UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

quarterly period ending

~~December~~March 31, ~~2020~~2021

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to __________


Commission file number			000-53041

SOUTHWEST IOWA RENEWABLE ENERGY, LLC
(Exact name of registrant as specified in its charter)

Iowa			20-2735046
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

10868 189th Street, Council Bluffs, Iowa			51503
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number (712) 366-0392

Securities registered under Section 12(b) of the Exchange Act:			None.

Title of each class			Name of each exchange on which registered

Securities registered under Section 12(g) of the Exchange Act:
Series A Membership Units
(Title of class)






Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the 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. ~~Yes~~ x No o
Yes	☒	No	☐
Indicate by check mark whether the registrant has submitted electronically on its corporate Website, 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). ~~Yes~~ x No o
Yes	☒	No	☐


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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Emerging growth company	☐
Smaller reporting company	☒
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).
Yes	☐	No	☒
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.			☐

As of ~~12/31/2020,~~March 31, 2021, the Company had 8,975 Series A Membership Units outstanding.

TABLE OF CONTENTS

PART I – FINANCIAL STATEMENTS

Item 1. Financial Statements

SOUTHWEST IOWA RENEWABLE ENERGY, LLC

Balance Sheets

(Dollars in thousands)


ASSETS	ASSETS	December 31, 2020		September 30, 2020		ASSETS	March 31, 2021		September 30, 2020
		(Unaudited)					(Unaudited)
Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	$	1,267	$	1,116	Cash and cash equivalents	$	1,081	$	1,116

Accounts receivable		7,082		8,488
Accounts receivable, net of allowance for doubtful accounts						Accounts receivable, net of allowance for doubtful accounts	11,915		8,488

Derivative financial instruments	Derivative financial instruments	3,115		705		Derivative financial instruments	2,280		705

Inventory	Inventory	19,767		13,369		Inventory	19,114		13,369
Prepaid expenses and other	Prepaid expenses and other	1,459		424		Prepaid expenses and other	1,310		424
Total current assets	Total current assets	32,690		24,102		Total current assets	35,700		24,102

Property, Plant and Equipment	Property, Plant and Equipment					Property, Plant and Equipment
Land	Land	2,064		2,064		Land	2,064		2,064
Plant, building and equipment	Plant, building and equipment	247,436		247,462		Plant, building and equipment	248,230		247,462
Office and other equipment	Office and other equipment	1,806		1,803		Office and other equipment	1,805		1,803
		251,306		251,329			252,099		251,329
Accumulated depreciation	Accumulated depreciation	(145,204)		(142,444)		Accumulated depreciation	(147,968)		(142,444)
Net property, plant and equipment	Net property, plant and equipment	106,102		108,885		Net property, plant and equipment	104,131		108,885

Other Assets	Other Assets					Other Assets
Right of use asset operating leases, net	Right of use asset operating leases, net	5,936		6,667		Right of use asset operating leases, net	5,060		6,667
Other assets	Other assets	1,172		1,172		Other assets	932		1,172
		7,108		7,839			5,992		7,839
Total Assets	Total Assets	$	145,900	$	140,826	Total Assets	$	145,823	$	140,826

Notes to Financial Statements are an integral part of this statement	Notes to Financial Statements are an integral part of this statement					Notes to Financial Statements are an integral part of this statement

SOUTHWEST IOWA RENEWABLE ENERGY, LLC

Balance Sheets

(Dollars in thousands)


LIABILITIES AND MEMBERS' EQUITY	LIABILITIES AND MEMBERS' EQUITY	December 31, 2020		September 30, 2020		LIABILITIES AND MEMBERS' EQUITY	March 31, 2021		September 30, 2020
		(Unaudited)					(Unaudited)
Current Liabilities	Current Liabilities					Current Liabilities
Accounts payable	Accounts payable	$	10,433	$	3,204	Accounts payable	$	3,088	$	3,204

Accrued expenses	Accrued expenses	6,657		4,176		Accrued expenses	4,728		4,176

Current maturities of notes payable	Current maturities of notes payable	8,198		8,191		Current maturities of notes payable	4,455		8,191
Current portion of operating lease liability	Current portion of operating lease liability	2,999		3,052		Current portion of operating lease liability	3,013		3,052
Total current liabilities	Total current liabilities	28,287		18,623		Total current liabilities	15,284		18,623

Long Term Liabilities	Long Term Liabilities					Long Term Liabilities
Notes payable, less current maturities	Notes payable, less current maturities	43,509		48,529		Notes payable, less current maturities	60,585		48,529
Other long-term liabilities	Other long-term liabilities	4,252		4,255		Other long-term liabilities	4,138		4,255
Operating lease liability, less current maturities		2,937		3,615
Long term portion of operating lease liability, less current portion						Long term portion of operating lease liability, less current portion	2,047		3,615
Total long term liabilities	Total long term liabilities	50,698		56,399		Total long term liabilities	66,770		56,399

Members' Equity	Members' Equity					Members' Equity
Members' capital, 8,975 units issued and outstanding	Members' capital, 8,975 units issued and outstanding	64,106		64,106		Members' capital, 8,975 units issued and outstanding	64,106		64,106
Retained earnings		2,809		1,698
Retained earnings (deficit)						Retained earnings (deficit)	(337)		1,698
Total members' equity	Total members' equity	66,915		65,804		Total members' equity	63,769		65,804

Total Liabilities and Members' Equity	Total Liabilities and Members' Equity	$	145,900	$	140,826	Total Liabilities and Members' Equity	$	145,823	$	140,826

Notes to Financial Statements are an integral part of this statement	Notes to Financial Statements are an integral part of this statement					Notes to Financial Statements are an integral part of this statement

SOUTHWEST IOWA RENEWABLE ENERGY, LLC

Statements of Operations

(Dollars in thousands except for net income per unit)

(Unaudited)


		Three Months Ended		Three Months Ended				Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
		December 31, 2020		December 31, 2019				March 31, 2021		March 31, 2020		March 31, 2021		March 31, 2020

Revenues	Revenues	$	55,410	$	62,065		Revenues	$	70,001	$	50,328	$	125,411	$	112,393
Cost of Goods Sold	Cost of Goods Sold						Cost of Goods Sold
Cost of goods sold-non hedging	Cost of goods sold-non hedging	53,649		57,044			Cost of goods sold-non hedging	71,667		53,575		125,316		110,619
Realized & unrealized hedging (gains)		(957)		(417)
Realized & unrealized hedging losses (gains)							Realized & unrealized hedging losses (gains)	421		(385)		(536)		(802)
		52,692		56,627				72,088		53,190		124,780		109,817

Gross Margin		2,718		5,438
Gross Margin (Loss)							Gross Margin (Loss)	(2,087)		(2,862)		631		2,576

General and administrative expenses	General and administrative expenses	1,335		1,244			General and administrative expenses	1,311		1,279		2,646		2,523

Operating Income		1,383		4,194
Operating Income (Loss)							Operating Income (Loss)	(3,398)		(4,141)		(2,015)		53

Interest and other expense, net		272		341
Interest and other (income) expense, net							Interest and other (income) expense, net	(252)		609		20		950

Net Income		$	1,111	$	3,853
Net (Loss)							Net (Loss)	$	(3,146)	$	(4,750)	$	(2,035)	$	(897)

Weighted average units outstanding - basic	Weighted average units outstanding - basic	8,975		12,652			Weighted average units outstanding - basic	8,975		8,975		8,975		10,824
Weighted average units outstanding - diluted	Weighted average units outstanding - diluted	8,975		13,104			Weighted average units outstanding - diluted	8,975		8,975		8,975		10,824
Net Income per unit - basic		$	123.79	$	304.54
Net Income per unit - diluted		$	123.79	$	294.03
Net (Loss) per unit - basic							Net (Loss) per unit - basic	$	(350.53)	$	(529.25)	$	(226.74)	$	(82.87)
Net (Loss) per unit - diluted							Net (Loss) per unit - diluted	$	(350.53)	$	(529.25)	$	(226.74)	$	(82.87)

Notes to Financial Statements are an integral part of this statement	Notes to Financial Statements are an integral part of this statement					Notes to Financial Statements are an integral part of this statement


SOUTHWEST IOWA RENEWABLE ENERGY, LLC	SOUTHWEST IOWA RENEWABLE ENERGY, LLC							SOUTHWEST IOWA RENEWABLE ENERGY, LLC
Statements of Members' Equity	Statements of Members' Equity							Statements of Members' Equity
(Dollars in thousands)	(Dollars in thousands)							(Dollars in thousands)
		Members' Capital		Retained Earnings		Total			Members' Capital		Retained Earnings (Deficit)		Total

Balance, September 30, 2019	Balance, September 30, 2019	$	87,165	$	2,140	$	89,305	Balance, September 30, 2019	$	87,165	$	2,140	$	89,305
Repurchase of membership units	Repurchase of membership units	(23,059)		0		(23,059)		Repurchase of membership units	(23,059)		0		(23,059)
Net Income	Net Income	0		3,853		3,853		Net Income	0		3,853		3,853

Balance, December 31, 2019	Balance, December 31, 2019	$	64,106	$	5,993	$	70,099	Balance, December 31, 2019	64,106		5,993		70,099

Net (Loss)								Net (Loss)	0		(4,750)		(4,750)
Balance, March 31, 2020								Balance, March 31, 2020	$	64,106	$	1,243	$	65,349

Balance, September 30, 2020	Balance, September 30, 2020	$	64,106	$	1,698	$	65,804	Balance, September 30, 2020	$	64,106	$	1,698	$	65,804
Net Income	Net Income	0		$	1,111	1,111		Net Income	0		1,111		1,111
Balance, December 31, 2020	Balance, December 31, 2020	$	64,106	2,809		$	66,915	Balance, December 31, 2020	64,106		2,809		66,915

Net (Loss)								Net (Loss)	0		(3,146)		$	(3,146)
Balance, March 31, 2021								Balance, March 31, 2021	$	64,106	$	(337)	$	63,769

Notes to Financial Statements are an integral part of this statement	Notes to Financial Statements are an integral part of this statement							Notes to Financial Statements are an integral part of this statement

SOUTHWEST IOWA RENEWABLE ENERGY, LLC

Statements of Cash Flows

(Dollars in thousands)


(Unaudited)	(Unaudited)					(Unaudited)
		Three Months Ended		Three Months Ended			Six Months Ended		Six Months Ended
		December 31, 2020		December 31, 2019			March 31, 2021		March 31, 2020
CASH FLOWS FROM OPERATING ACTIVITIES	CASH FLOWS FROM OPERATING ACTIVITIES					CASH FLOWS FROM OPERATING ACTIVITIES
Net Income		$	1,111	$	3,853
Adjustments to reconcile to net cash provided by operating activities:
Net (Loss)						Net (Loss)	$	(2,035)	$	(897)
Adjustments to reconcile to net cash provided by (used in) operating activities:						Adjustments to reconcile to net cash provided by (used in) operating activities:
Depreciation	Depreciation	2,760		2,602		Depreciation	5,524		5,205
Amortization	Amortization	11		24		Amortization	28		54

Loss on disposal of property and equipment						Loss on disposal of property and equipment	0		13
Bad debt expense						Bad debt expense	11		0

Change in other assets, net						Change in other assets, net	240		422

(Increase) decrease in current assets:	(Increase) decrease in current assets:					(Increase) decrease in current assets:
Accounts receivable	Accounts receivable	1,406		2,438		Accounts receivable	(3,438)		6,335
Inventory	Inventory	(6,398)		2,249		Inventory	(5,745)		1,301
Prepaid expenses and other	Prepaid expenses and other	(1,035)		(1,111)		Prepaid expenses and other	(886)		(748)
Derivative financial instruments	Derivative financial instruments	(2,410)		(53)		Derivative financial instruments	(1,575)		(412)
Increase (decrease) in current liabilities:	Increase (decrease) in current liabilities:					Increase (decrease) in current liabilities:
Accounts payable	Accounts payable	7,229		6,016		Accounts payable	(116)		(556)
Derivative financial instruments	Derivative financial instruments	0		(120)		Derivative financial instruments	0		213
Accrued expenses	Accrued expenses	2,481		203		Accrued expenses	552		(3,313)
Increase (decrease) in other long-term liabilities	Increase (decrease) in other long-term liabilities	(3)		576		Increase (decrease) in other long-term liabilities	(117)		722
Net cash provided by operating activities		5,152		16,677
Net cash provided by (used in) by operating activities						Net cash provided by (used in) by operating activities	(7,557)		8,339

CASH FLOWS FROM INVESTING ACTIVITIES	CASH FLOWS FROM INVESTING ACTIVITIES					CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment	Purchase of property and equipment	(213)		(2,426)		Purchase of property and equipment	(1,006)		(5,236)

Proceeds from sale of property and equipment	Proceeds from sale of property and equipment	236		0		Proceeds from sale of property and equipment	236		0
Net cash provided by (used in) investing activities		23		(2,426)
Net cash (used in) investing activities						Net cash (used in) investing activities	(770)		(5,236)

CASH FLOWS FROM FINANCING ACTIVITIES	CASH FLOWS FROM FINANCING ACTIVITIES					CASH FLOWS FROM FINANCING ACTIVITIES

Payments for financing costs	Payments for financing costs	0		(205)		Payments for financing costs	(33)		(223)

Settlement of put option liability	Settlement of put option liability	0		(6,037)		Settlement of put option liability	0		(6,037)
Proceeds from debt	Proceeds from debt	40,290		103,731		Proceeds from debt	115,599		156,654
Payments on debt	Payments on debt	(45,314)		(88,733)		Payments on debt	(107,274)		(130,489)
Repurchase of membership units	Repurchase of membership units	0		(23,059)		Repurchase of membership units	0		(23,059)
Net cash (used in) financing activities		(5,024)		(14,303)
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	8,292		(3,154)

Net increase (decrease) in cash and cash equivalents		151		(52)

Net (decrease) in cash and cash equivalents						Net (decrease) in cash and cash equivalents	(35)		(51)

CASH AND CASH EQUIVALENTS	CASH AND CASH EQUIVALENTS					CASH AND CASH EQUIVALENTS
Beginning	Beginning	1,116		1,075		Beginning	1,116		1,075
Ending	Ending	$	1,267	$	1,023	Ending	$	1,081	$	1,024

SUPPLEMENTAL DISCLOSURES OF NONCASH INFORMATION	SUPPLEMENTAL DISCLOSURES OF NONCASH INFORMATION					SUPPLEMENTAL DISCLOSURES OF NONCASH INFORMATION

SUPPLEMENTAL CASH FLOW INFORMATION	SUPPLEMENTAL CASH FLOW INFORMATION					SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	Cash paid for interest	$	468	$	278	Cash paid for interest	$	973	$	842

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES	SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES					SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Establishment of lease liability and right-of-use asset	Establishment of lease liability and right-of-use asset	$	0	$	9,684	Establishment of lease liability and right-of-use asset	$	0	$	9,684

Notes to Financial Statements are an integral part of this statement	Notes to Financial Statements are an integral part of this statement					Notes to Financial Statements are an integral part of this statement

SOUTHWEST IOWA RENEWABLE ENERGY, LLC

Notes to Financial Statements

Note 1: Nature of Business

Southwest Iowa Renewable Energy, LLC (the “Company”), located in Council Bluffs, Iowa, was formed in March, 2005, and began producing ethanol in February, 2009. The Company is permitted to produce up to 140 million gallons of ethanol per year. The Company sells its ethanol, distillers grains, corn syrup and corn oil in the continental United States, Mexico, and the Pacific Rim.

