Public companies are required to disclose risks that can affect the business and impact the stock. These disclosures are known as “Risk Factors”. Companies disclose these risks in their yearly (Form 10-K), quarterly earnings (Form 10-Q), or “foreign private issuer” reports (Form 20-F). Risk factors show the challenges a company faces. Investors can consider the worst-case scenarios before making an investment. TipRanks’ Risk Analysis categorizes risks based on proprietary classification algorithms and machine learning.

Red Trail Energy disclosed 46 risk factors in its most recent earnings report. Red Trail Energy reported the most risks in the “Finance & Corporate” category.

Risk Overview Q3, 2024

Risk Distribution

30% Finance & Corporate

24% Legal & Regulatory

15% Ability to Sell

13% Production

13% Macro & Political

4% Tech & Innovation

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.

Risk Change Over Time

2020

S&P500 Average

Sector Average

Risks removed

Risks added

Risks changed

Red Trail Energy Risk Factors

New Risk (0)

Risk Changed (0)

Risk Removed (0)

No changes from previous report

The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.

The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.

Risk Highlights Q3, 2024

Main Risk Category

Finance & Corporate

With 14 Risks

Finance & Corporate

With 14 Risks

Number of Disclosed Risks

+16

From last report

S&P 500 Average: 31

+16

From last report

S&P 500 Average: 31

Recent Changes

16Risks added

0Risks removed

0Risks changed

Since Sep 2024

16Risks added

0Risks removed

0Risks changed

Since Sep 2024

Number of Risk Changed

No changes from last report

S&P 500 Average: 3

No changes from last report

S&P 500 Average: 3

See the risk highlights of Red Trail Energy in the last period.

Risk Word Cloud

The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.

Risk Factors Full Breakdown - Total Risks 46

Finance & Corporate

Total Risks: 14/46 (30%)Below Sector Average

Share Price & Shareholder Rights2 | 4.3%

Share Price & Shareholder Rights - Risk 1

Added

The Company did not receive a fairness opinion in connection with the Asset Sale.

Our Board did not seek or obtain a fairness opinion from an investment bank or other firm that the consideration to be paid in connection with the Asset Sale is fair from a financial point of view to our members.

Share Price & Shareholder Rights - Risk 2

Added

Our executive officers may have interests in the Asset Sale that may be different from, or in addition to, the interests of our members generally.

Our executive officers may be deemed to have interests in the Asset Sale that may be different from or in addition to those of our members, generally due to their expectation of employment following the Asset Sale. In particular, our Chief Executive Officer, Jodi Johnson is a Key Person under the APA and has been offered employment with the parent after closing subject to consummation of the Asset Sale. The acceptance of employment by Ms. Johnson is a condition to Buyers' obligation to complete the Asset Sale. In addition, Ms. Johnson will receive a retention bonus of approximately $25,000 from the Company in connection with the closing of the Asset Sale. These interests by our executive officers may create a potential conflict of interest. The Board was aware of these potentially differing interests and considered it, among other matters, in evaluating and negotiating the APA and in reaching its decision to approve the APA and the transactions thereunder.

Accounting & Financial Operations2 | 4.3%

Accounting & Financial Operations - Risk 1

Added

If we close on the Asset Sale, we cannot determine at this time the timing, amount or nature of any distributions to our members because there are many factors, some of which are outside of our control, that could affect our ability to make such distributions.

After the Asset Sale is completed, we will no longer have any operating assets, other than cash. We will use a portion of our cash to satisfy our liabilities and transactions costs. Of the remaining cash, it is anticipated that a significant portion will be distributed to the members shortly after the closing of the Asset Sale in the form of an initial distribution payment (with potential subsequent distributions thereafter). However, the amount and timing of distributions to members will be determined by the Board in its discretion. We will retain a portion of our cash to fund our ongoing costs given that we will not be generating operating revenue and we are not likely to reinvest our remaining cash in any investment securities that would yield a meaningful return. The amount of consideration members will receive or when they will receive it depend on a variety of factors, including, but not limited to, whether we are able to close the Asset Sale; any amendment to the APA resulting from the failure to satisfy any condition to closing; if operating results of the Company are less favorable than currently estimated by management; the amount we will be required to pay to satisfy unknown or contingent liabilities in the future; the cost of operating our business through the date of our final liquidation; general business and economic conditions; and other matters. For the foregoing reasons, there can be no assurance as to the timing and amount of distributions to members.

Accounting & Financial Operations - Risk 2

Our business is not diversified which could negatively impact our ability to operate profitably

. Our success depends largely on our ability to profitably operate our ethanol plant. We do not have any other lines of business or other sources of revenue. If economic or political factors adversely affect the market for ethanol, distillers grains, or corn oil, we have no other line of business to fall back on. Our business would also be significantly harmed if the ethanol plant could not operate at full capacity for any extended period of time.

Debt & Financing5 | 10.9%

Debt & Financing - Risk 1

Added

The amount of net proceeds that we receive from the Asset Sale is subject to decrease.

