Southwest Iowa Renewable Energy 10Q 2019 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)



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

For the quarterly period ending March 31, 2019

o	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

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



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 o Accelerated filer (do not check if a smaller reporting company) o Non-accelerated filer o Smaller reporting company x

Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of March 31, 2019, the Company had 8,993 Series A, 3,334 Series B and 1,000 Series C Membership Units outstanding.

DOCUMENTS INCORPORATED BY REFERENCE—None

TABLE OF CONTENTS

PART I – FINANCIAL STATEMENTS

Item 1. Financial Statements

SOUTHWEST IOWA RENEWABLE ENERGY, LLC Balance Sheets (Dollars in thousands)

ASSETS	March 31, 2019			September 30, 2018
	(Unaudited)
Current Assets
Cash and cash equivalents	$	1,101		$	1,440
Accounts receivable	752			1,135
Accounts receivable, related party	9,024			11,537
Derivative financial instruments	770			1,046
Inventory	17,278			13,526
Prepaid expenses and other	763			341
Total current assets	29,688			29,025

Property, Plant and Equipment
Land	2,064			2,064
Plant, building and equipment	230,776			229,813
Office and other equipment	1,625			1,625
	234,465			233,502
Accumulated depreciation	(126,768		)	(121,634		)
Net property, plant and equipment	107,697			111,868

Other assets	1,447			1,738
Total Assets	$	138,832		$	142,631

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	March 31, 2019		September 30, 2018
	(Unaudited)
Current Liabilities
Accounts payable	$	1,769	$	3,183
Accounts payable, related party	22		18
Derivative financial instruments	523		1,567
Accrued expenses	7,124		7,500
Accrued expenses, related parties	412		601
Current maturities of notes payable	3,571		6,560
Total current liabilities	13,421		19,429

Long Term Liabilities
Notes payable, less current maturities	20,420		15,333
Other long-term liabilities	2,983		2,834
Put option liability, related party	5,400		5,400
Total long term liabilities	28,803		23,567

Members' Equity
Members' capital, 13,327 units issued and outstanding	87,165		87,165
Accumulated earnings	9,443		12,470
Total members' equity	96,608		99,635

Total Liabilities and Members' Equity	$	138,832	$	142,631

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			Six Months Ended			Six Months Ended
	March 31, 2019			March 31, 2018			March 31, 2019			March 31, 2018

Revenues	$	53,190		$	53,551		$	106,572		$	104,097
Cost of Goods Sold
Cost of goods sold-non hedging	54,895			55,737			108,362			101,573
Realized & unrealized hedging (gains)	(1,327		)	(2,449		)	(1,823		)	(353		)
	53,568			53,288			106,539			101,220

Gross Margin (Loss)	(378		)	263			33			2,877

General and administrative expenses	1,174			1,056			2,676			2,434

Operating Income (Loss)	(1,552		)	(793		)	(2,643		)	443

Interest and other expense, net	215			135			384			284

Net Income (Loss)	$	(1,767	)	$	(928	)	$	(3,027	)	$	159

Weighted average units outstanding - basic	13,327			13,327			13,327			13,327
Weighted average units outstanding - diluted	13,327			13,327			13,327			14,354
Income (loss) per unit - basic	$	(132.59	)	$	(69.63	)	$	(227.13	)	$	11.93
Income (loss) per unit - diluted	$	(132.59	)	$	(69.63	)	$	(227.13	)	$	11.08
Distributions per unit - basic	$	—		$	500.00		$	—		$	500.00
Distributions per unit - diluted	$	—		$	500.00		$	—		$	464.23

Notes to Financial Statements are an integral part of this statement



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

Balance, September 30, 2017	$	87,165	$	21,644		$	108,809
Net Income	—		1,087			1,087
Distributions ($500 per unit)	—		(6,663		)	(6,663		)
Balance, December 31, 2017	87,165		16,068			103,233
Net (Loss)	—		(928		)	(928		)
Balance, March 31, 2018	$	87,165	$	15,140		$	102,305



Balance, September 30, 2018	$	87,165	$	12,470		$	99,635
Net (Loss)	—		(1,260		)	(1,260		)
Balance, December 31, 2018	87,165		11,210			98,375
Net (Loss)	—		(1,767		)	(1,767		)
Balance, March 31, 2019	$	87,165	$	9,443		$	96,608

Notes to Financial Statements are an integral part of this statement

SOUTHWEST IOWA RENEWABLE ENERGY, LLC Statements of Cash Flows (Dollars in thousands)

(Unaudited)
	Six Months Ended			Six Months Ended
	March 31, 2019			March 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(3,027	)	$	159
Adjustments to reconcile to net cash provided by (used in) operating activities:
Depreciation	5,134			6,218
Amortization	36			36
Change in other assets, net	291			36
(Increase) decrease in current assets:
Accounts receivable	2,896			350
Inventories	(3,752		)	38
Prepaid expenses and other	(422		)	(421		)
Derivative financial instruments	276			(646		)
Increase (decrease) in current liabilities:
Accounts payable	(1,410		)	(1,737		)
Derivative financial instruments	(1,044		)	(911		)
Accrued expenses	(565		)	(1,780		)
Increase in other long-term liabilities	149			149
Net cash provided by (used in) operating activities	(1,438		)	1,491

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment	(963		)	(2,647		)
Net cash (used in) investing activities	(963		)	(2,647		)

CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid to members	—			(6,663		)
Proceeds from debt	76,851			49,050
Payments on debt	(74,789		)	(41,443		)
Net cash provided by financing activities	2,062			944

Net (decrease) in cash and cash equivalents	(339		)	(212		)

CASH AND CASH EQUIVALENTS
Beginning	1,440			1,487
Ending	$	1,101		$	1,275


SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	$	397		$	428

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 as of and for the three months and six months ended March 31, 2019 and 2018, 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, 2018 ("Fiscal 2018") contained in the Company’s Annual Report on Form 10-K. See revision considerations related to form amounts presented in Form 10-K in the paragraph below. 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.

