth. Cellulose is found in wood chips, corn stalks, and rice straw, amongst other common plants. Cellulosic ethanol is ethanol produced from cellulose. If this technology can be profitably employed on a commercial scale, it could potentially lead to ethanol that is less expensive to produce than corn based ethanol. Cellulosic ethanol may also capture more government subsidies and assistance than corn-based ethanol. This could decrease demand for our product or result in competitive disadvantages for our ethanol production process.

A number of automotive, industrial, and power generation manufacturers are developing alternative clean power systems using fuel cells, plug-in hybrids, electric cars, or clean burning gaseous fuels. Electric car technology has recently grown in popularity, especially in urban areas. While in the past there are currentlywere a limited number of vehicle recharging stations, making electric cars not feasible for all consumers, there has been increased focus on developing these recharging stations to makewhich have made electric car technology more widely available in the future.available. Additional competition from these other sources of alternative energy, particularly in the automobile market, could reduce the demand for ethanol, which would negatively impact our profitability.

in excess ethanol supply in the United States. However, as of 2023, Brazil is considering legislation which would require an ethanol-gasoline blend of 30%, an increase of 2.5% over the current blend requirement. We continue to look for opportunities to export ethanol to other countries and open new markets for ethanol produced in the United States.

Competition among ethanol producers may continue to increase as gasoline demand decreases due to more fuel efficient vehicles being produced. If the concentration of ethanol used in most gasoline does not increase and gasoline demand is lower due to increased fuel efficiency by the vehicles operated in the United States, competition may increase among ethanol producers to supply the ethanol market.

Finally, many ethanol producers are increasingincreased their production capacities through expansion projects which are expected to startstarted becoming operational during our 2018 fiscal year. These expansion projects may lead to an excesshave increased the supply of ethanol in the market, which could negatively impactimpacted market ethanol prices.prices and may result in excess ethanol supply in the future. During our 2019 fiscal year, many ethanol producers reduced production or ceased production altogether due to unfavorable operating margins which somewhat offset the additional ethanol production from the 2018 expansion projects. During 2020, the ethanol industry was impacted by decreased gasoline and ethanol demand because of social distancing restrictions implemented because of the COVID-19 pandemic. During our 2021 fiscal year, ethanol demand increased and we experienced much more favorable financial margins. During our 2022 fiscal year, ethanol prices increased, particularly during our first fiscal quarter of 2022, and we experienced favorable financial margins. During our 2023 fiscal year, ethanol prices were down slightly, and we experienced less favorable financial margins compared to our 2022 fiscal year.

Our ethanol plant competes with other ethanol producers in the production and sales of distillers grains. Distillers grains are primarily used as an animal feed which replaces corn and soybean meal. As a result, we believe that distillers grains prices are positively impacted by increases in corn and soybean prices. In addition, in recent years the United States ethanol industry has increased exports of distillers grains which management believes has positively impacted demand and prices for distillers grains in the United States. In the event these distillers grains exports decrease, it could lead to an oversupply of distillers grains in the United States which could result in increased competition among ethanol producers for sales of distillers grains and could negatively impact distillers grains prices in the United States.

The ethanol industry is dependent on several economic incentives to produce ethanol. One significant federal ethanol support is the ethanol use requirement in the Federal Renewable Fuels Standard (the "RFS"). The RFS requires that in each year, a certain amount of renewable fuels must be used in the United States. The RFS is a national program that does not

require that any renewable fuels be used in any particular area or state, allowing refiners to use renewable fuel blends in those areas where it is most cost-effective. The RFS statutory volume requirement increasesincreased incrementally each year until the United States iswas required to use 36 billion gallons of renewable fuels byin 2022. Starting in 2009, the RFS required that a portion of the RFS must be met by certain "advanced" renewable fuels. These advanced renewable fuels include ethanol that is not made from corn, such as cellulosic ethanol and biomass based biodiesel. The use of these advanced renewable fuels increases each year as a percentage of the total renewable fuels required to be used in the United States.

