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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
xQuarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.1934
For the quarterly period ended DecemberMarch 31, 20172022
OR
oTransition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.1934
For the transition period from               to               .
COMMISSION FILE NUMBER Commission File Number:000-52033
 
RED TRAIL ENERGY, LLC
(Exact name of registrant as specified in its charter)
 
North Dakota76-0742311
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer Identification No.)
3682 Highway 8 South, P.O. Box 11, Richardton, ND 58652
(Address of principal executive offices)
(701) 974-3308
(Registrant's telephone number, including area code)
3682 Highway 8 South, P.O. Box 11, Richardton, ND 58652
Indicate by check mark whether the registrant (1) has filed all reports required(Address of principal executive offices)

(701) 974-3308
(Registrant's telephone number, including area code)

Securities registered pursuant to be filed by Section 13 or 15(d)12(b) 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.Act:
x Yes     o No
Title of each classTrading Symbol(s)Name of each exchange on which registered

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.
YesNo
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).
x Yes     o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
YesNo


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 accelerated filer," "accelerated filer"filer," "smaller reporting company" and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act:
Act.
Large Accelerated Filer oAccelerated Filero
Non-Accelerated FilerxSmaller Reporting Company
Large Accelerated Filer o
Accelerated Filer  o
Non-Accelerated Filer x
Smaller Reporting Company o
Emerging Growth Companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes x No


Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 


As of February 14, 2018,May 16, 2022, there were 41,466,34040,148,160 Class A Membership Units outstanding.

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INDEX


Page Number



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PART II.        FINANCIAL INFORMATION


Item 1. Financial Statements


RED TRAIL ENERGY, LLC
Condensed Balance Sheets


 ASSETSMarch 31, 2022September 30, 2021
 (Unaudited)
Current Assets
Cash and equivalents$6,894,249 $508,521 
Restricted cash - margin account3,251,832 4,706,723 
Accounts receivable, net, primarily related party4,718,900 1,468,521 
Inventory16,033,803 11,546,842 
Prepaid expenses764,521 466,036 
Total current assets31,663,305 18,696,643 
Property, Plant and Equipment
Land1,333,681 1,333,681 
Land improvements4,465,311 4,465,311 
Buildings10,051,817 9,581,778 
Plant and equipment100,304,819 91,666,322 
Construction in progress32,756,492 29,154,711 
148,912,120 136,201,803 
Less accumulated depreciation75,087,161 72,777,271 
Net property, plant and equipment73,824,959 63,424,532 
Other Assets
Right of use operating lease assets, net612,247 762,847 
Investment in RPMG605,000 605,000 
Patronage equity4,924,123 4,924,123 
Deposits40,000 40,000 
Total other assets6,181,370 6,331,970 
Total Assets$111,669,634 $88,453,145 
 ASSETS December 31, 2017 September 30, 2017

  (Unaudited) 
Current Assets 
 
Cash and equivalents $11,293,024
 $3,223,342
Restricted cash - margin account 5,683,142
 5,906,666
Accounts receivable, primarily related party 3,039,006
 4,059,227
Other receivables 15,474
 8,764
Inventory 15,879,209
 16,413,742
Prepaid expenses 279,968
 33,364
Total current assets 36,189,823
 29,645,105

 
 
Property, Plant and Equipment 
 
Land 1,342,381
 1,342,381
Land improvements 4,266,953
 4,266,953
Buildings 8,036,031
 8,036,031
Plant and equipment 86,987,706
 86,460,902
Construction in progress 133,995
 628,454

 100,767,066
 100,734,721
Less accumulated depreciation 54,766,673
 53,592,985
Net property, plant and equipment 46,000,393
 47,141,736

 
 
Other Assets 
 
Investment in RPMG 605,000
 605,000
Patronage equity 3,270,279
 3,270,279
Deposits 40,000
 40,000
Total other assets 3,915,279
 3,915,279

 
 
Total Assets $86,105,495
 $80,702,120


Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.

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RED TRAIL ENERGY, LLC
Condensed Balance Sheets


LIABILITIES AND MEMBERS' EQUITYMarch 31, 2022September 30, 2021
 (Unaudited)
Current Liabilities
Disbursements in excess of bank balances$— $1,343,608 
Accounts payable4,637,846 10,099,876 
Accrued expenses1,505,855 1,435,117 
Commodities derivative instruments, at fair value (see note 4)163,250 — 
Accrued loss on firm purchase commitments (see notes 5 and 9)980,000 184,000 
Customer deposits2,104 11,008 
Current maturities of notes payable18,737,535 723,775 
Current portion of operating lease liabilities397,546 372,986 
Total current liabilities26,424,136 14,170,370 
Long-Term Liabilities
Notes payable849,644 3,898,239 
Long-term operating lease liabilities214,701 389,861 
Total long-term liabilities1,064,345 4,288,100 
Commitments and Contingencies (Notes 5, 6, 8 and 9)
Members’ Equity 40,148,160 Class A Membership Units issued and outstanding84,181,153 69,994,675 
Total Liabilities and Members’ Equity$111,669,634 $88,453,145 
LIABILITIES AND MEMBERS' EQUITY December 31, 2017 September 30, 2017

  (Unaudited) 
Current Liabilities 
 
Accounts payable $3,585,115
 $2,409,171
Accrued expenses 9,531,874
 3,670,338
Commodities derivative instruments, at fair value (see note 2) 1,276,525
 933,312
Accrued loss on firm purchase commitments (see note 7) 13,000
 5,000
Current maturities of notes payable 2,622
 2,617
Total current liabilities 14,409,136
 7,020,438

 
 
Long-Term Liabilities 
 
Notes payable 2,264
 2,921

 
 
Members’ Equity (41,466,340 as of December 31, 2017 and September 30, 2017, respectively, of Class A Membership Units issued and outstanding) 71,694,095
 73,678,761
     
Total Liabilities and Members’ Equity $86,105,495
 $80,702,120


Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.

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RED TRAIL ENERGY, LLC
Condensed Statements of Operations (Unaudited)


Three Months EndedThree Months EndedSix Months EndedSix Months Ended
March 31, 2022March 31, 2021March 31, 2022March 31, 2021

Three Months Ended Three Months Ended(Restated)(Restated)

December 31, 2017 December 31, 2016(Unaudited)(Unaudited)(Unaudited)(Unaudited)
Revenues, primarily related party$26,122,856
 $30,004,460
Revenues, primarily related party$51,677,779 $34,264,089 $112,504,976 $61,821,644 


 
Cost of Goods Sold
 
Cost of Goods Sold
Cost of goods sold27,743,282
 27,127,930
Cost of goods sold46,002,623 28,138,486 88,820,405 51,778,912 
Lower of cost or market inventory adjustment70,979
 
Lower of cost or net realizable value adjustmentLower of cost or net realizable value adjustment— — — 263,777 
Loss on firm purchase commitments8,000
 
Loss on firm purchase commitments596,000 — 796,000 — 
Total Cost of Goods Sold27,822,261
 27,127,930
Total Cost of Goods Sold46,598,623 28,138,486 89,616,405 52,042,689 


 
Gross Profit (Loss)(1,699,405) 2,876,530
Gross ProfitGross Profit5,079,156 6,125,603 22,888,571 9,778,955 


 
General and Administrative Expenses715,911
 690,934
General and Administrative Expenses659,859 714,511 1,757,039 1,459,955 


 
Operating Income (Loss)(2,415,316) 2,185,596
Operating IncomeOperating Income4,419,297 5,411,092 21,131,532 8,319,000 


 
Other Income (Expense)
 
Other Income (Expense)
Interest income23,427
 18,112
Interest income19,910 17,366 36,530 40,632 
Other income407,233
 568,269
Other income, netOther income, net4,315 873,832 2,658,543 885,728 
Interest expense(10) (15)Interest expense(4,518)(12,742)(16,055)(26,026)
Total other income (expense), net430,650
 586,366
Total other income, netTotal other income, net19,707 878,456 2,679,018 900,334 


 
Net Income (Loss)$(1,984,666) $2,771,962
Net IncomeNet Income$4,439,004 $6,289,548 $23,810,550 $9,219,334 


 
Weighted Average Units Outstanding   Weighted Average Units Outstanding
Basic41,466,340
 41,406,697
Basic40,148,160 40,148,160 40,148,160 40,148,160 


 
Diluted41,466,340
 41,406,697
Diluted40,148,160 40,148,160 40,148,160 40,148,160 
   
Net Income (Loss) Per Unit
  
Net Income Per UnitNet Income Per Unit
Basic$(0.05) $0.07
Basic$0.11 $0.16 $0.59 $0.23 


 
Diluted$(0.05) $0.07
Diluted$0.11 $0.16 $0.59 $0.23 
   
Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.





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RED TRAIL ENERGY, LLC
Condensed Statements of Cash Flows(Unaudited)
Six Months EndedSix Months Ended

Three Months Ended Three Months EndedMarch 31, 2022March 31, 2021

December 31, 2017 December 31, 2016(Restated)
Cash Flows from Operating Activities
 
Cash Flows from Operating Activities
Net income (loss)$(1,984,666) $2,771,962
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
Net incomeNet income$23,810,550 $9,219,334 
Adjustments to reconcile net income to net cash provided by operating activities:Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization1,173,688
 1,170,669
Depreciation and amortization2,309,890 2,408,731 
Change in fair value of derivative instruments343,213
 (63,498)Change in fair value of derivative instruments163,250 (239,214)
Lower of cost or market inventory adjustment70,979
 
Lower of cost of net realizable value adjustmentLower of cost of net realizable value adjustment— 263,777 
Loss on firm purchase commitments8,000
 
Loss on firm purchase commitments796,000 — 
Change in operating assets and liabilities:
 
Restricted cash223,524
 (247,525)
Accounts receivable1,020,221
 125,591
Other receivables(6,710) 64,887
Loan forgivenessLoan forgiveness(2,650,773)(873,400)
Changes in operating assets and liabilities:Changes in operating assets and liabilities:
Accounts receivable, net, primarily related partyAccounts receivable, net, primarily related party(3,250,379)(4,203,192)
Inventory455,553
 (6,696,029)Inventory(5,282,961)(782,028)
Prepaid expenses(246,604) (167,756)Prepaid expenses(298,485)(423,083)
Customer depositsCustomer deposits(8,904)4,245 
Accounts payable1,175,944
 1,629,501
Accounts payable(5,670,909)(2,999,114)
Accrued expenses5,861,537
 12,058,830
Accrued expenses70,738 1,316,811 
Accrued purchase commitment losses8,000
 (54,000)
Accrued loss on firm purchase commitmentsAccrued loss on firm purchase commitments796,000 (130,000)
Net cash provided by operating activities8,102,679
 10,592,632
Net cash provided by operating activities10,784,017 3,562,867 
   
Cash Flows from Investing Activities
 
Cash Flows from Investing Activities
Capital expenditures(32,345) (174,001)Capital expenditures(12,501,437)(8,652,666)
Net cash (used in) investing activities(32,345) (174,001)
Net cash used in investing activities Net cash used in investing activities(12,501,437)(8,652,666)
   
Cash Flows from Financing Activities
 
Cash Flows from Financing Activities
Unit repurchase
 (564,963)
Dividends paidDividends paid(9,624,072)(3,211,856)
Disbursements in excess of bank balancesDisbursements in excess of bank balances(1,343,608)1,687,447 
Proceeds from notes payableProceeds from notes payable18,000,000 — 
Debt repayments(652) (648)Debt repayments(384,063)(345,923)
Net cash (used in) financing activities(652) (565,611)
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities6,648,257 (1,870,332)


 
Net Increase in Cash and Equivalents8,069,682
 9,853,020
Cash and Equivalents - Beginning of Period3,223,342
 10,274,166
Cash and Equivalents - End of Period$11,293,024
 $20,127,186
Net Change in Cash, Cash Equivalents and Restricted CashNet Change in Cash, Cash Equivalents and Restricted Cash4,930,837 (6,960,131)
Cash, Cash Equivalents and Restricted Cash - Beginning of PeriodCash, Cash Equivalents and Restricted Cash - Beginning of Period5,215,244 11,112,489 
Cash, Cash Equivalents and Restricted Cash - End of PeriodCash, Cash Equivalents and Restricted Cash - End of Period$10,146,081 $4,152,358 
Reconciliation of Cash, Cash Equivalents and Restricted CashReconciliation of Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalentsCash and cash equivalents$6,894,249 $1,088,451 
Restricted cashRestricted cash3,251,832 3,063,907 
Total Cash, Cash Equivalents and Restricted CashTotal Cash, Cash Equivalents and Restricted Cash$10,146,081 $4,152,358 


 
Supplemental Disclosure of Cash Flow Information
 
Supplemental Disclosure of Cash Flow Information
Interest paid$3,683
 $15
Interest paid$16,055 $26,026 
Units issued in exchange for property$
 $3,320,000
Noncash Investing and Financing ActivitiesNoncash Investing and Financing Activities
Operating lease asset acquiredOperating lease asset acquired$173,914 $81,729 
Capital expenditures in accounts payableCapital expenditures in accounts payable$208,880 $— 
Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.