Note 2: Summary of Significant Accounting Policies

Basis of Presentation and Other Information

The accompanying financial statements are for the three months and six months ended ~~December~~March 31, ~~2020~~2021 and ~~2019,~~2020, and are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. These unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes thereto, for the fiscal year ended September 30, 2020 ("Fiscal 2020") contained in the Company’s Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Revenue Recognition

The Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) on October 1, 2018. Under the ASU, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the considerations the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from the contracts with customers. The Company applied the five-step method outlined in the ASU to all contracts with customers, and elected the modified retrospective implementation method.

The Company sells ethanol and related products pursuant to marketing agreements. Revenues are recognized when the risk of loss has been transferred to the marketing company and the marketing company has taken title to the product, prices are fixed or determinable and collectability is reasonably assured.

The Company’s products are generally shipped Free on Board ("FOB") shipping point, and recorded as a sale upon delivery of the applicable bill of lading and transfer of risk of loss. The Company’s ethanol sales are handled through an ethanol purchase agreement (the “Ethanol Agreement”) with Bunge North America, Inc. (“Bunge”) which was restated effective January 1, 2020 in connection with the Company's repurchase of the Series B Units from Bunge under the Bunge Membership Interest Purchase Agreement (the "Bunge Repurchase Agreement"). Syrup and distillers grains (co-products) were previously sold through a distillers grains agreement (the “DG Agreement”) with Bunge, based on market prices. As discussed in Note 6, the initial term of this DG Agreement expired December 31, 2019, and as set forth in the Bunge Repurchase Agreement, Bunge provided transition services for all duties and responsibilities of the original DG Agreement through March 31, 2020. Since April 1, 2020, the Company has been responsible for these functions. The Company markets and distributes all of the corn oil it produces directly to end users at market prices. Carbon dioxide is sold through a Carbon Dioxide Purchase and Sale Agreement (the “CO2 Agreement”) with Air Products and Chemicals, Inc. Shipping and handling costs are booked as a direct offset to revenue. Marketing fees, agency fees, and commissions due to the marketer are calculated separately from the settlement for the sale of the ethanol products and co-products and are included as a component of cost of goods sold.

Accounts Receivable

Accounts receivable are recorded at original invoice amounts less an estimate made for doubtful receivables based on a review of all outstanding amounts on a quarterly basis. Management determines the allowance for doubtful accounts by regularly evaluating customer receivables and considering the customer’s financial condition, credit history and current economic conditions. As of ~~December~~March 31, ~~2020~~2021 and September 30, ~~2019,~~2020, management had determined an allowance of $0.2

million and $0.1 million, respectively, was necessary. Receivables are written off when deemed uncollectible and recoveries of receivables written off are recorded when received.

Investment in Commodities Contracts, Derivative Instruments and Hedging Activities

The Company’s operations and cash flows are subject to fluctuations due to changes in commodity prices. The Company is subject to significant market risk with respect to the price and availability of corn, the principal raw material used to produce ethanol and ethanol by-products. Exposure to commodity price risk results from its dependence on corn in the ethanol production process. Rising corn prices may result in lower profit margins and, therefore, represent unfavorable market conditions. This is especially true when market conditions do not allow the Company to pass along increased corn costs to customers. The availability and price of corn is subject to wide fluctuations due to unpredictable factors such as weather conditions, farmer planting decisions, governmental policies with respect to agriculture and international trade and global demand and supply.

To minimize the risk and the volatility of commodity prices, primarily related to corn and ethanol, the Company uses various derivative instruments, including forward corn, ethanol, and distillers grains purchase and sales contracts, over-the-counter and exchange-traded futures and option contracts. When the Company has sufficient working capital available, it enters into derivative contracts to hedge its exposure to price risk related to forecasted corn needs and forward corn purchase contracts.

Management has evaluated the Company’s contracts to determine whether the contracts are derivative instruments. Certain contracts that literally meet the definition of a derivative may be exempted from derivative accounting as normal purchases or normal sales. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Gains and losses on contracts that are designated as normal purchases or normal sales contracts are not recognized until quantities are delivered or utilized in production.

The Company applies the normal sale exemption to forward contracts relating to ethanol, distillers grains, and corn oil and therefore these forward contracts are not marked to market. As of ~~December~~March 31, ~~2020,~~2021, the Company had ~~7.0~~9.7 million gallons of open contracts for ethanol, 0.1 million tons of wet and dried distillers grains and ~~5.0~~4.0 million pounds of corn oil.

Corn purchase contracts are treated as derivative financial instruments. Changes in market value of forward corn contracts, which are marked to market each period, are included in costs of goods sold. As of ~~December~~March 31, ~~2020,~~2021, the Company was committed to purchasing ~~4.8~~4.1 million bushels of corn on a forward contract basis resulting in a total commitment of ~~$20.3~~$20.2 million. In addition, the Company was committed to purchase ~~0.3~~0.7 million bushels of corn on basis contracts.

In addition, the Company enters into short-term cash, options and futures contracts as a means of managing exposure to changes in commodity prices. The Company enters into derivative contracts to hedge the exposure to volatile commodity price fluctuations. The Company maintains a risk management strategy that uses derivative instruments to minimize significant, unanticipated earnings fluctuations caused by market volatility. The Company’s specific goal is to protect itself from large moves in commodity costs. All derivatives are designated as non-hedge derivatives and the contracts will be accounted for at fair value. Although the contracts will be effective economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.

Derivatives not designated as hedging instruments along with cash held by brokers at ~~December~~March 31, ~~2020~~2021 and September 30, ~~2019~~2020 at market value are as follows:


		Balance Sheet Classification	December 31, 2020		September 30, 2020			Balance Sheet Classification	March 31, 2021		September 30, 2020
			in 000's		in 000's				in 000's		in 000's
Futures and option contracts	Futures and option contracts						Futures and option contracts
In gain position	In gain position		$	825	$	590	In gain position		$	506	$	590
In loss position	In loss position		(3,399)		(592)		In loss position		(355)		(592)
Cash held by broker	Cash held by broker		2,990		304		Cash held by broker		577		304
Forward contracts, corn	Forward contracts, corn		2,699		403		Forward contracts, corn		1,552		403
		Current asset	3,115		705			Current asset	2,280		705

Net futures, options, and forward contracts	Net futures, options, and forward contracts		$	3,115	$	705	Net futures, options, and forward contracts		$	2,280	$	705

The net realized and unrealized gains and losses on the Company’s derivative contracts for the three months and six months ended ~~December~~March 31, ~~2020~~2021 and ~~2019~~2020 consist of the following:

Three Months Ended

Six Months Ended

Statement of Operations Classification

December 31, 2020

December 31, 2019

Statement of Operations Classification

March 31, 2021

March 31, 2020

March 31, 2021

March 31, 2020

in 000's

Net realized and unrealized (gains) losses related to:

Forward purchase corn contracts

Cost of Goods Sold

(4,276)

Forward purchase corn contracts

Cost of Goods Sold

(3,165)

865

(7,441)

900

Futures and option corn contracts

Cost of Goods Sold

3,297

(453)

Futures and option corn contracts

Cost of Goods Sold

3,586

(1,250)

6,905

(1,702)

Leases

In February 2016, FASB issued ASU 2016-02 "Leases” ("ASU 2016-02"). ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for all leases greater than one year in duration and classified as operating leases under previous GAAP. Under the new guidance, lessees ~~will be~~are required to recognize the following for all leases (with the exception of short-term leases): 1) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted cash flow basis; and 2) a "right to use" asset, which is an asset that represents the lessee's right to use the specified asset for the lease term. The Company adopted this accounting standard effective October 1, 2019. Upon adoption, the Company elected a practical expedient which allows existing leases to retain their classification as operating leases. The Company has elected to account for lease and related non-lease components as a single lease component. See Note 8 for more detailed information regarding leases.

Inventory

Inventory is stated at the lower of weighted average cost or net realizable value. In the valuation of inventories and purchase commitments, net realizable value is defined as estimated selling price in the ordinary course of business less reasonable predictable costs of completion, disposal and transportation. For the three and six months ended ~~December~~March 31, ~~2020~~2021 and ~~2019,~~2020, the Company ~~recognized a~~had 0 lower of cost or ~~net realizable value adjustment of $1.2 million and $0, respectively.~~

~~Put Option liability~~

The put option liability consisted of an agreement between the Company and ICM, Inc. ("ICM") that contained a conditional obligation to repurchase feature. Under the Unit Agreement between the Company and ICM dated December 17, 2014 (the "~~Unit Agreement~~"), the Company granted ICM the right to sell to the Company its 1,000 Series C and 18 Series A Membership Units (the "ICM Units") commencing anytime during the earliest of several alternative dates and events at a price equal to the greater of $10,987 per unit or the fair market ~~value (as defined in the Unit Agreement) on the date of exercise (the "Put Option~~"). On August 16, 2019, ICM notified the Company of its intent to exercise the Put Option and waived its right to determine the fair market value for the ICM Units. On November 15, 2019, the Company repurchased the ICM Units for $11.1 million in accordance with the terms of the Put Option set forth in the Unit Agreement. The effective date of the Company's repurchase of the ICM Units was October 31, 2019.adjustment.

Income Per Unit

Basic income per unit is calculated by dividing net income by the weighted average units outstanding for each period. Basic earnings and diluted per unit data were computed as follows (in thousands except per unit data):


	Three Months Ended				Six Months Ended
	March 31, 2021		March 31, 2020		March 31, 2021		March 31, 2020
Numerator:
Net (Loss) for basic earnings per unit	$	(3,146)	$	(4,750)	$	(2,035)	$	(897)


Net (Loss) for diluted earnings per unit	$	(3,146)	$	(4,750)	$	(2,035)	$	(897)

Denominator:
Weighted average units outstanding - basic	8,975		8,975		8,975		10,824
Weighted average units outstanding - diluted	8,975		8,975		8,975		10,824
(Loss) per unit - basic	$	(350.53)	$	(529.25)	$	(226.74)	$	(82.87)
(Loss) per unit - diluted	$	(350.53)	$	(529.25)	$	(226.74)	$	(82.87)

Three Months Ended
December 31, 2020 December 31, 2019
Numerator:
Net Income for basic earnings per unit $ 1,111 $ 3,853
Net Income for diluted earnings per unit $ 1,111 $ 3,853
Denominator:
Weighted average units outstanding - basic 8,975 12,652
Weighted average units outstanding - diluted 8,975 13,104
Income per unit - basic $ 123.79 $ 304.54
Income per unit - diluted $ 123.79 $ 294.03

Note 3: Inventory

Inventory is comprised of the following:


		December 31, 2020		September 30, 2020			March 31, 2021		September 30, 2020
		in 000's		in 000's			in 000's		in 000's
Raw Materials - corn	Raw Materials - corn	$	3,311	$	1,663	Raw Materials - corn	$	4,901	$	1,663
Supplies and Chemicals	Supplies and Chemicals	4,958		4,906		Supplies and Chemicals	4,981		4,906
Work in Process	Work in Process	1,964		1,667		Work in Process	2,439		1,667
Finished Goods	Finished Goods	9,534		5,133		Finished Goods	6,793		5,133
Total	Total	$	19,767	$	13,369	Total	$	19,114	$	13,369

Note 4: Revolving Loan/Credit Agreements

FCSA/CoBank

~~On November 8, 2019 the~~The Company ~~amended the~~is a party to a credit agreement with Farm Credit Services of America, FLCA (“FCSA”), Farm Credit Services of America, PCA and CoBank, ACB, as cash management provider and agent (“CoBank”) which provides the Company with a term loan in the amount of $30.0 million (the “Term Loan”) and a revolving term loan in the amount of up to $40.0 million (the “Revolving Term Loan”), together with the Term Loan, the “ FCSA Credit Facility ”). On February 26, 2021, the credit agreement was amended to add an additional $10.0 million revolving line of credit with a maturity date of August 1, 2021 with the same rate provisions as the original credit agreement. The balance on the amended credit agreement was $0 at March 31, 2021. The FCSA Credit Facility is secured by a security interest on all of the Company’s assets.

The Term Loan provides for semi-annual payments by the Company to FCSA of $3.75 million beginning September 1, 2020 and a maturity date of November 15, 2024. The February 26, 2021 amendment to the credit agreement modified the Term Loan to only require the Company to make one principal payment of $3.75 million during 2021, which payment was made on March 1, 2021, and thereafter requires the Company to make four equal semi-annual payments of $3.75 million on each March 1 and September 1, through September 1, 2023. All remaining amounts due under the Restated Term Note are due and payable on the maturity date. The Revolving Term Loan also has a maturity date of November 15, 2024. Under the FCSA Credit Facility, the Company has the right to select from several LIBOR based interest rate options with respect to each of the loans, with a LIBOR spread of 3.4% per annum. The interest rate at ~~December~~March 31, ~~2020~~2021 was ~~3.55%~~3.51%.

As of ~~December~~March 31, ~~2020,~~2021, there was ~~$18.0~~$11.9 million available under the Revolving Term Loan.