The    Prior to 2023, the EPA hashad the authority to waive the RFS statutory volume requirement, in whole or in part, provided one of the following two conditions have been met: (1) there is inadequate domestic renewable fuel supply; or (2) implementation of the requirement would severely harm the economy or environment of a state, region or the United States. Annually, the EPA iswas required to pass a rule that establishesestablished the number of gallons of different types of renewable fuels that must be used in the United States which is called the renewable volume obligations ("RVO"). Now the EPA has authority to propose the RFS annually as the law creating the RFS only set the statutory volume requirement through 2022.

The statutory RVO for all renewable fuels for 20172018 was 2419.29 billion gallons, of which corn-based ethanol could meet 15 billion gallons of the RVO. However, the EPA rule decreased the total RVO to 19.28 billion gallons and maintained the 15 billion gallon corn-based ethanol limit. On November 30, 2017,2018, the final RVO for 20182019 was set at 19.2919.92 billion gallons and the corn-based ethanol RVO was set at 15 billion gallons.

In late 2009, California passed a Low Carbon Fuels Standard ("LCFS"). The California LCFS requires that renewable fuels used in California must accomplish certain reductions in greenhouse gases which is measured using a lifecycle analysis, similar to the RFS. The LCFS could have a negative impact on demand for corn-based ethanol and result in decreased ethanol prices affecting our ability to operate profitably.

    

Item 1A. Risk Factors

Risks Relating to Our Business

Ethanol production requires substantial amounts of corn. Generally, higher corn prices will produce lower profit margins and, therefore, negatively affect our financial performance. If a period of high corn prices were to be sustained for some time, such pricing may reduce our ability to operate profitably because of the higher cost of operating our plant. We may not be able to offset any increase in the price of corn by increasing the price of our products. If we cannot offset increases in the price of corn, our financial performance may be negatively affected.

Risks Related to the Ethanol Industry

Our ethanol plant is located just east of the city limits of Richardton, North Dakota, and just north and east of the entrance/exit ramps to Interstate I-94. The plant complex is situated inside a footprint of approximately 25 acres of land which is part of an approximately 135 acre parcel.  We acquired ownership of the land in 2004 and 2005. Included in the immediate campus area

year, we purchased an additional approximately 110 acres of land that is adjacent to our current property. During our 2017 fiscal year, we purchased approximately 338 acres of land which we will use as part of our rail yard allowing us to ship larger trains.

 

The site also contains improvements such as rail tracks and a rail spur, landscaping, drainage systems and paved access roads.  The ethanol plant was placed in service in January 2007, and is in excellent condition and is capable of functioning at 100 percentin excess of its 50 million gallon name-plate production capacity.

ITEM 3.    LEGAL PROCEEDINGS

From time to time in the ordinary course of business, we may be named as a defendant in legal proceedings related to various issues, including without limitation, workers' compensation claims, tort claims, or contractual disputes. We are not currently involved in any material legal proceedings.

ITEM 4.    MINE SAFETY DISCLOSURES

PART II

There is no established trading market for our membership units.  We have engaged FNC Ag Stock, LLC to create a Qualified Matching Service ("QMS") in order to facilitate trading of our units.  The QMS consists of an electronic bulletin board that provides information to prospective sellers and buyers of our units.  Please see the table below for information on the prices of units transferred in transactions completed via the QMS.  We do not become involved in any purchase or sale negotiations arising from the QMS and we take no position as to whether the average price or the price of any particular sale is an accurate measure of the value of our units.  As a limited liability company, we are required to restrict the transfers of our membership units in order to preserve our partnership tax status.  Our membership units may not be traded on any established securities market or readily traded on a secondary market (or the substantial equivalent thereof).  All transfers are subject to a determination that the transfer will not cause the Company to be deemed a publicly traded partnership.

We have no role in effecting the transactions beyond approval, as required under our Operating Agreement and the issuance of new certificates. So long as we remain a publicly reporting company, information about us will be publicly available through the SEC's EDGAR filing system.  However, if at any time we cease to be a publicly reporting company, we may continue to make information about us publicly available on our website.

