Derivatives

3 Months Ended

Mar. 31, 2024

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 to protect cash flows from fluctuations caused by volatility in commodity prices for periods of up to twelve months in order to protect gross profit margins from potentially adverse effects of market and price volatility on alcohol sales and purchase commitments where the prices are set at a future date and/or if the contracts specify a floating or index-based price. In addition, the Company hedges anticipated sales of alcohol to minimize its exposure to the potentially adverse effects of price volatility. 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, 2024 and 2023, the Company did not designate any of its derivatives as cash flow hedges.

Commodity Risk – Non-Designated Hedges – The Company uses derivative instruments to lock in prices for certain amounts of corn and alcohols 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 $3,338,000 and net losses of $1,777,000 as the change in the fair value of these contracts for the three months ended March 31, 2024 and 2023, 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, 2024
	Assets			Liabilities
Type of Instrument	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Cash collateral balance	Restricted cash	$	12,762
Commodity contracts	Derivative instruments	$	52	Derivative instruments	$	8,299

	As of December 31, 2023
	Assets			Liabilities
Type of Instrument	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Cash collateral balance	Restricted cash	$	15,466
Commodity contracts	Derivative instruments	$	2,412	Derivative instruments	$	13,849

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 (losses) for its derivatives not designated as hedging instruments are as follows (in thousands):

		Realized Gains (Losses)
		For the three months Ended March 31,
Type of Instrument	Statements of Operations Location	2024		2023
Commodity contracts	Cost of goods sold	$	148	$	(7,703	)
		$	148	$	(7,703	)

		Unrealized Gains
		For the three months Ended March 31,
Type of Instrument	Statements of Operations Location	2024		2023
Commodity contracts	Cost of goods sold	$	3,190	$	5,926
		$	3,190	$	5,926