Paycheck Protection Program Loan

On April 14, 2020, the Company received $1.1 million under the Paycheck Protection Program ~~Loan~~ ("PPP loan") ~~legislation passed by Congress and signed by President Trump.~~legislation. The PPP loan may be forgiven based upon various factors, including, without limitation, the borrower's payroll cost over an eight to twenty-four week period starting upon the receipt of the funds. Expenses for approved payroll costs, lease payments on agreements before February 15, 2020 and utility payments under agreements before February 1, 2020 and certain other specified costs can be paid with these funds and eligible for payment forgiveness by the federal government. At least 60% of the proceeds must be used for approved payroll costs, and no more than 40% for ~~non payroll~~non-payroll expenses. PPP loan proceeds used by a borrower for the approved expense categories will

generally be fully forgiven by the lender if the borrower satisfies certain employee headcount and compensation requirements. ~~The~~As of March 31, 2021 the Company had applied for forgiveness ofon the ~~initial~~ PPP loan ~~on January 26, 2021. The~~from the Small Business Administration ("~~SBA"~~SBA") ~~has 60 days from~~and is awaiting a response upon our request.

On January 28, 2021, the ~~application date to approve or disapprove~~Company received an additional $1.1 million under Phase II of the ~~request.~~PPP legislation. As in the original PPP loan, expenses for approved payroll costs, lease payments on agreements and utility payments under agreements and certain other specified costs can be paid with these funds and eligible for payment forgiveness by the federal government. At least 60% of the proceeds must be used for approved payroll costs, and no more than 40% for non-payroll expenses. PPP loan proceeds used by a borrower for the approved expense categories will generally be fully forgiven by the lender if the borrower satisfies certain employee headcount and compensation requirements.

Notes payable

Notes payable consists of the following:


		December 31, 2020		September 30, 2020			March 31, 2021		September 30, 2020
		(000's)		(000's)			(000's)		(000's)
Term Loan bearing interest at LIBOR plus 3.40% (3.55% at December 31, 2020)		$	26,250	$	26,250
Revolving Term Loan bearing interest at LIBOR plus 3.40% (3.55% at December 31, 2020)		21,975		26,828
Term Loan bearing interest at LIBOR plus 3.40% (3.51% at March 31, 2021)						Term Loan bearing interest at LIBOR plus 3.40% (3.51% at March 31, 2021)	$	22,500	$	26,250
Revolving Term Loan bearing interest at LIBOR plus 3.40% (3.51% at March 31, 2021)						Revolving Term Loan bearing interest at LIBOR plus 3.40% (3.51% at March 31, 2021)	38,132		26,828
Note payable, PPP Loan bearing interest at 1.00% maturing April 28, 2022	Note payable, PPP Loan bearing interest at 1.00% maturing April 28, 2022	1,063		1,063		Note payable, PPP Loan bearing interest at 1.00% maturing April 28, 2022	1,063		1,063
Note payable, PPP Loan bearing interest at 1.00% maturing January 4, 2026						Note payable, PPP Loan bearing interest at 1.00% maturing January 4, 2026	1,113		0
Other with interest rates from 3.50% to 4.15% and maturities through 2027	Other with interest rates from 3.50% to 4.15% and maturities through 2027	2,590		2,761		Other with interest rates from 3.50% to 4.15% and maturities through 2027	2,419		2,761
		51,878		56,902			65,227		56,902
Less Current Maturities	Less Current Maturities	8,198		8,191		Less Current Maturities	4,455		8,191
Less Financing Costs, net of amortization	Less Financing Costs, net of amortization	171		182		Less Financing Costs, net of amortization	187		182
Total Long Term Debt	Total Long Term Debt	43,509		48,529		Total Long Term Debt	60,585		48,529

Approximate aggregate maturities of notes payable as of ~~December~~March 31, ~~2020~~2021 for the twelve months of payments for each year are as follows:


2021		$	8,198

2022	2022	9,919		2022	$	4,455

2023	2023	7,610		2023	9,767

2024	2024	25,838		2024	7,611

2025	2025	118		2025	41,996

2026 and thereafter		195
2026				2026	119

2027 and thereafter				2027 and thereafter	1,279

Total	Total	$	51,878	Total	$	65,227

Note 5: Fair Value Measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company used various methods including market, income and cost approaches. Based on these approaches, the Company often utilized certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observable inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy.

The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1 - Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 - Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.

Level 3 - Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

A description of the valuation methodologies used for instruments measured at fair value, including the general classifications of such instruments pursuant to the valuation hierarchy, is set below.

Derivative financial instruments. Commodity futures and exchange traded options are reported at fair value utilizing Level 1 inputs. For these contracts, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the Chicago Mercantile Exchange (“CME”) market. Ethanol contracts are reported at fair value utilizing Level 2 inputs from third-party pricing services. Forward purchase contracts are reported at fair value utilizing Level 2 inputs. For these contracts, the Company obtains fair value measurements from local grain terminal values. The fair value measurements consider observable data that may include live trading bids from local elevators and processing plants which are based on the CME market.

The following table summarizes financial assets and liabilities measured at fair value on a recurring basis as of ~~December~~March 31, ~~2020~~2021 and September 30, 2020, categorized by the level of the valuation inputs within the fair value hierarchy (in '000s):


		December 31, 2020							March 31, 2021
		Level 1		Level 2		Level 3			Level 1		Level 2		Level 3
Assets:	Assets:							Assets:
Derivative financial instruments	Derivative financial instruments	$	825	$	2,699	$	0	Derivative financial instruments	$	506	$	1,552	$	0

Liabilities:	Liabilities:							Liabilities:
Derivative financial instruments	Derivative financial instruments	3,399		0		0		Derivative financial instruments	355		0		0

		September 30, 2020							September 30, 2020
		Level 1		Level 2		Level 3			Level 1		Level 2		Level 3
Assets:	Assets:							Assets:
Derivative financial instruments	Derivative financial instruments	$	590	$	403	$	0	Derivative financial instruments	$	590	$	403	$	0

Liabilities:	Liabilities:							Liabilities:
Derivative financial instruments	Derivative financial instruments	592		0		0		Derivative financial instruments	592		0		0

Note 6: Related Party Transactions

~~On November 15, 2019, the Company repurchased all of the ICM Units, which repurchase had an effective date of October 31, 2019.~~ On December 31, 2019, the effective date, the Company repurchased the 3,334 Series B membership units owned by Bunge. Effective as of the date of the ~~respective~~ repurchase of ~~the ICM Units and~~ the Series B Units from Bunge, ~~ICM and~~ Bunge no longer constituted related parties.

Bunge

Under the original Ethanol Agreement between the Company and Bunge, the Company sold Bunge all of the ethanol produced by the Company and the Company paid Bunge a percentage fee for ethanol sold by Bunge, subject to a minimum and maximum annual fee. The initial term of the original Ethanol Agreement expired on December 31, 2019. As part of the Bunge Membership Interest Purchase Agreement (the "Bunge Repurchase Agreement"), the parties entered into a restated Ethanol Agreement effective January 1, 2020 (the "Restated Ethanol Agreement") which provides that the Company will pay Bunge a flat monthly marketing fee. The term of the Restated Ethanol Agreement expires on December 31, 2026. As of January 1, 2020, Bunge is no longer a related party. The Company incurred related party ethanol marketing expenses of $0.4 million during the ~~three~~six months ended ~~December~~March 31, ~~2019.~~2020, all in the first quarter.

Under the DG Purchase Agreement, Bunge purchased all distillers grains produced by the Company, and receives a fee based on the net sale price of distillers grains, subject to a minimum and maximum annual fee. The initial term of the DG Purchase Agreement expired on December 31, 2019. As part of the Bunge Repurchase Agreement, Bunge agreed to provide transition services until March 31, 2020 for all duties and responsibilities of the original DG Purchase Agreement. The Company is now responsible for all duties and responsibilities previously performed by Bunge, and Bunge is no longer a related party. The Company incurred related party distillers grains marketing expenses of $0.3 million during the ~~three~~six months ended ~~December~~March 31, ~~2019.~~2020, all incurred in the first quarter.

The Company and Bunge entered into an Amended and Restated Grain Feedstock Agency Agreement on December 5, 2014 (the “ Agency Agreement ”). The Agency Agreement provided that Bunge procure corn for the Company and that the Company pay Bunge a per bushel fee, subject to a minimum and maximum annual fee. The initial term of the Agency Agreement expired on December 31, 2019. As part of the Bunge Repurchase Agreement, Bunge agreed to provide transition services until March 31, 2020 for all duties and responsibilities of the original Agency Agreement. The Company is now responsible for all duties and responsibilities previously performed by Bunge, and Bunge is no longer a related ~~party~~party. Related party expenses for corn procurement by Bunge were $0.2 million during the ~~three~~six months ended ~~December~~March 31, ~~2019.~~2020, all incurred in the first quarter.

Since the 2015 crop year, the Company has used corn containing Syngenta Seeds, Inc.’s proprietary Enogen® technology (“ Enogen Corn ”) for a portion of its ethanol production needs. The Company contracts directly with growers to produce Enogen Corn for sale to the Company. Concurrent with the Agency Agreement, the Company and Bunge entered into a Services Agreement regarding Enogen Corn purchases (the “ Services Agreement ”). Under this Services Agreement, the Company originates all Enogen Corn contracts for its facility and Bunge assists the Company with certain administrative matters related to Enogen Corn, including facilitating delivery to the facility. The Company paid Bunge a per bushel service fee. The initial term of the Services Agreement expired on December 31, 2019 and the Company notified Bunge of its election not to extend the Services Agreement, but to allow corn planted for that fiscal year to be planted and harvested under the terms of the Services Agreement. Expenses under the Services Agreement are included as part of the Amended and Restated Grain Feedstock Agency Agreement discussed above for the ~~three~~six months ended ~~December~~March 31, ~~2019.~~2020, all incurred in the first quarter.

The Company entered into an amendment to the original Railcar Agreement with Bunge effective March 24, 2019 to provide for the lease of 323 ethanol cars and 111 hopper cars which will be used for the delivery and marketing of ethanol and distiller grains (effective November 15, 2019, the parties reduced the number of leased hopper cars to 110 hopper cars). The ethanol cars were assigned to Trinity Leasing on July 17, 2020. Under the terms of the amended Railcar Agreement, the original DOT111 cars will be leased over a four year term running from March 24, 2019 to April 30, 2023, with the ability to start returning cars after January 1, 2023 to conform to the requirement for DOT117 cars with enhanced safety specifications which is scheduled to become effective May 2023. The 110 hopper cars will be leased over a three year term running from March 24, 2019 to March 31, 2022 and continuing on a month-to-month basis thereafter. The Company's lease of the hopper cars will terminate upon the expiration of all such hopper cars. The amendments to the Railcar Agreement lowered the cost for the leases by approximately 15% as compared to the prior lease terms. As of ~~December~~March 31, ~~2020,~~2021, the Company had 4430 tanker cars and 4544 hopper cars subleased to two unrelated third parties, which subleases expired November 8, 2020 and December 31, 2020, respectively. The subleased cars remain on a month to month basis after the end lease date. Related party expenses under the Railcar Agreements were $0.8 million for the ~~three~~six months ended ~~December~~March 31, ~~2019,~~2020, net of subleases and ~~accretion.~~accretion, and which were all incurred in the first quarter. The Bunge Repurchase Agreement did not impact the Railcar Agreement.

~~ICM~~

~~In connection with the payoff of the ICM subordinated debt, the Company entered into the SIRE ICM Unit Agreement dated December 17, 2014 (the “Unit Agreement”). Under the Unit Agreement, the Company granted ICM the right to sell to the Company its 1,000 Series C and 18 Series A Membership Units (the “ICM Units~~”) commencing anytime during the earliest of several alternative dates and events at the greater of $10,897 per unit or the fair market value (as defined in the agreement) on the date of exercise (the "~~Put Option"). On August 16, 2019, ICM notified the Company of its intent to exercise the Put~~

Option and waived its right to determine the fair market value for the ICM Units. On November 15, 2019, the Company repurchased the ICM Units for $11.1 million in settlement of the Put Option consistent with the terms of the Unit Agreement. The effective date of the Company's repurchase of the ICM Units was October 31, 2019.

Note 7: Major Customer

The Company is party to the Restated Ethanol Agreement with Bunge for the exclusive marketing, selling, and distributing of all the ethanol produced by the Company through December 31, 2026 and was a party to the Distillers Grain Purchase Agreement with Bunge for the exclusive marketing, selling and distributing of all distillers grains and syrup produced by the Company through March 31, 2020. Since April 1, 2020, all distiller grain and syrup revenues are booked directly by the Company. Revenues from Bunge were ~~$39.3~~$52.6 million and ~~$59.4~~$47.2 million for the three months ended ~~December~~March 31, 2021 and 2020, respectively. Revenues from Bunge were $91.9 million and ~~2019,~~$106.6 million for the six months ended March 31, 2021 and 2020, respectively. The 2021 revenue is for ethanol only, while the 2020 revenue is for ethanol, distiller grains and syrup.

Note 8.8: Lease Obligations

Effective October 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842). The Company elected the option to apply the transition provisions at the adoption date instead of the earliest comparative period presented in the financial statements. ~~By making this election, the Company has not applied retrospective reporting for the year ended September 30, 2019.~~ The Company elected the short-term lease exception provided for in the standard and therefore only recognized

right-of-use assets and lease liabilities for leases with a term greater than one year. The Company elected the package of practical expedients to not re-evaluate existing contracts as containing a lease or the lease classification unless it was not previously assessed against the lease criteria. In addition, the Company did not reassess initial direct costs for any existing leases.

A lease exists when a contract conveys to a party the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The Company recognized a lease liability at the lease commencement date, as the present value of future lease payments, using an estimated rate of interest that the Company would pay to borrow equivalent funds on a collateralized basis. A lease asset is recognized based on the lease liability value and adjusted for any prepaid lease payments, initial direct costs, or lease incentive amounts. The lease term at the commencement date includes any renewal options or termination options when it is reasonably certain that the Company will exercise or not exercise those options, respectively.

The Company leases rail cars and rail moving equipment with original terms up to 3 years for hopper cars and 4 years for tanker cars from Bunge and Trinity Leasing. An additional 60 cars are leased from a third party under two separate leases for 3 years for half and 4 years for the second half. The Company is obligated to pay costs of insurance, taxes, repairs and maintenance pursuant to the terms of the leases. These costs are in addition to regular lease payments and are not included in lease expense. The Company subleased 4430 tanker cars and 4544 hopper cars to two unrelated third parties, which subleases expired November 8, 2020 and December 31, 2020. Upon expiration, the leases convert to a month-to-month ~~basis Approximately 12% of the tanker cars subleased have been returned by December 31, 2020.~~basis. Expense incurred for the operating leases during the three months ended ~~December~~March 31, ~~2020~~2021 was approximately $0.7 million and $0.8 million for the three months ended ~~December~~March 31, ~~2019.~~2020. For the six months ended March 31, 2021 the operating lease expense was $1.4 million compared to $1.5 million for the six months ended March 31, 2020.

