SOUTHWEST IOWA RENEWABLE ENERGY, LLC - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - SOUTHWEST IOWA RENEWABLE ENERGY, LLC	Financial_Report.xls
EX-32.2 - EXHIBIT 32.2 - SOUTHWEST IOWA RENEWABLE ENERGY, LLC	sire-20150331x10qex322.htm
EX-31.2 - EXHIBIT 31.2 - SOUTHWEST IOWA RENEWABLE ENERGY, LLC	sire-20150331x10qex312.htm
EX-32.1 - EXHIBIT 32.1 - SOUTHWEST IOWA RENEWABLE ENERGY, LLC	sire-20150331x10qex321.htm
EX-31.1 - EXHIBIT 31.1 - SOUTHWEST IOWA RENEWABLE ENERGY, LLC	sire-20150331x10qex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)



ý	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ending March 31, 2015

o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to __________

Commission file number 000-53041



SOUTHWEST IOWA RENEWABLE ENERGY, LLC
(Exact name of registrant as specified in its charter)

Iowa	20-2735046
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

10868 189th Street, Council Bluffs, Iowa	51503
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number (712) 366-0392

Securities registered under Section 12(b) of the Exchange Act:	None.

Title of each class	Name of each exchange on which registered

Securities registered under Section 12(g) of the Exchange Act:
Series A Membership Units
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o No x

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of March 31, 2015, the Company had 8,993 Series A, 3,334 Series B and 1,000 Series C Membership Units outstanding.

DOCUMENTS INCORPORATED BY REFERENCE—None

TABLE OF CONTENTS



Item No.	Item Matter	PAGE NO.
	PART 1 – FINANCIAL INFORMATION
Item 1.	FINANCIAL STATEMENTS	1
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13
Item 3.	QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISKS	22
Item 4.	CONTROLS AND PROCEDURES	22
	PART II – OTHER INFORMATION	22
Item 1.	LEGAL PROCEEDINGS	22
Item 1A.	RISK FACTORS	22
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	23
Item 3.	DEFAULTS UPON SENIOR SECURITIES	23
Item 4.	MINE SAFETY DISCLOSURES	23
Item 5.	OTHER INFORMATION	23
Item 6.	Exhibits	23
	SIGNATURES	24
	CERTIFICATIONS	SEE EXHIBITS 31 AND 32

PART I – FINANCIAL STATEMENTS

Item 1. Financial Statements

SOUTHWEST IOWA RENEWABLE ENERGY, LLC Balance Sheets (Dollars in thousands)

ASSETS	March 31, 2015			September 30, 2014
	(Unaudited)
Current Assets
Cash and cash equivalents	$	6,750		$	9,267
Restricted cash	304			304
Accounts receivable	1,670			801
Accounts receivable, related party	3,034			5,192
Derivative financial instruments	259			623
Inventory	9,868			12,161
Prepaid expenses and other	3,241			1,611
Total current assets	25,126			29,959

Property, Plant and Equipment
Land	2,064			2,064
Plant, building and equipment	211,224			208,082
Office and other equipment	1,091			1,068
	214,379			211,214
Accumulated depreciation	(82,167		)	(76,393		)
Net property and equipment	132,212			134,821

Other Assets
Financing costs, net of accumulated amortization of $54 and $19, respectively	383			418
Other assets	1,588			1,588
	1,971			2,006
Total Assets	$	159,309		$	166,786

Notes to Financial Statements are an integral part of this statement

SOUTHWEST IOWA RENEWABLE ENERGY, LLC Balance Sheets (Dollars in thousands)

LIABILITIES AND MEMBERS' EQUITY	March 31, 2015		September 30, 2014
	(Unaudited)
Current Liabilities
Accounts payable	$	1,014	$	1,575
Accounts payable, related party	323		1,188
Derivative financial instruments, related party	—		2,707
Derivative financial instruments	534		—
Accrued expenses	4,181		2,996
Accrued expenses, related parties	395		214
Current maturities of notes payable	6,481		6,052
Total current liabilities	12,928		14,732