Revision

The Company has applied SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB No. 108 states that registrants must quantify the impact of correcting all misstatements, including both the carryover (iron curtain method) and reversing (rollover method) effects of prior year misstatements on the current-year financial statements, and by evaluating the error measured under each method in light of quantitative and qualitative factors. Under SAB No. 108, prior year misstatements which, if corrected in the current year would be material to the current year, must be corrected by adjusting prior year financial statements, even though such correction previously was and continues to be immaterial to the prior year financial statements. Correcting prior year financial statements for such “immaterial errors” does not require previously filed reports to be amended. Such corrections will be made the next time the Company files current year financials and references the prior year.

In applying the requirements of SAB No. 108, the Company adjusted its repairs and maintenance accruals, which were understated, with respect to the tank cars and hopper cars the Company was leasing. The Company should have been booking a provision for repairs necessary to return the cars to the lessor in "normal" status. Since the lease was initiated in March of 2009, with a lease end date of March of 2019, adjustments to previous periods were required. Although the charges in any one quarter were not significant, the historical financial statements were revised with all appropriate entries being retrospectively reflected in the financial statements.

As of September 30, 2018, the impact of the revision on the balance sheet was $3.6 million as summarized below in the Accumulative revision to Balance Sheet table. Additionally, items on the statements of operations were revised including activity in the six months ended March 31, 2019 and the three and six months ended March 31, 2018 as summarized below in the Revision to Statements of Operations table.



Accumulative revision to Balance Sheet (Dollars in thousands) as of:
		September 30, 2018
Increase in current liabilities		722
Increase in long term liabilities		2,834
Decrease in accumulated earnings		3,556

Revision to Statements of Operations (Dollars in thousands except income (loss) per unit)
	Three Months Ended December 31, 2018	Three Months Ended March 31, 2018	Six Months Ended March 31, 2018
Increase in cost of goods sold	94	94	187
Decrease (Increase) in net income (loss)	94	94	187
Decrease (Increase) in income (loss) per unit	7.02	7.02	14.04

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 new revenue standard did not have an impact on the Company's financial statements.

The Company sells ethanol and related products pursuant to marketing agreements. Revenues are recognized when 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. The Company’s ethanol sales are handled through an ethanol purchase agreement (the “Ethanol Agreement”) with Bunge North America, Inc. (“Bunge”). Syrup and distillers grains (co-products) are sold through a distillers grains agreement (the “DG Agreement”) with Bunge, based on market prices. 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. 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. Shipping and handling costs incurred by the Company for the sale of ethanol and co-products are included in 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 monthly basis. Most of the accounts receivable are receivables from Bunge. 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 March 31, 2019 and September 30, 2018, management had determined no allowance was necessary. Accounts receivables are written off when deemed uncollectable 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 March 31, 2019, the Company had contracts for 2.3 million gallons of ethanol, 0.1 million tons of wet and dried distillers grains and 4.2 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 March 31, 2019, the Company was committed to purchasing 2.5 million bushels of corn on a forward contract basis resulting in a total commitment of $9.3 million. In addition, the Company was committed to purchase 1.2 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 March 31, 2019 and September 30, 2018 at market value are as follows:



	Balance Sheet Classification	March 31, 2019			September 30, 2018
		in 000's			in 000's
Futures and option contracts
In gain position		$	479		$	583
In loss position		(33		)	(82		)
Cash held by broker		324			545
	Current asset	770			1,046

Forward contracts, corn		523			1,567
	Current liability	523			1,567
Net futures, options, and forward contracts		$	247		$	(521	)

The net realized and unrealized gains and losses on the Company’s derivative contracts for the three and six months ended March 31, 2019 and 2018 consist of the following:



		Three Months Ended						Six Months Ended
	Statement of Operations Classification	March 31, 2019			March 31, 2018			March 31, 2019			March 31, 2018
		in 000's			in 000's			in 000's			in 000's
Net realized and unrealized (gains) losses related to:

Forward purchase corn contracts	Cost of Goods Sold	$	(297	)	$	(2,043	)	$	(774	)	$	319
Futures and option corn contracts	Cost of Goods Sold	(1,030		)	(406		)	(1,049		)	(672		)

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.

Put Option liability

The put option liability consists of an agreement between the Company and ICM, Inc. that contains a conditional obligation to repurchase feature. In accordance with accounting for put options as a liability, the Company calculated the fair value of the put option under Level 3, using a valuation model called the Monte Carlo Simulation. Using this model, the estimated value did not change significantly from September 30, 2018 to March 31, 2019.

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, 2019			March 31, 2018			March 31, 2019			March 31, 2018
Numerator:
Net income (loss) for basic earnings per unit	$	(1,767	)	$	(928	)	$	(3,027	)	$	159
Net income (loss) for diluted earnings per unit	$	(1,767	)	$	(928	)	$	(3,027	)	$	159

Denominator:
Weighted average units outstanding - basic	13,327			13,327			13,327			13,327
Weighted average units outstanding - diluted	13,327			13,327			13,327			14,354
Income (loss) per unit - basic	$	(132.59	)	$	(69.63	)	$	(227.13	)	$	11.93
Income (loss) per unit - diluted	$	(132.59	)	$	(69.63	)	$	(227.13	)	$	11.08

Recently Issued Accounting Pronouncements

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. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and for interim periods within that fiscal year. The Company will implement ASU 2016-02 in October 2019, when fiscal 2020 starts. The Company will include a right to use assets for $9.0 million and a corresponding liability at the start of the next fiscal year for the operating leases.