The total lease agreements have maturity dates ranging from January 2022 to April 2023. The average remaining life of the lease term for these leases was ~~2.67~~2.43 years as of ~~December~~March 31, ~~2020.~~2021.

The discount rate used in determining the lease liability for each individual lease was the Company's estimated incremental borrowing rate of ~~3.55%~~3.51%. The right-of-use asset operating lease, included in other assets, and operating lease liability, included in current and long term liabilities was ~~$5.9~~$5.1 million as of ~~December~~March 31, ~~2020.~~2021.

At ~~December~~March 31, ~~2020,~~2021, the Company had the following approximate minimum rental commitments under non-cancellable operating leases for the twelve month period ended ~~June 30:~~March 31, 2021:


2021		$	3,101
2022	2022	2,333		2022	$	3,051
2023	2023	691		2023	2,131

2023				2023	177
2025				2025	3
2026				2026	3
Total	Total	$	6,125	Total	$	5,365

Undiscounted future payments	Undiscounted future payments	$	6,125	Undiscounted future payments	$	5,365
Discount effect	Discount effect	(189)		Discount effect	(305)
		$	5,936		$	5,060

~~Note 9. Subsequent Events~~

~~The Company received $1.1 million on January 28, 2021 under the provisions of the PPP loan program phase II.~~

CoBank extended to the Company a new $10.0 million credit line that is to mature August 1,2021. The new credit line has been drafted and is anticipated to be finalized in February and contains similar terms and rates as the FCSA Credit Facility described in Note 4.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

General

The following management discussion and analysis provides information which management believes is relevant to an assessment and understanding of our financial condition and results of operations. This discussion should be read in conjunction with the financial statements included herewith and notes to the financial statements and our Annual Report on Form 10-K for the year ended September 30, 2020 including the financial statements, accompanying notes and the risk factors contained herein.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q of Southwest Iowa Renewable Energy, LLC (the "Company," "SIRE," "we," or "us") contains historical information, as well as forward-looking statements that involve known and unknown risks and relate to future events, our future financial performance, or our expected future operations and actions. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “future,” “intend,” “could,” “hope,” “predict,” “target,” “potential,” or “continue” or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions based on current information 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 reasons described in this report. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include, without limitation:

•Changes in the availability and price of corn, natural gas, and steam;

•Negative impacts resulting from reductions in, or other modifications to, the renewable fuel volume requirements under the Renewable Fuel Standard issued by the Environmental Protection Agency;

•Our inability to comply with our credit agreements required to continue our operations;

•Negative impacts that our hedging activities may have on our operations;

•Decreases in the market prices of ethanol, distillers grains;

•Ethanol supply exceeding demand and corresponding ethanol price reductions;

•Changes in the environmental regulations that apply to our plant operations;

•Changes in plant production capacity or technical difficulties in operating the plant;

•Changes in general economic conditions or the occurrence of certain events causing an economic impact in the agriculture, oil or automobile industries;

•Changes in other federal or state laws and regulations relating to the production and use of ethanol;

•Changes and advances in ethanol production technology;

•Competition from larger producers as well as competition from alternative fuel additives;

•Changes in interest rates and lending conditions of our loan covenants;

•Volatile commodity and financial markets;

•Decreases in export demand due to the imposition of duties and tariffs by foreign governments on ethanol and distiller grains produced in the United States;

•Disruptions, failures or security breaches relating to our information technology infrastructure;

•Trade actions by the Trump or Biden Administration, particularly those affecting the biofuels and agricultural sectors and related industries; and

•Disruption caused by health epidemics, such as the novel strain of the coronavirus, and the adverse impact of such epidemics on global economic and business conditions.

These forward-looking statements are based on management’s estimates, projections and assumptions as of the date hereof and include various assumptions that underlie such statements. Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in the management discussion and analysis, in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020 ("Fiscal 2020") under the section entitled “Risk Factors” and in our other prior Securities and Exchange Commission filings. These and many other factors could affect our future financial condition and operating results and could cause actual results to differ materially from expectations set forth in the forward-looking statements made in this document or elsewhere by Company or on its behalf. We undertake no obligation to revise or update any forward-looking statements. The forward-looking statements contained in this quarterly report on Form 10-Q are included in the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Overview

The Company is an Iowa limited liability company, located in Council Bluffs, Iowa, formed in March, 2005. The Company is permitted to produce 140 million gallons of ethanol annually. We began producing ethanol in February, 2009 and sell our ethanol, distillers grains, corn oil and corn syrup in the continental United States, Mexico, and the Pacific Rim.

Impact of COVID-19 on our Business

A novel strain of coronavirus (“COVID-19”) was first identified in Wuhan, China in December 2019 and on March 11, 2020, the World Health Organization characterized the spread of COVID-19 as a pandemic. Since then, several world governments, including the United States and many individual states and municipalities, have imposed lock-downs, self-quarantine requirements, and travel restrictions on their citizens. These actions have dramatically decreased the demand for and price of blended gasoline across the globe and in the United States. Because the United States requires ethanol to be blended into the nation’s fuel supplies, gasoline consumption and demand plays a key role in the demand for and price of ethanol.

Operations

Throughout most of 2018 and 2019 as well as early 2020, the Company, and the ethanol industry as a whole, experienced significant adverse conditions as a result of industry-wide record low ethanol prices due to reduced demand and high industry inventory levels. These factors, which have been compounded by the impact of COVID-19, ~~in 2020,~~ resulted and continue to result in negative operating margins, significantly lower cash flow from operations and substantial net losses. In response to these adverse market conditions, ~~commencing~~ in the latter part of the second quarter inof Fiscal 2020, we ~~elected to reduce~~reduced ethanol ~~production. We continued this change in~~ production and operated at a reduced production level for three ~~months, but~~months. We then slowly increased production closer to normal levels by the end of ~~our fiscal year.~~Fiscal 2020. Management believes that this reduction was warranted due to negative margins in the ethanol industry resulting in part from a slowdown in global and regional economic activity and decreased ethanol demand due to the COVID-19 pandemic. Limiting ethanol production also ~~results~~resulted in a corresponding decrease in distillers grains and

corn oil production. In the ~~first~~second quarter of our fiscal year ending September 30, 2021 ("Fiscal 2021"), our ethanol production was ~~only slightly below levels~~4.9% higher compared to the ~~first~~second quarter of Fiscal 2020. Management ~~was able to produce more~~produced less distiller grains in the current fiscal quarter as compared to the same fiscal quarter in 2020, ~~but~~and corn oil production was lower in the current fiscal ~~quarter.~~quarter due to tricanter issues as compared to the second quarter of Fiscal 2020.

The Company will continue to monitor COVID-19 developments and the effect on fuel demand and terminal capacity in order to determine whether further adjustments to production will be necessary.

~~Employee Health and Safety~~

~~From the earliest signs of the outbreak, we have taken proactive, aggressive action to protect the health and safety of our~~ ~~employees, customers, partners and suppliers~~. We enacted appropriate safety measures, including implementing social distancing protocols, requiring working from home for those employees that do not need to be physically present at the plant, staggering schedules and shifts for those that must be on-site to perform their work, and frequently disinfecting our workspaces and requiring employees who must be physically present at the plant to wear masks. The Company also suspended all plant tours, and instituted a policy for contractor/vendors to answer a health questionnaire and provide information about the work environment where they have been for the past fourteen days. We expect to continue to implement these measures until we determine that the COVID-19 pandemic is adequately contained for purposes of our business, ~~and we may take further actions as government authorities require or recommend or as we determine to be in the best interests of our employees, customers, partners and suppliers.~~

Supply and Demand Impact

Although we continue to regularly monitor the financial health of companies in our supply chain, financial hardship on our suppliers or sub-suppliers caused by the COVID-19 pandemic could cause a disruption in our ability to obtain raw materials or components required to produce our products, adversely affecting our operations, even when operating at reduced production levels. Additionally, restrictions or disruptions of transportation, such as reduced availability of truck, rail or air transport, port closures and increased border controls or closures, may result in higher costs and delays, both on obtaining raw materials and shipping finished products to customers, which could harm our profitability, make our products less competitive, or cause our customers to seek alternative suppliers.

The ~~COVID-19 outbreak~~global pandemic has ~~significantly increased economic~~created significant uncertainty and ~~demand uncertainty. We anticipate that~~volatility within the ~~current outbreak or~~energy industry and the continued spread of COVID-19 ~~will cause a global economic slowdown,~~or new variants could adversely impact demand for our products and ~~it is possible that it could cause a global recession. In~~in the event of a ~~recession,~~material decline in demand, ~~for our products would decline and~~ our business would be adversely effected. The situation surrounding COVID-19 continues to evolve rapidly and the ultimate duration and impact of the outbreak on the ethanol market remains highly uncertain and subject to change.

CARES Act and COVID Legislation

To respond to the COVID-19 health crisis and attempt to offset the subsequent economic damage, Congress passed multiple relief measures, most notably the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") in March 2020, which created and funded multiple programs that have impacted our industry. The United States Department of Agriculture (the "USDA") was given additional resources for the Commodity Credit Corporation (CCC) and they are using those funds to provide direct payments to farmers, including corn farmers from whom we purchase most of our feedstock for ethanol production. Similar to the trade aid payments made by the USDA over the past two years, this cash injection for farmers could cause them to delay marketing decisions and increase the price we have to pay to purchase corn.

In December 2020, Congress passed and President Trump signed into law an annual spending package coupled with another COVID relief bill which included additional funds for the Secretary of Agriculture to distribute to those impacted by the pandemic. The language of the bill specifically includes biofuels producers as eligible for some of this aid, and in March 2021, the USDA indicated that biofuels producers would be able to apply for a portion of these funds in a forthcoming rule making.

Paycheck Protection Program Loan

On April 15, 2020, the Company received $1.1 million under the ~~new~~ Paycheck Protection Program ("PPP Loan") legislation passed as part of the CARES Act in response to the economic downturn triggered by COVID-19. Our PPP Loan may be forgiven based upon various factors, including, without limitation, our payroll cost over an eight to twenty-four week period starting upon our receipt of the funds. Expenses for approved payroll costs, lease payments on agreements before February 15, 2020 and utility payments under agreements before February 1, 2020 and certain other specified costs can be paid with these funds and eligible for payment forgiveness by the federal government. At least 60% of the proceeds must be used for approved payroll costs, and no more than 40% on non-payroll expenses. PPP loan proceeds used by a borrower for the approved expense categories will generally be fully forgiven by the lender if the borrower satisfies certain employee headcount and compensation requirement. The Company applied for forgiveness of the initial PPP loan ~~on January 26, 2021. The~~and as of March 31, 2021 is waiting for the Small Business Administration ~~has 60 days from the application date~~ to approve or disapprove the ~~request.~~application.

In January 2021, the Company received a second PPP Loan in the amount of $1.1 million under Phase II of the Paycheck Protection Program which commenced on January 13, 2021 and allowed certain businesses that received an initial PPP Loan to seek a second draw PPP Loan.

Outlook

Although there is uncertainty related to the ~~anticipated~~continued impact of the ~~recent~~ COVID-19 outbreak on our future results, we believe our current cash reserves, cash generated from our operations, our PPP ~~Loan~~Loans and the available cash under our revolving term loan leave us well-positioned to manage our business through this crisis as it continues to unfold. However, the impacts of the COVID-19 pandemic are broad-reaching and the financial impacts associated with the COVID-19 pandemic

include, but are not limited to, reduced production levels, lower net sales and potential incremental costs associated with mitigating the effects of the pandemic, including storage and logistics costs and other expenses. As a result, although we were in compliance with our financial covenants set forth in our loan agreements (the "FCSA Credit Facility") with Farm Credit Services of America, FLCA (“FCSA”), Farm Credit Services of America, PCA ("PCA") and CoBank, ACB, as cash management provider and agent (“CoBank”) as of ~~December~~March 31, ~~2020,~~2021, the impact the COVID-19 pandemic could have an adverse impact on our operating results which could result in our inability to comply with certain of these financial covenants and require our lenders to waive compliance with, or agree to amend, any such covenant to avoid a default. However, based on our current forecast of market conditions and our financial performance, we expect that we will be in a position to satisfy all of the financial covenants in our FCSA Credit Facility for the next twelve months.

The COVID-19 pandemic is ongoing, and its dynamic nature, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the pandemic, the global distribution and success of vaccination programs and actions that ~~would~~may be taken by governmental authorities to contain the pandemic or to treat its impact, makes it difficult to forecast any effects on our Fiscal 2021 results. However, the challenges posed by the COVID-19 pandemic on the global economy increased significantly as the fourth quarter of Fiscal 2020 progressed in response to the global resurgence of COVID-19 and the extension of, enhancement of, or imposition of new, government measures aimed at curbing the pandemic including lock-downs, self-quarantine requirements, and travel restrictions. ~~Management does~~Although management did not ~~anticipate~~see any material improvement in the macroeconomic environment during the first half of Fiscal 2021, ~~and, as a result our results for~~we believe in the second half of Fiscal 2021 ~~may also be affected.~~we should begin to see a shift towards an improving economy as more people are vaccinated and companies reopen for business.

Despite the economic uncertainty resulting from the COVID-19 pandemic, we intend to continue to focus on strategic initiatives designed to improve on our operational efficiencies and diversify our products which is critical in order to drive positive results in a low margin environment. Our management team is currently in the process of implementing several projects to enhance our plant's operational efficiencies and we also continue to evaluate opportunities to add value to our production process by diversifying into high protein feed along with measures to reduce the carbon index ("CI") of the ethanol we produce.