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RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBERMARCH 31, 20172022




The accompanying condensed unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company's audited financial statements for the fiscal year ended September 30, 2017,2021, contained in the Company's Annual Report on Form 10-K.


In the opinion of management, the interim condensed unaudited financial statements reflect all adjustments considered necessary for fair presentation. The adjustments made to these statements consist only of normal recurring adjustments. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2018.2022.


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Nature of Business


Red Trail Energy, LLC, a North Dakota limited liability company (the “Company”), owns and operates a 50 million gallon annual name-plate production ethanol plant near Richardton, North Dakota (the “Plant”).


Accounting Estimates


Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported revenues and expenses. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment, inventory and allowance for doubtful accounts. Actual results could differ from those estimates.
Net Income Per Unit


Net income per unit is calculated on a basic and fully diluted basis using the weighted average units outstanding during the period.


Recently IssuedAdopted Accounting Pronouncements


Revenue from Contracts with CustomersMeasurement of Credit Losses on Financial Instruments


In May 2014,June 2016, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” which supersedes the guidance in “Revenue Recognition (Topic 605)” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period and is to be applied retrospectively, with early application not permitted. The Company has evaluated the new standard and anticipates a change in the reporting of revenue as enhanced disclosures will be required. The Company does not anticipate a significant impact on our financial statements due to the nature of our revenue streams and our revenue recognition policy.

Simplifying the 2016-13, “Measurement of Inventory

In July 2015, the FASB issuedCredit Losses on Financial Instruments.” ASU No. 2015-11, "Simplifying the Measurements of Inventory" regarding inventory2016-13 adds a current expected credit loss (“CECL”) impairment model to U.S. GAAP that is measured using the first-in, first-out or average cost method. The guidance does not applybased on expected losses rather than incurred losses. Modified retrospective adoption is required with any cumulative-effect adjustment recorded to inventory measured using the last-in, first-out or the retail inventory method. The guidance requires inventory within its scope to be measured at the lower of cost or net realizable value, which is the estimated selling price in the normal course of business less reasonable predictable costs of completion, disposal and transportation. These amendments more closely align GAAP with International Financial Reporting Standards (IFRS). ASU 2015-11 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and should be applied prospectively with early adoption permittedretained earnings as of the beginning of anthe period of adoption. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim or annual reporting period. Theperiods within the year of adoption. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Effective October 1, 2020, the Company has adopted ASU 2016-13 using the new standard during the quarter and there has beenmodified retrospective approach, which had no significant impact to our financial statements.upon adoption.















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RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBERMARCH 31, 20172022



2. RESTATEMENTS OF PRIOR FINANCIAL INFORMATION


Lease Accounting StandardsThis quarterly report on form 10-Q of the Company for the three and six months ended March 31, 2022 includes the restatement of the Company’s previously filed unaudited statement of operations and cash flow statements for the three and six months ended March 31, 2021 due to expenditures that should have been capitalized as construction in progress. The Company’s management has concluded these figures should be re-stated in the statements of operations and cash flows for comparative purposes in 2021 filings. Accordingly, the Company has determined that prior financial statements should be corrected. Furthermore, from a quantitative and qualitative perspective, the Company has determined that correcting the previously filed March 31, 2021 financial statements would not require previously filed reports to be amended.


In February 2016,
Previously Reported Three Months Ended March 31, 2021 (unaudited)AdjustmentsRestated Three Months Ended March 31, 2021 (unaudited)
Statement of Operations
General and Administrative Expenses$910,163 $(195,652)$714,511 
Operating Income$5,215,440 $195,652 $5,411,092 
Net Income$6,093,896 $195,652 $6,289,548 


Previously Reported Six Months Ended March 31, 2021 (unaudited)AdjustmentsRestated Six Months Ended March 31, 2021 (unaudited)
Statement of Operations
General and Administrative Expenses$2,319,699 $(859,744)$1,459,955 
Operating Income$7,459,256 $859,744 $8,319,000 
Net Income$8,359,590 $859,744 $9,219,334 
Statement of Cash Flows
Net Income$8,359,590 $859,744 $9,219,334 
Net cash provided by operating activities$2,703,123 $859,744 $3,562,867 
Capital expenditures$7,792,922 $859,744 $8,652,666 
Net cash used in investing activities$7,792,922 $859,744 $8,652,666 

3. REVENUE

Revenue Recognition

The Company recognizes revenue from sales of ethanol and co-products at the FASB issued ASU No. 2016-02, "Leases (topic 842)"point in time when the performance obligations in the contract are met, which requires a lessee to recognize a right to use assetis when the customer obtains control of such products and a lease liabilitytypically occurs upon shipment depending on its balance sheet for all leases withthe terms of twelve monthsthe underlying contracts. Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or greater. This guidance is effective for fiscal years beginning after December 15, 2018, included interim periods within those yearsproviding services. In some instances, the Company enters into contracts with early adoption permitted. Thecustomers that contain multiple performance obligations to deliver specified volumes of co-products over a contractual period of less than 12 months. In such instances, the Company has evaluatedallocates the new standard and expects it will have a material impact on the financial statements as we will havetransaction price to begin capitalizing leases on the balance sheet when the new standard is implemented. See note 6 for current operating lease commitments.

Statement of Cash Flows; Restricted Cash

In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash" which requires that a statement of cash flows explain the change during the periodeach performance obligation identified in the totalcontract based on relative standalone selling prices and recognizes the related revenue as control of cash, cash equivalents,each individual product is transferred to the customer in satisfaction of the corresponding performance obligation.

Revenue by Source

The following table disaggregates revenue by major source for the three and amounts generally describedsix months ended March 31, 2022 and 2021.
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RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2022

RevenuesFor the three months ended March 31, 2022 (unaudited)For the three months ended March 31, 2021 (unaudited)For the six months ended March 31, 2022 (unaudited)For the six months ended March 31, 2021 (unaudited)
Ethanol, E85 and Industrial Alcohol$38,328,946 $27,082,717 $87,580,529 $48,216,065 
Distillers Grains9,513,142 5,516,430 18,167,561 10,685,389 
Syrup573,482 277,483 923,123 400,756 
Corn Oil3,216,395 1,342,459 5,725,246 2,424,243 
Other45,814 45,000 108,517 95,191 
Total revenue from contracts with customers$51,677,779 $34,264,089 $112,504,976 $61,821,644 

Shipping and Handling Costs

We account for shipping and handling activities related to contracts with customers as restricted cash or restricted cash equivalents. Therefore, amounts generally describedcosts to fulfill our promises to transfer the associated products. Accordingly, we record customer payments associated with shipping and handling costs as restricted casha component of revenue, and restricted cash equivalents should be included with cashclassify such costs as a component of cost of goods sold.

Customer Deposits

Customer deposits are contract liabilities for payments in excess of revenue recognized. Customer deposits are recognized when modified customers make prepayments on their contracts. The ending balances for accounts receivable and cash equivalents when reconcilingcustomer deposits were as follows as of October 1, 2021 and 2020 and for the beginning-of-periodsix months ended March 31, 2022 and end-of-period total amounts shown on the statement of cash flows. ASU No. 2016-18 is effective for annal periods beginning after December 15, 2017, and interim periods within those annual periods. The Company has evaluated the new standard and anticipates a change in the presentation of restricted cash on the cash flow statement once the standard is adopted.2021.


October 1, 2021October 1, 2020For the six months ended March 31, 2022 (unaudited)For the six months ended March 31, 2021 (unaudited)
Accounts receivable$1,468,521 $1,963,236 $4,718,900 $6,166,428 
Customer deposits11,008 — 2,104 4,245 
2.
4. DERIVATIVE INSTRUMENTS


Commodity Contracts


As part of its hedging strategy, the Company may enter into ethanol, soybean, soybean oil, natural gas and corn commodity-based derivatives in order to protect cash flows from fluctuations caused by volatility in commodity prices in order to protect gross profit margins from potentially adverse effects of market and price volatility on ethanol sales, corn oil sales, and corn purchase commitments where the prices are set at a future date. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Ethanol derivative fair market value gains or losses are included in the results of operations and are classified as revenue, and corn derivative changes in fair market value are included in cost of goods sold.

As of:March 31, 2022 (unaudited)September 30, 2021
Contract Type# of ContractsNotional Amount (Qty)Fair Value# of ContractsNotional Amount (Qty)Fair Value
Corn futures150 750,000 bushels$(67,000)— — bushels$— 
Corn options570 2,850,000 bushels$(96,250)— — bushels$— 
Total fair value$(163,250)$— 
Amounts are combined on the balance sheet - negative numbers represent liabilities


9
As of: December 31, 2017 (unaudited) September 30, 2017
Contract Type # of ContractsNotional Amount (Qty)Fair Value # of ContractsNotional Amount (Qty)Fair Value
Corn futures 1,000
5,000,000
bushels$12,850
 81
405,000
bushels$16,688
Corn options 1,300
6,500,000
bushels$(1,289,375) 1,800
9,000,000
bushels$(950,000)
Total fair value    $(1,276,525)    $(933,312)
Amounts are combined on the balance sheet - negative numbers represent liabilities



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RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBERMARCH 31, 20172022



The following tables provide details regarding the Company's derivative financial instruments at DecemberMarch 31, 20172022 and September 30, 2017:2021:
Derivatives not designated as hedging instruments:
Balance Sheet - as of March 31, 2022 (unaudited)AssetLiability
Commodity derivative instruments, at fair value$— $163,250 
Total derivatives not designated as hedging instruments for accounting purposes$— $163,250 
Balance Sheet - as of September 30, 2021AssetLiability
Commodity derivative instruments, at fair value$— $— 
Total derivatives not designated as hedging instruments for accounting purposes$— $— 

Statement of Operations Income/(Expense)Location of gain (loss) in fair value recognized in incomeAmount of gain (loss) recognized in income during the three months ended March 31, 2022 (unaudited)Amount of gain (loss) recognized in income during the three months ended March 31, 2021 (unaudited)Amount of gain (loss) recognized in income during the six months ended March 31, 2022 (unaudited)Amount of gain (loss) recognized in income during the six months ended March 31, 2021 (unaudited)
Corn derivative instrumentsCost of Goods Sold$714,021 $449,237 $1,064,539 $698,710 
Ethanol derivative instrumentsRevenue259,467 494,044 424,770 795,151 
Natural gas derivative instrumentsCost of Goods Sold202,770 — (107,450)(1,410)
Total$1,176,258 $943,281 $1,381,859 $1,492,451 

Derivatives not designated as hedging instruments:    
     
Balance Sheet - as of December 31, 2017 (unaudited) Asset Liability
Commodity derivative instruments, at fair value $
 $1,276,525
Total derivatives not designated as hedging instruments for accounting purposes $
 $1,276,525
     
Balance Sheet - as of September 30, 2017 Asset Liability
Commodity derivative instruments, at fair value $
 $933,312
Total derivatives not designated as hedging instruments for accounting purposes $
 $933,312

Statement of Operations Income/(Expense) Location of gain (loss) in fair value recognized in income Amount of gain(loss) recognized in income during the three months ended December 31, 2017 (unaudited) Amount of gain (loss) recognized in income during the three months ended December 31, 2016 (unaudited)
Corn derivative instruments Cost of Goods Sold $(568,536) $218,357
Ethanol derivative instruments Revenue 1,800
 40,950
Soybean oil derivative instruments Revenue 
 12,216
Natural gas derivative instruments Cost of Goods Sold 
 10,500
Total   $(566,736) $282,023