As consideration for the Company's sale to Buyers of substantially all of our assets and the Company's other covenants and obligations under the APA, Buyers will pay a cash purchase price of $210,000,000, subject to certain upward or downward adjustments related to working capital of the business and certain downward adjustments related to indebtedness and selling expenses (the "Purchase Price"). In addition, the amount of $1,260,000 is to be set aside to be used for potential indemnification obligations that might be owed by the Company to Buyers under the APA and the amount of $5,000,000 will be set aside out of the Purchase Price to be paid to Buyers in the event of a working capital adjustment resulting in a lower Purchase Price, to the extent of the amount of such adjustment. Further, the Buyers will assume certain of our liabilities as specified in the APA. The amount of the working capital of the business at any given point in time is dependent upon a number of factors beyond our control. If the working capital at the closing of the Asset Sale is less than $11,086,470, the net proceeds we will receive in connection with the Asset Sale will be decreased on a dollar-for-dollar basis, in addition to reductions with respect to our indebtedness and selling expenses at the closing of the Asset Sale. There can be no assurance that the closing working capital will be at or above $11,086,470, and that we will receive the full $210,000,000 purchase price.

Debt & Financing - Risk 2

Added

The failure to consummate the Asset Sale by the prescribed deadline will likely result in the Asset Sale being abandoned.

Either the Buyers or the Company may terminate the APA without penalty if the Asset Sale is not completed on or before June 30, 2025 (unless such deadline is missed due to a material breach by the party seeking termination of its representations, warranties, covenants or agreements in the APA). In the event that the Asset Sale is abandoned, the potential adverse effects from failing to consummate the Asset Sale discussed above may be implicated.

Debt & Financing - Risk 3

We may violate the terms of our credit agreements and financial covenants which could result in our lender demanding immediate repayment of our loans

Management anticipates that we will be in compliance with our loan covenants in our loans. However, if we violate the terms of our credit agreement, Cornerstone Bank could deem us in default of our loans and require us to immediately repay any outstanding balance of our loans. If we do not have sufficient cash to repay these loans or if we are unable to secure other sources of financing, it could negatively impact the value of our units.

Debt & Financing - Risk 4

We engage in hedging transactions which involve risks that could harm our business

We are exposed to market risk from changes in commodity prices, including the prices we pay for our raw materials and the prices we receive for our finished products. We seek to minimize our exposure to fluctuations in the prices of corn, ethanol and distillers grains through the use of hedging instruments. However, our hedging activities may not successfully reduce the risk caused by price fluctuations which may leave us vulnerable to volatility in corn, ethanol and distillers grains prices. Alternatively, we may choose not to engage in hedging transactions in the future and our operations and financial conditions may be adversely affected during periods in which the prices for these commodities fluctuate. Further, using cash for margin calls to support our hedge positions can have an impact on the cash we have available for our operations which could negatively impact our liquidity. The effects of our hedging activities may negatively impact our ability to profitably operate which could reduce the value of our units.

Debt & Financing - Risk 5

Our inability to maintain or secure credit facilities we may require in the future may negatively impact our liquidity

. While we do not currently require more financing than we have, in the future we may need additional financing. If we require financing in the future and we are unable to secure such financing, or we are unable to secure the financing we require on reasonable terms, it may have a negative impact on our liquidity. This could negatively impact the value of our units.

Corporate Activity and Growth5 | 10.9%

Corporate Activity and Growth - Risk 1

Added

Even if the Asset Sale is completed, we cannot provide any assurances that we will realize the benefits we currently anticipate from the Asset Sale.

We cannot provide any assurances that we will realize the benefits we currently anticipate from the Asset Sale. Any failure to realize the benefits we currently anticipate from the Asset Sale could have a material adverse impact on our future operating results and financial condition.

Corporate Activity and Growth - Risk 2

Added

We cannot be sure if or when the Asset Sale will be completed.

The consummation of the Asset Sale is subject to the satisfaction or waiver of various conditions. We cannot guarantee that the closing conditions set forth in the APA will be satisfied. If we are unable to satisfy the closing conditions in Buyers favor or if other mutual closing conditions are not satisfied, Buyers will not be obligated to complete the Asset Sale.

Corporate Activity and Growth - Risk 3

Added

We will incur significant expenses in connection with the Asset Sale, whether or not it is consummated.

We have and will continue to incur substantial expenses related to the Asset Sale, whether or not it is completed. These expenses include, but are not limited to, legal fees, accounting fees and expenses, certain consultant expenses, filing fees, printing expenses and other related fees and expenses. Many of these expenses will be payable by us regardless of whether the Asset Sale is completed. We anticipate that we will incur approximately $275,000 in aggregate expenses due to the Asset Sale. Payment of these expenses if the Asset Sale is not completed would adversely affect our operating results and financial condition.

Corporate Activity and Growth - Risk 4

Added

The proposed Asset Sale is subject to a number of conditions beyond our control. Failure to complete the Asset Sale could materially and adversely affect our future business, results of operations and financial condition.