In addition, we are also continuing with our efforts to de-bottleneck the production process. On September 1, 2019, we placed into service a dehydration membrane technology that is expected to allow for a more efficient increase in dehydration

capability and slight reduction in our CI score. In April 2020, the Company implemented Bioleap's Dryer Exhaust Energy Recovers ("~~DEER"~~DEER"). The DEER system reduces the steam load on the boilers, providing immediate energy savings and freeing up capacity on the current boiler system. ~~The change in the~~As a result, source blend for steam changed from approximately 50% natural gas and 50% steam in Fiscal 2019 to ~~95%~~99% natural gas and 5%1% steam in Fiscal ~~2020 impacted~~2021. The shift in the source blend historically had a positive impact on the energy costs for the Company due to the lower cost of natural gas as compared to steam which benefits were partially offset as the natural gas boilers are less efficient than the steam line. However, in 2021, the price of natural gas has increased 14.4% in the first six months ended March 31, 2021 as compared to the first six months ended March 31, 2020 and has therefore further reduced the positive impact of the shift in the source blend.

Also, we believe that consolidation within the ethanol industry, coupled with our location, good operating efficiencies and our solid team may provide new opportunities for our plant.

We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our operating plan. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future.

Ethanol Supply and Demand

The ethanol industry is experiencing the lowest margin environment seen in the past nine to ten years principally due to the fact that the supply of ethanol is outstripping demand and markets are reacting accordingly by disincentivizing production. Commencing in March 2020, the COVID-19 virus impact upon the economy drove the price of gasoline downwards, and the price of ethanol plummeted at or below production costs. In response, many plants in the U.S. have shut down production or cut production levels. According to the Renewable Fuels Association ("RFA"), since March 1, 2020, 69 ethanol plants with annual production capacity of nearly 6 billion gallons have been fully idled and 64 plants have reduced production levels from 10% to 50% representing an additional 1.7 billion gallons of reduced ethanol production. Although there has been a steady recovery of production levels, ~~from late April 2020 through June 2020~~ there are still ~~about two dozen~~many plants idled and ~~a majority of~~many facilities running slightly below normal production levels. With most plants running below pre COVID-19 production levels since June 2020, the RFA estimates that currently total idled capacity represents about 2.5 billion gallons of annual production or 1% percent of capacity. Adding to the supply/demand imbalance is the ~~stance taken by the EPA under the Trump Administration with regard to~~impact of the issuance of “hardship waivers” to so-called small refineries.

Domestic ethanol use is around 14 billion gallons per year. The industry currently had a capacity to produce over 16.6 billion gallons in 2018. The impact of COVID-19 and the slowdown of the world economy has lowered production capacity to ~~approximately 80%-85% of~~83% the 2018 ~~production~~ capacity ~~levels.~~levels to approximately 13.8 billion in 2020. Despite the reduced production levels resulting from the COVID-19 pandemic on the global economy, the ethanol industry continues to face an oversupply of domestic ethanol inventories as supply continues to exceed demand. Exports play a critical role in keeping the United States from being awash in production. Worldwide exports from the U.S. increased almost 24% between calendar years 2017 and 2018. But in calendar year 2019, ethanol exports decreased 14.2% as compared to the calendar year 2018 according to data from the U.S. Energy Information Administration ("EIA"). ~~In the first 10 months of~~For calendar year 2020, ethanol exports decreased 8%8.5% as compared to ~~the similar period in~~ 2019 which reduction is even more significant in light of the fact that 2019 exports were substantially less than exports during prior years.

In ~~the first 10 months of~~ calendar 2020, Brazil exports decreased by ~~35%~~39.9% as compared to ~~the same period in~~ calendar 2019. This moved them from the top ethanol market to second place. Brazil corn ethanol production increased 85% in 2019 as compared to 2018, and 2020 forecasts indicate additional ~~grow~~growth of 88% in 2020. Exports to Brazil's comprised 98% of the U.S. export totals in the first 4 months of 2020 and dwindled to 2% of U.S. export totals in the next six months as Brazil's local production increased. Despite recent reductions in exports to Brazil, which has historically been one of the largest customers of U.S. ethanol, Brazil remains one of the three largest customers for U.S. ethanol exports together with Canada and India. Exports of U.S. ethanol to these three countries constituted ~~almost 56%~~53.4% of all U.S. ethanol exports during ~~the first~~ calendar year 2020 as compared to ~~57% during the same period~~57.1% in 2019. Similar to Brazil, China was included in the top export markets during ~~the first half of~~2017 and 2018; however, approximately 99% of the exports to China occurred in the first three months of 2018 and since then, U.S. ethanol exports to China have decreased to essentially zero. On December 13, 2019, the U.S. and China announced an agreement to the first phase of a trade deal (the "Phase One Agreement") where China agreed to purchase billions of dollars in agricultural products in exchange for the U.S. agreeing not to pursue a new round of tariffs starting January 2020. The COVID-19 pandemic delayed any implementation of the Phase One Agreement with China, and ethanol imports were negligible in 2020. China has not met their obligation in 2020 and are not expected to change their purchase volumes during the COVID-19 pandemic. Recent political tensions between China and the U.S. have stalled further negotiations on the Phase One Agreement and completion of the transition to a new presidential administration is likely to further delay discussions between the two countries. In 2020, China only accounted for 3% of U.S. exports.

Recent Regulatory Developments

Renewable Fuel Standard

The ethanol industry receives support through the Federal Renewable Fuels Standard (the “RFS”) which has been, and will continue to be, a driving factor in the growth of ethanol usage. The RFS requires that each year a certain amount of renewable fuels must be used in the United States. The RFS is a national program that allows refiners to use renewable fuel blends in those areas of the country where it is most cost-effective. The EPA is responsible for revising and implementing regulations to ensure that transportation fuel sold in the United States contains a minimum volume of renewable fuel.

The RFS original volume requirements increased incrementally each year through 2022 when the mandate requires that the United States use 36 billion gallons of renewable fuels. Starting in 2009, the RFS required that a portion of the RFS must be met by certain “advanced” renewable fuels. These advanced renewable fuels include ethanol that is not made from corn, such as cellulosic ethanol and biomass based biodiesel. The use of these advanced renewable fuels increases each year as a percentage of the total renewable fuels required to be used in the United States.

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 obligation. On November 30, 2018, the EPA issued the final rule that set the 2019 annual volume requirements for renewable fuel at 19.92 billion gallons of renewable fuels per year (the "Final 2019 Rule"). On December 19, 2019, the EPA issued the final rule that set out the 2020 annual volume requirements (the ~~"Final~~"Final 2020 ~~Rule"~~Rule") at 20.09 billion gallons up from the 19.92 billion gallons for 2019. Similar to the Final 2019 Rule, the Final 2020 Rule included 15.0 billion gallons of conventional corn-based ethanol. The EPA has not released the proposed rule to set the renewable volume obligation for 2021 as required in November 2020, but is seeking comments and delayed the announcement until February 2021. As of the date of this filing, the EPA has not issued a proposed rule for ~~2021.~~2021 and it is unclear when the EPA will issue the 2021 proposed rule.

Although the volume requirements set forth in the Final 2019 Rule are slightly higher than the final 2018 volume requirements (the "Final 2018 Rule") and the Final 2020 Rule volume requirements are slightly higher than those set forth in the Final 2019 Rule, the volume requirements under the Final 2018 Rule, the Final 2019 Rule and the Final 2020 Rule are all

still significantly below the statutory mandates of 26 billion gallons, 28 billion gallons and 30 billion gallons, respectively, with significant reductions in the volume requirements for advanced biofuels as well.

Under the RFS, if mandatory renewable fuel volumes are reduced by at least 20% for two consecutive years, the EPA is required to modify, or reset, statutory volumes through 2022. The Final 2018 Rule represented the first year the total proposed volume requirements were more than 20% below statutory levels. In response, the EPA Administrator directed his staff to initiate the required technical analysis to perform any future reset consistent with the reset rules. The Final 2019 Rule is approximately 29% below the statutory levels representing the second consecutive year of reductions of more than 20% below the statutory mandates therefore triggering the mandatory reset under the RFS. The Final 2020 Rule is approximately 34% below the statutory targets, which represents the third consecutive year of reductions of more than 20% below the statutory mandates. After the issuance of the Final 2019 Rule, the EPA became statutorily required to modify the statutory volumes through 2022 within one year of the trigger event, based on the same factors used to set the volume requirements post-2022. These factors include environmental impact, domestic energy security, expected production, infrastructure impact, consumer costs, job creation, price of agricultural commodities, food prices, and rural economic development.

In October 2018, the Trump administration released timelines for certain EPA rule making initiatives relating to the RFS including the “reset” of the statutory blending targets. The EPA is expected to propose rules modifying the applicable statutory volume targets for cellulosic biofuel, advanced biofuel, and total renewable fuel for the years 2020-2022. The proposed rules are also expected to include proposed diesel renewable volume obligations for 2021 and 2022. There has been no announcement from the EPA regarding new volume obligations for 2021. It is unclear when or if the current EPA will propose a reset rule making.

Federal mandates supporting the use of renewable fuels like the RFS are a significant driver of ethanol demand in the U.S. Ethanol policies are influenced by environmental concerns, diversifying our fuel supply, and an interest in reducing the country’s dependence on foreign oil. Consumer acceptance of flex-fuel vehicles and higher ethanol blends of ethanol in non-flex-fuel vehicles may be necessary before ethanol can achieve significant growth in U.S. market share. Another important factor is a waiver in the Clean Air Act, known as the "One-Pound Waiver", which allows E10 to be sold year-round, even though it exceeds the RVP (rapid vapor pressure) limitation of nine pounds per square inch. At the end of May 2019, the EPA finalized a rule which extended the One-Pound Waiver to E15 so its sale can expand beyond flex-fuel vehicles during the June

1 to September 15 summer driving season. Although this rule is being challenged in court, the One-Pound Waiver is in effect and E15 can be sold year round. The EIA estimated summer driving consumption in 2020 decreased 23% compared to the same period in 2019 as a result of travel restrictions and reduced economic activity related to COVID-19. The COVID-19 pandemic has had, and will likely continue to have, a significant impact on the U.S. and worldwide economy throughout Fiscal 2021. The EIA forecast for 2021 is almost 8% higher than 2020, but this still leaves consumption 7% below 2019 pre COVID-19 levels.

There continues to be uncertainty regarding the future of the RFS as a result of the significant number of small refinery waivers granted. Under the RFS, the EPA assigns individual refiners, blenders, and importers the volume of renewable fuels they are obligated to use based on their percentage of total domestic transportation fuel sales. The mechanism that provides accountability in RFS compliance is the Renewable Identification Number (RIN). RIN’s are a tradable commodity given that if refiners (obligated parties) need additional RIN’s to be compliant, they have to purchase them from those that have excess. Thus, there is an economic incentive to use renewable fuels like ethanol, or in the alternative, buy RIN’s. Obligated parties use RINs to show compliance with RFS-mandated volumes. RINs are attached to renewable fuels by ethanol producers and detached when the renewable fuel is blended with transportation fuel or traded in the open market. The market price of detached RINs affects the price of ethanol in certain markets and influences the purchasing decisions by obligated parties.

On April 15, 2020, five Governors sent a letter to the EPA requesting a general waiver from the RFS due to the drop in demand caused by COVID-19 travel restrictions. They contend that the compliance costs (i.e. cost to purchase RINs) is onerous and could put some refineries out of business. In June 2020, the Attorneys General of seven states joined in the request made to waive the 2020 RFS compliance burdens. The EPA has 90 days to respond, and as of this filing had indicated only that they are “watching the situation closely, and reviewing the governors’ letter.” In January 2021, the EPA announced it is still seeking public comments on the subject. The RFA continues to press the EPA to make a decision on the issue.

Although the Final 2019 Rule and the Final 2020 Rule maintain the number of gallons which may be met by conventional renewable fuels such as corn-based ethanol at 15.0 billion gallons this number does not take into account waivers granted by the EPA to small refiners for "hardship." The EPA can, in consultation with the Department of Energy, waive the obligation for individual smaller refineries that are suffering “disproportionate economic hardship” due to compliance with the RFS. To qualify, for this “small refinery waiver,” the refineries must be under total throughput of 75,000 barrels per day and state their case for an exemption in an application to the EPA each year.

As of December 2020, the EPA had approved 86 exemptions for compliance years 2016 to 2018, freeing refineries from using 4.1 billion gallons of renewable fuel. This effectively reduces the annual renewable volume obligation for each year by that amount as the waivers exempt the obligating parties from meeting the RFS blending targets and the waived gallons are not reallocated to other obligated parties at this time. As discussed above, the mechanism that provides accountability in RFS compliance is the Renewable Identification Number ("RIN"). RINs are a tradable commodity given that if refiners (obligated parties) need additional RINs to be compliant, they have to purchase them from those that have excess. Thus, there is an economic incentive to use renewable fuels like ethanol, or in the alternative, buy RINs. Granting these small refinery waivers effectively reduces the annual renewable volume obligation for each year by that amount as the waivers exempt the obligating parties from meeting the RFS blending targets and the waived gallons are not reallocated to other obligated parties at this time. The resulting surplus of RINs in the market has brought values down significantly to under $0.20. In late 2017 D6 RIN prices were about $0.75 per gallon, averaged $0.30 in 2018, and less than $0.20 in 2019. In 2020, the D6 RIN value climbed to $0.70, as the appellate court decision reduced the numbers of small refiners eligible for hardship exemptions, increasing demand for RINs. Due to production shortfalls, D6 RIN generation decreased 15% in 2020 versus 2019 through September. Since higher RIN values help to make higher blends of ethanol more cost competitive, lower RIN values could hinder or at least slow retailer and consumer adoption of E15 and higher blends. Recently, RIN credits have increased in response to higher crop cost forecasts combined with expectations that the Biden Administration will advocate for increased renewable fuel initiatives including supporting the RFS. As of the end of ~~January~~April 2021, D6 RIN credits for 2021 traded at $1.50, up from $1.13 as of the end of January 2021, and D4 RIN credits traded at ~~$1.17.~~$1.58, up from $1.17 as of the end of January 2021. However, there is no guarantee that RIN credits will maintain such increased values and reduced RIN values may adversely impact the ethanol market.