Note 3: Inventory

Inventory is comprised of the following:



	March 31, 2019		September 30, 2018
	(000)		(000)
Raw Materials - corn	$	4,941	$	4,095
Supplies and Chemicals	5,254		4,747
Work in Process	1,702		1,421
Finished Goods	5,381		3,263
Total	$	17,278	$	13,526

Note 4: Revolving Loan/Credit Agreements

FCSA/CoBank

The Company has a credit agreement with Farm Credit Services of America, FLCA (“FCSA”) and CoBank, ACB, as cash management provider and agent (“CoBank”) which provides the Company with a term loan in the original amount of $30.0 million (the “Term Loan”) and a revolving term loan in the original amount of up to $36.0 million (the “Revolving Term Loan”), together with the Term Loan, the “ FCSA Credit Facility ”). The FCSA Credit Facility is secured by a security interest on all of the Company’s assets.

The Term Loan provides for quarterly payments by the Company to FCSA of $1.5 million, with a maturity date of September 20, 2019. The Revolving Term Loan has a maturity date of June 1, 2023 and requires reductions in principal availability in increments of $6.0 million each June 1 commencing on June 1, 2020. 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 Term Loan and the Revolving Term Loan.

As of March 31, 2019, there was $17.8 million available under the Revolving Term Loan.

Notes payable

Notes payable consists of the following:



	March 31, 2019		September 30, 2018
	(000's)		(000's)
Term Loan bearing interest at LIBOR plus 3.35% (5.84% at March 31, 2019)	$	3,000	$	6,000
Revolving Term Loan bearing interest at LIBOR plus 3.35% (5.84% at March 31, 2019)	18,233		12,894
Other debt with interest rates ranging from 3.50% to 4.15% and maturities through 2022	2,852		3,129
	24,085		22,023
Less Current Maturities	3,571		6,560
Less Financing Costs, net of amortization	94		130
Total Long Term Debt	20,420		15,333

The approximate aggregate maturities of notes payable as of March 31, 2019 are as follows:



2019	$	3,571

2020	583

2021	601

2022	1,096

2023	18,234

Total	$	24,085

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.

Put Option liability. The put option liability consists of an agreement between the Company and ICM that contains a conditional obligation to repurchase feature. In accordance with accounting for put options as a liability, the Company calculated the fair value of the put option under Level 3, using a Monte Carlo Simulation model.

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 March 31, 2019 and September 30, 2018, categorized by the level of the valuation inputs within the fair value hierarchy (in '000s):



	March 31, 2019
	Level 1		Level 2		Level 3
Assets:
Derivative financial instruments	$	479	$	—	$	—

Liabilities:
Derivative financial instruments	33		523		—
Put option liability	—		—		5,400


	September 30, 2018
	Level 1		Level 2		Level 3
Assets:
Derivative financial instruments	$	583	$	—	$	—

Liabilities:
Derivative financial instruments	82		1,567		—
Put option liability	—		—		5,400

The following table summarizes the assumptions used in computing the fair value of the put options subject to fair value accounting at March 31, 2019 and September 30, 2018



	March 31, 2019		September 30, 2018
Put option assumptions:
Risk-free interest rate	2.57	%	2.57	%
Expected volatility	22	%	22	%
Expected life (years)	1.25		1.25
Exercise price	$10,897		$10,897
Company unit price	$5,500		$5,500

The following table reflects the activity for liabilities measured at fair value using Level 3 inputs during the six months ended March 31, 2019 and for Fiscal 2018 that ended September 30, 2018:



	March 31, 2019		September 30, 2018
Beginning Balance	$	5,400	$	5,700
Change in Value	—		(300		)
Ending Balance	$	5,400	$	5,400

Note 6: Related Party Transactions

Bunge

Under the Ethanol Agreement, the Company sells Bunge all of the ethanol produced by the Company, and Bunge purchases the same. The Company pays Bunge a percentage fee for ethanol sold by Bunge, subject to a minimum and maximum annual fee. The initial term of the Ethanol Agreement expires on December 31, 2019, however it will automatically renew for one five-year term unless Bunge provides the Company with notice of election not to renew no later than 180 days prior to the expiration of the initial term. The Company incurred ethanol marketing expenses of $0.4 million during both of the three months ended March 31, 2019 and 2018, and $0.8 million during both of the six months ended March 31, 2019 and 2018, under the Ethanol Agreement.

Under the DG Purchase Agreement, Bunge purchases 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 expires on December 31, 2019 and will automatically renew for one additional five year term unless Bunge provides the Company with notice of election not to renew no later than 180 days prior to the expiration of the initial term. The Company incurred distillers grains marketing expenses of $0.3 million during both of the three months ended March 31, 2019 and 2018, and $0.7 million and $0.6 million during the six months ended March 31, 2019 and 2018, respectively.

The Company and Bunge entered into an Amended and Restated Grain Feedstock Agency Agreement on December 5, 2014 (the “ Agency Agreement ”). The Agency Agreement provides 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 expires on December 31, 2019 and will automatically renew for one additional five year term unless Bunge provides the Company with notice of election not to renew no later than 180 days prior to the expiration of the initial term. Expenses for corn procurement by Bunge were $0.2 million during both of the three months ended March 31, 2019 and 2018, and $0.4 million during both of the six months ended March 31, 2019 and 2018.