3.5. INVENTORY
Inventory is valued at the lower of cost or net realizable value. Inventory values as of DecemberMarch 31, 20172022 and September 30, 20172021 were as follows:
March 31, 2022
(unaudited)
September 30, 2021
Raw materials, including corn, chemicals and supplies$9,449,006 $3,978,299 
Work in process1,313,189 1,321,862 
Finished goods, including ethanol and distillers grains3,597,419 4,622,007 
Spare parts1,674,189 1,624,674 
Total inventory$16,033,803 $11,546,842 
As of 
December 31, 2017
(unaudited)
 September 30, 2017
Raw materials, including corn, chemicals and supplies $12,385,830
 $11,952,560
Work in process 784,509
 773,786
Finished goods, including ethanol and distillers grains 794,415
 1,577,066
Spare parts 1,914,455
 2,110,330
Total inventory $15,879,209
 $16,413,742


Lower of cost or net realizable value adjustments for the three and six months ended March 31, 2022 and 2021 were as follows:
For the three months ended March 31, 2022 (unaudited)For the three months ended March 31, 2021 (unaudited)For the six months ended March 31, 2022 (unaudited)For the six months ended March 31, 2021 (unaudited)
Loss on firm purchase commitments$596,000 $— $796,000 $— 
Loss on lower of cost or net realizable value adjustment for inventory on hand$— $— $— $263,777 
Total loss on lower of cost or net realizable value adjustments$596,000 $— $796,000 $263,777 

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RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBERMARCH 31, 20172022



Lower of cost or net realizable value adjustments for the three months ended December 31, 2017 and 2016 were as follows:
  For the three months ended December 31, 2017 (unaudited) For the three months ended December 31, 2016 (unaudited)
Loss on firm purchase commitments $8,000
 $
Loss on lower of cost or market adjustment for inventory on hand $70,979
 $
Total loss on lower of cost or market adjustments $78,979
 $

The Company has entered into forward corn purchase contracts under which it is required to take delivery at the contract price. At the time the contracts were created, the price of the contract approximated market price. Subsequent changes in market conditions could cause the contract prices to become higher or lower than market prices. As of DecemberMarch 31, 2017,2022, the average price of corn purchased under certain fixed price contracts, that had not yet been delivered, was greater than approximated market price. Based on this information, the Company has an $8,000$796,000 estimated loss on firm purchase commitments for the threesix months ended DecemberMarch 31, 2017 and2022 compared to no estimated loss on firm purchase commitments for the threesix months ended DecemberMarch 31, 2016.2021. The loss is recorded in “Loss on firm purchase commitments” on the statement of operations.operations and "Accrued loss on firm purchase commitments" on the balance sheet. The amount of the potential loss was determined by applying a methodology similar to that used in the impairment valuation with respect to inventory. Given the uncertainty of future ethanol prices, furtherfuture losses on the outstanding purchase commitments could be recorded in future periods.


4.6. BANK FINANCING

As of December 31, 2017 (unaudited) September 30, 2017
Capital lease obligations (Note 6) $4,886
 $5,538
Total Long-Term Debt 4,886
 5,538
Less amounts due within one year 2,622
 2,617
Total Long-Term Debt Less Amounts Due Within One Year $2,264
 $2,921
Ethanol Recovery Program


The Company hadOn July 13, 2020, we received a $10$5.41 million operating line-of-credit with First Nationalloan through the Bank of Omaha that maturedNorth Dakota's Ethanol Recovery Program and Cornerstone Bank ("Cornerstone"). The Ethanol Recovery Program was developed by the North Dakota Ethanol Producers Association and the Bank of North Dakota to use the existing Biofuels Partnership in Assisting Community Expansion ("PACE") program and Value-added Guarantee Loan program to help ethanol production facilities weather the economic challenges caused by the COVID-19 pandemic. Ethanol producers could qualify for up to $15 million of a low interest loan of 1% based on the amount of such producers' annual corn grind. On December 3, 2021 we received forgiveness of $2.65 million of the loan. The forgiveness was recorded as other income. The outstanding balance as of March 31, 2022 was $1.58 million. The maturity date of the loan is July 13, 2025. The fixed interest rate on March 20, 2017.31, 2022 was 3.75% with an interest rate buy down through the Bank of North Dakota to 1%.


Revolving Loan

On March 20, 2017,February 3, 2022 we entered into a newrenewed our $10 million revolving loan (the "Revolving Loan") with U.S. Bank National Association ("U.S. Bank"). TheCornerstone. On February 3, 2022 the maturity date was extended to March 31, 2022. On April 8, 2022 the Revolving Loan replaced the revolving loanwas renewed. The new maturity date is April 7, 2023. At March 31, 2022, we had $10 million available under the Revolving Loan. The variable interest rate on March 31, 2022 was 3.00%.

Construction Loans

On January 22, 2020, we entered into a $7 million construction loan (the "Construction Loan") with First National BankCornerstone. The original maturity date of Omaha.the Construction Loan was June 1, 2021. On June 3, 2021 we extended the maturity date to February 1, 2022. On April 8, 2022 the Construction Loan was renewed. The new maturity date is October 8, 2022. At March 31, 2022, we had $7 million available under the Construction Loan. The variable interest rate on March 31, 2022 was 3.00%.

On February 1, 2021 we entered into a $28 million construction loan (the "CCS Construction Loan") with Cornerstone for the carbon capture and storage project. The maturity date of the RevolvingCCS Construction Loan was January 31, 2022. On February 17, 2022 the maturity date was extended to March 15, 2022. On April 8, 2022 we renewed the CCS Construction Loan. The new maturity date is MayOctober 8, 2022. As of March 31, 2018. Our ability to draw funds on the Revolving Loan is subject to a borrowing base calculation as set forth in the Credit Agreement. At December 31, 2017, we had $10,000,000 available on the Revolving Loan, taking into account the borrowing base calculation. We had $02022 $18 million has been drawn on the RevolvingCCS Construction Loan to finance construction of the carbon capture and storage project. Upon completion and final verification of the project the $18 million will be refinanced as of December 31, 2017.long-term debt. The variable interest rate on DecemberMarch 31, 20172022 was 3.40%3.00%. Of the $10 million revolving line-of-credit, the Company was not allowed to draw $687,597 which is reserved as a source

The each of funds to support a guaranteed payment the Company agreed to related to its natural gas pipeline. While the Company does not expect that it will be required to make a direct payment for the natural gas pipeline, the Company's agreement requires it to have funds available in the event the Company is required to make the guaranteed payment. See note 6 for the Company's additional future minimum lease commitments.
The Company's loans are secured by a lien on substantially all of the assets of the Company. As of December 31, 2017, the Company was in compliance with all of its debt covenants.

5. FAIR VALUE MEASUREMENTS

The following table provides information on those assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2017 and September 30, 2017, respectively.


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RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBERMARCH 31, 20172022



Schedule of debt maturities and lease liabilities for the twelve months ending March 31Totals
2022$19,135,081 
2023887,221 
2024119,208 
202536,258 
202621,658 
Total$20,199,426 



7. FAIR VALUE MEASUREMENTS
     Fair Value Measurement Using
 Carrying Amount as of December 31, 2017 (unaudited) Fair Value as of December 31, 2017 (unaudited) Level 1 Level 2 Level 3
Liabilities         
Commodities derivative instruments$1,276,525
 $1,276,525
 $1,276,525
 $
 $
Total$1,276,525
 $1,276,525
 $1,276,525
 $
 $
          
     Fair Value Measurement Using
 Carrying Amount as of September 30, 2017 Fair Value as of September 30, 2017 Level 1 Level 2 Level 3
Liabilities         
Commodities derivative instruments$933,312
 $933,312
 $933,312
 $
 $
Total$933,312
 $933,312
 $933,312
 $
 $


The following table provides information on those liabilities that are measured at fair value on a recurring basis as of March 31, 2022 and September 30, 2021, respectively.
Fair Value Measurement Using
Carrying Amount as of March 31, 2022 (unaudited)Fair Value as of March 31, 2022 (unaudited)Level 1Level 2Level 3
Liabilities
Commodities derivative instruments$163,250 $163,250 $163,250 $— $— 
Total$163,250 $163,250 $163,250 $— $— 
Fair Value Measurement Using
Carrying Amount as of September 30, 2021Fair Value as of September 30, 2021Level 1Level 2Level 3
Assets
Commodities derivative instruments$— $— $— $— $— 
Total$— $— $— $— $— 

The fair value of the corn, ethanol, soybean oil and natural gas derivative instruments is based on quoted market prices in an active market.


6.8. LEASES


The Company leases equipment under operatingrailcar and capitalplant equipment. Operating lease right of use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate, unless an implicit rate is readily determinable, as the discount rate for each lease in determining the present value of lease payments. For the six months ended March 31, 2022, the Company's estimated discount rate was 3.00%. Operating lease expense is recognized on a straight-line basis over the lease term.

The Company determines if an arrangement is a lease or contains a lease at inception. The Company's existing leases through January 2023. have remaining lease terms of approximately one year to five years, which may include options to extend the leases when it is reasonably certain the Company will exercise those options. At March 31, 2022 the weighted average remaining lease term was two years. The Company does not have lease arrangements with residual value guarantees, sale leaseback terms or material restrictive covenants. The Company does not have any sublease agreements.

The Company is generally responsible for maintenance, taxes, and utilities for leased equipment. Equipment under operating lease includes a locomotive and rail cars. Rent expense for operating leases was approximately $154,000$475,800 and $93,000$316,600 for the threesix months ended DecemberMarch 31, 20172022 and 2016,2021, respectively. Equipment under capital leases consists of office equipment and plant equipment.

Equipment under capital leases is as follows at:
12
As of 
December 31, 2017
(unaudited)
 September 30, 2017
Equipment $483,488
 $483,488
Less accumulated amortization (125,394) (120,029)
Net equipment under capital lease $358,094
 $363,459

At December 31, 2017, the Company had the following minimum commitments, which at inception had non-cancelable terms of more than one year. Amounts shown below are for the 12 months period ending December 31:


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RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBERMARCH 31, 20172022




Equipment under financing leases consists of office equipment and plant equipment. At March 31, 2022 and September 30, 2021, equipment under financing leases was as follows:
March 31, 2022September 30, 2021
Equipment$493,414 $493,414 
Less accumulated amortization(208,111)(196,389)
Net equipment under financing lease$285,303 $297,025 

At March 31, 2022, the Company had the following minimum commitments, which at inception had non-cancellable terms of more than one year. Amounts shown below are for the 12 month periods ending March 31:
Operating LeasesFinancing Leases
2022$397,546 $4,559 
2023121,597 4,594 
202435,188 2,989 
202536,258 — 
202621,658 — 
Total minimum lease commitments$612,247 12,142 
Less amount representing interest— 
Present value of minimum lease commitments included in notes payable on the balance sheet$12,142 

  Operating Leases Capital Leases
2018 $375,553
 $2,622
2019 326,608
 2,264
2020 210,023
 
2021 167,111
 
2022 132,600
 
Thereafter 11,050
 
Total minimum lease commitments $1,222,945
 4,886
Less amount representing interest   
Present value of minimum lease commitments included in current maturities of long-term debt on the balance sheet   $4,886

7.9. COMMITMENTS AND CONTINGENCIES


Firm Purchase Commitments for Corn


To ensure an adequate supply of corn to operate the Plant, the Company enters into contracts to purchase corn from local farmers and elevators. At DecemberMarch 31, 2017,2022, the Company had various fixed price contracts for the purchase of approximately 0.73.7 million bushels of corn. Using the stated contract price for the fixed price contracts, the Company had commitments of approximately $2.4$24.5 million related to the 0.73.7 million bushels under contract.

Water

On April 21, 2015, we entered into a ten-year contract to purchase raw water from Southwest Water Authority in order to meet the Plant's water requirements. Our contract requires us to purchase a minimum of 160 million gallons of water per year. The Company also has various unpriced basis contractsminimum estimated obligation for the purchase of approximately 2.59 million bushels of corn that have been delivered to the Plant. The purchase price of these bushels will be set at the time of pricing the contracts at the July 2018 index price less basis. The estimated accrued payable for these bushelsthis contract is $8.99 million. The deadline for pricing these 2.59 million bushels is June 29, 2018.$424,000 per year.