As of December 15, 2017,29, 2023, there were 930937 holders of record of our Class A membership units.

Issuer Purchases of $4,014,895 during our 2016 fiscal year and made a distribution of $0.12 per unit during our 2017 fiscal year for a total distribution of $4,977,453. Distributions are payable at the discretion of our board, subject to the provisions of the North Dakota Limited Liability Company Act and our Member Control Agreement. A unit holder's distribution is determined based on their pro-rata ownership interest in the Company, by dividing the number of units owned by such unit holder by the total number of units outstanding.Equity Securities

PERFORMANCE GRAPH

The following graph shows a comparisonbelow matches the cumulative 5-Year total return of holders of Red Trail Energy, LLC's membership units with the cumulative total member return since September 30, 2012, calculated on a dividend reinvested basis, for the Company,returns of the NASDAQ Composite Index (the "NASDAQ Market Index")index and an indexa customized peer group of othereighteen companies that have the same SIC code as the Company (the "SIC Code Index").includes: Aemetis Inc., Amyris Inc., Benchmark Energy Corp, Celanese Corp, Cleantech Biofuels Inc., Data443 Risk Mitigation Inc., Glyeco Inc., Green Plains Inc., Greenbelt Resources Corp, Methes Energies International Ltd, New America Energy Corp, Newmarket Corp, Pacific Ethanol Inc., Rayonier Advanced Materials Inc., Renewable Energy Group Inc., Rex American Resources Corp, Sino United Worldwide Consolidated Ltd and Westlake Chemical Partners LP. The graph assumes $100 was investedthat the value of the investment in our common membership units, in each index, and in the peer group (including reinvestment of our units, the NASDAQ Market Index, and the SIC Code Indexdividends) was $100 on September 30, 2012. Data points on the graph are annual. Note that historic unit price performance is not necessarily indicative of future unit price performance.2018 and tracks it through September 30, 2023.

ItemITEM 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table shows the results of our operations and the percentages of revenues, cost of goods sold, general and administrative expenses and other items to total revenues in our statements of operations for the years ended September 30, 20172023 and 2016:2022:

    

For our 20172023 fiscal year, ethanol sales comprised approximately 82%76.0% of our revenues,revenues; distillers grains sales comprised approximately 14%18.2% of our revenuesrevenues; and corn oil sales comprised approximately 4%5.5% of our revenues. For our 20162022 fiscal year,

We sold approximately 3% more2% fewer gallons of ethanol during our 20172023 fiscal year compared to our 20162022 fiscal year due to increasedreduced ethanol production.production during the 2023 period. Our ethanol production was less during our 2023 fiscal year compared to our 2022 fiscal year due to reduced corn to ethanol conversion efficiency during our 2023 fiscal year. Management anticipates thatconsistent ethanol production during our 2024 fiscal year compared to our 2023 fiscal provided we will continue to produce and sell more ethanol due to this increased production capacity at the plant. However, if operating margins in the ethanol industry are reduced, we may reduce production in order to improve our operating efficiency and maximize the amount of ethanol we can produce per bushel of corn used.do not experience any unexpected plant shutdowns or slowdowns.

We experienced a gain of approximately $306,000 in$22,000 related to our ethanol derivative instruments andduring our 2023 fiscal year which increased our revenue. We experienced a gain of approximately $71,000 in our soybean oil derivative instruments which both increased our revenue during our 2017 fiscal year. We experienced a loss of approximately $124,000 in$454,000 related to our ethanol derivative instruments and a loss of approximately $30 in our soybean oil derivative instruments during our 20162022 fiscal year which both decreasedincreased our revenue.