Starting with the 2015 crop year, the Company began using 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. The Company has contracted for 25,500 acres of Enogen corn for the fiscal year ending September 30, 2019 ("Fiscal 2019"). 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 pays Bunge a per bushel service fee. The initial term of the Services Agreement expires on December 31, 2019 and will automatically renew for one additional five year term unless Bunge provides the Company with notice of election not to renew no later than 180 days prior to the expiration of the initial term. Expenses under the Services Agreement are included as part of the Amended and Restated Grain Feedstock Agency Agreement discussed above.

On June 26, 2009, the Company executed a Railcar Agreement with Bunge for the lease of 325 ethanol cars and 300 hopper cars which are used for the delivery and marketing of ethanol and distillers grains. In November 2016, the Company reduced the number of leased ethanol cars to 323. In both November 2013 and January 2015 the Company reduced the number of hopper cars by one for a total of 298 leased hopper cars. Under the Railcar Agreement, the Company leases railcars for terms lasting 120 months and continuing on a month-to-month basis thereafter. The Railcar Agreement will terminate upon the expiration of all railcar leases. On November 1, 2016, the agreement was amended to provide for 96 hopper cars to be side-leased back to Bunge. Expenses under the Railcar Agreement were $1.0 million in each of the three months ended March 31, 2019 and 2018, respectively, net of subleases and accretion. Expenses for the six months ended March 31, 2019 and 2018, were $1.9 million and $2.0 million, respectively, for railcar lease expenses. The Company has subleased 40 hopper cars to an unrelated third party, which sublease expired March 25, 2019. In June 2018, one of the third party customers entered into an assignment agreement for their 52 hopper cars with the Company and Bunge which was phased in over the fourth quarter of Fiscal 2018, and was predominantly implemented during the first quarter of Fiscal 2019. The Company received an up front assignment/payment, and the net result will be financially neutral, and the number of side-leased railcars by the Company remains the same.

The Company entered into a agreement effective March 24, 2019 extending the original Railcar Agreement with Bunge 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. Under the terms of the new 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 111 hopper cars will be leased over a three year term running from March 24, 2019 to March 31, 2022. The cost for the leases is lowered by 25% as compared to the prior agreement. The ethanol cars and hopper cars repairs and maintenance revision expenses flowed through the financial statements for Fiscal 2009 to the end of the second quarter of Fiscal 2019 should be adequate to cover normal wear and tear expenses, but the Company will monitor to determine if any revisions to the cost estimates are in order.

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. ICM’s right to sell the ICM Units to the Company expires on January 1, 2020.

Note 7: Major Customer

The Company is party to the Ethanol and Distillers Grain Purchase Agreements with Bunge for the exclusive marketing, selling, and distributing of all the ethanol, distillers grains, and syrup produced by the Company. Revenues from Bunge were $50.0 million and $51.2 million for the three months ended March 31, 2019 and 2018, respectively, and $100.4 million and $99.0 million for the six months ended March 31, 2019 and 2018, respectively.

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, 2018 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; and


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

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, 2018 ("Fiscal 2018") 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.

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.

Executive Overview of Ethanol Industry

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. Adding to the supply/demand imbalance is the stance taken by the former administrator of the Environmental Protection Agency (the "EPA") , Scott Pruitt, with regard to the issuance of “hardship waivers” to so-called small refineries. These waivers allowed the recipient to no longer comply with the requirements of the Renewable Fuel Standard (the "RFS") which is discussed further below. The mechanism that provides accountability in RFS compliance is the Renewable Identification Number (RIN). RIN’s are a tradeable 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. The EPA’s allowance of numerous waivers has driven the price for RIN’s from 75 cents in January 2018 to 18 cents on January 21, 2019.

Domestic ethanol use is around 14 billion gallons per year. The industry currently has capacity to produce over 16 billion gallons. Exports play an important 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. Brazil, Canada and India remain the three largest customers, and accounted for almost 60% of all U.S. ethanol exports in 2018. The top 5 countries accounted for 69% and 75% of U.S. ethanol exports in 2018 and 2017, respectively. In 2018, exports to South Korea and the Netherlands more than doubled during the year. Shipments to other small countries collectively increased 37% in 2018 from 2017, and total exports exceeded 250 million gallons. International trade disputes with China and the imposition of tariffs led to a modest growth in exports to China in 2018, but were no shipments to China during the second half of 2018. Trade disputes with other foreign countries, including Mexico and the European Union, have also had an adverse effect on export demand from certain countries.

Last fall, the announcement by President Trump directing the EPA to allow for year-round E15 sales was welcome news; however, by itself the statement alone will not automatically remove the barriers for E15 sales. The industry must continue to push the EPA to develop the rule making that is required to enact the President’s directive prior to the beginning of summer 2019. On March 12, 2019, the EPA proposed regulatory changes to allow gasoline blended with up to 15 percent ethanol (E15) to take advantage of the Reid Vapor Pressure (RVP, a common measure of the volatility of gasoline and other petroleum products) waiver that currently applies to E10 during the summer months. This would allow E15 to be sold year-round in any markets that wish to sell the product. In addition, the EPA is proposing regulatory changes to modify certain elements of the renewable identification number (RIN) compliance system under the RFS program. The proposed rule would lift a nearly 30 year old limitation on E15 that restricts sales between June 1 and September 15, the peak summer driving months. The agency is currently accepting comments from producers, farmers and other stakeholders. The EPA has committed to completing the rule-making process by June 1, 2019. On March 14, 2019, EPA Administrator Wheeler approved the grant of five additional small refinery waivers. It is not known if the EPA will allow these exemptions to be reallocated to other refineries to comply with the Final 2019 Rule, or allow these to be effective reductions to the RFS targets as had been recently done by former EPA Administrator Pruitt.