Long Term Liabilities
Notes payable, less current maturities	44,858		50,872
Other long-term liabilities	1,750		300
Put option liability, related party	5,300		—
Total long term liabilities	51,908		51,172

Members' Equity
Members' capital, 13,327 Units issued and outstanding	87,165		87,165
Accumulated earnings	7,308		13,717
Total members' equity	94,473		100,882

Total Liabilities and Members' Equity	$	159,309	$	166,786

Notes to Financial Statements are an integral part of this statement

SOUTHWEST IOWA RENEWABLE ENERGY, LLC Statements of Operations (Dollars in thousands except for net income per unit)

(Unaudited)
	Three Months Ended			Three Months Ended		Six Months Ended			Six Months Ended
	March 31, 2015			March 31, 2014		March 31, 2015			March 31, 2014

Revenues	$	55,472		$	82,971	$	128,008		$	163,157
Cost of Goods Sold
Cost of goods sold-non hedging	57,912			60,624		114,098			124,485
Realized & unrealized hedging (gains) losses	(1,526		)	126		(1,809		)	2,338
	56,386			60,750		112,289			126,823

Gross Margin (Loss)	(914		)	22,221		15,719			36,334

General and administrative expenses	1,130			1,151		2,515			2,357

Operating Income (Loss)	(2,044		)	21,070		13,204			33,977

Interest expense and other income, net	266			1,920		986			3,968
Loss from debt extinguishment	—			—		4,700			—
Change in fair value of put option liability	600			—		600			—

Net Income (Loss)	$	(2,910	)	$	19,150	$	6,918		$	30,009

Weighted average units outstanding - basic	13,327			13,144		13,327			13,144
Weighted average units outstanding - diluted	13,327			25,523		17,763			25,518
Income (loss) per unit - basic	$	(218.35	)	$	1,456.94	$	519.10		$	2,283.09
Income (loss) per unit - diluted	$	(218.35	)	$	778.79	$	445.70		$	1,233.21

Notes to Financial Statements are an integral part of this statement

SOUTHWEST IOWA RENEWABLE ENERGY, LLC Statements of Cash Flows (Dollars in thousands)

(Unaudited)
	Six Months Ended			Six Months Ended
	March 31, 2015			March 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	6,918		$	30,009
Adjustments to reconcile to net cash provided by operating activities:
Depreciation	5,774			5,727
Amortization	35			234
Accrued interest added to long term debt	—			2,018
Loss from debt extinguishment	4,700			—
Change in fair value of put option liability	600			—
(Increase) decrease in current assets:
Accounts receivable	1,289			(2,529		)
Inventories	2,293			(451		)
Prepaid expenses and other	(1,630		)	(342		)
Derivative financial instruments	364			(490		)
Decrease (increase) in other long-term liabilities	1,450			(50		)
Increase (decrease) in current liabilities:
Accounts payable	(1,426		)	(3,341		)
Derivative financial instruments	(2,173		)	(493		)
Accrued expenses	1,366			1,186
Net cash provided by operating activities	19,560			31,478

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment	(3,165		)	(1,266		)
Increase in restricted cash	—			(1		)
Net cash (used in) investing activities	(3,165		)	(1,267		)

CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to members	(13,327		)	—
Proceeds from debt	63,797			32,000
Payments on debt	(69,382		)	(52,303		)
Net cash (used in) financing activities	(18,912		)	(20,303		)

Net increase (decrease) in cash and cash equivalents	(2,517		)	9,908

CASH AND CASH EQUIVALENTS
Beginning	9,267			12,437
Ending	$	6,750		$	22,345
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	$	1,055		$	1,795


Notes to Financial Statements are an integral part of this statement

SOUTHWEST IOWA RENEWABLE ENERGY, LLC

Notes to Financial Statements

Note 1: Nature of Business

Southwest Iowa Renewable Energy, LLC (the “Company”), located in Council Bluffs, Iowa, was formed in March, 2005 and began producing ethanol in February, 2009. The Company is permitted to produce up to 125 million gallons of ethanol per year. The Company sells its ethanol, distillers grains, corn syrup, and corn oil in the continental United States, Mexico, and the Pacific Rim.