The closing of the Asset Sale was approved by our members but is conditioned on the satisfaction of other closing conditions, including receipt of regulatory approvals and third-party consents, Buyers obtaining debt financing and performance in all material respects by each party of its obligations under the APA. We cannot predict whether and when the conditions will be satisfied. If one or more of these conditions is not satisfied, and as a result, we do not complete the Asset Sale, or in the event the Asset Sale is not completed or is delayed for any other reason, our business, results of operations and financial condition may be harmed because: - management's and our employees' attention may be diverted from our day-to-day operations as they focus on matters related to the Asset Sale;- we could potentially lose key employees if such employees experience uncertainty about their future roles with us and decide to pursue other opportunities;- we have agreed to restrictions in the APA that limit how we conduct our business prior to the closing of the Asset Sale which may not be in our best interests and may disrupt or otherwise adversely affect our business and our relationships with our suppliers, customers, distributors, marketers, and others having business relationships with us, prevent us from pursuing otherwise attractive business opportunities, limit our ability to respond effectively to competitive pressures, industry developments and future opportunities, and otherwise harm our business, financial results and operations;- we have incurred and expect to continue to incur expenses related to the Asset Sale, such as legal, financial advisory and accounting fees, and other expenses that are payable by us whether or not the Asset Sale is completed;- activities related to the Asset Sale and related uncertainties may lead to a loss of revenue and market position unrelated to the Asset Sale that we may not be able to regain if the Asset Sale does not occur; and - the failure to, or delays in, consummating the Asset Sale may result in a negative impression of us with our suppliers, customers, distributors, marketers, and others having business relationships with us. The occurrence of these or other events individually or in combination could have a material adverse effect on our business, results of operations, financial condition and stock price.

Corporate Activity and Growth - Risk 5

Added

Following the closing of the Asset Sale, we will continue to incur significant expenses and administrative burdens as a public company despite our revenue being significantly lower, which could have an adverse effect on our business, financial condition and results of operations.

Following the closing of the Asset Sale, we will continue to incur significant legal, accounting, administrative and other costs and expenses as a public company which will reduce the amount of the distributions to our members.

Legal & Regulatory

Total Risks: 11/46 (24%)Above Sector Average

Regulation4 | 8.7%

Regulation - Risk 1

Added

We may not receive all third-party and regulatory consents required in order for us to consummate the Asset Sale.

The Asset Sale cannot be consummated until all closing conditions are met. These conditions include certain third-party consents and compliance with the HSR Act required to effectively transfer ownership of the assets and certain contracts of the Company. Until those consents are obtained and we have complied with the HSR Act, we cannot consummate the Asset Sale. We are in the process of obtaining the required consents. Although we expect to receive the required consents, no assurances can be made that the required consents will in fact be obtained or will not be significantly delayed or will not contain terms, conditions or restrictions that would be detrimental to us, the Buyers and our collective abilities to close the Asset Sale.

Regulation - Risk 2

Government policies and regulations, particularly those affecting the agricultural sector and related industries, could adversely affect our operations and profitability.

Agricultural commodity production and trade flows are significantly affected by government policies and regulations. Governmental policies affecting the agricultural industry, such as taxes, trade tariffs, duties, subsidies, import and export restrictions on commodities and commodity products, can influence industry profitability, the planting of certain crops, the location and size of crop production, whether unprocessed or processed commodity products are traded, and the volume and types of imports and exports. In addition, international trade disputes can adversely affect trade flows by limiting or disrupting trade between countries or regions. Future governmental policies, regulations, or actions affecting our industry may adversely affect the supply of, demand for and prices of our products, restrict our ability to do business and cause our financial results to suffer.

Regulation - Risk 3

Added

The APA contains provisions that prohibit competing offers.

The APA contains "no solicitation" provisions that restrict our ability to solicit, initiate, seek or encourage any inquiry, proposal or offer from, furnish any information to or participate in any discussion or negotiation regarding any acquisition of the Company's equity interests, assets or business, in whole or in part (by purchase, merger, tender offer, statutory share exchange, joint venture or otherwise). These provisions prevent the Company from considering or proposing an alternative acquisition transaction, even if such alternative transaction offered to pay a higher price than what would be received in the Asset Sale.

Regulation - Risk 4

The EPA has issued small refinery waivers to the RFS requirement which has resulted in demand destruction and negatively impacted profitability in the ethanol industry

During 2019, the ethanol industry learned that the EPA had been issuing small refinery waivers to the ethanol use requirements in the RFS. In previous years, when the EPA issued small refinery waivers, it reallocated the waived requirements to other refiners. The EPA under the Trump Administration was granting significantly more waivers than in the past and was not reallocating the waived amounts to other refiners. These actions resulted in demand destruction starting in 2018 which continued to result in reduced demand for ethanol through 2019. This reduction in ethanol demand negatively impacted profitability in the ethanol industry. These small refinery waivers could be issued in future years which could impact ethanol demand.

Litigation & Legal Liabilities1 | 2.2%

Litigation & Legal Liabilities - Risk 1

Added

We may be subject to litigation related to the Asset Sale, which is expensive and could divert our attention.

We may be subject to litigation in connection with the Asset Sale. Litigation against us could result in substantial costs and divert our management's attention from closing the Asset Sale, which could harm our business and increase our expenses, which could decrease our net proceeds from the Asset Sale.

Taxation & Government Incentives4 | 8.7%

Taxation & Government Incentives - Risk 1

Added

Members may not be able to recognize a loss for federal income tax purposes until they receive a final distribution from us.