On January 24, 2020, the U.S. Court of Appeals for the Tenth Circuit announced that the three exemptions were improperly issued by the EPA. The Court held that the EPA cannot "extend" exemptions to any small refineries whose earlier, temporary exemptions had lapsed; rather, that small refinery exemptions may only be granted to refineries that had secured them continuously each year since 2010. The Court concluded that the EPA exceeded its statutory authority in granting these petitions because there was nothing for the agency to "extend". Utilizing this criteria, there would have been a maximum of seven small refineries that could have received continuous extensions, yet the EPA has granted thirty five exemptions in a single year. The Court also found the EPA had abused their discretion in failing to explain how the EPA could maintain that such refineries would incur an economic hardship while continuing to claim that the costs of RIN compliance are passed through and recovered by those same refineries. Consistent with this ruling, in September 2020, the EPA denied certain small refinery exemption petitions filed by oil refineries in 2020 seeking retroactive relief from their ethanol use requirements for prior years. The refiners appealed for a rehearing which was denied. Two of the refiners appealed the decision to the U.S. Supreme Court and in January 2021, the U.S. Supreme Court announced it will review the decision of the Tenth Circuit. The U.S. Supreme Court heard oral argument from the biofuels industry, the EPA and refiners on April 27, 2021. A reversal of the 10th Circuit decision could allow additional exemptions in the future, and alter the administration's role regarding the RFS. If the decision against the EPA is upheld by the Supreme Court, it is uncertain how the EPA will propose to remedy the ~~situation.~~situation; however, current EPA has indicated that they intend to adhere to the 10th Circuit ruling.

~~As of June 30, 2020,~~In response to the ~~EPA had received 52 requests~~ruling by the Tenth Circuit, many refineries have applied for small refinery waivers. If the EPA approves all 52 of the pending applications, the ethanol market would suffer another loss of 2 billion gallons of biofuel blending requirements which will adversely impact RIN prices and the ethanol market. These waiver requests represent“gap year” exemptions in an effort ~~by refineries~~ to bypass the ruling of the Tenth Circuit and establish a continuous chain of ~~exemptions. If~~exemption to ensure they are able to qualify for a small refinery exemption going forward. A total of 64 gap year requests were filed with the EPA ~~continues~~and reviewed by the Department of Energy (the "DOE"). In September 2020 the EPA announced that they were denying 54 of the gap year requests that had been scored and returned by DOE, regardless of how they had been scored. Without a string of continuous small refinery exemption approvals, we believe that almost no small refinery would be eligible to ~~grant discretionary waivers and RIN prices continue to fall, it could negatively affect ethanol prices.~~apply for hardship relief in this manner, unless the Supreme Court overturns the Tenth Circuit ruling.

The failure of the Trump Administration to announce a plan to reallocate ethanol gallons lost to exemptions combined with the continued granting of waivers will continue to negatively impact ethanol demand and RIN and ethanol ~~prices .~~prices. It is uncertain how the EPA under the new Biden Administration will treat small refinery waivers including the petitions for waivers currently pending or whether the EPA will address the reallocation of ethanol gallons.

Biofuels groups have filed a lawsuit in the U.S. Federal District Court for the D.C. Circuit, challenging the Final 2019 Rule over the EPA’s failure to address small refinery exemptions in the rule making. This is the first RFS rule making since the expanded use of the exemptions came to light, however the EPA has refused to cap the number of waivers it grants or how it accounts for the retroactive waivers in its percentage standard calculations. The EPA has a statutory mandate to ensure the volume requirements are met, which are achieved by setting the percentage standards for obligated parties. The EPA's current approach runs counter to this statutory mandate and undermines Congressional intent. Biofuels groups argue the EPA must therefore adjust its percentage standard calculations to make up for past retroactive waivers and adjust the standards to account for any waivers it reasonably expects to grant in the future.

In a supplemental rule making to the Proposed 2020 Rule, the EPA changed their approach, and for the first time accounted for the gallons that they anticipate they will be waiving from the blending requirements due to small refinery exemptions. To

accomplish this, they are adding in the trailing three year average of gallons the ~~Department of Energy (the "~~DOE") recommended be waived, in effect raising the blending volumes across the board in anticipation of waiving the obligations in whole or in part for certain refineries that qualify for the exemptions. Although in past years the EPA has disregarded recommendations from the ~~Department of Energy~~DOE, the EPA states in the rule ~~the DOE stated~~ its intent to adhere to these recommendations going forward, including granting partial waivers rather than an all or nothing approach. The EPA will be adjudicating the 2020 compliance year small refinery exemption applications in early 2021, but have indicated they will adhere to DOE recommendations for the 2019 compliance year applications as well, which should be adjudicated in 2020.

If the EPA’s decisions to reduce the volume requirements under the RFS statutory mandates are allowed to stand, if the volume requirements are further reduced or if the EPA continues to grant waivers to small refineries, the market price and demand for ethanol would be adversely affected which would negatively impact our financial performance. The EPA's based the projected volume of gasoline and diesel that was exempt in 2020 on utilizing the three year rolling average of relief recommended by the Department of Energy, rather than the three year rolling level of actual exemptions advocated by agricultural interests.

On May 29, 2018, the National Corn Growers Association, National Farmers Union, and the Renewable Fuels Association filed a petition challenging the EPA’s grant of waivers to three specific refineries seeking that the court reject the waivers granted to the three as an abuse of EPA authority. These waived gallons are not redistributed to obligated parties, and in effect, reduce the aggregate Renewable Volume Obligations ("~~RVOs~~") under the RFS. If the specific waivers granted by the EPA and/or its lower criteria for granting small refinery waivers under the RFS are allowed to stand, or if the volume requirements are further reduced, it could have an adverse effect on the market price and demand for ethanol which would negatively impact our financial performance. On January 24, 2020, the U.S. Court of Appeals for the Tenth Circuit announced that the three exemptions were improperly issued by the EPA. The Court held that the EPA cannot "extend" exemptions to any small refineries whose earlier, temporary exemptions had lapsed. The Court concluded that the EPA exceeded its statutory authority in granting these petitions because there was nothing for the agency to "extend". Utilizing this criteria, there would have been a maximum of seven small refineries that could have received continuous extensions, yet the EPA has granted thirty five exemptions in a single year. The Court also found the EPA had abused their discretion in failing to explain how the EPA could maintain that such refineries would incur an economic hardship while continuing to claim that the costs of RIN compliance are passed through and recovered by those same refineries.

Related to the recent lawsuits, the RFA, American Coalition for Ethanol, Growth Energy, National Biodiesel Board, National Corn Growers Association, Biotechnology Industry Organization, and National Farmers Union petitioned the EPA on June 4, 2018 to change its regulations to account for lost volumes of renewable fuel resulting from the retroactive small refinery exemptions. This petition to the EPA seeks a broader, forward-looking remedy to account for the collective lost volumes caused by the recent increase in retroactive small refinery RVO exemptions. The EPA has not reallocated volume exemptions in prior years, and continued to approve 31 new requests in 2019. On October 29, 2019, the U.S. House of Representatives Committee on Energy and Commerce met to examine the effects of the small refinery exemptions on biofuels and agriculture since 2016. Companies were seeking the EPA to make available more information on refinery exemptions.

On February 4, 2019, Growth Energy filed a lawsuit in the Court of Appeals for the District of Columbia against the EPA challenging the EPA’s failure to address small refinery exemptions in the Final 2019 Rule. An administrative stay has been granted to research the contents of the lawsuit.

Although the maintenance of the 15 billion gallon threshold for volume requirements that may be met with corn-based ethanol in the Final 2019 Rule and the Final 2020 Rule together with the application of the One-Pound Waiver to E15 permitting the year round sale of E15 signals support from the EPA and the Trump administration for domestic ethanol production, the Trump administration could still elect to materially modify, repeal or otherwise invalidate the RFS and it is

unclear what regulatory framework and renewable volume requirements, if any, will emerge as a result of any such reforms; however, any such reform could adversely affect the demand and price for ethanol and the Company's profitability. Moreover, the ongoing COVID-19 pandemic and the success of vaccination programs will continue to affect energy consumption during Fiscal 2021 and could continue to adversely impact the ethanol industry and our financial performance.

Industry Factors Affecting our Results of Operations

Ethanol prices ~~decreased 7.6%~~increased 21.9% during the three months ended ~~December~~March 31, ~~2020~~2021 as compared to the same period in the previous fiscal ~~year, and this~~year. This was coupled with ~~a decrease~~an increase of ~~11.2%~~19.6% in ethanol shipments during the three months ended ~~December~~March 31, ~~2020~~2021 as compared to the prior year. ~~The COVID-19 pandemic is the primary reason~~Plants that had been shut down or reduced volume have been slow to return plant capacity due to high prices being paid for ~~the decrease in shipments during the three-month period.~~corn. However, the ~~reduction~~increase in ethanol shipments in the current quarter was also impacted by the decision to defer the sale of an entire unit train of ethanol in December until early January in order to obtain more favorable pricing. This also resulted in higher finished goods inventory at the end of the first quarter. Ethanol prices increased 6.3% for the six months ended March 31, 2021 as compared to the six months ended March 31, 2020. The ethanol shipment volume increased 3.0% for the six months ended March 31, 2021 as compared to the six months ended March 31, 2020.

Management currently believes that the ethanol market for the ~~second~~third quarter of our fiscal year ending September 30, 2021 ("Fiscal 2021") as well as the market for certain of our co-products ~~will~~may worsen due to the following factors:

•The latest estimates of supply and demand provided by the Unites ~~Stated~~States Department of Agriculture (the "USDA") changed the estimate for 2020/21 ending corn stocks to ~~1.6~~1.4 billion bushels. For 2020/21, the USDA ~~lowered~~increased corn consumption for ethanol and co-products ~~by 2.0%~~ to 5.0 billion bushels but their forecast for the corn supply increased 4% from the 2019/20 actual ~~level.~~level to ~~14.2~~14.8 billion bushels which was ~~0.6~~0.8 billion bushels higher than the 2019/20 crop. The USDA increased their corn price estimates ~~18.0%~~20.8% for ~~Fiscal~~fiscal 2021 to ~~$4.20~~$4.30 per bushel, compared to the ending price for 2019/20 of $3.56. This will most likely increase as current prices will drive the number up for the remaining crop. Yield per acre for 2020/21 is forecast to be 2.6% higher than 2019/20, and production numbers are expected to be ~~4.0%~~4.1% more in 2020/21 than was experienced in 2019/20.

•The EIA released its Short Term Energy Outlook report in December 2020 and indicated that U.S. gasoline demand decreased by 40% in the first four months of 2020 due to reduced gasoline consumption because of unemployment, government implementation of stay-at-home restrictions and many people working exclusively or partially from home. Gasoline consumption was at the lowest level since the early 1990's. The summer months gasoline consumption was 16% lower in 2020 as compared to 2019. This was in spite of a reduction in the average U.S. regular gasoline price of $2.18 in 2020 compared to an average price of $2.60 per gallon in 2019. The EIA forecasts that gasoline demand will ~~probably recover~~increase 7.5% in 2021, but current conditions make it difficult to determine ~~when travel bottoms-out.~~the impact on travel. The EIA's latest 2020 report also forecasts that retail gasoline prices will increase by ~~10%~~22% in 2021, but consumption will remain sluggish due to continuing COVID-19 restrictions, although we anticipate states will start to loosen restrictions in ~~the first and second quarter of~~ 2021 depending on the success of the vaccination programs. Any increase in gasoline demand could have a positive impact on ethanol demand whereas decreased gasoline demand would have an adverse impact on ethanol demand and therefore, ethanol prices.

We currently believe that our margins ~~will~~may remain tight in light of mixed signals on support for the RFS and waivers of refiner RVOs by the EPA. An increase in the price for crude oil and unleaded gasoline could have a ~~positive~~negative impact on the demand for gasoline and impact the market price of ethanol, but the effect of the COVID-19 pandemic on the economy is expected to have a substantial negative impact on demand, which could adversely impact our profitability during the balance of Fiscal 2021. This negative impact could worsen in the event that domestic ethanol inventories remain high, or if U.S. exports of ethanol remain low or decline further. Unless additional demand can be found in foreign or domestic markets, a continued level of current ethanol stocks or any increase in domestic ethanol supply could further adversely impact the price of ethanol. The risk of an escalating trade war with foreign countries is a great threat to the U.S. agriculture economy in the short term.

Our distiller grain margins have been impacted positively in the short term due to plant shutdowns and plant slowdowns by local competitors and continued delays within the industry to return to normal production levels due to the current high corn prices which has resulted in increased demand for our dried distiller grains ("DDG") and wet distiller grains ("WDG"). We experienced a price increase of ~~11.8%~~26.6% for the three months ended ~~December~~March 31, ~~2020,~~2021, as compared to the three months ended ~~December~~March 31, ~~2019,~~2020, on a ~~0.5%~~6.0% decrease in tons sold for those same periods. For the six months ended March 31, 2021, there was a price increase of 18.9% as compared to the six months ended March 31, 2020 on a decreased of 3.2% in tons sold during that period. In 2019, the U.S. implemented tariffs on a cross section of Chinese products, and China did not order products from the U.S., including DDG. In January 2020, the U.S. and China signed a "Phase One Agreement" where the U.S. lowered tariffs in exchange for China reinstating orders for U.S. products, including agriculture products. We cannot forecast how much demand from China will come back into the marketplace, or if additional demand can be created from other foreign markets or domestically. In 2020, China re-entered the DDG import market, but did not reach the levels necessary to be

included in the top 10 countries of DDG imports. The COVID-19 pandemic combined with political tensions between China and the U.S. have delayed implementation of, and further negotiations relating to, the Phase One Agreement. In 2020, a record high 38% of U.S. distillers grains production was exported in 2020. Mexico remained as the top destination for U.S. distillers grains, accounting for 16% of total shipments. Vietnam and South Korea were the second and third highest importers of distillers grains, each totaling approximately 11.7% each of total shipments. The top three countries accounted for approximately 40% of the total U.S. distillers grain shipments, and the top 5 countries accounted for 55.5% of total shipments. Domestic demand for distiller grains could also ~~remain low~~be affected if corn prices ~~decline~~increase and end-users switch to lower priced alternatives.

On December 18, 2019, Congress extended the biodiesel tax credit through 2022 with retroactive application to January 1, 2018. The extension of the tax credit may increase demand for corn oil, which is a feedstock for biodiesel, and could have a positive impact on corn oil prices in the future.

Results of Operations

The following table shows our results of operations, stated as a percentage of revenue for the three months ended ~~December~~March 31, ~~2020~~2021 and ~~2019.~~2020.