Note 2: Summary of Significant Accounting Policies

Basis of Presentation and Other Information

The accompanying financial statements as of and for the three and six months ended March 31, 2015 and 2014 are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. These unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes thereto, for the fiscal year ended September 30, 2014 contained in the Company’s Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Revenue Recognition

The Company sells ethanol and related products pursuant to marketing agreements. Revenues are recognized when the marketing company (the “customer”) has taken title to the product, prices are fixed or determinable and collectability is reasonably assured.

The Company’s products are generally shipped FOB loading point. The Company’s ethanol sales are handled through an ethanol purchase agreement (the “Ethanol Agreement”) with Bunge North America, Inc. (“Bunge”). Syrup and distillers grain (co-products) are sold through a distillers grains agreement (the “DG Agreement”) with Bunge, based on market prices. Marketing fees, agency fees, and commissions due to the marketer are paid separately from the settlement for the sale of the ethanol products and co-products and are included as a component of cost of goods sold. Shipping and handling costs incurred by the Company for the sale of ethanol and co-products are included in cost of goods sold. Corn oil is sold directly by the Company to various customers.

Accounts Receivable

Trade accounts receivable are recorded at original invoice amounts less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Most of the trade accounts are with Bunge. Management determines the allowance for doubtful accounts by regularly evaluating customer receivables and considering customer’s financial condition, credit history and current economic conditions. As of March 31, 2015 and September 30, 2014, management had determined no allowance was necessary. Receivables are written off when deemed uncollectable and recoveries of receivables written off are recorded when received.

Investment in Commodities Contracts, Derivative Instruments and Hedging Activities

The Company’s operations and cash flows are subject to fluctuations due to changes in commodity prices. The Company is subject to market risk with respect to the price and availability of corn, the principal raw material used to produce ethanol and ethanol by-products. Exposure to commodity price risk results from the Company’s dependence on corn in the ethanol production process. In general, rising corn prices might result in lower profit margins and, therefore, represent unfavorable market conditions. The availability and price of corn is subject to wide fluctuations due to unpredictable factors such as weather conditions, farmer planting decisions, governmental policies with respect to agriculture and international trade and global demand and supply.

To minimize the risk and the volatility of commodity prices, primarily related to corn and ethanol, the Company uses various derivative instruments, including forward corn, ethanol, and distillers grains purchase and sales contracts, over-the-counter

and exchange-traded futures and option contracts. From time to time, when market conditions are appropriate, the Company will enter into derivative contracts to hedge its exposure to price risk related to forecasted corn needs and forward corn purchase contracts.

Management has evaluated the Company’s contracts to determine whether the contracts are derivative instruments. Certain contracts that literally meet the definition of a derivative may be exempted from derivative accounting as normal purchases or normal sales. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Gains and losses on contracts designated as normal purchases or normal sales contracts are not recognized until quantities are delivered or utilized in production.

The Company applies the normal purchase and sale exemption to forward contracts relating to ethanol and distillers grains and solubles and therefore these forward contracts are not marked to market. As of March 31, 2015, the Company was committed to sell 6.8 million gallons of ethanol, 113.0 thousand tons of distillers grains and 2.7 million pounds of corn oil.

Corn purchase contracts are treated as derivative financial instruments. Changes in market value of forward corn contracts, which are marked to market each period, are included in costs of goods sold. As of March 31, 2015, the Company was committed to purchasing 3.0 million bushels of corn on a forward contract basis resulting in a total commitment of $11.6 million. In addition the Company was committed to purchase 1.6 million bushels of corn on basis contracts.

The Company also enters into short-term cash, options and futures contracts as a means of managing exposure to changes in commodity prices. The Company enters into derivative contracts to hedge the exposure to volatile commodity price fluctuations. The Company maintains a risk management strategy that uses derivative instruments to minimize significant, unanticipated earnings fluctuations caused by market volatility. The Company’s specific goal is to protect itself from large moves in commodity costs. All derivatives are designated as non-hedge derivatives and the contracts will be accounted for at fair value. Although the contracts will be effective economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.

