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market and prove to be environmentally or economically superior to ethanol. It is also possible that alternative biofuel
alcohols such as methanol and butanol could evolve into ethanol replacement products.
Research is currently underway to develop other products that could directly compete with ethanol and may have more
potential advantages than ethanol. Advantages of such competitive products may include, but are not limited to: lower vapor
pressure, making it easier to add gasoline; energy content closer to or exceeding that of gasoline, such that any decrease in
fuel economy caused by the blending with gasoline is reduced; an ability to blend at a higher concentration level for use in
standard vehicles; reduced susceptibility to separation when water is present; and suitability for transportation in petroleum
pipelines. Such products could have a competitive advantage over ethanol, making it more difficult to market our ethanol,
which could reduce our ability to generate revenue and profits.
New ethanol process technologies may emerge that require less energy per gallon produced. The development of such
process technologies would result in lower production costs. Our process technologies may become outdated and obsolete,
placing us at a competitive disadvantage against competitors in the industry. The development of replacement technologies
may have a material adverse effect on our operations, cash flows and financial position.
We may be required to provide remedies for the delivery of off-specification ethanol, distillers grains or corn oil.
If we produce and deliver ethanol, distillers grains or corn oil that does not meet the specifications defined by the sales
contract, we may be subject to quality claims requiring us to refund the purchase price of any non-conforming product or
replace any non-conforming product at our expense. We may be forced to purchase replacement quantities of ethanol,
distillers grains or corn oil at higher prices to fulfill these contractual obligations. In addition, ethanol, distillers grains or corn
oil purchased from other producers, including producers that we provide marketing and distribution services for, and
subsequently sold to others may result in similar claims if the product does not meet applicable contract specifications.
Our revenue from the sale of distillers grains depends upon its continued market acceptance as an animal feed.
Distillers grains is a co-product from the fermentation of various crops, including corn, to produce ethanol. Antibiotics
may be utilized during the fermentation process to control bacterial contamination; therefore antibiotics may be present in
small quantities in distillers grains marketed as animal feed. The U.S. Food and Drug Administration’s, or FDA’s, Center for
Veterinary Medicine has expressed concern about potential animal and human health hazards from the use of distillers grains
as an animal feed due to the possibility of antibiotic residues. As a result, the market value of this co-product could be
diminished if the FDA were to introduce regulations that limit the sale of distillers grains in the domestic market or for export
to international markets, which in turn would have a negative impact on our profitability. If public perception of distillers
grains as an acceptable animal feed were to change or if the public became concerned about the impact of distillers grains in
the food supply, the market for distillers grains would be negatively impacted, which would have a negative impact on our
profitability.
We extract non-edible corn oil from the whole stillage process immediately prior to the production of distillers grains.
Several universities are trying to determine how corn oil extraction may affect nutritional energy values of the resulting
distillers grains. If it is determined that corn oil extraction adversely affects the digestible energy content of distillers grains,
the value of our distillers grains may be affected, which could have a negative impact on our profitability.
Our operating results may suffer if our marketing and sales efforts are not effective.
We have established our own marketing, transportation and storage infrastructure. We lease tanker railcars and have
contracted with storage depots near our customers and at strategic locations for efficient delivery of our finished ethanol
product. We have also hired a marketing and sales force, as well as logistical and other operational personnel to staff our
distribution activities. The marketing, sales, distribution, transportation, storage or administrative efforts we have
implemented may not achieve expected results. Any failure to successfully execute these efforts would have a material
adverse effect on our results of operations and financial position. Our financial results also may be adversely affected by our
need to establish inventory in storage locations to fulfill our marketing and distribution contracts.
We are exposed to credit risk resulting from the possibility that a loss may occur from the failure of our contractual
counterparties to perform according to the terms of our agreements.
In selling ethanol, distillers grains and corn oil we may experience concentrations of credit risk from a variety of
customers, including major integrated oil companies, large independent refiners, petroleum wholesalers, other marketers and
jobbers. We are also exposed to credit risk resulting from sales of grain to large commercial buyers, including other ethanol