Although our current plant operational efficiencies are solid which enabled us to achieve positive Earnings Before Interest Tax Depreciation and Amortization during Fiscal 2018 unlike many of our peers within the industry, in order to drive positive results success in a negative margin environment, we need to continue to improve on our operational efficiencies. Therefore, our management team and Board of Directors continue to explore opportunities to enhance our plant's operational efficiencies and our management team has begun the process of detailing our expenses into cost centers to better identify areas for improvement. We 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. Two technology providers were engaged to generate engineering reports that would outline the cost/benefit of their respective processes. The initial reports were received by management staff in early December and a presentation provided to the board mid-month. These process enhancements are not inexpensive, but provide a return that is expected to greatly improve the revenue and income prospects of the company.

In addition, we are also continuing with our efforts to de-bottleneck the production process in hopes of increasing our production output up to 160 million gallons. We are currently working on the installation of a dehydration membrane technology that is expected to allow for a more efficient increase in dehydration capability and slight reduction in our CI score. We expect this new technology to be fully implemented in the fourth quarter of Fiscal 2019.

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 in each year a certain amount of renewable fuels must be used in the United States. The RFS is a national program that does not require that any renewable fuels be used in any particular area or state, allowing refiners to use renewable fuel blends in those areas where it is most cost-effective. The U.S. Environmental Protection Agency (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, 2017, the EPA issued the final rule for 2018 which set the annual volume requirement for renewable fuel at 19.29 billion gallons of renewable fuels per year (the "Final 2018 Rule"). 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 and maintained the number of gallons that may be met by conventional renewable fuels such as corn based ethanol at 15.0 billion gallons (the "Final 2019 Rule"). Although the volume requirements set forth in the Final 2018 Rule are slightly higher than the 2017 requirements and the Final 2019 Rule is slightly higher than the Final 2018 Rule, the volume requirements under both the Final 2018 Rule and the volume requirements set forth in the Final 2019 Rule are still significantly below the 26 billion gallons and 28 billion gallons, respectively, statutory mandates for 2018 and 2019, with significant reductions in the volume requirements for advanced biofuels as well. However, the Final 2018 Rule and the Final 2019 Rule both maintain the number of gallons which may be met by conventional renewable fuels such as corn-based ethanol at 15.0 billion gallons, excluding any waivers granted by the EPA to small refiners for "hardship." At the end of June 2018, it was estimated that the impact of EPA hardship waivers has been almost 2.25 billion gallons which effectively reduces the corn-based ethanol target to 12.8 billion gallons. The EPA had previously announced that it was suspending the waiver program pending review in 2019, but on March 14, 2019, Administrator Wheeler granted five additional small refinery waivers for 2018, and indicated the EPA may be inclined to approve "partial waivers". The EPA did not address reallocating lost blending volumes, nor mention the impact of the "hardship" waivers on the volume requirements set out in the Final 2019 Rule.

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 and therefore, triggering the mandatory reset under the RFS. The EPA is now 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 rulemaking initiatives relating to the RFS including the “reset” of the statutory blending targets. The EPA is expected to propose rules modifying the applicable 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. The timetable for the consideration of the proposed rule is expected to overlap with the annual standard-setting rulemaking, therefore, it is expected that the proposed rule will also include the applicable renewable volume obligations for 2020. The rule is expected to be finalized by December 2019.

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 Reid Vapor Pressure limitation of nine pounds per square inch.

On April 12, 2018, as part of a series of meetings focused on RIN prices and year-round sales of gasoline blended with up to 15 percent ethanol ("E15") involving President Trump, Senators, key federal agency and industry leaders, President Trump indicated that the EPA would be moving forward to authorize year-round sales of E15 by rulemaking designed to remove arbitrary barriers to the year-round use of E15 that currently inhibit sales of E15 in certain markets during summer driving months and extend the One-Pound Waiver to E15 so that E15 may be sold throughout the year without disruption.

On October 8, 2018, President Trump directed the EPA to begin rulemaking to permit the sale of E15 year round and the President has stated a goal of having a final rule out before the start of summer driving season on June 1, 2019. On March 12, 2019, the EPA proposed regulatory changes to allow E15to take advantage of the One-Pound Waiver which would allow for the sale of E15 year-round. The proposed rule would lift the nearly 30 year limitation restricting the sale of E15 between June 1 and September 14, the peak summer driving months. The comment period on the proposed rule ended April 29, 2019. The proposed rule also contains certain RIN reform changes that could reduce RIN values and subsequently reduce incentives for higher ethanol blends, including E15. Any final rule from the agency is susceptible to legal challenges and there is no guarantee that the rule will be finalized before the 2019 summer driving months, nor is there any guarantee that the rule will ever be finalized.

Despite the recent actions by the Trump administration relating to E15, 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. 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.

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 March 2019, the EPA reported waiving the obligation for 19 of 20 applicants for compliance year 2016, totaling 790 million gallons, and 35 of 37 for compliance year 2017 totaling 1.82 billion gallons. 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. The resulting surplus of RINs in the market has brought values down significantly. Since the RIN value helps to make higher blends of ethanol more cost effective, lower RIN values could negatively impact retailer and consumer adoption of E15 and higher blends. As of March 2019, there are 39 waiver applications pending for compliance year 2018. Although the EPA had previously announced that is was suspending the waiver program pending review in 2019, on March 14, 2019, Administrator Wheeler granted five additional small refinery waivers for 2018.