Profit and Cost Sharing Agreement


The Company has entered into a Profit and Cost Sharing Agreement with Bismarck Land Company, LLC, which became effective on November 1, 2016. The Profit and Cost Sharing Agreement provides that the Company will share 70% of the net revenue generated by the Company from business activities which are brought to the Company by Bismarck Land Company, LLC and conducted on the real estate purchased from the Bismarck Land Company, LLC. The real estate was initially purchased in exchange for 2 million membership units of the Company at $1.66 per unit. This obligation will terminate ten years after the real estate closing date of October 11, 2016 or after Bismarck Land Company, LLC receives $10 million in proceeds from the agreement. In addition, the Profit and Cost Sharing Agreement provides that the Company will pay Bismarck Land Company, LLC 70% of any net proceeds received by the Company from the sale of the subject real estate if a sale were to occur prior to termination of this obligation in the future, subject toaccordance with the $10 million cap andor the 10 year terminationten-year term of this obligation. No payments have been made to theThe Company has paid Bismarck Land Company, LLC at$28,315 as of March 31, 2022.

Carbon Capture and Storage Project
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RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2022


On July 30, 2018, the Company entered into a research agreement with the University of North Dakota Energy and Environmental Research Center to explore the feasibility of injecting carbon dioxide ("CO2") from the fermentation process into a saline formation to lower the carbon intensity value of our ethanol. The Company committed to fund up to $950,000 for this time.research. The Company had incurred $949,631 through the second quarter of the 2022 fiscal year which is recorded as consulting services under general and administrative expenses. The commitment was fully paid as of March 31, 2022.


On October 1, 2020, the Company entered into an agreement with Salof LTD, Inc. for the design, engineering, fabrication and start up of the CO2 capture and liquefaction facility for the carbon capture and storage project. The price of the system including all equipment and services is $11,845,000. The Company had paid $11,262,856 as of March 31, 2022, which is recorded as construction in progress.
8.
On May 6, 2021, the Company entered into an agreement with Direct Automation for the DCS Computer System for the carbon capture and storage project. The price of the system including all equipment and installation is $800,992. The Company has paid $779,895 as of March 31, 2022 which is recorded as construction in progress.

As of March 31, 2022 the Company has incurred a total of $32.0 million towards the Carbon Capture and Storage Project, which is recorded as construction in progress. The remaining cost to complete the Carbon Capture and Storage Project is roughly $3 million. The expected completion date for the project is May 16, 2022.

10. RELATED PARTY TRANSACTIONS


The Company has balances and transactions in the normal course of business with various related parties for the purchase of corn, sale of distillers grains and sale of ethanol. The related parties include unit holders, members of the board of governors of the Company, and RPMG, Inc. (“RPMG”). During the Company's first quarter of 2018, the Company received a capital account refund from RPMG which is included in other income (expense) in the Company's Statement of Operations. Significant related party activity affecting the financial statements is as follows:
March 31, 2022
(unaudited)
September 30, 2021
Balance Sheet
Accounts receivable$2,877,119 $1,309,673 
Accounts payable1,386,309 788,050 
Accrued expenses29,973 832,904 
For the three months ended March 31, 2022 (unaudited)For the three months ended March 31, 2021 (unaudited)For the six months ended March 31, 2022 (unaudited)For the six months ended March 31, 2021 (unaudited)
Statement of Operations
Revenues$45,370,955 $31,143,965 $101,851,608 $56,270,308 
Cost of goods sold987,487 690,113 1,995,815 1,071,757 
General and administrative— 30,162 — 60,463 
Inventory Purchases$14,945,816 $3,274,010 $24,397,429 $5,661,658 

  
December 31, 2017
(unaudited)
 September 30, 2017
Balance Sheet    
Accounts receivable $2,497,558
 $4,027,061
Accounts Payable 12,594
 1,569
Accrued Expenses 2,377,979
 925,503
     


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RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2017


  For the three months ended December 31, 2017 (unaudited) For the three months ended December 31, 2016 (unaudited)
Statement of Operations    
Revenues $24,798,144
 $28,998,771
Cost of goods sold 6,462
 9,730
General and administrative 19,067
 16,161
Other income/expense 140,539
 247,307
Inventory Purchases $4,293,979
 $6,078,986

9.11. UNCERTAINTIES IMPACTING THE ETHANOL INDUSTRY AND OUR FUTURE OPERATIONS


TheDuring volatile market conditions, the Company hasexperiences certain risks and uncertainties, that it experiences during volatile market conditions, which cancould have a severe impact on operations. The Company's revenues are derived from the sale and distribution of ethanol and distillers grains to customers primarily located in the United States. Corn for the production process is supplied to the Plant primarily from local agricultural producers and from purchases on the open market. The Company's operating and financial performance is largely driven by prices at which the Company sells ethanol and distillers grains and by the cost at which it is able to purchase corn for operations. The price of ethanol is influenced by factors such as prices, supply and demand, weather, government policies and programs, and unleaded gasoline and the petroleum markets, although since 2005 the prices of ethanol and gasoline began a
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RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2022

divergence with ethanol, which has generally been selling for less than gasoline at the wholesale level. Excess ethanol supply in the market, in particular, puts downward pressure on the price of ethanol. The Company's largest cost of production is corn. Thecorn.The cost of corn is generally impacted by factors such as supply and demand, weather, and government policies and programs. The Company's risk management program is usedprograms, global political or economic issues, including but not limited to protect against the price volatility of these commodities.war in Ukraine including sanctions associated therewith, or global damaging growing conditions, such as plant disease or adverse weather, including drought, increased fertilizer costs as well as global conflicts.


The Company's financial performance is highly dependent on the Federal Renewable Fuels Standard ("RFS"), which requires that a certain amount of renewable fuels must be used each year in the United States. Corn based ethanol, such as the ethanol the Company produces, can be used to meet a portion of the RFS requirement. In November 2013, the EPA issued a proposed rule which would reduce the RFS for 2014, including the RFS requirement related to corn based ethanol. The EPA proposed rule was subject to a comment period which expired in January 2014. On November 30, 2015, the EPA released its final ethanol use requirements for 2014, 2015 and 2016, which were lower than the statutory requirements in the RFS. However, the final RFS for 2017 equaled the statutory requirement which was also the case for the 2018, 2019, 2020 and 2021 RFS final rule.rules. No final RFS has been established for 2022.


On January 30, 2020, the World Health Organization declared the coronavirus outbreak (COVID-19) a “Public Health Emergency of International Concern” and on March 11, 2020, declared COVID-19 a pandemic. Quarantines, labor shortages, and other disruptions to the Company’s operations, and those of its customers, adversely impacted the Company’s revenues, ability to provide its services and operating results. Any future quarantines, labor shortages, or other disruptions to the Company's operations, or those of its customers may adversely impact the Company's revenues, ability to provide its services and operating results. Like the COVID-19 pandemic, any significant outbreak of epidemic, pandemic or contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, including the geographical area in which the Company operates, resulting in an economic downturn that could affect demand for its goods and services. The extent to which COVID-19 will impact the Company’s long-term results will depend on future developments, which are highly uncertain and cannot be predicted, including new developments regarding continued distribution of the COVID-19 vaccine, new information which may emerge concerning the severity of the coronavirus, prevalence of new COVID-19 cases and actions taken to contain the coronavirus or its impact, among others.

The Company anticipates that the results of operations during the remainder of fiscal year 20182022 will continue to be affected by volatility in the commodity markets. The volatility is due to various factors, including uncertainty with respect to the availability and supply of corn, increased demand for grain from global and national markets, speculation in the commodity markets, and demand for corn from the ethanol industry.


10.12. MEMBER'S EQUITY


Unregistered Units Sales by the Company.

On October 10, 2016, the Company issued two million of the Company's membership units to Bismarck Land Company, LLC as part of the considerationChanges in member's equity for the acquisition of 338 acres of land adjacent to the ethanol plant that the Company will use to expand its rail yard. The membership units were issued pursuant to the exemption from registration set forth in Regulation D, Rule 506(b), as Bismarck Land Company, LLC is an accredited investor.six months ended March 31, 2022 and 2021.

Class A Member UnitsAdditional Paid in CapitalAccumulated Deficit/Retained EarningsTreasury UnitsTotal Member Equity
Balances - September 30, 2021$39,044,595 $75,541 $31,034,079 $(159,540)$69,994,675 
Net income19,371,546 19,371,546 
Balances December 31, 2021$39,044,595 $75,541 $50,405,625 $(159,540)$89,366,221 
Distribution(9,624,072)(9,624,072)
Net income4,439,004 4,439,004 
Balances - March 31, 2022$39,044,595 $75,541 $45,220,557 $(159,540)$84,181,153 


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RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBERMARCH 31, 20172022



Class A Member UnitsAdditional Paid in CapitalAccumulated Deficit/Retained EarningsTreasury UnitsTotal Member Equity
Balances - September 30, 2020$39,044,595 $75,541 $21,620,256 $(159,540)$60,580,852 
Net income2,265,694 2,265,694 
Balances - December 31, 2020$39,044,595 $75,541 $23,885,950 $(159,540)$62,846,546 
Distribution$(3,211,856)$(3,211,856)
Net income$6,289,548 $6,289,548 
Balances - March 31, 2021$39,044,595 $75,541 $26,963,642 $(159,540)$65,924,238 
Unit Purchases By the Company.
 (a)(b)(c)(d)
PeriodTotal Number of Units Purchased Average Price Paid per Unit Total Number of Units Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of the Units that May Yet Be Purchased Under the Plans or Programs
October 2016NoneNoneNoneNone
November 2016NoneNoneNoneNone
December 2016564,963$1.00NoneNone
January 2017116,857$1.00NoneNone
February 2017NoneNoneNoneNone
March 2017NoneNoneNoneNone
April 2017NoneNoneNoneNone
May 2017NoneNoneNoneNone
June 2017NoneNoneNoneNone
Total681,820$1.00NoneNone
13. SUBSEQUENT EVENTS
*681,820 Units were purchased other than through a publicly announced plan or program, pursuant to a Membership Unit Repurchase Agreement, a private transaction between
On April 8, 2022 the Company renewed the Revolving Loan, the Construction Loan and the CCS Loan with Cornerstone Bank. See Note 6 - Bank Financing for a Member.more detailed discussion.


11. SUBSEQUENT EVENT

Management evaluated all other activity of the Company and concluded that no subsequent events have occurred that would require recognition in the condensed financial statements or disclosure in the notes to the condensed financial statements.




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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations


We prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition, and results of operations for the three and six month periodperiods ended DecemberMarch 31, 2017,2022, compared to the same periodperiods of the prior fiscal year. This discussion should be read in conjunction with the condensed financial statements, notes and information contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2021. Unless otherwise stated, references in this report to particular years, quarters, months, or periods refer to our fiscal years ended in September and the associated quarters, months, or periods of those fiscal years.


Forward Looking Statements


This report contains forward-looking statements that involve future events, our future performance and our future operations and actions.  In some cases you can identify forward-looking statements by the use of words such as "may," "should," "anticipate," "believe," "expect," "plan," "future," "intend," "could," "estimate," "predict," "hope," "potential," "continue," or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the following factors:


Reductions in the corn-based ethanol use requirement in the Federal Renewable Fuels Standard;
Market prices and availability of corn that we require to operate the ethanol plant;
Continued economic impacts from the COVID-19 pandemic, including reduced gasoline demand;
Continued economic impacts of the crisis in Ukraine, including increased commodities prices and effect of Sanctions;
Lower oil prices which result in lower ethanol prices;
Negative operating margins which result from lower ethanol prices;
Lower distillers grains prices which result from the Chinese anti-dumping and countervailing duty tariffs;
Lower ethanol prices due to the Chinese ethanol tariff and the Brazilian ethanol tariff;
Logistics difficulties preventing us from delivering our products to our customers;
Fluctuations in the price and market for ethanol, distillers grains and corn oil;
Availability and costs of products and raw materials, particularly corn and natural gas;
Changes in the environmental regulations that apply to our plant operations and our ability to comply with such regulations;
Ethanol supply exceeding demand and corresponding ethanol price reductions impacting our ability to operate profitably and maintain a positive spread between the selling price of our products and our raw material costs;
Our ability to generate and maintain sufficient liquidity to fund our operations and meet debt service requirements andour necessary capital expenditures;
Our ability to continue to meet our loan covenants;
Limitations and restrictions contained in the instruments and agreements governing our indebtedness;
Results of our hedging transactions and other risk management strategies;
Changes and advances in ethanol production technology; and
Competition from alternative fuels and alternative fuel additives.