The average price we received for our dried distillers grains during our 20172023 fiscal year was approximately 16%3% less per ton than the average price we received during our 20162022 fiscal year primarily due to a weakerlower average corn prices during our 2023 fiscal year which typically impacts distillers grains export market. Distillers grains exports were lower due to a lack of distillers grains demand from China and Vietnam during our 2017 fiscal year.prices. The average price we received from our modified distillers grains during our 20172023 fiscal year was approximately 19% less1% higher compared to our 20162022 fiscal year due to decreasedstronger local demand for distillers grains demand.partially offset by lower corn prices. Our modified distillers grains are primarily sold in our local market. Management anticipates that distillers grains prices will remain lowerbe comparable during our 20182024 fiscal year unless China resumes importing a significant amount ofto our 2023 fiscal year due to anticipated consistent distillers grains. Recently, Vietnam restated imports of U.S.grain demand and comparable corn prices. Further, the United States experienced strong distillers grains export demand during 2023 which has positively impactedmay not continue. Without these distillers grains demand, however, exports, to Vietnam are not significant enough to completely offset the loss of the Chinese market. Without additional export demand for distillers grains management believes that local supplies of distillers grains will remain higher, further decreasing domestic prices.prices may be reduced during our 2024 fiscal year.

The average price we received for our corn oil was approximately 8% greater6.1% less during our 20172023 fiscal year compared to our 20162022 fiscal year primarily due to higherlower corn prices and increased oil supplies in the market which both negatively impacted market corn oil demand. Cornprices. The biodiesel blenders' tax credit was set to expire on December 31, 2022. However, the Inflation Reduction Act extended the biodiesel blenders' tax credit until December 31, 2024 which management believes will support corn oil demand was greater duringprices through our 20172024 fiscal year due to increased feed and biodiesel demand for corn oil. However, corn oil demand from the biodiesel industry has been volatile, and may continue to be volatile depending on whetherfirst quarter of our 2025 fiscal year. If the biodiesel blenders' credit is reinstated for 2018.expires in the future, we anticipate that corn oil demand will be lower.

    

Our cost of goods sold is primarily made up of corn and energy expenses. Our total cost of goods sold was approximately 5% greaterlower for our 20172023 fiscal year compared to our 20162022 fiscal year due primarily to higherlower corn and natural gas costs during our 20172023 fiscal year.

Corn Costs

corn derivative instruments during our 20162022 fiscal year which decreased our cost of goods sold. We recognize the gains or losses that result from the changes in the value of our derivative instruments from corn in cost of goods sold as the changes occur.  As corn prices fluctuate, the value of our derivative instruments is impacted, which affects our financial performance.

Our total natural gas costs to operate the ethanol plant were greaterlower for our 20172023 fiscal year compared to our 20162022 fiscal year due primarily to higher averagedecreased natural gas costs per MMBtu of natural gas we consumed, partially offset by less volume ofincreased natural gas usedconsumption during the 20172023 period. Our average cost per MMBtu of natural gas was approximately 16% greater25.4% lower during our 20172023 fiscal year compared to our 20162022 fiscal year. Management believes this increasedecrease in natural gas costs during our 20172023 fiscal year was due to increasedlower energy prices generally along with a shift in the supply and demand balance for natural gas during 2017. In addition, we consumedour 2023 fiscal year. We used approximately 4% less2.0% more MMBtu of natural gas during our 20172023 fiscal year compared to our 20162022 fiscal year due to increased dried distiller grains production of modified distillers grains compared to dried distillers grains. Modified distillers grains require less drying and therefore lessat the ethanol plant which uses more natural gas to produce compared to dried distillers grains.gas. Management expects that the natural gas prices will remain at current levelslower during our 20182024 fiscal year unless we experience supply disruptions during 2018, including as a colder than average winter which could result of hurricane activity in the Gulf of Mexico which negatively impacts natural gas production.price spikes which could negatively impact delivered natural gas costs, particularly during the winter months.

Our general and administrative expense was comparablehigher during our 20172023 fiscal year than our 2022 fiscal year due to an increase in professional fees and permitting expenses related to our 2016 fiscal year.Carbon Capture and Store and USP ethanol projects during the 2023 period.