The joint impact of large increases in small refinery waivers granted by the EPA and the substantial reduction in U.S. ethanol exports to China has had a very negative impact on ethanol D6 RIN prices. RIN prices have fallen by over 60%, largely removing a powerful blending incentive from the ethanol marketplace. The reduction in RIN prices can also have an adverse impact on ethanol prices. If the EPA continues to grant discretionary waivers and RIN prices continue to fall, it could negatively affect ethanol prices.

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 rulemaking. This is the first RFS rulemaking 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

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 effective which would negatively impact our financial performance.

On May 18, 2018, the Advanced Biofuel Association initiated a legal challenge to the EPA’s process for granting exemptions from compliance under the RFS to small refineries. In its petition, the Advanced Biofuel Association seeks judicial review of the EPA’s decision to modify criteria to lower the threshold by which the agency determines whether to grant small refineries an exemption for the RFS for reasons of disproportionate economic hardship.

Additionally, 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.

Related to the recent lawsuits, the Renewable Fuels Association, 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. It is unclear what regulatory changes, if any, will emerge from the petition to the EPA.

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.

Although the maintenance of the 15 billion gallon threshold for volume requirements that may be met with corn-based ethanol in the Final 2018 Rule and the Final 2019 Rule together with the recent actions by the Trump administration and the EPA relating to 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.

Industry Factors Affecting our Results of Operations

Ethanol prices decreased 3.4% during the three months ended March 31, 2019 as compared to the same period in the previous fiscal year. In addition, there was a 5.7% decrease in ethanol shipments during the three months ended March 31, 2019 as compared to the prior year. Ethanol prices decreased 7.0% for the six months ended March 31, 2019 as compared the six months ended March 31, 2018. Somewhat offsetting the price reduction was a 2.4% increase in the ethanol shipments during the corresponding six month period.

Management currently believes that despite ethanol price changes, the ethanol outlook for the third quarter of our fiscal year ending September 30, 2019 ("Fiscal 2019") as well as the outlook for certain of our co-products will remain flat due to the following factors:

•

The latest estimates of supply and demand provided by the U.S. Department of Agriculture (the "USDA") maintained the estimate for 2018/19 ending corn stocks at 1.8 billion bushels. For 2018/19, the USDA held corn consumption for ethanol and co-products to 5.6 billion bushels and did not adjust their forecast for the corn supply of 14.8 billion bushels. The USDA lowered corn price estimates for Fiscal 2019 but left the yield per acre and production numbers the same as in the October 2018 report, as large crops in South America and the Ukraine are forecast.

•

The U.S. Energy Information Administration (the "EIA") released in its Short Term Energy Outlook report in October 2018 and indicated that U.S. gasoline demand remained flat at 9.3 million bpd in 2018, as compared to 2017. However, the Short Term Energy Outlook report issued by the EIA in January 2019, forecasted a slight increase in gasoline consumption during 2019. The EIA's April 2019 report also forecasts that retail gasoline prices are forecasted to decline by 3.2% compared with 2018 levels which will contribute to the increase in gasoline demand in 2019. Any increase in gasoline demand could have a positive impact on ethanol demand. The EIA April 2019 report also forecasts that gasoline prices are expected to remain relatively flat or slightly lower for 2020, which could positively impact gasoline demand in 2020.

•

Global ethanol demand as reported by the EIA continues to increase with increased exports to various foreign markets, in response to higher blending mandates and octane demand within the foreign countries. Worldwide exports from the U.S. increased almost 24% between calendar years 2018 and 2017. Brazil, Canada and India remain the three largest customers, and accounted for almost 60% of all U.S. ethanol exports in 2018. The top 5 countries accounted for 69% and 75% of U.S. ethanol exports in 2018 and 2017, respectively. In 2018, exports to South Korea and the Netherlands more than doubled during the year. Shipments to other small countries collectively increased 37% in 2018 from 2017, and total exports exceeded 250 million gallons. For the last six months of 2018, ethanol exports increased more than 14%

compared to the last six months of 2017. Despite the imposition of a 20% tariff on U.S. ethanol imports above a specified quota back in September of 2017, Brazilian demand has remained as our largest exporter due to inter-harvest sugar shortages. In September 2017, China’s National Development and Reform Commission, the National Energy Board and 15 other state departments issued a joint plan to expand the use and production of biofuels containing up to 10% ethanol by 2020. However, China, the number six importer of U.S. ethanol in 2017, fell to number eight during calendar year 2018 due to a 70% tariff imposed on imports of U.S. ethanol. China has announced increased tariffs on ethanol in retaliation to the U.S. announcement of tariffs on Chinese steel.

We currently believe that our margins will remain tight in light of mixed signals on support for the RFS and waivers of refiner RVOs by the EPA. Escalation in the price for crude oil and unleaded gasoline could have a negative impact on the demand for gasoline and impact the market price of ethanol, which could adversely impact our profitability during the balance of Fiscal 2019. This negative impact could worsen in the event that domestic ethanol inventories remain high, or if U.S. exports of ethanol decline. 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 is a great threat to the U.S. agriculture economy in the short term. Almost 70% of U.S. agricultural exports are sold to destinations that are currently being negotiated or involved in trade disputes.