Overview
 
Red Trail Energy, LLC, a North Dakota limited liability company (the "Company," "Red Trail," or "we," "our," or "us"), owns and operates a 50 million gallon annual name-plate production ethanol plant near Richardton, North Dakota. Our revenues are derived from the sale and distribution of our ethanol, distillers grains and corn oil primarily in the continental United States. Corn is our largest cost component and our profitability is highly dependent on the spread between the price of corn and the price of ethanol.


The ethanol industryOn April 8, 2022 we renewed our $10 million Revolving Loan with Cornerstone Bank and its new maturity date is dependentOctober 8, 2022. Also on several economic incentives to produce ethanol, the most significantApril 8, 2022, we renewed both our $7 million Construction Loan and our $28 million dollar CCS Construction Loan with Cornerstone Bank which both have maturity dates of which is 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 statutory volume requirement increases incrementally each year until the United States is required to use 36 billion gallons of renewable fuels byOctober 8, 2022. The United States Environmental Protection Agency (the "EPA") has 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 is supposed to pass a rule that establishes 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. The RFS statutory Renewable Volume Obligation (RVO)Please see Note 6 - Bank Financing above for all renewable fuels for 2017 was 24 billion gallons, of which corn-based ethanol could meet 15 billion gallons of the RVO. On November 30, 2017, the final RVO for 2018 was set at 19.29 billion gallons and the corn-based ethanol RVO was set at 15 billion gallons, lower than the statutory RVO.additional details.

In recent years, the ethanol industry in the United States has increased exports of ethanol and distillers grains. However, in 2017 China instituted tariffs on ethanol and distillers grains produced in the United States and Brazil instituted a tariff on ethanol


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produced in the United States. Both China and Brazil have been major sources of import demand for United States ethanol and distillers grains. These trade actions may result in negative operating margins for U.S. ethanol producers.

In January 2017, the Chinese issued final tariffs on U.S. distillers grains. China announced a final ruling related to its anti-dumping and countervailing duty investigation imposing anti-dumping duties from a range of 42.2% to 53.7% and anti-subsidy duties from 11.2% to 12.0%. These tariffs have had a negative impact on market ethanol and distillers grains prices in the United States.

In August 2017, Brazil instituted an import quota for ethanol produced in the United States and exported to Brazil, along with a 20% tariff on ethanol imports in excess of the quota. This tariff and quota have reduced exports of ethanol to Brazil and may continue to negatively impact ethanol exports from the United States. Any reduction in ethanol exports could negatively impact market ethanol prices in the United States.

On March 20, 2017, we entered into a new $10 million revolving loan (the "Revolving Loan") with U.S. Bank National Association ("U.S. Bank"). As part of this transaction, we signed a Credit Agreement dated March 17, 2017 (the "Credit Agreement"). The Revolving Loan replaces our credit facilities with First National Bank of Omaha. Interest accrues on any outstanding balance on the Revolving Loan at a rate of 1.77% in excess of the one-month London Interbank Offered Rate ("LIBOR"). The maturity date of the Revolving Loan is May 31, 2018. Our ability to draw funds on the Revolving Loan is subject to a borrowing base calculation as set forth in the Credit Agreement. The Revolving Loan is subject to certain financial covenants as set forth in the Credit Agreement. The most significant financial covenants require us to maintain a fixed charge coverage ratio of no less than 1.25:1.00 and a current ratio of no less than 1.50:1.00. Our fixed charge coverage ratio measures our ability to pay our fixed expenses. Our current ratio measures our liquidity and ability to pay short-term and long-term obligations.

Results of Operations for the Three Months Ended DecemberMarch 31, 20172022 and 20162021
 
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 unaudited statements of operations for the three months ended DecemberMarch 31, 20172022 and 2016:2021:
Three Months Ended
December 31, 2017 (Unaudited)
 
Three Months Ended
December 31, 2016 (Unaudited)
Three Months Ended
March 31, 2022 (Unaudited)
Three Months Ended
March 31, 2021 (Unaudited)
Statement of Operations DataAmount % Amount %Statement of Operations DataAmount%Amount%
Revenues$26,122,856
 100.00
 $30,004,460
 100.00Revenues$51,677,779 100.00 $34,264,089 100.00 
Cost of Goods Sold27,822,261
 106.51
 27,127,930
 90.41Cost of Goods Sold46,598,623 90.17 28,138,486 82.12 
Gross Profit (Loss)(1,699,405) (6.51) 2,876,530
 9.59
Gross ProfitGross Profit5,079,156 9.83 6,125,603 17.88 
General and Administrative Expenses715,911
 2.74
 690,934
 2.30General and Administrative Expenses659,859 1.28 714,511 2.09 
Operating Income (Loss)(2,415,316) (9.25) 2,185,596
 7.28
Other Income430,650
 1.65
 586,366
 1.95
Net Income (Loss)$(1,984,666) (7.60) $2,771,962
 9.24
Operating IncomeOperating Income4,419,297 8.55 5,411,092 15.79 
Other Income, netOther Income, net19,707 0.04 878,456 2.56 
Net IncomeNet Income$4,439,004 8.59 $6,289,548 18.36 
        
    

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The following table shows additional data regarding production and price levels for our primary inputs and products for the three months ended DecemberMarch 31, 20172022 and 2016.2021.
Three Months Ended March 31, 2022 (unaudited)Three Months Ended
March 31, 2021
(unaudited)
Production:
  Ethanol sold (gallons)17,562,727 16,483,769 
  Dried distillers grains sold (tons)15,437 12,362 
  Modified distillers grains sold (tons)51,729 46,109 
Corn oil sold (pounds)5,104,330 3,417,860 
Revenues:
  Fuel grade ethanol average price per gallon (net of hedging)$2.17 $1.64 
  Dried distillers grains average price per ton234.12 195.50 
  Modified distillers grains average price per ton114.04 67.22 
Corn oil average price per pound0.63 0.39 
Primary Inputs:
  Corn ground (bushels)5,792,048 5,187,455 
Natural gas (MMBtu)384,838 358,639 
Costs of Primary Inputs:
  Corn average price per bushel (net of hedging)$6.20 $4.03 
Natural gas average price per MMBtu (net of hedging)4.14 2.69 
Other Costs (per gallon of ethanol sold):
  Chemical and additive costs$0.082 $0.076 
  Denaturant cost0.052 0.031 
  Electricity cost0.044 0.043 
  Direct labor cost0.061 0.059 



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  Three Months ended December 31, 2017 (unaudited) Three Months ended
December 31, 2016
(unaudited)
Production:    
  Ethanol sold (gallons) 16,627,106
 16,202,835
  Dried distillers grains sold (tons) 30,963
 29,625
  Modified distillers grains sold (tons) 27,506
 25,122
Corn oil sold (pounds) 3,117,040
 4,413,620
Revenues:    
  Ethanol average price per gallon (net of hedging) $1.18
 $1.50
  Dried distillers grains average price per ton 122.09
 104.50
  Modified distillers grains average price per ton 63.63
 51.99
Corn oil average price per pound 0.28
 0.27
Primary Inputs:    
  Corn ground (bushels) 5,720,943
 5,687,614
Natural gas (MMBtu) 431,963
 415,586
Costs of Primary Inputs:    
  Corn average price per bushel (net of hedging) $3.26
 $3.54
Natural gas average price per MMBtu (net of hedging) 2.67
 2.75
Other Costs (per gallon of ethanol sold):    
  Chemical and additive costs $0.108
 $0.094
  Denaturant cost 0.036
 0.032
  Electricity cost 0.038
 0.043
  Direct labor cost 0.068
 0.065
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Revenue


Our total revenue was lower forhigher in the firstsecond quarter of our 20182022 fiscal year compared to the same period of our 20172021 fiscal year primarily due to a decrease in thehigher average sales prices we received for our ethanolproducts along with increased quantity of our products sold during the first2022 period. During the second quarter of our 2018 fiscal year. During the first quarter of our 20182022 fiscal year, approximately 75.0%74.0% of our total revenue was derived from ethanol and industrial alcohol sales, approximately 21.2%18.5% was from distillers grains sales, approximately 1.1% was from syrup, and approximately 3.3%6.3% was from corn oil sales. During the firstsecond quarter of our 20172021 fiscal year, approximately 81.1%79.0% of our total revenue was derived from ethanol and industrial alcohol sales, approximately 14.7%16.1% was from distillers grains sales, approximately 0.8% was from syrup and approximately 3.9% was from corn oil sales.

Ethanol


The average price we received for our ethanol was approximately 21.3% lesssignificantly higher during the firstsecond quarter of our 20182022 fiscal year compared to the firstsecond quarter of our 20172021 fiscal year. Management attributes this decreasethe increase in the price we received for our ethanol during the firstsecond quarter of our 20182022 fiscal year to lower markethigher gasoline prices and higher corn prices and increased ethanol supply in the market. Management anticipates that ethanolGasoline prices may continue lower during our 2018 fiscal yearhave increased significantly recently, especially due to a combination of factors, including anticipated increasesuncertainty caused by the war in United States ethanol production along with lower export demand from Brazil and China. Many ethanol producers are expanding their production capacity, which, along with the Chinese and Brazilian ethanol tariffs, have increased the market supply of ethanol beyond demandUkraine which has negatively impactedresulted in higher oil prices. In addition, corn prices have been higher which has resulted in higher market ethanol prices. Management anticipates that this excess ethanol supply may continue unless new export markets for ethanol are developed or domestic demand for ethanol increases. The United States ethanol industry is continuing to work to open export markets for ethanol, including the Mexican market, which may positively impact domestic ethanol prices. Export markets are not as reliable as the domestic ethanol market which can lead to ethanol price volatility.

We sold more gallons of ethanol during the firstsecond quarter of our 20182022 fiscal year compared to the firstsecond quarter of our 20172021 fiscal year due to increased production from our increased operating capacity at the ethanol plant and improved operating efficiency induring the 20182022 period. Management anticipates that our ethanolattributes this increased production and sales will continue to be higherless plant downtime during our 2018 fiscal

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year compared to our 2017 fiscal year due to the plant improvements we made which increased our total production capacity. In addition, the amount of ethanol we produced per bushel of corn we ground increased for the firstsecond quarter of our 20182022 fiscal year compared to the first quartersame period of our 20172021 fiscal year, which positively impacted our profitability. Weyear. Management anticipates ethanol production to remain at current levels provided market conditions allow us to continue to workoperate the ethanol plant at capacity. We anticipate continuing to focus on operating the ethanol plant as efficiently as possible in order to maximize the additional production capacity of our ethanol plant and improve our ethanol production efficiency.profitability.


From time to time we enter into forward sales contracts for our products. At DecemberMarch 31, 2017,2022, we experienced a realized gain of approximately $259,000 related to our ethanol derivative instruments, which increased our revenue. At March 31, 2022, we had no open ethanol futures contracts. EthanolAt March 31, 2021, we had open ethanol futures contracts resulted infor 1,470,000 gallons of ethanol with a fair value of approximately $281,000. We had a realized gain of approximately $1,800$494,000 on ethanol derivative instruments during the firstsecond quarter of our 20182021 fiscal year. Ethanol futures contracts foryear which increased our revenue.

Distillers Grains

    During the firstsecond quarter of our 20172022 fiscal year, we sold more tons of distillers grains compared to the same period of our 2021 fiscal year due to increased overall production along with lower corn to ethanol conversion efficiency which resulted in a loss of approximately $41,000.

Distillers Grains

Previously, we sold a majority of ourmore distillers grains in the dried form due to market conditions which favored that product. However, due to the Chinese anti-dumping and countervailing duty tariffs which have decreased export demandproduction. The average price we received for distillers grains, we increased the amount ofour modified distillers grains we produced and sold. Modified distillers grains are used in our local market and are less impacted by world distillers grains markets. The average prices we received for both our dried and modified distillers grains werewas higher during the firstsecond quarter of our 20182022 fiscal year compared to the firstsecond quarter of our 20172021 fiscal year. Management attributes these increasesyear due to increased overall demand for modified distillers grains.grains along with higher corn prices. The average price we received for our dried distillers grains was higher during the second quarter of our 2022 fiscal year compared to the second quarter of our 2021 fiscal year due to higher corn prices and increased export demand. Management believes prices for distillers grains have been strong due to higher corn prices and reduced worldwide corn supplies. Management anticipates distillers grains prices will remain at current levels unless we experience a significant increasehigher than the 2021 fiscal year during the rest of our 2022 fiscal year. Further, depending on the number of bushels of corn which are harvested in export demand for distillers grains.