As a result of the liquidation of the Company for federal income tax purposes, if and when that occurs, members will recognize gain or loss equal to the difference between (a) the sum of the amount of cash distributed to them and the aggregate fair market value of any property distributed to them, and (b) their tax basis for their holdings in the Company. A member's tax basis in their holdings in the Company will depend upon various factors, including the member's cost and the amount and nature of any distributions received with respect thereto. Any loss generally will be recognized only when the final distribution from us has been received, and if the member is still the owner of his, her, or its membership units the Company.

Taxation & Government Incentives - Risk 2

Added

Members should anticipate recognizing taxable capital gain and/or ordinary income for federal income tax purposes from the Asset Sale, followed by a non-taxable cash distribution.

As a result of the Asset Sale, for federal income tax purposes, it is anticipated that the Asset Sale will be recognized by the Company as a taxable transaction resulting in capital gain and/or ordinary income depending on the mix of assets sold and the allocation of the sales price among those assets. This gain and income (and any loss) will then be passed through to the members, generally on a pro rata basis in proportion to their ownership of membership units. Although the Company intends to distribute cash to its members after the Asset Sale, the Company has not yet determined the amount of the cash distribution(s), and will make that decision following the closing of the Asset Sale, after considering the Company's cash resources, its anticipated future working capital needs and obligations, other potential uses of the proceeds of the transaction, and applicable legal requirements. Any such cash distribution should not be taxable to a member, as distributions will simply reduce a member's tax basis in its membership units that was increased by the allocation of income and gain from the Asset Sale.

Taxation & Government Incentives - Risk 3

Added

The tax treatment of the Asset Sale and any subsequent cash distribution should be relatively consistent from member to member as to the character of any gain or income but may vary, and the discussions in this proxy statement regarding such tax treatment are general in nature. You should consult your own tax advisor instead of relying on the discussions of tax treatment in this proxy statement for tax advice.

We have not requested a ruling from the Internal Revenue Service ("IRS") with respect to the anticipated tax consequences of the Asset Sale and any subsequent cash distribution, and we will not seek an opinion of counsel with respect to the anticipated tax consequences of this transaction. If any of the anticipated tax consequences described in this proxy statement prove to be incorrect, the result could be increased taxation at the member level, thereby reducing the benefit to our members and us from the Asset Sale. Tax considerations applicable to particular members may vary with and be contingent upon the member's particular circumstances.

Taxation & Government Incentives - Risk 4

Government incentives for ethanol production may be eliminated in the future, which could hinder our ability to operate at a profit

. The ethanol industry is assisted by various federal ethanol production and tax incentives, including the RFS set forth in the Energy Policy Act of 2005. The RFS helps support a market for ethanol that might disappear without this incentive. The United States Environmental Protection Agency ("EPA") has the authority to annually EPA passes 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 obligations. In the past, the EPA has set the renewable volume obligations below the statutory volume requirements and expanded its use of waivers to small refineries. The effect of these waivers is that the refinery is no longer required to earn or purchase blending credits, known as RINs, negatively affecting ethanol demand and resulting in lower ethanol prices. If the EPA were to significantly reduce the volume requirements under the RFS or if the RFS were to be otherwise reduced or eliminated by the exercise of the EPA waiver authority or by Congress, the market price and demand for ethanol could decrease which will negatively impact our financial performance.

Environmental / Social2 | 4.3%

Environmental / Social - Risk 1

Changes in environmental regulations or violations of these regulations could be expensive and reduce our profitability

. We are subject to extensive air, water and other environmental laws and regulations. In addition, some of these laws require our plant to operate under a number of environmental permits. These laws, regulations and permits can often require expensive pollution control equipment or operational changes to limit actual or potential impacts to the environment. A violation of these laws and regulations or permit conditions can result in substantial fines, damages, criminal sanctions, permit revocations and/or plant shutdowns. In the future, we may be subject to legal actions brought by environmental advocacy groups and other parties for actual or alleged violations of environmental laws or our permits. Additionally, any changes in environmental laws and regulations, both at the federal and state level, could require us to spend considerable resources in order to comply with future environmental regulations. The expense of compliance could be significant enough to reduce our profitability and negatively affect our financial condition.

Environmental / Social - Risk 2

New, stricter environmental laws and other industry-related regulations or environmental litigation could significantly impact our operations and/or increase our costs, which could adversely affect our results of operations and financial condition.

Our operations are subject to federal, state, and municipal laws and regulations regulating environmental matters. The trend in environmental regulation has been towards more restrictions and limitations on activities that may affect the environment over time including new or more stringent emissions standards. Our business may be adversely affected by increased costs and liabilities resulting from such stricter laws and regulations. We try to anticipate future regulatory requirements that might be imposed and plan accordingly to remain in compliance with changing environmental laws and regulations and to minimize the costs of such compliance. Risks related to our environmental permits, including the risk of noncompliance, permit interpretation, permit modification, renewal of permits on less favorable terms, judicial or administrative challenges to permits by citizens groups or federal, state, or municipal entities or permit revocation are inherent in the operation of our business as it is with other companies engaged in similar businesses. We may not be able to renew the permits necessary for our operations, or we may be forced to accept terms in future permits that limit our operations or result in additional compliance costs. There can be no assurances as to the timing and type of such changes in existing laws or the promulgation of new laws or the amount of any required expenditures associated therewith. Climate change continues to attract considerable public and scientific attention. In recent years environmental interest groups have filed suit against companies in the energy industry related to climate change. Should such suits succeed, we could face additional compliance costs or litigation risks.

