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adverse weather.
Natural Gas.
The prices for and availability of natural gas are subject to volatile market conditions. These market
conditions often are affected by factors beyond our control, such as weather conditions, overall economic conditions, and
foreign and domestic governmental regulation and relations. Significant disruptions in the supply of natural gas could impair
our ability to manufacture ethanol for our customers. Furthermore, increases in natural gas prices or changes in our natural
gas costs relative to natural gas costs paid by competitors may adversely affect our results of operations and financial
Our revenues are dependent on market prices for ethanol. These market prices can be volatile as a result of a
number of factors, including, but not limited to, the availability and price of competing fuels, the overall supply and demand
for ethanol and corn, the price of gasoline and corn, and the level of government support.
Ethanol is marketed as a fuel additive to reduce vehicle emissions from gasoline, as an octane enhancer to improve the
octane rating of the gasoline with which it is blended and, to a lesser extent, as a gasoline substitute. As a result, ethanol
prices are influenced by the supply of and demand for gasoline. Our results of operations may be materially harmed if the
demand for, or the price of, gasoline decreases. Conversely, a prolonged increase in the price of, or demand for, gasoline
could lead the U.S. government to avoid limiting imported ethanol; the import tariff of $0.54 per gallon was allowed to
expire on December 31, 2011.
Distillers Grains.
Distillers grains compete with other protein-based animal feed products. The price of distillers grains
may decrease when the prices of competing feed products decrease. The prices of competing animal feed products are based
in part on the prices of the commodities from which these products are derived. Downward pressure on commodity prices,
such as soybeans, will generally cause the price of competing animal feed products to decline, resulting in downward
pressure on the price of distillers grains.
Historically, sales prices for distillers grains has tracked along with the price of corn. However, there have been
occasions when the price increase for this co-product has lagged behind increases in corn prices. In addition, our distillers
grains co-product competes with products made from other feedstocks, the cost of which may not have risen as corn prices
have risen. Consequently, the price we may receive for distillers grains may not rise as corn prices rise, thereby lowering our
cost recovery percentage relative to corn.
Due to industry increases in U.S. dry mill ethanol production, the production of distillers grains in the United States has
increased dramatically, and this trend may continue. This may cause distillers grains prices to fall in the United States, unless
demand increases or other market sources are found. To date, demand for distillers grains in the United States has increased
roughly in proportion to supply. We believe this is because U.S. farmers use distillers grains as a feedstock, and distillers
grains are slightly less expensive than corn, for which it is a substitute. However, if prices for distillers grains in the United
States fall, it may have an adverse effect on our business.
Corn Oil.
Industrial uses for corn oil include feedstock for biodiesel, livestock feed additives, rubber substitutes, rust
preventatives, inks, textiles, soaps and insecticides. Corn oil is generally marketed as a feedstock for biodiesel and, therefore,
the price of corn oil is affected by demand for biodiesel. In general, corn oil prices follow the same price trends as heating oil
and soybean oil. Corn oil revenues historically have not been significant to our business; however, our business may be
materially affected by price volatility of corn oil in the future as we expand our corn oil production.
Our existing debt arrangements require us to abide by certain restrictive loan covenants that may hinder our ability to
operate and reduce our profitability.
The loan agreements governing secured debt financing at our subsidiaries, and the convertible debt issued in November
2010 contain a number of restrictive affirmative and negative covenants. These covenants limit the ability of our subsidiaries
to, among other things, incur additional indebtedness, make capital expenditures above certain limits, pay dividends or
distributions, merge or consolidate, or dispose of substantially all of their assets.
We are also required to maintain specified financial ratios, including minimum cash flow coverage, minimum working
capital and minimum net worth. Some of our loan agreements require us to utilize a portion of any excess cash flow
generated by operations to prepay the respective term debt. A breach of any of these covenants or requirements could result
in a default under our loan agreements. If any of our subsidiaries default, and if such default is not cured or waived, our
lenders could, among other remedies, accelerate their debt and declare that debt immediately due and payable. If this occurs,