Quarterly report [Sections 13 or 15(d)]

Derivatives

v3.26.1
Derivatives
 3 Months Ended
Mar. 31, 2026
Derivatives [Abstract]  
DERIVATIVES

4. DERIVATIVES.

 

The business and activities of the Company expose it to a variety of market risks, including risks related to changes in commodity prices. The Company monitors and manages these financial exposures as an integral part of its risk management program. This program recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effects that market volatility could have on operating results.

 

Commodity Risk – Cash Flow Hedges – The Company uses derivative instruments in connection with its commodity risk management activities to stabilize margins between input costs and product sales. For example, the Company uses ethanol swaps to align fixed-price alcohol sales with current market rates and uses corn futures to offset price fluctuations in its corn purchase commitments. The Company does not enter into derivative instruments for speculative purposes. These derivatives may be designated and documented as cash flow hedges and effectiveness is evaluated by assessing the probability of the anticipated transactions and regressing commodity futures prices against the Company’s purchase and sales prices. Ineffectiveness, which is defined as the degree to which the derivative does not offset the underlying exposure, is recognized immediately in cost of goods sold. For the three months ended March 31, 2026 and 2025, the Company did not designate any of its derivatives as cash flow hedges.

 

Commodity Risk – Non-Designated Hedges – The Company uses derivative instruments to align pricing for certain amounts of corn and alcohols with prevailing market prices by entering into exchange-traded futures contracts or options for those commodities. These derivatives are not designated for hedge accounting treatment. The changes in fair value of these contracts are recorded on the balance sheet and recognized immediately in cost of goods sold. The Company recognized net gains of $8,416,000 and $1,773,000 as the change in the fair value of these contracts for the three months ended March 31, 2026 and 2025, respectively.

 

Non-Designated Derivative Instruments – The classification and amounts of the Company’s derivatives not designated as hedging instruments, and related cash collateral balances, are as follows (in thousands):

 

    As of March 31, 2026  
    Assets     Liabilities   
Type of Instrument   Balance Sheet Location   Fair Value     Balance Sheet Location   Fair Value  
                     
Cash collateral balance  

Restricted cash

   $ 1,334              
Commodity contracts   Derivative instruments   $ 7,831     Derivative instruments   $ 301  

 

    As of December 31, 2025  
    Assets     Liabilities  
Type of Instrument   Balance Sheet Location   Fair Value     Balance Sheet Location   Fair Value  
                     
Cash collateral balance   Restricted cash   $ 2,258              
Commodity contracts   Derivative instruments   $ 525     Derivative instruments   $ 1,067  

 

The above amounts represent the gross balances of the contracts; however, the Company does have a right of offset with each of its derivative brokers, but the Company’s intent is to close out positions individually, therefore the positions are reported at gross.

 

The classification and amounts of the Company’s realized gains for its derivatives not designated as hedging instruments are as follows (in thousands):

 

        Realized Gains  
        For the Three Months
Ended March 31,		  
Type of Instrument   Statements of Operations Location   2026     2025  
                 
Commodity contracts   Cost of goods sold   $ 343     $ 139  
        $ 343     $ 139  

 

        Unrealized Gains  
        For the Three Months
Ended March 31,		  
Type of Instrument   Statements of Operations Location   2026     2025  
                 
Commodity contracts   Cost of goods sold   $ 8,073     $ 1,634  
        $ 8,073     $ 1,634