Ability to Sell

Total Risks: 7/46 (15%)Above Sector Average

Competition2 | 4.3%

Competition - Risk 1

Increased competition from electric vehicles could reduce demand for liquid fuels which could negatively impact demand for ethanol which could negatively impact our profitability

Electric car technology has improved significantly in recent years and many automakers are focusing on electric car technology for automobiles they are releasing or plan to release in the future. Increased reliance on electric vehicle technology is expected to result in decreased gasoline demand. Recently, governments and private entities have focused on improving and expanding vehicle recharging stations which may make electric automobiles more attractive in the market. As gasoline powered vehicles become a smaller part of the worldwide vehicle fleet, it is expected to have a negative impact on gasoline demand which will also impact ethanol demand. This shift in demand could negatively impact our financial performance and could reduce or eliminate the value of our units.

Competition - Risk 2

We operate in an intensely competitive industry and compete with larger, better financed entities which could impact our ability to operate profitably.

There is significant competition among ethanol producers. There are numerous producer-owned and privately-owned ethanol plants operating throughout the Midwest and elsewhere in the United States. We also face competition from outside of the United States. The largest ethanol producers include Archer Daniels Midland, Green Plains Renewable Energy, POET, and Valero Renewable Fuels, each of which is capable of producing significantly more ethanol than we produce. Further, many believe that there will be further consolidation occurring in the ethanol industry in the future which could lead to a few companies which control a significant portion of the United States ethanol production market. We may not be able to compete with these larger entities. These larger ethanol producers may be able to affect the ethanol market in ways that are not beneficial to us which could negatively impact our financial performance.

Demand5 | 10.9%

Demand - Risk 1

Demand for ethanol may not continue to grow unless ethanol can be blended into gasoline in higher percentage blends for standard vehicles

. Currently, ethanol is primarily blended with gasoline for use in standard (non-flex fuel) vehicles to create a blend which is 10% ethanol and 90% gasoline. Estimates indicate that approximately 137 billion gallons of gasoline are sold in the United States each year. Assuming that all gasoline in the United States is blended at a rate of 10% ethanol and 90% gasoline, the maximum domestic demand for ethanol is 13.7 billion gallons. This is commonly referred to as the "blend wall," which represents a theoretical limit where more ethanol cannot be blended into the national gasoline pool. Many in the ethanol industry believe that the ethanol industry has reached and surpassed this blend wall. In order to expand demand for ethanol, higher percentage blends of ethanol must be utilized in standard vehicles. Such higher percentage blends of ethanol are a contentious issue. Automobile manufacturers and environmental groups have fought against higher percentage ethanol blends. The EPA approved the use of E15 for standard vehicles produced in the model year 2001 and later. The fact that E15 has not been approved for use in all vehicles and the labeling requirements associated with E15 may lead to gasoline retailers refusing to carry E15. Without an increase in the allowable percentage blends of ethanol that can be used in all vehicles, demand for ethanol may not continue to increase which could decrease the selling price of ethanol and could result in our inability to operate the ethanol plant profitably which could reduce or eliminate the value of our units.

Demand - Risk 2

Distillers grains demand and prices have been negatively impacted by the Chinese anti-dumping duty

. China was previously the world's largest importer of distillers grains produced in the United States. On January 12, 2016, the Chinese government announced that it would commence an anti-dumping and countervailing duty investigation related to distillers grains imported from the United States. On January 10, 2017, China announced a final ruling related to its anti-dumping and countervailing duty investigation imposing anti-dumping duties from a range of 42.2% to 53.7% and anti-subsidy duties from 11.2% to 12.0%. The imposition of these duties has resulted in a significant decline in demand from this top importer and negatively impacted prices for distillers grains produced in the United States. Due to trade disputes between the United States and China these tariffs continued into our 2022 fiscal year. In January 2023, the Chinese government extended tariffs on distillers grains from the United States for an additional five years. This reduction in demand has negatively impacted our profitability, and continued tariffs may further impact our profitability.

Demand - Risk 3

Technology advances in the commercialization of cellulosic ethanol may decrease demand for corn-based ethanol which may negatively affect our profitability

The current trend in ethanol production research is to develop an efficient method of producing ethanol from cellulose-based biomass, such as agricultural waste, forest residue, municipal solid waste, and energy crops. This trend is driven by the fact that cellulose-based biomass is generally cheaper than corn, and producing ethanol from cellulose-based biomass would create opportunities to produce ethanol in areas of the country which are unable to grow corn. The Energy Independence and Security Act of 2007 and the 2008 Farm Bill offer strong incentives to develop commercial scale cellulosic ethanol. Additionally, state and federal grants have been awarded to several companies which are seeking to develop commercial-scale cellulosic ethanol plants. This has encouraged innovation and has led to several companies which are either in the process or have completed construction of commercial scale cellulosic ethanol plants. If an efficient method of producing ethanol from cellulose-based biomass is developed, we may not be able to compete effectively. If we are unable to produce ethanol as cost-effectively as cellulose-based producers, our ability to generate revenue and our financial condition will be negatively impacted.