We produced and sold more total tonsthe fall of 2022, these higher distillers grains during the first quarter ofprices may continue into our 20182023 fiscal year compared to the first quarter of our 2017 fiscal year due to increased overall production at the ethanol plant during the first quarter of our 2018 fiscal year along with decreased corn oil production. When we produce more pounds of corn oil, it decreases the volume of distillers grains we produce.year. Management anticipates relatively stableconsistent distillers grains production going forward.throughout the remainder of our 2022 fiscal year provided we can maintain favorable operating margins.
    
Corn Oil


The total pounds of corn oil we sold was lesshigher during the firstsecond quarter of our 20182022 fiscal year compared to the firstsecond quarter of our 20172021 fiscal year due to a change in the production process where lessincreased corn oil is being extracted.production during the 2022 period primarily due to increased overall production along with lower corn to ethanol production efficiency which resulted in additional pounds of corn oil we had for sale. Management anticipates that our corn oil production will continueremain at the current levellevels for the remaining quarters of our 20182022 fiscal year.year provided market conditions allow us to continue to operate the ethanol plant at capacity. The average price we received for our corn oil was slightly higher during the firstsecond quarter of our 20182022 fiscal year was higher compared to the firstaverage price we received during the second quarter of our 20172021 fiscal year primarily due primarily to increased corn oil demand fromand higher corn prices. In 2019, the biodiesel industry.blenders' tax credit was renewed retroactively from January 1, 2018 through December 31, 2022. This
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extension of the tax credit has created greater certainty in the biodiesel industry, which has resulted in increased demand for corn oil. This increase in demand may not continue past December 31, 2022.     

Cost of Goods Sold


Our cost of goods sold is primarily made up of corn and natural gas expenses. Our cost of goods sold was highergreater for the firstsecond quarter of our 20182022 fiscal year as compared to the firstsecond quarter of our 20172021 fiscal year due primarily to increased corn consumptioncosts per bushel and increased bushels of corn used along with increased natural gas costs per MMBtu and increased natural gas useusage gas during the first quarter of our 20182022 fiscal year as compared to the first quarter of our 2017 fiscal year. The increase in our cost of goods sold was greater than the increase in our revenue during the first quarter of our 2018 fiscal year as compared to the first quarter of our 2017 fiscal year, which decreased our profitability.


Corn Costs


Our cost of goods sold related to corn was lesshigher for the firstsecond quarter of our 20182022 fiscal year compared to the firstsecond quarter of our 20172021 fiscal year due to the net effect of increased corn consumption offset by decreased average corn costs per bushel, beforewithout taking derivative instrument positions into account, our hedge positions.along with an increase in the number of bushels of corn used to produce ethanol. For the firstsecond quarter of our 20182022 fiscal year, we used approximately 0.6%11.7% more bushels of corn compared to the firstsecond quarter of our 20172021 fiscal year.year due to increased ethanol production and decreased corn to ethanol conversion efficiency. The average price we paid per bushel of corn, without taking into account our derivative instruments, was approximately 7.6% less53.8% higher for the firstsecond quarter of our 20182022 fiscal year compared to the firstsecond quarter of our 20172021 fiscal year due to higher market corn prices during the second quarter of our 2022 fiscal year. In addition, during the firstsecond quarter of our 2018 fiscal year, we had a realized loss of approximately $569,000 for our corn derivative instruments which increased our cost of goods sold. For the first quarter of our 20172022 fiscal year, we had a realized gain of approximately $218,000$714,000 for our corn derivative instruments, which decreased our cost of goods sold.sold related to corn. For the second quarter of our 2021 fiscal year, we had a realized gain of approximately $449,000 for our corn derivative instruments, which decreased our cost of goods sold related to corn during that period. Management anticipates that we will consume more corn in the future due to our natural gas conversion project which allows us to produce more of our products. Management anticipates that corn prices will remain relatively stablehigher during the rest of our 20182022 fiscal year due to ampleincreased corn suppliesdemand in the market and relatively stableuncertainty about the number of bushels of corn demand.that will be harvested in the fall of 2022 along with global uncertainty resulting for the conflict in Ukraine which is a major agricultural producing nation.


Natural Gas Costs


We consumedused approximately 3.9%8.1% more MMBtu of natural gas during the firstsecond quarter of our 20182022 fiscal year compared to the firstsecond quarter of our 20172021 fiscal year due to increased overall production and colder weather duringat the 2018 period.ethanol plant. Our average

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cost per MMBtu of natural gas was approximately 2.9% less53.9% higher during the firstsecond quarter of our 20182022 fiscal year compared to the firstsecond quarter of our 20172021 fiscal year due to ample localhigher energy prices generally, and having fewer hedged MMBtus during our 2022 fiscal year. Management anticipates these higher natural gas supply.prices will remain higher during the rest of our 2022 fiscal year and potentially into our 2023 fiscal year.


General and Administrative Expenses


    Our general and administrative expenses were lower for the second quarter of our 2022 fiscal year compared to the second quarter of our 2021 fiscal year primarily due to recovery of bad debts during the 2022 fiscal year.

Other Income/Expense

    We had more interest income during the second quarter of our 2022 fiscal year compared to the second quarter of our 2021 fiscal year due to having more cash on hand during our 2022 fiscal year. Our other income was significantly less during the second quarter of our 2022 fiscal year compared to the second quarter of our 2021 fiscal year due to loan forgiveness we received during our 2021 fiscal year which were not repeated during our 2022 fiscal year. We had less interest expense during the second quarter of our 2022 fiscal year compared to the second quarter of our 2021 fiscal year due to decreased borrowing on our loans.

Results of Operations for the Six Months Ended March 31, 2022 and 2021

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 unaudited statements of operations for the six months ended March 31, 2022 and 2021:
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  Six Months Ended
March 31, 2022 (Unaudited)
Six Months Ended
March 31, 2021 (Unaudited)
Statement of Operations DataAmount%Amount%
Revenues$112,504,976 100.00 $61,821,644 100.00 
Cost of Goods Sold89,616,405 79.66 52,042,689 84.18 
Gross Profit22,888,571 20.34 9,778,955 15.82 
General and Administrative Expenses1,757,039 1.56 1,459,955 2.36 
Operating Income21,131,532 18.78 8,319,000 13.46 
Other Income, net2,679,018 2.38 900,334 1.46 
Net Income$23,810,550 21.16 $9,219,334 14.91 
    The following table shows additional data regarding production and price levels for our primary inputs and products for the six months ended March 31, 2022 and 2021.
Six Months Ended March 31, 2022 (unaudited)Six Months Ended
March 31, 2021
(unaudited)
Production:
  Ethanol sold (gallons)34,454,694 32,940,166 
  Dried distillers grains sold (tons)37,094 32,251 
  Modified distillers grains sold (tons)90,614 84,692 
Corn oil sold (pounds)9,622,950 7,085,600 
Revenues:
  Fuel grade ethanol average price per gallon (net of hedging)$2.53 $1.46 
  Dried distillers grains average price per ton217.30 160.14 
  Modified distillers grains average price per ton111.28 65.19 
Corn oil average price per pound0.59 0.34 
Primary Inputs:
  Corn ground (bushels)11,624,652 10,452,534 
Natural gas (MMBtu)789,641 733,461 
Costs of Primary Inputs:
  Corn average price per bushel (net of hedging)$6.11 $3.64 
Natural gas average price per MMBtu (net of hedging)5.10 2.58 
Other Costs (per gallon of ethanol sold):
  Chemical and additive costs$0.092 $0.075 
  Denaturant cost0.053 0.029 
  Electricity cost0.048 0.044 
  Direct labor cost0.067 0.062 

Revenue

    Our total revenue was higher in the six months ended March 31, 2022 compared to the same period of our six months ended March 31, 2021 primarily due to higher average prices for our products along with increased quantity of products sold during the 2022 period. During the six months ended March 31, 2022, approximately 77.8% of our total revenue was derived from ethanol and industrial alcohol sales, approximately 16.2% was from distillers grains sales, approximately 0.8% was from syrup sales and approximately 5.1% was from corn oil sales. During the six months ended March 31, 2021, approximately 78.0% of our total revenue was derived from ethanol and industrial alcohol sales, approximately 17.3% was from distillers grains sales, approximately 0.06 from syrup sales and approximately 3.9% was from corn oil sales.
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Ethanol

    The average price we received for our ethanol was significantly higher during the six months ended March 31, 2022 compared to the six months ended March 31, 2021. Management attributes the increase in the price we received for our ethanol during the six months ended March 31, 2022 to decreased ethanol stocks along with higher gasoline demand and prices and higher corn prices in the market. Gasoline demand increased during the six months ended March 31, 2022 due to increased travel compared to the six months ended March 31, 2021. Management anticipates gasoline demand will continue to increase, which management believes will positively impact ethanol prices. In addition, corn and energy prices have increased significantly which have resulted in higher market ethanol prices along with the uncertainty in Russia and Ukraine.
    We sold more gallons of ethanol during the six months ended March 31, 2022 compared to the six months ended March 31, 2021 due to increased production at the ethanol plant during the 2022 period. Management attributes this increased production to less plant downtime during the six months ended March 31, 2022 compared to the same period of our six months ended March 31, 2021. Management anticipates ethanol production to remain at current levels provided market conditions allow us to continue to operate the ethanol plant at capacity. We anticipate continuing to focus on operating the ethanol plant as efficiently as possible in order to maximize our profitability.

    From time to time we enter into forward sales contracts for our products. For the six months ended March 31, 2022, we experienced a realized gain of approximately $425,000 related to our ethanol derivative instruments, which increased our revenue. For the six months ended March 31, 2022, we had no open ethanol futures contracts. For the six months ended March 31, 2021, we had open ethanol futures contracts for 1,470,000 gallons of ethanol with a fair value of approximately $281,000. We had a realized gain of approximately $795,000 on ethanol derivative instruments during the six months ended March 31, 2021 which increased our revenue.

Distillers Grains

    During the six months ended March 31, 2022, we sold more tons of distillers grains compared to the same period of our six months ended March 31, 2021 due to increased overall production along with lower corn to ethanol conversion efficiency which resulted in more distillers grains production. The average price we received for our modified distillers grains was higher during the six months ended March 31, 2022 compared to the second quarter of our six months ended March 31, 2021 due to increased demand for modified distillers grains along with higher corn prices. The average price we received for our dried distillers grains was higher during the six months ended March 31, 2022 compared to the six months ended March 31, 2021 due to higher corn prices and increased export demand. Management believes prices for distillers grains have been strong due to higher corn prices and reduced worldwide corn supplies. Management anticipates distillers grains prices will remain higher than the 2021 fiscal year during the rest of our 2022 fiscal year. Further, depending on the number of bushels of corn which are harvested in the fall of 2022, these higher distillers grains prices may continue into our 2023 fiscal year. Management anticipates relatively consistent distillers grains production throughout the remainder of our 2022 fiscal year provided we can maintain favorable operating margins.

Corn Oil

    The total pounds of corn oil we sold was higher during the six months ended March 31, 2022 compared to the six months ended March 31, 2021 due to increased corn oil production during the 2022 period primarily due to increased overall production along with lower corn to ethanol production efficiency which resulted in additional pounds of corn oil we had for sale. Management anticipates that our corn oil production will remain at current levels for the remaining quarters of our 2022 fiscal year provided market conditions allow us to continue to operate the ethanol plant at capacity. The average price we received for our corn oil during the six months ended March 31, 2022 was higher compared to the average price we received during the six months ended March 31, 2021 primarily due to increased corn oil demand and higher corn prices. In 2019, the biodiesel blenders' tax credit was renewed retroactively from January 1, 2018 through December 31, 2022. This extension of the tax credit has created greater certainty in the biodiesel industry, which has resulted in increased demand for corn oil. This increase in demand may not continue past March 31, 2022.     