Our distiller grain margins have been impacted positively in the short term due to plant shutdowns and plant slowdowns by local competitors which resulted in increased demand for our dried distiller grains (DDG) and wet distiller grains (WDG). We have experienced a price increase of 26.9% for the six months ended March 31, 2019, as compared to the six months ended March 31, 2018, on only a 4.7% increase of tons sold for those same periods. In 2018, an estimated 31 percent of U.S. DDG production was exported, and 2018 was the second highest export year on record for DDG. U.S. exports of DDG to China, at onetime our largest market, continues to be impacted since 2016 by countervailing against U.S. product These duties have adversely imported export volume to China, as they were ranked 17th in export volume in 2018. 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. Domestic demand for distiller grains could also remain low if corn prices decline and end-users switch to lower priced alternatives.

Results of Operations

The following table shows our results of operations, revised per SAB No. 108 as discussed previously in Note 2, stated as a percentage of revenue for the three months ended March 31, 2019 and 2018.



	Three Months Ended March 31, 2019					Three Months Ended March 31, 2018
	Amounts			% of Revenues		Amounts			% of Revenues
	in 000's					in 000's
Income Statement Data
Revenues	$	53,190		100.0	%	$	53,551		100.0	%
Cost of Goods Sold
Material Costs	39,319			73.9	%	38,173			71.3	%
Variable Production Expense	8,152			15.3	%	8,127			15.1	%
Fixed Production Expense	6,097			11.5	%	6,988			13.1	%
Gross Profit (Loss)	(378		)	(0.7	)%	263			0.5	%
General and Administrative Expenses	1,174			2.2	%	1,056			2.0	%
Interest and other expense, net	215			0.4	%	135			0.2	%
Net (Loss)	$	(1,767	)	(3.3	)%	$	(928	)	(1.7	)%

The following table shows our results of operations, stated as a percentage of revenue for the six months ended March 31, 2019 and 2018.



	Six Months Ended March 31, 2019					Six Months Ended March 31, 2018
	Amounts			% of Revenues		Amounts		% of Revenues
	in 000's					in 000's
Income Statement Data
Revenues	$	106,572		100.0	%	$	104,097	100.0	%
Cost of Goods Sold
Material Costs	78,146			73.3	%	71,051		68.3	%
Variable Production Expense	16,380			15.4	%	15,998		15.4	%
Fixed Production Expense	12,013			11.3	%	14,171		13.5	%
Gross Profit (Loss)	33			—	%	2,877		2.8	%
General and Administrative Expenses	2,676			2.5	%	2,434		2.3	%
Interest and other expense, net	384			0.3	%	284		0.3	%
Net Income (Loss)	$	(3,027	)	(2.8	)%	$	159	0.2	%

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. The decrease in revenue was attributable to the overall decrease in commodity prices for ethanol which was partially offset by an increase in prices for distillers grains and corn oil. During the three months ended March 31, 2019, the average price per gallon of ethanol decreased by 3.4% as compared to the same period in 2018, coupled with a 5.7% decrease in gallons of ethanol sold. The net effect was an 8.9% decrease in ethanol revenue for the three months ended March 31, 2019. The decrease in ethanol prices resulted principally from industry production fluctuating in order to align production with ethanol demand due to EPA granting of waivers for small producers resulting in higher inventories which continued to drive ethanol prices lower. During the six months ended March 31, 2019, the average price per gallon of ethanol decreased 7.0% as compared to the first six months ended March 31, 2018 , but the price decrease was offset by an increase of 2.4% in the volume of gallons sold. The net effect was a 4.8% reduction in ethanol revenue. Ethanol production had grown to meet record exports to countries other than China in late 2018, but the domestic market had stopped growing as small company waivers totalling15% of the ethanol annual target had been granted by the EPA.

An increase in the average price per ton of distillers grains of approximately 24.2% coupled with a 7.3% increase in volume sold resulted in an increase of 32.4% in revenue for this category in the three months ended March 31, 2019 as compared to the same three month period in 2018. Distillers grain revenue increased as some ethanol plants recently started to slow down ethanol production, and correspondingly distiller grain production, and also distiller grain exports showed continued strong demand from Southeast Asia. For the six months ended March 31, 2019, the average price per ton for distillers grains increase 26.9% compared to the corresponding period in 2018, and volume increase 4.7% for tons of distiller grains sold. Overall, revenue increased 32.8% for distiller grains in the six months ended March 31, 2019 compared to the six months ended March 31, 2018. Last year's revenue for distillers grain was also lower due to decreased demand from China exports resulting from the antidumping and countervailing duties imposed on distillers grains produced in the United States that China had implemented in 2017.

Corn oil revenue increased 38.2% in the three months ended March 31, 2019 compared to the three months ended March 31, 2018 with higher volume of 18.9% aided by an increase in corn oil prices of 16.2% per pound. The corn oil yield was relatively flat during the three months ended March 31, 2019 compared to the three months ended March 31, 2018. For the six months ended March 31, 2019 as compared to the six months ended March 31, 2018,

corn oil revenue increased increased 24.0% as higher volume of 17.4% was coupled with a price increase of 5.6%. Our market for corn oil is primarily local middlemen that compete for our available supply.