Demand - Risk 4

The ethanol industry is an industry that is changing rapidly which can result in unexpected developments that could negatively impact our operations and the value of our units

The ethanol industry has grown significantly in the last decade. This rapid growth has resulted in significant shifts in supply and demand of ethanol over a very short period of time. As a result, past performance by the ethanol plant or the ethanol industry generally might not be indicative of future performance. We may experience a rapid shift in the economic conditions in the ethanol industry which may make it difficult to operate the ethanol plant profitably. If changes occur in the ethanol industry that make it difficult for us to operate the ethanol plant profitably, it could result in a reduction in the value of our units.

Demand - Risk 5

The California Low Carbon Fuel Standard may decrease demand for corn based ethanol which could negatively impact our profitability

. California passed a Low Carbon Fuels Standard ("LCFS") which requires that renewable fuels used in California must accomplish certain reductions in greenhouse gases which reductions are measured using a lifecycle analysis. Management believes that these regulations could preclude corn-based ethanol produced in the Midwest from being used in California. California represents a significant ethanol demand market. If the ethanol industry is unable to supply corn-based ethanol to California, it could significantly reduce demand for the ethanol we produce which could result in a reduction of our revenues and negatively impact our ability to profitably operate the ethanol plant.

Production

Total Risks: 6/46 (13%)Below Sector Average

Manufacturing1 | 2.2%

Manufacturing - Risk 1

Changes and advances in ethanol production technology could require us to incur costs to update the ethanol plant or could otherwise hinder our ability to compete in the ethanol industry or operate profitably. Advances and changes in the technology of ethanol production are expected to occur, including the potential use of A.I. technology. Such advances and changes may make the ethanol production technology installed in our ethanol plant less desirable or obsolete. These advances could allow our competitors to produce ethanol at a lower cost than us. If we are unable to adopt or incorporate technological advances, our ethanol production methods and processes could be less efficient than our competitors, which could cause the ethanol plant to become uncompetitive or completely obsolete. If our competitors develop, obtain, or license technology that is superior to ours or that makes our technology obsolete, we may be required to incur significant costs to enhance or acquire new technology so that our ethanol production remains competitive. Alternatively, we may be required to seek third-party licenses, which could also result in significant expenditures. These third-party licenses may not be available or, once obtained, they may not continue to be available on commercially reasonable terms. These costs could negatively impact our financial performance by increasing our operating costs and reducing our net income which could decrease the value of our units.

Employment / Personnel1 | 2.2%

Employment / Personnel - Risk 1

We depend on our management and key employees, and the loss of these relationships could negatively impact our ability to operate profitably

We are highly dependent on our management team to operate our ethanol plant. We may not be able to replace these individuals should they decide to cease their employment with us, or if they become unavailable for any other reason. While we seek to compensate our management and key employees in a manner that will encourage them to continue their employment with us, they may choose to seek other employment. Any loss of these officers and key employees may prevent us from operating the ethanol plant profitably and could decrease the value of our units.

Costs4 | 8.7%

Costs - Risk 1

Increases in the price of corn or natural gas would reduce our profitability

. Our primary source of revenue is from the sale of ethanol, distillers grains and corn oil. Our results of operations and financial condition are significantly affected by the cost and supply of corn and natural gas. Changes in the price and supply of corn and natural gas are subject to and determined by market forces over which we have no control including weather and general economic factors. Ethanol production requires substantial amounts of corn. Generally, higher corn prices will produce lower profit margins and, therefore, negatively affect our financial performance. If a period of high corn prices were to be sustained for some time, such pricing may reduce our ability to operate profitably because of the higher cost of operating our plant. We may not be able to offset any increase in the price of corn by increasing the price of our products. If we cannot offset increases in the price of corn, our financial performance may be negatively affected. 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 higher prices as a result of colder than average weather conditions or natural disasters, overall economic conditions and foreign and domestic governmental regulations and relations. Significant disruptions in the supply of natural gas could impair our ability to manufacture ethanol and more significantly, distillers grains 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 condition.

Costs - Risk 2

Decreasing gasoline prices could negatively impact our ability to operate profitably

. Discretionary blending is an important secondary market which is often determined by the price of ethanol versus the price of gasoline. In periods when discretionary blending is financially unattractive, demand for ethanol may be reduced. Historically, the price of ethanol has been less than the price of gasoline which increased demand for ethanol from fuel blenders. In recent years, low oil prices reduced the price of gasoline which reduced the spread between the price of gasoline and the price of ethanol which discouraged discretionary blending, and resulted in a downward market adjustment in the price of ethanol. If oil and gasoline prices remain lower for a significant period of time, it could hurt our ability to profitably operate the ethanol plant which could decrease the value of our units.