	Three Months Ended March 31, 2021				Three Months Ended March 31, 2020
	Amounts		% of Revenues		Amounts		% of Revenues
	in 000's				in 000's
Income Statement Data
Revenues	$	70,001	100.0	%	$	50,328	100.0	%
Cost of Goods Sold
Material Costs	58,792		84.0	%	40,302		80.1	%
Variable Production Expense	7,148		10.2	%	6,616		13.1	%
Fixed Production Expense	6,148		8.8	%	6,272		12.5	%
Gross (Loss)	(2,087)		(3.0)	%	(2,862)		(5.7)	%
General and Administrative Expenses	1,311		1.9	%	1,279		2.5	%
Interest and other (income) expense, net	(252)		(0.4)	%	609		1.2	%


Net (Loss)	$	(3,146)	(4.5)	%	$	(4,750)	(9.4)	%

The following tables shows our results of operation, stated as a percentage of revenue for the six months ended March 31, 2021 and 2020.

Three Months Ended 44196 Three Months Ended December 31, 2019
Amounts % of Revenues Amounts % of Revenues
in 000's in 000's
Income Statement Data
Revenues $ 55,410 100.0 % $ 62,065 100.0 %
Cost of Goods Sold
Material Costs 40,553 73.2 % 42,921 69.2 %
Variable Production Expense 6,286 11.3 % 7,531 12.1 %
Fixed Production Expense 5,853 10.6 % 6,175 9.9 %
Gross Margin 2,718 4.9 % 5,438 8.8 %
General and Administrative Expenses 1,335 2.4 % 1,244 2.0 %
Interest and other expense, net 272 0.5 % 341 0.6 %
Net Income $ 1,111 2.0 % $ 3,853 6.2 %


	Six Months Ended March 31, 2021				Six Months Ended March 31, 2020
	Amounts		% of Revenues		Amounts	% of Revenues
	in 000's				in 000's
Income Statement Data
Revenues	$	125,411	100.0	%	112,393	100.0	%
Cost of Goods Sold
Material Costs	99,425		79.3	%	83,223	74.0	%
Variable Production Expense	13,355		10.6	%	14,146	12.6	%
Fixed Production Expense	12,000		9.6	%	12,448	11.1	%
Gross Margin	631		0.5	%	2,576	2.3	%
General and Administrative Expenses	2,646		2.1	%	2,523	2.3	%
Interest and other (income) expense, net	20		—	%	950	0.8	%


Net (Loss)	(2,035)		(1.6)	%	(897)	(0.8)	%

Revenues

Our revenue from operations is derived from three primary sources: sales of ethanol, distillers grains, and corn oil. The chart below displays statistical information regarding our revenues. During the three months ended ~~December~~March 31, ~~2020,~~2021, the average price per gallon of ethanol ~~decreased~~increased by ~~7.6%~~21.9% as compared to the same period in ~~2019,~~2020, compounded by a ~~11.2% decrease~~19.6% increase in gallons of ethanol sold, primarily due to the impact of COVID-19 pandemic on the economy which ~~did not impact our~~began impacting ethanol industry ~~until~~during the second quarter of ~~fiscal year~~Fiscal 2020. WeIn addition, we finished the first ~~fiscal~~ quarter of Fiscal 2021 with higher finished goods as compared to the same period in ~~fiscal~~Fiscal 2020 which also reduced our gallons sold during the fiscal quarter due to the sale of one unit train of ethanol which sale was deferred until January 2021 in order to obtain more favorable market pricing. The net effect was an ~~18.0% decrease~~45.9% increase in ethanol revenue for the three months ended ~~December~~March 31, 2021. During the six months ended March 31, 2021, the average price per gallon of ethanol increased 6.3% as compared to the first six months ended March 31, 2020. There was a 3.0% increase in the volume of ethanol gallons sold during the six months ended March 31, 2021 as compared to the first six months ended March 31, 2020. Overall, ethanol revenue increased 11.6% for the first six months ended March 31, 2021, compared to the first six months ended March 31, 2020.

An increase in the average price per ton of distillers grains of approximately ~~11.8%~~26.6% coupled with a ~~0.5%~~6.0% decrease in volume sold resulted in an increase of ~~11.2%~~19.0% in revenue for this category in the three months ended ~~December~~March 31, ~~2020~~2021 as compared to the same three month period in ~~2019.~~2020. Distillers grain revenue increased primarily due to increased distiller grain prices in contrast to relatively flat ethanol production. For the six months ended March 31, 2021, distillers grain price per ton increased 18.9%, and tons sold decreased 3.2% for an overall increase of 15.1% as compared to the six months ended March 31, 2020.

Corn oil revenue increased ~~28.7%~~35.5% in the three months ended ~~December~~March 31, ~~2020~~2021 compared to the three months ended ~~December~~March 31, ~~2019~~2020 with the ~~32.0%~~54.9% increase in price offset by lower volume of ~~2.5%~~12.6%. Comparing the six months ended March 31, 2021 to the six months ended March 31, 2020, corn oil revenue increased 32.3%, with a 43.2% increase in price somewhat offset by less tons sold than the six months ended March 31, 2020 by 7.6%. Our market for corn oil is primarily local middlemen that compete for our available supply. On December 18, 2019, Congress extended the biodiesel tax credit through 2022 with retroactive application to January 1, 2018. The extension of the tax credit may increase demand for corn oil, which is a feedstock for biodiesel, and could have a positive impact on corn oil prices in the future, but this has not been experienced to date because of the impact of COVID-19 on the economy.

Three Months Ended 44196 Three Months Ended December 31, 2019
Amounts in 000's % of Revenues Amounts in 000's % of Revenues
Product Revenue Information
Denatured and Undenatured Ethanol $ 39,309 70.9 % $ 47,914 77.2 %
Distillers Grains 12,627 22.8 % 11,356 18.3 %
Corn Oil 3,190 5.8 % 2,479 4.0 %
Other 284 0.5 % 316 0.5 %


	Three Months Ended March 31, 2021				Three Months Ended March 31, 2020
	Amounts in 000's		% of Revenues		Amounts in 000's		% of Revenues
Product Revenue Information
Denatured and Undenatured Ethanol	$	52,553	75.1	%	$	36,026	71.6	%
Distillers Grains	13,209		18.9	%	11,101		22.0	%
Corn Oil	3,934		5.6	%	2,904		5.8	%
Other	305		0.4	%	297		0.6	%


	Six Months Ended March 31, 2021				Six Months Ended March 31, 2020
	Amounts in 000's		% of Revenues		Amounts in 000's		% of Revenues
Product Revenue Information
Denatured and Undenatured Ethanol	$	91,862	73.2	%	$	83,940	74.7	%
Distillers Grains	25,837		20.6	%	22,457		20.0	%
Corn Oil	7,124		5.7	%	5,383		4.8	%
Other	588		0.5	%	613		0.5	%

Cost of Goods Sold

Our cost of goods sold as a percentage of our revenues was ~~95.1%~~103.0% and ~~91.2%~~105.7% for the three months ended ~~December~~March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. Our two primary costs of producing ethanol and distillers grains are corn and energy, with steam and natural gas as our primary energy sources. Cost of goods sold also includes net (gains) or losses from derivatives and hedging relating to corn. The average price of corn used in ethanol production per bushel increased ~~15.6%~~0.5% in the three months ended ~~December~~March 31, ~~2020~~2021 compared to the three months ended ~~December~~March 31, ~~2019. Due~~2020. In response to indications of the ~~continued impact~~start of economic recovery from the COVID-19 ~~on the economy,~~pandemic, the volume of ethanol produced ~~was lower~~increased by ~~0.7%~~4.9% for the three months ended ~~December~~March 31, ~~2020~~2021 as compared ~~the~~ the same period in fiscal ~~2019.~~2020. Our cost of goods sold as a percentage of our revenues was 99.5% for the six months ended March 31, 2021 compared to 97.7% for the six months ended March 31, 2020. The gallons of ethanol produced increased 2.0% as compared to fiscal 2020, and the price of corn used in ethanol increased by 13.8% in the six months ended March 31, 2021 compared to the same period in Fiscal 2020.

Realized and unrealized gains (losses) related to our derivatives and hedging related to corn resulted in a ~~$1.0~~$0.4 million ~~decrease~~increase to our cost of goods sold for the three months ended ~~December~~March 31, ~~2020,~~2021, compared to a decrease of $0.4 million for the three months ended ~~December~~March 31, ~~2019.~~2020. For the six months ended March 31, 2021, the Company's realized and unrealized gains related to our derivatives and hedging for corn resulted in a $0.5 million decrease to our cost of goods sold compared to a $0.8 million decrease to our cost of goods sold for the six months ended March 31, 2020. We recognize the gains or losses that result from the changes in the value of our derivative instruments related to corn in cost of goods sold as the changes occur. As corn prices fluctuate, the value of our derivative instruments are impacted, which affects our financial performance. We anticipate continued volatility in our cost of goods sold due to the timing of the changes in value of the derivative instruments relative to the cost and use of the commodity being hedged.

Variable production expenses ~~decreased 16.5%~~increased 8.0% when comparing the three months ended ~~December~~March 31, ~~2020~~2021 to the three months ended ~~December~~March 31, ~~2019~~2020 due to ~~lower~~increased chemical costs and utility expenses, partially offset by lower marketing fees as we no longer pay fees for distiller grains and corn to Bunge. For the six months ended March 31, 2021, variable production expenses were lower by 5.6% as compared to the six months ended March 31, 2020. The lower expenses were due to lower marketing fees as we no longer pay fees for distiller grains and corn to Bunge ~~which decreased~~and lower chemical costs ~~were partially~~ offset by ~~increased~~higher utility expenses.

Fixed production expenses decreased ~~5.2%~~2.0% for the three months ended ~~December~~March 31, ~~2020~~2021 compared to the three months ended ~~December~~March 31, ~~2019.~~2020. Lower repairs and maintenance charges ~~lease costs~~ and supplies were partially offset by increased ~~insurance expense~~depreciation. For

the six months ended March 31, 2021, fixed production expenses were lower by 3.6% as compared to the six months ended March 31, 2020. The lower expenses were due to repairs and maintenance charges and lease costs, which were partially offset by increased depreciation.

General & Administrative Expense

General and administrative expenses include salaries and benefits of administrative employees, professional fees and other general administrative costs. Our general and administrative expenses for the three months ended ~~December~~March 31, ~~2020~~2021 increased ~~7.3%~~2.5% compared to the three months ended ~~December~~March 31, ~~2019,~~2020, primarily due to increased property taxes and higher ~~salary/benefit~~insurance costs somewhat offset by lower professional/consulting costs. For the six months ended March 31, 2021, general and administrative expenses increased by 4.9% as compared to the six months ended March 31, 2020. The higher expenses were due to increased property taxes somewhat offset by lower supply and travel costs.

Interest and Other (Income) Expense, Net

Our interest and other (income) expenses, net, were ~~$0.3~~$(0.3) million for ~~both~~three months ended March 31, 2021, and $0.6 million for the three months ended ~~December~~March 31, ~~2020~~2020. A onetime sale of natural gas, patronage dividend receipts and ~~2019, respectively.~~lower interest expense were the main reasons for the favorable variance. For the six months ended March 31, 2021, our other expenses were zero compared to $1.0 million for the six months ended March 31, 2020. The one time sale of natural gas, patronage dividend receipts and the first quarter receipt from the Syngenta class action lawsuit were the main reasons for the improvement to net interest and other expense. In the first quarter of Fiscal 2021, the Company received a settlement on the class action lawsuit against Syngenta corn seeds. This settlement offset higher interest expenses associated with the amended credit agreement with Cobank in November 2019 that included two major capital projects, and the purchase of capital units from ICM and Bunge.

Selected Financial Data

Modified EBITDA is defined as net income plus interest expense net of interest income, plus depreciation and amortization, or EBITDA, as adjusted for unrealized hedging (gains) losses. Modified EBITDA is not required by or presented in accordance with generally accepted accounting principles in the United States of America ("GAAP"), and should not be considered as an alternative to net income, operating income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities or as a measure of our liquidity.

We present modified EBITDA because we consider it to be an important supplemental measure of our operating performance and it is considered by our management and Board of Directors as an important operating metric in their assessment of our performance.

We believe modified EBITDA allows us to better compare our current operating results with corresponding historical periods and with the operational performance of other companies in our industry because it does not give effect to potential differences caused by variations in capital structures (affecting relative interest expense, including the impact of write-offs of deferred financing costs when companies refinance their indebtedness), the amortization of intangibles (affecting relative amortization expense), unrealized hedging (gains) losses and other items that are unrelated to underlying operating performance. We also present modified EBITDA because we believe it is frequently used by securities analysts and investors as a measure of performance. There are a number of material limitations to the use of modified EBITDA as an analytical tool, including the following:

•Modified EBITDA does not reflect our interest expense or the cash requirements to pay our principal and interest. Because we have borrowed money to finance our operations, interest expense is a necessary element of our costs and our ability to generate profits and cash flows. Therefore, any measure that excludes interest expense may have limitations.

•Although depreciation and amortization are non-cash expenses in the period recorded, the assets being depreciated and amortized may have to be replaced in the future, and modified EBITDA does not reflect the cash requirements for such replacement. Because we use capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate profits. Therefore, any measure that excludes depreciation and amortization expense may have limitations.

We compensate for these limitations by relying heavily on our GAAP financial measures and by using modified EBITDA as supplemental information. We believe that consideration of modified EBITDA, together with a careful review of our GAAP financial measures, is the most informed method of analyzing our operations. Because modified EBITDA is not a

measurement determined in accordance with GAAP and is susceptible to varying calculations, modified EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. The following table provides a reconciliation of modified EBITDA to net income (in thousands except per unit data):


		Three months ended		Three months ended			Three Months Ended March 31,		Three Months Ended March 31,		Six Months Ended March 31,		Six Months Ended March 31,
		December 31, 2020		December 31, 2019			March 31, 2021		March 31, 2020		March 31, 2021		March 31, 2020

EBITDA	EBITDA					EBITDA
Net Income		$	1,111	$	3,853
Net (Loss)						Net (Loss)	$	(3,146)	$	(4,750)	$	(2,035)	$	(897)
Interest Expense	Interest Expense	464		349		Interest Expense	562		645		1,026		994
Depreciation	Depreciation	2,760		2,602		Depreciation	2,764		2,603		5,524		5,205
EBITDA	EBITDA	4,335		6,804		EBITDA	180		(1,502)		4,515		5,302

Unrealized Hedging Loss (Gain)		276		(131)
Unrealized Hedging (Gain)						Unrealized Hedging (Gain)	(1,578)		(414)		(1,302)		(545)

Modified EBITDA	Modified EBITDA	$	4,611	$	6,673	Modified EBITDA	$	(1,398)	$	(1,916)	$	3,213	$	4,757

Liquidity and Capital Resources

The Company has certain loan agreements with FCSA, PCA and CoBank, as amended November 8, 2019 (the "FCSA Credit Facility"), which provides the Company with a term loan in the amount of $30 million (the "Term Loan") and a revolving term loan in the amount of $40 million (the "Revolving Term Loan"). ~~The interest rate on~~On February 26, 2021, the parties amended the FCSA Credit Facility to provide the Company with a new revolving credit loan (the “New Revolving Credit Loan”) with a maximum draw amount of $10,000,000 and a maturity date of August 1, 2021. The full amount of this New Revolving Credit Note is ~~LIBOR plus 3.40%, and is secured by~~available on a ~~security interest on all of the Company's assets.~~ revolving basis from time to time through maturity.

