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fleet is comprised of approximately 1,790 leased tank cars for the transportation of ethanol and approximately 770 leased
hopper cars for the transportation of distillers grains. The lease contract terms range from six months to ten years. We seek to
optimize the utilization of our rail assets, including potential use for transportation of products other than ethanol and
distillers grains, depending on market opportunities.
Ethanol Blending and Distribution
We own and operate biofuel holding tanks and terminals, and provide terminaling, splash blending and logistics
solutions through our wholly-owned subsidiary, BlendStar LLC, to markets that currently do not have efficient access to
renewable fuels. BlendStar operates blending and terminaling facilities at one owned and eight leased locations on
approximately 19 acres in seven states with a combined total storage capacity of approximately 820,000 gallons and
throughput capacity of approximately 625 mmgy. The BlendStar facilities are summarized below:
Facility Location
Storage Capacity
(gallons)
Throughput Capacity
(mmgy)
Birmingham, Alabama
120,000
130
Little Rock, Arkansas
30,000
36
Louisville, Kentucky
60,000
30
Bossier City, Louisiana
(1)
60,000
60
Collins, Mississippi
180,000
180
Oklahoma City, Oklahoma
150,000
84
Tulsa, Oklahoma
-
24
Knoxville, Tennessee
60,000
21
Nashville, Tennessee
160,000
60
(1) Five-acre facility is owned by BlendStar.
In November 2011, we announced plans to build, own and operate a new ethanol unit train terminal in Birmingham,
Alabama on the BNSF Railway. The new terminal will have 160,000 barrels, or approximately 6.7 million gallons, of storage
capacity and will be able to receive full 96-car unit trains of ethanol, which can be offloaded within 24 hours. The terminal is
expected to be completed in the fourth quarter of 2012. BlendStar’s existing Birmingham terminal will be retrofitted to
handle other biofuels and liquid products when construction of the new unit train terminal facility is complete.
Risk Management and Hedging Activities
The profitability of our operations and our industry are highly dependent on commodity prices, especially prices for
corn, ethanol, distillers grains and natural gas. Because market price fluctuations among these commodities are not always
correlated, at times ethanol production may be unprofitable.
We enter into forward contracts to supply a portion of our respective ethanol and distillers grains production or to
purchase a portion of our respective corn or natural gas requirements in an attempt to partially offset the effects of volatility
of ethanol, distillers grains, corn and natural gas prices. To a much lesser extent, we also engage in other hedging transactions
involving exchange-traded futures contracts for corn, natural gas and ethanol from time to time. The financial statement
impact of these activities is dependent upon, among other things, the prices involved and our ability to physically receive or
deliver the commodities involved. Hedging arrangements also expose us to the risk of financial loss in situations where the
counterparty to the hedging contract defaults on its contract or, in the case of 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. Hedging activities can themselves result in losses
when a position is purchased in a declining market or a position is sold in a rising market. A hedge position is often settled in
the same time frame as the physical commodity is either purchased (corn and natural gas) or sold (ethanol, distillers grains
and corn oil). Hedging losses may be offset by a decreased cash price for corn and natural gas and an increased cash price for
ethanol, distillers grains and corn oil. We also vary the amount of hedging or other risk mitigation strategies we undertake,
and we may choose not to engage in hedging transactions at all. By using a variety of risk management tools and hedging
strategies, including our internally-developed real-time operating margin management system, we believe our approach to
risk management allows us to monitor real-time operating price risk exposure at each of our plants and to respond quickly to
lock in acceptable margins when they are available or temporarily reduce production levels at our ethanol plants during
periods in which we have identified compressed margins. In addition, our multiple business lines and revenue streams help
diversify our operations and profitability.