Costs - Risk 3

Declines in the price of ethanol, distillers grain or corn oil would significantly reduce our revenues

. The sales prices of ethanol, distillers grains, and corn oil can be volatile as a result of a number of factors such as overall supply and demand, the price of gasoline and corn, levels of government support, tariffs and import quotas, and the availability and price of competing products. We are dependent on a favorable spread between the price we receive for our ethanol, distillers grains, and corn oil and the price we pay for corn and natural gas. Any lowering of ethanol, distillers grains, or corn oil prices, especially if it is associated with increases in corn and natural gas prices, may affect our ability to operate profitably. We anticipate the price of ethanol and distillers grains to continue to be volatile in our 2025 fiscal year as a result of the net effect of changes in the price of gasoline and corn and increased ethanol supply offset by increased export demand. In addition, growing conditions in a particular season's harvest may cause the corn crop to be of poor quality resulting in corn shortages and a decrease in distillers grains prices. Declines in the prices we receive for our ethanol and distillers grains will lead to decreased revenues and may result in our inability to operate the ethanol plant profitably for an extended period of time which could decrease the value of our units.

Costs - Risk 4

A decrease in the spread between the price we receive for our products and our raw material costs will negatively impact our profitability

Practically all of our revenue is derived from the sale of our ethanol, distillers grains, and corn oil. Our primary raw material costs are corn costs and energy costs. Our profitability depends on a positive spread between the market price of the ethanol, distillers grains and corn oil we produce and the raw material costs related to these products. While ethanol, distillers grains and corn oil prices typically change in relation to corn prices, this correlation may not always exist. In the event the prices for our products decrease at a time when our raw material costs are increasing, we may not be able to profitably operate the plant. In the event the spread between the price we receive for our products and the raw material costs associated with producing those products is negative for an extended period of time, we may not be able to maintain liquidity which could negatively impact the value of our units.

Macro & Political

Total Risks: 6/46 (13%)Above Sector Average

Economy & Political Environment1 | 2.2%

Economy & Political Environment - Risk 1

The invasion of Ukraine by Russia and resulting sanctions by the United States, European Union and other countries have contributed to inflation, market disruptions and increased volatility in commodity prices in the United States and a slowdown in global economic growth.

On February 24, 2022, a military invasion of Ukraine by Russian troops was reported. In response to the attacks on Ukraine, sanctions and other penalties have been levied by the United States, European Union, and other countries and additional sanctions and penalties have been proposed. The invasion by Russia and resulting sanctions have had a broad range of adverse impacts on global business and financial markets some of which have had and may continue to have adverse impacts on our business. These include increased inflation, significant market disruptions and increased volatility in commodity prices such as corn, oil and natural gas. Although the duration and extent of the ongoing military conflict is highly unpredictable and the magnitude of the potential economic impact is currently unknown, Russian military actions and resulting sanctions could have a negative effect on our financial condition and operating results.

Natural and Human Disruptions2 | 4.3%

Natural and Human Disruptions - Risk 1

Investor sentiment towards climate change, fossil fuels, and other ESG matters could adversely affect our business, cost of capital, and the price of our stock and other securities.

There have been efforts in recent years, which intensified during the COVID-19 pandemic, aimed at the investment community, to promote the divestment of securities of energy companies, as well as to pressure lenders and other financial services companies to limit or curtail activities with energy companies. As a result, some financial intermediaries, investors, and other capital markets participants have reduced or ceased lending to, or investing in, companies that operate in industries with higher perceived environmental exposure, such as the energy industry. If this or similar divestment efforts are continued, the value of our units may be negatively impacted. Members of the investment community are also increasing their focus on ESG practices and disclosures, including practices and disclosures related to GHGs and climate change in the energy industry in particular, and diversity and inclusion initiatives and governance standards among companies more generally. As a result, we may face increasing pressure regarding our ESG practices and disclosures. Additionally, members of the investment community may screen companies such as ours for ESG performance. If we are unable to meet the ESG standards or investment or lending criteria set by these investors and funds, we may lose investors, investors may allocate a portion of their capital away from us, our cost of capital may increase, the price of our units may be negatively impacted, and our reputation may also be negatively affected.

Natural and Human Disruptions - Risk 2

Adverse weather conditions, including as a result of climate change, may adversely affect the availability, quality, and price of agricultural commodities and agricultural commodity products, as well as our operations and operating results.

Adverse weather conditions have historically caused volatility in the agricultural commodity industry and consequently in our operating results by causing crop failures or significantly reduced harvests, which may affect the supply and pricing of the agricultural commodities that we sell and use in our business, reduce demand for our fertilizer products and negatively affect the creditworthiness of agricultural producers who do business with us. Higher basis levels or adverse crop conditions in our corn purchase area can increase the input costs or lower the market value of our products relative to other market participants that do not have the same geographic concentration. Additionally, the potential physical impacts of climate change are uncertain and may vary by region. These potential effects could include changes in rainfall patterns, water shortages, changing sea levels, changing storm patterns and intensities, and changing temperature levels that could adversely impact our costs and business operations, the location, costs, and competitiveness of agricultural commodity production and related storage and processing facilities and the supply and demand for agricultural commodities. These effects could be material to our results of operations, liquidity, or capital resources and could reduce the value of our units.