The Term Loan provides for payments by the Company to FCSA of semi-annual installments of $3.75 million, which began on September 1, 2020 and matures November 15, 2024. The February 26, 2021 amendment to the FCSA Credit Facility also modified the Term Loan to only require the Company to make one principal payment of $3.75 million during 2021, which payment was made on March 1, 2021. Thereafter, the Company must make four equal semi-annual payments of $3.75 million on each March 1 and September 1, through September 1, 2023. All remaining amounts due under the Term Note are due and payable on the maturity date.

The interest rate on the FCSA Credit Facility for each of the Term Loan, the Revolving Term Loan and the New Revolving Credit Loan is LIBOR plus 3.40%. However, the February 26, 2021 amendment to the FCSA Credit Facility included modifications relating to the adjustment of the interest rate applicable to each of the foregoing in connection with the phasing out of LIBOR. The FSCA Credit Facility previously calculated the interest rates for the each of the loans as LIBOR plus a 340 basis point spread. The amendment provides that the interest rate for each loan is calculated using LIBOR + 340 basis points until the occurrence of certain events. Upon the earliest occurrence of one of the specified events, the interest rate applicable to the loans will convert to a variant of the secured overnight financing rate (“SOFR”), as established from time to time by the Federal Reserve Bank of New York, plus a corresponding spread.

The FCSA Credit Facility is secured by a security interest on all of the Company’s assets.

As of ~~December~~March 31, ~~2020,~~2021, we had a cash balance of ~~$1.3~~$1.1 million, and ~~18.0~~$11.9 million available under the Revolving Term Loan.

Although there is uncertainty related to the anticipated impact of the recent COVID-19 outbreak on our future results, we believe our current cash reserves, our PPP Loans and the available cash under our revolving term loan leave us well-positioned to manage our business through this crisis as it continues to unfold. However, the impacts of the COVID-19 pandemic are broad-reaching and the financial impacts associated with the COVID-19 pandemic include, but are not limited to, reduced production levels, lower net sales and potential incremental costs associated with mitigating the effects of the

pandemic, including storage and logistics costs and other expenses. As a result, although we were in compliance with our financial covenants set forth in our FSCA Credit Facility as of ~~December~~March 31, ~~2020,~~2021, the impact the COVID-19 pandemic could adversely impact our operating results which could result in our inability to comply with certain of these financial covenants and require our lenders to waive compliance with, or agree to amend, any such covenant to avoid a default. However, based on

our current forecast of market conditions and our financial performance, we expect that we will be in a a position to satisfy ~~all~~ all of the financial covenants in our FCSA Credit Facility for the next twelve months.

Primary Working Capital Needs

During the ~~second~~third quarter of Fiscal 2021, we estimate that we will require cash of approximately ~~$47.5~~$66.4 million for our primary input of corn and ~~$2.9~~$4.0 million for our energy sources of electricity, steam, and natural gas. Capital expenditure requirements for the ~~second~~third quarter are expected to be ~~$1.0~~$2.6 million.

Although there is uncertainty related to the anticipated impact of the COVID-19 outbreak on our future results, management expects to have sufficient cash available to fund operations for the next twelve months generated by cash from our continuing operations and available cash under our Revolving Term Loan. We cannot estimate the availability of funds for hedging in the future.

Commodity Price Risk

Our operations are highly dependent on commodity prices, especially prices for corn, ethanol and distillers grains and the spread between them (the "crush margin"). As a result of price volatility for these commodities, our operating results may fluctuate substantially. The price and availability of corn are subject to significant fluctuations depending upon a number of factors that affect commodity prices in general, including crop conditions, weather, governmental programs and foreign purchases. We may experience increasing costs for corn and natural gas and decreasing prices for ethanol and distillers grains which could significantly impact our operating results. Because the market price of ethanol is not directly related to corn prices, ethanol producers are generally not able to compensate for increases in the cost of corn through adjustments in prices for ethanol. We continue to monitor corn and ethanol prices and manage the "crush margin" to affect our longer-term profitability.

We enter into various derivative contracts with the primary objective of managing our exposure to adverse price movements in the commodities used for, and produced in, our business operations and, to the extent we have working capital available and available market conditions are appropriate, we engage in hedging transactions which involve risks that could harm our business. We measure and review our net commodity positions on a daily basis. Our daily net agricultural commodity position consists of inventory, forward purchase and sale contracts, over-the-counter and exchange traded derivative instruments. The effectiveness of our hedging strategies is dependent upon the cost of commodities and our ability to sell sufficient products to use all of the commodities for which we have futures contracts. Although we actively manage our risk and adjust hedging strategies as appropriate, there is no assurance that our hedging activities will successfully reduce the risk caused by market volatility which may leave us vulnerable to high commodity prices. Alternatively, we may choose not to engage in hedging transactions in the future. As a result, our future results of operations and financial conditions may also be adversely affected during periods in which price changes in corn, ethanol and distillers grain todo not work in our favor.

In addition, as described above, hedging transactions expose us to the risk of counterparty non-performance where the counterparty to the hedging contract defaults on its contract or, in the case of over-the-counter or exchange-traded contracts, where there is a change in the expected differential between the price of the commodity underlying the hedging agreement and the actual prices paid or received by us for the physical commodity bought or sold. We have, from time to time, experienced instances of counterparty non-performance but losses incurred in these situations were not significant.

Although we believe our hedge positions accomplish an economic hedge against our future purchases and sales, management has chosen not to use hedge accounting, which would match any gain or loss on our hedge positions to the specific commodity purchase being hedged. We are using fair value accounting for our hedge positions, which means as the current market price of our hedge positions changes, the realized or unrealized gains and losses are immediately recognized in the current period (commonly referred to as the “mark to market” method). The immediate recognition of hedging gains and losses under fair value accounting can cause net income to be volatile from quarter to quarter due to the timing of the change in the value of the derivative instruments relative to the cost and use of the commodity being hedged. 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. Depending on market movements, crop prospects and weather, our hedging strategies may cause immediate adverse effects, but are expected to produce long-term positive impact.

In the event we do not have sufficient working capital to enter into hedging strategies to manage our commodities price risk, we may be forced to purchase our corn and market our ethanol at spot prices and as a result, we could be further exposed to market volatility and risk. However, during the past year, the spot market has been advantageous.

Credit and Counterparty Risks

Through our normal business activities, we are subject to significant credit and counterparty risks that arise through normal commercial sales and purchases, including forward commitments to buy and sell, and through various other over-the-counter (OTC) derivative instruments that we utilize to manage risks inherent in our business activities. We define credit and counterparty risk as a potential financial loss due to the failure of a counterparty to honor its obligations. The exposure is measured based upon several factors, including unpaid accounts receivable from counterparties and unrealized gains (losses) from OTC derivative instruments (including forward purchase and sale contracts). We actively monitor credit and counterparty risk through credit analysis (by our marketing agent).

Impact of Hedging Transactions on Liquidity

Our operations and cash flows are highly impacted by commodity prices, including prices for corn, ethanol, distillers grains and natural gas. We attempt to reduce the market risk associated with fluctuations in commodity prices through the use of derivative instruments, including forward corn contracts and over-the-counter exchange-traded futures and option contracts. Our liquidity position may be positively or negatively affected by changes in the underlying value of our derivative instruments. When the value of our open derivative positions decrease, we may be required to post margin deposits with our brokers to cover a portion of the decrease or we may require significant liquidity with little advanced notice to meet margin calls. Conversely, when the value of our open derivative positions increase, our brokers may be required to deliver margin deposits to us for a portion of the increase. We continuously monitor and manage our derivative instruments portfolio and our exposure to margin calls and while we believe we will continue to maintain adequate liquidity to cover such margin calls from operating results and borrowings, we cannot estimate the actual availability of funds from operations or borrowings for hedging transactions in the future.

The effects, positive or negative, on liquidity resulting from our hedging activities tend to be mitigated by offsetting changes in cash prices in our business. For example, in a period of rising corn prices, gains resulting from long grain derivative positions would generally be offset by higher cash prices paid to farmers and other suppliers in local corn markets. These offsetting changes do not always occur, however, in the same amounts or in the same period.

We expect that a $1.00 per bushel fluctuation in market prices for corn would impact our cost of goods sold by approximately $45 million, or $0.34 per gallon, assuming our plant operates at 100% of our capacity. We expect the annual impact to our results of operations due to a $0.50 decrease in ethanol prices will result in approximately a $65 million decrease in revenue.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

SIRE's management, under the supervision and with the participation of SIRE's president and chief executive officer and SIRE's chief financial officer, is responsible for establishing and maintaining adequate disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to insure that information required to be disclosed in the reports that the Company files is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and performed an evaluation of the effectiveness of of SIRE's disclosures controls and procedures as of the end of the period covered by this quarterly report.

Based on that evaluation, SIRE's president and chief executive officer and SIRE's chief financial officer have concluded that, as of the end of the period covered by this quarterly report, SIRE's disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed in the reports SIRE files or submits under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and (ii) accumulated and communicated to

management, including SIRE's principal executive and principal financial officers or persons performing such functions, as appropriate, to allow timely decisions regarding disclosure. SIRE believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

No Changes in Internal Control Over Financial Reporting

No change in SIRE's internal control over financial reporting occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, SIRE's internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time the Company is involved in various litigation matters arising in the ordinary course of its business. None of these matters, either individually or in the aggregate, currently is material to the Company except as reported in the Company’s annual report on Form 10-K for the year ended September 30, 2020 and there were no material developments to such matters.

Item 1A. Risk Factors.

Members should carefully consider the discussion of risks and the other information in our annual report on Form 10-K for the year ended September 30, 2020, in Part I, Item 1A, “Risk Factors” along with the discussion of risks and other information in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under “Cautionary Information Regarding Forward-Looking Statements,” of this report. Although we have attempted to discuss key factors, our members need to be aware that other risks may prove to be important in the future. New risks may emerge at any time and we cannot predict such risks or estimate the extent to which they may affect our financial performance.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None

Item 6. Exhibits

3132



10.1			Global Modification Agreement dated February 26, 2021 by and among Southwest Iowa Renewable Energy, LLC, Farm Credit Services of America, FLCA, Farm Credit Services of America, PCA and CoBank, ACB (incorporated by reference to Exhibit 10.1 on Form 8-K filed by the Company with the Securities and Exchange Commission on March 4, 2021)
10.2			Amendment No. 5 to Credit Agreement dated February 26, 2021 by and among Southwest Iowa Renewable Energy, LLC, Farm Credit Services of America, FLCA, Farm Credit Services of America, PCA and CoBank, ACB (incorporated by reference to Exhibit 10.2 on Form 8-K filed by the Company with the Securities and Exchange Commission on March 4, 2021)
10.3			Second Amended and Restated Term Note dated February 26, 2021 (incorporated by reference to Exhibit 10.3 on Form 8-K filed by the Company with the Securities and Exchange Commission on March 4, 2021)
10.4			Revolving Credit Note dated February 26, 2021 (incorporated by reference to Exhibit 10.4 on Form 8-K filed by the Company with the Securities and Exchange Commission on March 4, 2021)
31.1			Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) executed by the Principal Financial Officer.

31.2			Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) executed by the Principal Financial Officer.

32.1***			Rule 15d-14(b) Certifications (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) executed by the Principal Executive Officer.

32.2***			Rule 15d-14(b) Certifications (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) executed by the Principal Financial Officer.

101.XML*			XBRL Instance Document

101.BSD*			XBRL Taxonomy Schema

101.CAL*			XBRL Taxonomy Calculation Database

101.LAB*			XBRL Taxonomy Label Linkbase

101.PRE*			XBRL Taxonomy Presentation Linkbase

***			This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference.
*			Furnished, not filed.

3233

SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		SOUTHWEST IOWA RENEWABLE ENERGY, LLC

Date:	~~February 12,~~May 7, 2021	/s/ Michael D. Jerke
		Michael D. Jerke, President and Chief Executive Officer

Date:	~~February 12,~~May 7, 2021	/s/ Brett L. Frevert
		Brett L. Frevert, CFO and Principal Financial Officer

3334


Item No.	Item Matter	PAGE NO.
	PART 1 – FINANCIAL INFORMATION
Item 1.	FINANCIAL STATEMENTS	4
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	1716
Item 3.	QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISKS	3031
Item 4.	CONTROLS AND PROCEDURES	3031
	PART II – OTHER INFORMATION	3132
Item 1.	LEGAL PROCEEDINGS	3132
Item 1A.	RISK FACTORS	3132
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	3132
Item 3.	DEFAULTS UPON SENIOR SECURITIES	3132
Item 4.	MINE SAFETY DISCLOSURES	3132
Item 5.	OTHER INFORMATION	3132
Item 6.	Exhibits	3132
	SIGNATURES	3334
	CERTIFICATIONS	SEE EXHIBITS 31 AND 32


	Three Months Ended 44196				Three Months Ended December 31, 2019
	Amounts		% of Revenues		Amounts		% of Revenues
	in 000's				in 000's
Income Statement Data
Revenues	$	55,410	100.0	%	$	62,065	100.0	%
Cost of Goods Sold
Material Costs	40,553		73.2	%	42,921		69.2	%
Variable Production Expense	6,286		11.3	%	7,531		12.1	%
Fixed Production Expense	5,853		10.6	%	6,175		9.9	%
Gross Margin	2,718		4.9	%	5,438		8.8	%
General and Administrative Expenses	1,335		2.4	%	1,244		2.0	%
Interest and other expense, net	272		0.5	%	341		0.6	%


Net Income	$	1,111	2.0	%	$	3,853	6.2	%