	Three Months Ended March 31, 2019				Three Months Ended March 31, 2018
	Amounts in 000's		% of Revenues		Amounts in 000's		% of Revenues
Product Revenue Information
Denatured and Undenatured Ethanol	$	39,172	73.6	%	$	43,018	80.3	%
Distillers Grains	10,776		20.3	%	8,083		15.1	%
Corn Oil	2,979		5.6	%	2,155		4.0	%
Other	263		0.5	%	295		0.6	%



	Six Months Ended March 31, 2019				Six Months Ended March 31, 2018
	Amounts in 000's		% of Revenues		Amounts in 000's		% of Revenues
Product Revenue Information
Denatured and Undenatured Ethanol	$	78,793	73.9	%	$	82,739	79.5	%
Distillers Grains	21,412		20.1	%	16,113		15.5	%
Corn Oil	5,842		5.5	%	4,713		4.5	%
Other	525		0.5	%	532		0.5	%

Cost of Goods Sold

Our cost of goods sold as a percentage of our revenues was 100.7% and 99.5% for the three months ended March 31, 2019 and 2018, 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 15.4% in the three months ended March 31, 2019 compared to the three months ended March 31, 2018. Corn used in ethanol sold decreased by 4.3% in the three months ended March 31, 2019 from 2018 on an increase of 3.6% in ethanol production. For the six months ended March 31, 2019 and 2018, respectively, our cost of good sold as a percentage of our revenues was 100.0% and 97.2%. The average price of corn used in ethanol production per bushel increased 7.7% compared to the six months ended March 31, 2018, while the corn used in ethanol production increased 4.6% for the six months ended March 31, 2019 from 2018 on a total production increase of 4.1%.

Realized and unrealized gains (losses) related to our derivatives and hedging related to corn resulted in a $1.3 million decrease to our cost of goods sold for the three months ended March 31, 2019, compared to a decrease of $(2.4) million for the three months ended March 31, 2018. For the six months ended March 31, 2019, our realized and unrealized gains (losses) related to our derivatives and hedging for corn resulted in a ($1.8) decrease to our cost of goods sold compared to a decrease of ($0.4) for the six months ended March 31, 2018. 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 showed an increase of 3.1% when comparing the three months ended March 31, 2019 to the three months ended March 31, 2018 due to higher energy costs of 15.9% which were basically offset by a reduction in chemical costs. For the six months ended March 31, 2019 compared to the six months ended March 31, 2018, variable production expenses increased 2.4%, as higher energy costs of 9.6% were partially offset by lower chemical costs of 5.4%.

Fixed production expenses decreased 12.8% for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. Lower depreciation expense was due to 10 year equipment that matured in Fiscal 2018 and lower repair and maintenance costs were the primary reason for the decreased expenses in this category. For the six months ended March 31, 2019 compared to the same time period for 2018, lower depreciation costs and repairs and maintenance costs were the primary reasons for the 15.2% reduction to this category.

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 March 31, 2019 increased 11.2% compared to the three months ended March 31, 2018, primarily due to increased accounting, consulting and legal fees. For the six months ended March 31, 2019 compared to the same time period for 2018 , administrative expenses increased 9.9% , primarily due to timing of corporate obligations and the Chief Executive Officer ("CEO") search and associated bonus and moving expenses incurred in connection with the replacement of the retiring CEO in the first quarter of Fiscal 2019.

Other Expense

Our other expenses were $0.2 million for the three months ended March 31, 2019 compared to $0.1 million for the three months ended March 31, 2018, primarily due to timing on patronage dividends received in 2018. Even though the Company has borrowed more on our revolver bank account in 2019 compared to 2018, we have been able to keep interest expenses relatively flat. For the six months ended March 31, 2019 compared to the same time period in 2018, other expenses were $0.4 million and 0.3 million, respectively. The receipt of patronage dividends in 2018 was the primary difference.

Change in fair value of put option liability

There was no change in the fair value of the put option liability with ICM during the six months ended March 31, 2019. This is a non-cash charge, and is re-evaluated every quarter for significant changes in value.

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 (loss) (in thousands except per unit data):



	Three months ended			Three months ended			Six months ended			Six months ended
	March 31, 2019			March 31, 2018			March 31, 2019			March 31, 2018

EBITDA
Net Income (Loss)	$	(1,767	)	$	(928	)	$	(3,027	)	$	159
Interest Expense	261			242			452			472
Depreciation	2,556			3,001			5,134			6,218
EBITDA	1,050			2,315			2,559			6,849

Unrealized Hedging (Gain)	(263		)	(425		)	(989		)	(888		)

Modified EBITDA	$	787		$	1,890		$	1,570		$	5,961

Liquidity and Capital Resources

The Company has certain loan agreements with FCSA and CoBank (the "FCSA Credit Facility"). The FCSA Credit Facility provides the Company with a term loan of $30 million, due in 2019, and a revolving term loan of $36 million, due in 2023. The interest rate on the FCSA Credit Facility is LIBOR plus 3.35%.

As of March 31, 2019, we had a cash balance of $1.1 million, $17.8 million available under the Revolving Term Loan and working capital of $16.3 million.

During the third quarter of Fiscal 2019, we estimate that we will require cash of approximately $40.1 million for our primary input of corn and $3.9 million for our energy sources of electricity, steam, and natural gas.

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 to 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 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 $48 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 $70 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) that are designed to insure that information required to be disclosed in the reports that the Company files is recorded, processed, summarized and reported 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, 2018 and there were no material developments to such matters.

Item 1A. Risk Factors.

There have been no material changes to the risk factors disclosed in Item 1A of our Form 10-K for the fiscal year ended September 30, 2018. Additional risks and uncertainties, including risks and uncertainties not presently known to us, or that we currently deem immaterial, could also have an adverse effect on our business, financial condition and/or results of operations.

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

None

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None

Item 6. Exhibits



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 Executive 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.XSD*	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.

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:	May 9, 2019	/s/ Michael D. Jerke
		Michael D. Jerke, President and Chief Executive Officer

Date:	May 9, 2019	/s/ Brett L. Frevert
		Brett L. Frevert, CFO and Principal Financial Officer

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Southwest Iowa Renewable Energy (SWIOU) 10-Q2019 Q2 Quarterly report

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