Cost of Goods Sold

    Our cost of goods sold is primarily made up of corn and natural gas expenses. Our cost of goods sold was greater for the six months ended March 31, 2022 as compared to the six months ended March 31, 2021 due primarily to increased corn
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costs per bushel and increased natural gas costs per MMBtu along with increased consumption of corn and natural gas during the six months ended March 31, 2022.

Corn Costs

Our cost of goods sold related to corn was higher for the six months ended March 31, 2022 compared to the six months ended March 31, 2021 due to increased average corn costs per bushel, without taking derivative instrument positions into account, along with an increase in the number of bushels of corn used to produce ethanol. For the six months ended March 31, 2022, we used approximately 11.21% more bushels of corn compared to the six months ended March 31, 2021 due to increased ethanol production. The average price we paid per bushel of corn, without taking into account our derivative instruments, was approximately 67.86% higher for the six months ended March 31, 2022 compared to the six months ended March 31, 2021 due to higher market corn prices during the six months ended March 31, 2022. In addition, during the six months ended March 31, 2022, we had a realized gain of approximately $1,065,000 for our corn derivative instruments, which decreased our cost of goods sold related to corn. For the six months ended March 31, 2021, we had a realized gain of approximately $699,000 for our corn derivative instruments, which decreased our cost of goods sold related to corn during that period. Management anticipates corn prices will remain higher during the rest of our six months ended March 31, 2022 due to increased corn demand in the market and uncertainty about the number of bushels of corn that will be harvested in the fall of 2022.

Natural Gas Costs

    We used approximately 7.66% more MMBtu of natural gas during the six months ended March 31, 2022 compared to the six months ended March 31, 2021 due to increased overall production at the ethanol plant. Our average cost per MMBtu of natural gas was approximately 97.67% higher during the six months ended March 31, 2022 compared to the six months ended March 31, 2021 due to higher energy prices generally, and having fewer hedged MMBtus during our six months ended March 31, 2022. Management anticipates these higher natural gas prices will continue during the rest of our six months ended March 31, 2022.

General and Administrative Expenses

Our general and administrative expenses were higher for the first quarter of our 2018 fiscal yearsix months ended March 31, 2022 compared to the first quarter of our 2017 fiscal yearsix months ended March 31, 2021 primarily due to additional consulting services neededan increase in permitting expenses during our 2018 fiscal year.the six months ended March 31, 2022.


Other Income/Expense


We had moreless interest income during the first quarter of our 2018 fiscal yearsix months ended March 31, 2022 compared to the first quarter of our 2017 fiscal yearsix months ended March 31, 2021 due to having greaterless cash balanceson hand during our 20172022 fiscal year. Our other income was greater during the six months ended March 31, 2022 compared to the six months ended March 31, 2021 due to the forgiveness received for the Ethanol Recovery Loan. We had less other incomeinterest expense during the first quarter of our 2018 fiscal yearsix months ended March 31, 2022 compared to the first quarter of our 2017 fiscal yearsix months ended March 31, 2021 due to a decreased capital account refund we received fromborrowing on our marketer during the 2018 period.loans.


Changes in Financial Condition for the ThreeSix Months Ended DecemberMarch 31, 20172022


Current Assets. We had more cash and equivalents at DecemberMarch 31, 20172022 compared to September 30, 20172021 primarily due to net income we generated during our 2022 fiscal year plus the draw we made on the CCS Construction Loan. We had less restricted cash at March 31, 2022 compared to September 30, 2021 because we had less cash in our margin account associated with our hedging transactions. Due to higher prices for our products, the value of our accounts receivable was higher at March 31, 2022 compared to September 30, 2021. We had more inventory on hand at March 31, 2022 compared to September 30, 2021 due primarily to higher market prices for our finished goods and raw materials at March 31, 2022 compared to September 30, 2021. Our prepaid expenses were higher at March 31, 2022 compared to September 30, 2021 due to an increase in our accounts payable due to deferred corn payments owed to our corn suppliers in our 2018 fiscalinsurance premiums paid for the year. We had less restricted cash at December 31, 2017 compared to September 30, 2017 related to cash we deposit in our margin account for our hedging transactions. Due to the timing of payments from our marketers, we had fewer accounts receivable at December 31, 2017 compared to September 30, 2017. We had less inventory on hand at December 31, 2017 compared to September 30, 2017 due primarily to having less ethanol and finished goods inventory at December 31, 2017.


Property, Plant and Equipment. The value of our property, plant and equipment was lowerhigher at DecemberMarch 31, 20172022 compared to September 30, 2017 primarily2021 due to theconstruction of our carbon capture and storage project and industrial alcohol project partially offset by regular depreciation of our assets.assets during the first six months of our 2022 fiscal year.

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Other Assets. Our right of use operating lease assets at March 31, 2022 was lower compared to September 30, 2021 due to amortization of our leases during our 2022 fiscal year.

Current Liabilities. We had less disbursements in excess of bank balances due to the increase in cash we had on hand at the end at March 31, 2022 to cover checks issued on our accounts. Our accounts payable was higherless at DecemberMarch 31, 20172022 compared to September 30, 20172021 due to having morefewer deferred corn payables at DecemberMarch 31, 2017.2022 compared to September 30, 2021. Our accrued expenses were higher at DecemberMarch 31, 20172022 compared to September 30, 2017 because we2021 due interest accrued on the CCS Construction Loan at March 31, 2022. We had more deferreda larger loss on firm purchase commitments due to rising corn payments owed toprices and the impact they have on our corn supplierscontracts at DecemberMarch 31, 2017 compared to September 30, 2017.

Long-term Liabilities. Our long-term liabilities were less at December 31, 20172022 compared to September 30, 2017 because2021. We had a larger current maturity associated with our notes payable due to amounts outstanding on our CCS Construction Loan for our carbon capture project as of capital leaseMarch 31, 2022 compared to September 30, 2021. We had more current portion of operating leases liabilities at March 31, 2022 compared to September 30, 2021 due to new leases we executed during our 2022 fiscal year.

Long-Term Liabilities. We had less notes payable at March 31, 2022 compared to September 30, 2021 due to payments we made on our long-term loans, the Ethanol Recovery Program forgiveness we received during the second quarter of our 2022 fiscal year, and the PPP loan forgiveness we received during our 20182021 fiscal year. We had less long-term liabilities for our operating leases at March 31, 2022 due to amortization of our long-term leases during our 2022 fiscal year.


Liquidity and Capital Resources


Based on financial forecasts performed by our management, we anticipate that we will have sufficient cash from our current credit facilities and cash from our operations to continue to operate the ethanol plant for the next 12 months.months and beyond. We also anticipate refinancing the current CCS Construction Loan as long-term debt upon completion of the project. 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.
    
The following table shows cash flows for the threesix months ended DecemberMarch 31, 20172022 and 2016:2021:
March 31, 2022
(unaudited)
March 31, 2021
(unaudited)
Net cash provided by operating activities$10,784,017 $3,562,867 
Net cash used in investing activities(12,501,437)(8,652,666)
Net cash provided by (used in) financing activities6,648,257 (1,870,332)
Net increase (decrease) in cash$4,930,837 $(6,960,131)
Cash, cash equivalents and restricted cash, end of period$10,146,081 $4,152,358 
  
December 31, 2017
(unaudited)
 
December 31, 2016
(unaudited)
Net cash provided by operating activities $8,102,679
 $10,592,632
Net cash (used in) investing activities (32,345) (174,001)
Net cash (used in) financing activities (652) (565,611)
Net increase in cash $8,069,682
 $9,853,020
Cash and cash equivalents, end of period $11,293,024
 $20,127,186


Cash Flow from Operations


Our operations provided lessmore cash during the first quarter of our 2018 fiscal yearsix months ended March 31, 2022 compared to the same period of our 20172021 fiscal year due primarily to decreased profitabilityincreased net income during the 20182022 period.



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Cash Flow From Investing Activities


We used lessmore cash for capital expenditures during the first quarter of our 2018 fiscal yearsix months ended March 31, 2022 compared to the same period of our 20172021 fiscal year. During the 20182022 period, our primary capital expenditures were for finishing parts for the hammer millour carbon capture and storage project that was started last fiscal year.and our industrial alcohol project.
    
Cash Flow from Financing Activities


We used less cash forOur financing activities provided cash during the first quarter of our 2018 fiscal yearsix months ended March 31, 2022 compared to the first quartersame period of our 20172021 fiscal year becausedue to proceeds we did not have any unit repurchasesreceived from our debt instruments during the 2018 period.2022 fiscal year partially offset by debt payments we have made. We also paid a larger distribution to our members during the 2022 period compared to the 2021 period which decreased cash provided by our financing activities.


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Our liquidity, results of operations and financial performance will be impacted by many variables, including the market price for commodities such as, but not limited to, corn, ethanol and other energy commodities, as well as the market price for any co-products generated by the facility and the cost of labor and other operating costs.  Assuming future relative price levels for corn, ethanol and distillers grains remain consistent, we expect operations to generate adequate cash flows to maintain operations.operations for the next 12 months and beyond.


Plans for Cash in the Short Term and in the Long Term

In the next 12 months, the Company plans to reinvest its cash into current business operations and to use the cash for the implementation of the new carbon capture and storage project and the industrial alcohol project. In the long term, the Company plans to reinvest its cash into current business operations and may provide further distributions to its members.

Capital Expenditures
 
The Company had approximately $134,000$33 million in construction in progress as of DecemberMarch 31, 20172022 primarily relating to improvements being madethe carbon capture and storage project. The Company has secured two construction loans with Cornerstone Bank to finance these projects which were each extended on April 8, 2022 as described below under the additional land and railroad track purchased last fiscal year.section entitled "Capital Resources".


Capital Resources


Revolving Loan


On March 20, 2017,January 22, 2020, we entered into a new $10 million revolving loan (the "Revolving Loan") with U.S.Cornerstone Bank National Association ("U.S. Bank"Cornerstone"). The Revolving Loan replaced a similar revolving loan we had with First National Bank of Omaha. Interest accrues on any outstanding balance on the Revolving Loan at a rate of 1.77% in excess1.2% less than the prime rate as published by the Wall Street Journal, adjusted monthly. The Revolving Loan has a minimum interest rate of the one-month London Interbank Offered Rate ("LIBOR")3.0%. The maturity date of the Revolving Loan is Maywas January 31, 2018. Our ability to draw funds on2022. On February 3, 2022, the Revolving Loan was renewed, and the new maturity date was March 31, 2022. The Revolving Loan is subject tosecured by a borrowing base calculation as set forth in the Credit Agreement.lien on substantially all of our assets. At DecemberMarch 31, 2017,2022, we had $10 million available on the Revolving Loan. We had $0 drawnThe variable interest rate on March 31, 2022 was 3.00%. On April 8, 2022, the Revolving Loan as of December 31, 2017.was extended until April 7, 2023.

Construction Loans

    On January 22, 2020, we entered into a new $7 million construction loan (the "Construction Loan") with Cornerstone to finance our carbon capture and storage project. Interest accruedaccrues on any outstanding balance on the RevolvingConstruction Loan as of December 31, 2017 at a rate of 3.40%1.2% less than the prime rate as published by the Wall Street Journal, adjusted monthly. The original maturity date of the Construction Loan was June 1, 2021. On June 3, 2021 the maturity date was extended to February 1, 2022. On April 8, 2022, the Construction Loan was extended to October 8, 2022. At March 31, 2022, we had $7 million available under the Construction Loan. The variable interest rate on March 31, 2022 was 3.00%.


Restrictive Covenants

    On February 1, 2021, we entered into a $28 million construction loan (the "CCS Construction Loan") with Cornerstone to finance our carbon capture and storage project. Interest accrues on any outstanding balance on the CCS Construction Loan at a rate of 1.2% less than the prime rate as published by the Wall Street Journal, adjusted monthly. The RevolvingCCS Construction Loan has a minimum interest rate of 3.0%. The maturity date of the CCS Construction Loan was January 31, 2022. On February 17, 2022, the CCS Construction Loan was extended to March 15, 2022. On April 8, 2022, the CCS Construction Loan was again extended to October 8, 2022. The CCS Construction Loan is subjectsecured by a lien on substantially all of our assets. At March 31, 2022, we had drawn $18 million on the loan and had $10 million available under the CCS Construction Loan. The variable interest rate on March 31, 2022 was 3.00%.