We had more interest income during our 20172023 fiscal year compared to our 20162022 fiscal year due to having more cash on hand during the 20172023 period along with higher interest rates during the 2023 period. Our interest expenseother income was lowerless during our 20172023 fiscal year compared to our 20162022 fiscal year. During our 2022 fiscal year, we had partial forgiveness of our Ethanol Recovery Loan and the receipt of a USDA Biofuels Producers Relief Payment which resulted in higher other income during the 2022 fiscal year. We had more interest expense during our 2023 fiscal year compared to our 2022 fiscal year due to having lessmore borrowing during the 2017 period. Our other income was significantlyon our loans and higher duringinterest rates on our 2017 fiscal year compared to our 2016 fiscal year due to insurance proceeds we received this fiscal year for hail damage.outstanding loans.

Results of Operations for the YearYears Ended September 30, 20162022 and 20152021

The following table shows the results of our operations and the percentages of revenues, cost of goods sold, general and administrative expenses, and other items to total revenues in our statements of operations for the years ended September 30, 20162022 and 2015:2021

    

The following table shows additional data regarding production and price levels for our primary inputs and products for the years ended September 30, 20162022 and 2015.2021:

Corn Costs

cost per MMBtu of natural gas was approximately 121.3% higher during our 2022 fiscal year compared to our 2021 fiscal year. Natural gas exports to Europe, due in part to the lower cost of usingwar in Ukraine, impacted domestic natural gas asprices. We used approximately 24.6% more MMBtu of natural gas during our 2022 fiscal year compared to our 2021 fiscal year due to increased overall production at the fuel source to operate our ethanol plant.plant along with the fact that we produced more dried distillers grains which uses more natural gas.

Our general and administrative expense was slightly lowerhigher during our 20162022 fiscal year compared toand our 20152021 fiscal year due primarily to fewer office equipment repairs neededan increase in professional fees and fewer legal fees paid in 2016.permitting expenses related to our CCS and USP projects during the 2022 period.

Management uses estimates and assumptions in preparing our financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the

disclosure of contingent assets and liabilities, and the reported revenues and expenses. Of the significant accounting policies described in the notes to our financial statements, we believe that the following are the most critical.

Corn is the primary raw material and, along with other raw materials and supplies, is stated at the lower of cost or marketnet realizable value on a first-in, first-out (FIFO) basis.  Work in process and finished goods, which consists of ethanol, distillers grains, and corn oil produced, is stated at the lower of average cost or market.net realizable value.  Spare parts inventory is valued at lower of cost or marketnet realizable value on a FIFO basis.

    

The Company sells ethanol and related products pursuant to marketing agreements. RevenuesThe Company recognizes revenue from sales of ethanol and co-products at the point in time when the performance obligations in the contract are recognizedmet, which is when the customer has taken title, whichobtains control of such products and typically occurs whenupon shipment depending on the terms of the underlying contracts. Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing services. In some instances, the Company enters into contracts with customers that contain multiple performance obligations to deliver volumes of co-products over a contractual period of less than 12 months. The Company allocates the transaction price to each performance obligation identified in the contract based on relative standalone selling prices and recognizes the related revenue as control of each individual product is shipped, has assumedtransferred to the risks and rewardscustomer in satisfaction of ownership, prices are fixed or determinable and collectability is reasonably assured.the corresponding performance obligation. Revenues are shown net of any fees incurred under the terms of the Company's agreements for the marketing and sale of ethanol and related products.

Property, plant, and equipment are stated at cost. Depreciation is provided over estimated useful lives by use of the straight line method. Maintenance and repairs are expensed as incurred. Major improvements and betterments are capitalized. The present values of capitalfinance lease obligations are classified as long-term debt and the related assets are included in property, plant and equipment. Amortization of equipment under capitalfinance leases is included in depreciation expense. Management does not believe it is reasonably likely that the valuation of its property, plant and equipment will change in any material manner in future estimates.

Liquidity and Capital Resources

Based on financial forecasts performed by our management, we anticipate that we will have sufficient cash from our currentexpected credit facilities and cash from our operations to continue to operate the ethanol plant for the next 12 months. Should we experience unfavorable operating conditions in the future, we may have to secure additional debt or equity sources for working capital or other purposes. We do not have any planned capital projects for which we anticipate requiring additional borrowing.