Capital Markets3 | 6.5%

Capital Markets - Risk 1

Excess ethanol supply in the market could put negative pressure on the price of ethanol which could lead to tight operating margins and may impact our ability to operate profitably

In the past the ethanol industry has confronted market conditions where ethanol supply exceeded demand which led to unfavorable operating conditions. A disconnect between ethanol supply and demand can result in lower ethanol prices which can result in unfavorable operating conditions. The United States has recently benefited from additional exports of ethanol which may not continue to occur during our 2025 fiscal year. We may experience periods of ethanol supply and demand imbalance during our 2025 fiscal year, particularly if the EPA issues additional small refinery waivers from the RFS. If we experience excess ethanol supply, either due to increased ethanol production, lower ethanol demand or lower overall gasoline demand, it could negatively impact the price of ethanol which could hurt our ability to profitably operate the ethanol plant.

Capital Markets - Risk 2

Chinese ethanol tariffs have and could continue to have a negative impact on ethanol prices

As a result of trade disputes between the United States and China, China imposed a 45% tariff on ethanol produced in the United States. This tariff has effectively closed the Chinese market for United States ethanol exports. China represents a significant potential source of demand for ethanol. Without access to the Chinese market, we may experience excess ethanol supply which could negatively impact ethanol prices in the United States. Lower ethanol prices could negatively impact our ability to profitably operate the ethanol plant.

Capital Markets - Risk 3

A reduction in ethanol exports to Brazil due to the imposition by the Brazilian government of a tariff on U.S. ethanol has and could continue to have a negative impact on ethanol prices

Brazil has historically been a top destination for ethanol produced in the United States. However, in 2017, Brazil imposed a tariff on ethanol which is produced in the United States and exported to Brazil. This tariff has resulted in a decline in demand for ethanol from Brazil in the past and could negatively impact the market price of ethanol in the United States and could negatively impact our ability to profitably operate the ethanol plant.

Tech & Innovation

Total Risks: 2/46 (4%)Below Sector Average

Cyber Security1 | 2.2%

Cyber Security - Risk 1

A cyber attack or other information security breach could have a material adverse effect on our operations and result in financial losses.

We are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact. If we are unable to prevent cyber attacks and other information security breaches, we may encounter significant disruptions in our operations which could adversely impact our business, financial condition and results of operations or result in the unauthorized disclosure of confidential information. Such breaches may also harm our reputation, result in financial losses or subject us to litigation or other costs or penalties.

Technology1 | 2.2%

Technology - Risk 1

Failures of our information technology infrastructure could have a material adverse effect on operations.

We utilize various software applications and other information technology that are critically important to our business operations. We rely on information technology networks and systems, including the Internet, to process, transmit, and store electronic and financial information, to manage a variety of business processes and activities, including production, manufacturing, financial, logistics, sales, marketing, and administrative functions. We depend on our information technology infrastructure to communicate internally and externally with employees, customers, suppliers, and others. We also use information technology networks and systems to comply with regulatory, legal, and tax requirements. These information technology systems, some of which are managed by third parties, may be susceptible to damage, disruptions, or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, computer viruses, attacks by computer hackers or other cybersecurity risks, telecommunication failures, user errors, natural disasters, terrorist attacks, or other catastrophic events. If any of our significant information technology systems suffer severe damage, disruption or shutdown, and our disaster recovery and business continuity plans do not effectively resolve the issues in a timely manner, our product sales, financial condition and results of operations may be materially and adversely affected.

See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.

FAQ

What are “Risk Factors”?

Risk factors are any situations or occurrences that could make investing in a company risky.

The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.

They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.

It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.

How do companies disclose their risk factors?

Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.

Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.

Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.

According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.

How can I use TipRanks risk factors in my stock research?

Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.

You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.

Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.

A simplified analysis of risk factors is unique to TipRanks.

What are all the risk factor categories?

TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.

1. Financial & Corporate

Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.

2. Legal & Regulatory

Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
Regulation – risks related to compliance, GDPR, and new legislation.
Environmental / Social – risks related to environmental regulation and to data privacy.
Taxation & Government Incentives – risks related to taxation and changes in government incentives.

3. Production

Costs – risks related to costs of production including commodity prices, future contracts, inventory.
Supply Chain – risks related to the company’s suppliers.
Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.

4. Technology & Innovation

Innovation / R&D – risks related to innovation and new product development.
Technology – risks related to the company’s reliance on technology.
Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.

5. Ability to Sell

Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
Competition – risks related to the company’s competition including substitutes.
Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
Brand & Reputation – risks related to the company’s brand and reputation.

6. Macro & Political

Economy & Political Environment – risks related to changes in economic and political conditions.
Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
International Operations – risks related to the global nature of the company.
Capital Markets – risks related to exchange rates and trade, cryptocurrency.

Become an Expert with TipRanks Premium

What am I Missing?

Make informed decisions based on Top Analysts' activity

Know what industry insiders are buying

Get actionable alerts from top Wall Street Analysts

Find out before anyone else which stock is going to shoot up

Get powerful stock screeners & detailed portfolio analysis

Subscribe Now See Plans & Pricing