Ethanol Recovery Program

On July 13, 2020, we entered into a $5.41 million loan through the Bank of North Dakota's Ethanol Recovery Program and Cornerstone. The Ethanol Recovery Program was developed by the North Dakota Ethanol Producers Association and the Bank of North Dakota to certain financial covenantsuse the existing Biofuels Partnership in Assisting Community Expansion ("PACE") program and Value-added Guarantee Loan program to help ethanol production facilities weather the economic challenges caused by the COVID-19 pandemic. Ethanol producers could qualify for up to $15 million of a low interest loan of 1% based on the amount of such producers' annual corn grind. The maturity date of the loan is July 13, 2025. The fixed interest rate as set forth inof March 31,
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2022 was 3.75% with an interest rate buy down through the Credit Agreement. The most significant financial covenants require usBank of North Dakota to maintain a fixed charge coverage ratio1%. We typically make monthly payments of no less than 1.25:1.00approximately $74,000 per month. On December 3, 2021 we received forgiveness of $2.65 million of the loan, and a current ratio of no less than 1.50:1.00. Our fixed charge coverage ratio measures our ability to pay our fixed expenses. Our current ratio measures our liquidity and ability to pay short-term and long-term obligations.the balance outstanding on March 31, 2022 was approximately $1.58 million.
As of December 31, 2017, we were in compliance with our loan covenants.


Significant Accounting Policies and Estimates


We describe our significant accounting policies in Note 1, Summary of Significant Accounting Policies, of the Notes to Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2021. We discuss our critical accounting estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2021. There has been no significant change in our significant accounting policies or critical accounting estimates since the end of our 20172021 fiscal year. Effective October 1, 2020 the Company adopted ASU2016-13 using the modified retrospective approach.


Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.Praj Industries Limited ("Praj") has provided the Company with a Standby Letter of Credit of $265,950 as a performance guarantee for the Eco-Smart Distillation unit purchased for the Industrial Alcohol Project. The Eco-Smart Distillation unit will allow the Company to produce up to 25 million gallons per year of USP grade industrial alcohol. The Standby Letter of Credit covers Praj's liability toward under-performance of the distillation unit based on daily plant capacity, steam consumption, and quality of USP grade alcohol produced. The Standby Letter of Credit is payable upon written demand by the Company of non-performance of the distillation unit during the performance trial run. The Standby Letter of Credit expired on March 31, 2022.


Item 3.Quantitative and Qualitative Disclosures About Market Risk.


We are exposed to the impact of market fluctuations associated with commodity prices as discussed below. We use derivative financial instruments as part of an overall strategy to manage market risk. We use cash, futures and option contracts to hedge changes to the commodity prices of corn and ethanol. We do not enter into these derivative financial instruments for trading

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or speculative purposes, nor do we designate these contracts as hedges for accounting purposes pursuant to the requirements of Generally Accepted Accounting Principles ("GAAP"). 


Commodity Price Risk
 
We expect to be exposed to market risk from changes in commodity prices.  Exposure to commodity price risk results from our dependence on corn and natural gas in the ethanol production process and the sale of ethanol. Our exposure to commodity price risk may be heightened due to the crisis in Ukraine.
 
We enter into fixed price contracts for corn purchases on a regular basis.  It is our intent that, as we enter into these contracts, we will use various hedging instruments (puts, calls and futures) to maintain a near even market position.  For example, if we have 1one million bushels of corn under fixed price contracts we would generally expect to enter into a short hedge position to offset our price risk relative to those bushels we have under fixed price contracts. Because our ethanol marketing company (RPMG)("RPMG") is selling substantially all of the gallons it markets on a spot basis we also include the corn bushel equivalent of the ethanol we have produced that is inventory but not yet priced as bushels that need to be hedged.
 
Although we believe our hedge positions will accomplish an economic hedge against our future purchases, they are not designated as hedges for accounting purposes, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged.  We use fair value accounting for our hedge positions, which means as the current market price of our hedge positions changes, the gains and losses are immediately recognized in our cost of sales.  The immediate recognition of hedging gains and losses under fair value accounting can cause net income to be volatile from quarter to quarter and year to year due to the timing of the change in value of derivative instruments relative to the cost of the commodity being hedged.  However, it is likely that commodity cash prices will have the greatest impact on the derivatives instruments with delivery dates nearest the current cash price.
 
As of DecemberMarch 31, 2017, we had fixed corn purchase contracts for approximately 700,000 bushels of corn and2022 we had corn futures and option contracts for approximately 11.5 million3,600,000 bushels of corn. As of DecemberMarch 31, 20172022 we had an unrealized loss of approximately $569,000$163,000 related to our corn futures and optionoptions contracts.
 
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It is the current position of our ethanol marketing company, RPMG, that under current market conditions, selling ethanol in the spot market will yield the best price for our ethanol.  RPMG will, from time to time, contract a portion of the gallons they market with fixed price contracts.  At March 31, 2022, we had fixed ethanol sales contracts and ethanol futures and option contracts for approximately 84,000 gallons of ethanol. As of March 31, 2022 we had an unrealized gain of approximately $12,000 related to our ethanol futures and option contracts.
 
We estimate that our corn usage will be between 21 million and 23 million bushels per calendar year for the production of approximately 59 million to 64 million gallons of ethanol.  As corn prices move in reaction to market trends and information, our income statement will be affected depending on the impact such market movements have on the value of our derivative instruments.

A sensitivity analysis has been prepared to estimate our exposure to corn, natural gas and ethanol price risk. Market risk related to our corn, natural gas and ethanol prices is estimated as the potential change in income resulting from a hypothetical 10% adverse change in the average cost of our corn and natural gas, and our average ethanol sales price as of DecemberMarch 31, 2017,2022, net of the forward and future contracts used to hedge our market risk for corn, natural gas and ethanol. The volumes are based on our expected use and sale of these commodities for a one year period from DecemberMarch 31, 2017.2022. The results of this analysis, which may differ from actual results, are as follows:
Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)Unit of MeasureHypothetical Adverse Change in PriceApproximate Adverse Change to Income
Ethanol63,900,000 Gallons10 %$(14,697,000)
Corn22,822,000 Bushels10 %$(10,041,000)
Natural gas1,664,000 MMBtu10 %$(653,000)

For comparison purposes, our sensitivity analysis for our quarter ended March 31, 2021 is set forth below:
Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)Unit of MeasureHypothetical Adverse Change in PriceApproximate Adverse Change to Income
Ethanol63,900,000 Gallons10 %$(11,237,000)
Corn22,822,000 Bushels10 %$(7,344,000)
Natural gas1,664,000 MMBtu10 %$(499,000)

 Estimated Volume Requirements for the next 12 months (net of forward and futures contracts) Unit of Measure Hypothetical Adverse Change in Price Approximate Adverse Change to Income
Ethanol63,900,000
 Gallons 10% $(7,029,000)
Corn22,820,000
 Bushels 10% $(3,490,000)
Natural gas1,664,000
 MMBtu 10% $(466,000)

Item 4.  Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures.


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Our management, including our President and Chief Executive Officer (the principal executive officer), Gerald Bachmeier, along with our Chief Financial Officer, (the principal financial officer), Jodi Johnson, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of DecemberMarch 31, 2017.2022. Based on this review and evaluation, these officers believe that our disclosure controls and procedures arewere effective in ensuring that material information related to us is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission.


For the fiscal quarter ended DecemberMarch 31, 2017, we made the following changes2022, there has been no change in our internal control over financial reporting which havethat has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting:reporting.


A review and updating of month-end standard operating procedures.
An additional step was added for the CFO and CEO to review all unusual transactions prior to financial statement preparation.

We made these material changes in our internal control over financial reporting as a result of a material weakness we identified in our annual report on Form 10-K for the fiscal year ended September 30, 2017.

PART II.     OTHER INFORMATION


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Item 1. 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 1A. Risk Factors


There has nothave been anyno material changechanges to the risk factors which were previously disclosed in our annual report on Form 10-K for the fiscal year ended September 30, 2017.2021 except as set forth below.


The Company faces risks related to international conflicts, such as the ongoing conflict between Russia and Ukraine, that may adversely impact the Company's financial condition or results of operations.

In late February of 2022, Russia initiated a military operation in Ukraine. The Black Sea region is a key international grain and fertilizer export market and the conflict between Russia and Ukraine could continue to disrupt supply and logistics, cause volatility in prices, and impact global margins due to increased commodity, energy, and input costs. The Company currently does not purchase products directly from this region, however, the impact to the global supply could put the Company’s ability to secure product at risk over time.

To the extent the conflict between Russia and Ukraine adversely affects our business, it may also have the effect of heightening other risks disclosed in Part I, “Item 1A. Risk Factors” in the Company's 2021 Annual Report on Form 10-K, any of which could materially and adversely affect the Company's financial condition and results of operations. However, due to the continually evolving nature of the conflict, the potential impact that the conflict could have on such risk factors, and others that cannot yet be identified, remains uncertain. The Company continues to monitor the conflict and assess alternatives to mitigate these risks.

Inflation, including as a result of commodity price inflation or supply chain constraints due to the war in Ukraine, may adversely impact our results of operations.

We have experienced inflationary impacts on business expenses. Commodity prices in particular have risen significantly over the past year. Inflation and its negative impacts could escalate in future periods.

Ukraine is the third largest exporter of grain in the world. Russia is one of the largest producers of natural gas and oil and is the largest exporter of fertilizers. The commodity price impact of the war in Ukraine has been a sharp and sustained rise in grain and energy prices, including corn and natural gas. In addition, the war in Ukraine has adversely affected and may continue to adversely affect global supply chains resulting in further commodity price inflation for our production inputs. Lower fertilizer supplies may also impact future growing seasons, further impacting grain supplies and prices. Also, given high global grain prices, U.S. farmers may prefer to lock in prices and export additional volumes, reducing domestic grain supplies and resulting in further inflationary pressures.

We may not be able to include these additional costs in the prices of the products we sell. As a result, inflation may have a material adverse effect on our results of operations and financial condition.

The ability or willingness of OPEC and other oil exporting nations to set and maintain production levels and/or the impact of sanctions on Russia related to the war in Ukraine may have a significant impact on 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 expired on April 1, 2020. These actions led to an immediate and steep decrease in oil prices. Conversely, sanctions imposed on Russia in the last few months have increased 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 sanctions or other global conflicts will not further impact oil prices. Uncertainty regarding future sanctions or actions to be taken by OPEC+ members or other oil
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exporting countries could lead to increased volatility in the price of oil and natural gas, which could adversely affect our business, future financial condition and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.


Item 3. Defaults Upon Senior Securities


None.


Item 4.Mine Safety Disclosures.


None.


Item 5.Other Information


None.





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Item 6. Exhibits.


(a)The following exhibits are filed as part of this report.
(a)The following exhibits are filed as part of this report.
Exhibit No.Exhibits




101
Revolving Loan Change in Terms, dated 2-3-2022
Construction Loan Change in Terms, dated 2-17-2022
101.INS*Inline XBRL Instance Document
101.SCH*Inline XBRL Schema Document
101.CAL*Inline XBRL Calculation Document
101.LAB*Inline XBRL Labels Linkbase Document
101.PRE*Inline XBRL Presentation Linkbase Document
101.DEF*Inline XBRL Definition Linkbase Document
104 The following financial informationcover page from Red Trail Energy, LLC'sthis Quarterly Report on Form 10-Q for the quarter ended December 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of December 31, 2017 and September 30, 2017, (ii) Statements of Operations for the three months ended December 31, 2017 and 2016, (iii) Statements of Cash Flows for the three months ended December 31, 2017 and 2016, and (iv) the Notes to Unaudited Condensed Financial Statements.**Inline XBRL.


(*)    Filed herewith.
(**)    Furnished herewith.


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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
RED TRAIL ENERGY, LLC
Date:May 16, 2022RED TRAIL ENERGY, LLC
Date:February 14, 2018/s/ Gerald Bachmeier
Gerald Bachmeier
President and Chief Executive Officer
(Principal Executive Officer)
Date:February 14, 2018May 16, 2022/s/ Jodi Johnson
Jodi Johnson
Chief Financial Officer
(Principal Financial and Accounting Officer)


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