The gains or losses are included in revenue if the contracts relate to ethanol and cost of goods sold if the contracts relate to corn. During the three months ended March 31, 2015 and 2014, the Company recorded a combined realized and unrealized gain of $1.5 million and a loss of $0.1 million, respectively, as a component of cost of goods sold. During the three months ended March 31, 2015 and the three months ended March 31, 2014, the Company did not enter into any ethanol derivative contracts.

During the six months ended March 31, 2015 and 2014, the Company recorded a combined realized and unrealized gain of $1.8 million and a loss of $2.3 million, respectively, as a component of cost of goods sold. During the six months ended March 31, 2015 and the six months ended March 31, 2014, the Company did not enter into any ethanol derivative contracts. The Company reports all contracts with the same counter-party on a net basis on the balance sheet due to a master netting agreement.

Derivatives not designated as hedging instruments along with cash held by brokers at March 31, 2015 and September 30, 2014 at market value are as follows:



	Balance Sheet Classification	March 31, 2015			September 30, 2014
		in 000's			in 000's
Futures and option contracts
In gain position		$	285		$	844
In loss position		(204		)	—
Cash held by (due to) broker		178			(221		)
	Current asset	259			623

Forward contracts, corn, related party	Current liability	—			2,707
Forward contracts, corn	Current liability	534			—

Net futures, options, and forward contracts		$	(275	)	$	(2,084	)

The net realized and unrealized gains and losses on the Company’s derivative contracts for the three and six months ended March 31, 2015 and 2014 consist of the following (in thousands of dollars):



		Three Months Ended						Six Months Ended
	Statement of Operations Classification	March 31, 2015			March 31, 2014			March 31, 2015			March 31, 2014
Net realized and unrealized (gains) losses related to:

Forward purchase corn contracts	Cost of Goods Sold	$	(960	)	$	(696	)	$	(2,172	)	$	1,160
Futures and option corn contracts	Cost of Goods Sold	$	(566	)	$	822		$	363		$	1,177

Inventory

Inventory is stated at the lower of cost or market value using the average cost method. Market value is based on current replacement values, to the extent that it does not exceed net realizable values and it is not less than the net realizable values reduced by an allowance for normal profit margin.

Income Per Unit

Basic income per unit is calculated by dividing net income by the weighted average units outstanding for each period. Diluted income per unit is adjusted for convertible debt, using the treasury stock method and the put option using the reverse treasury stock method. The put option adjustment is excluded from the three months ended March 31, 2015 because it would be anti-dilutive. Units from the convertible term notes (paid in full in December 2014) are considered unit equivalents and are considered in the diluted income per unit computation. Basic earnings and diluted per unit data were computed as follows (in thousands except per unit data):



	Three Months Ended					Six Months Ended
	March 31, 2015			March 31, 2014		March 31, 2015		March 31, 2014
Numerator:
Net income (loss) for basic earnings per unit	$	(2,910	)	$	19,150	$	6,918	$	30,009
Interest expense on convertible term note	—			727		399		1,460
Change in fair value of put option liability	—			—		600		—
Net income (loss) for diluted earnings per unit	$	(2,910	)	$	19,877	$	7,917	$	31,469

Denominator:
Weighted average units outstanding - basic	13,327			13,144		13,327		13,144
Weighted average units outstanding - diluted	13,327			25,523		17,763		25,518
Income (loss) per unit - basic	$	(218.35	)	$	1,456.94	$	519.10	$	2,283.09
Income (loss) per unit - diluted	$	(218.35	)	$	778.79	$	445.70	$	1,233.21

Note 3: Inventory

Inventory is comprised of the following at:



	March 31, 2015		September 30, 2014
	(000's)		(000's)
Raw Materials - corn	$	2,842	$	2,395
Supplies and Chemicals	2,919		2,783
Work in Process	1,780		1,392
Finished Goods	2,327		5,591
Total	$	9,868	$	12,161

Note 4: Members’ Equity

At March 31, 2015 outstanding member units were:



Series A Units Outstanding	8,993
Series B Units Outstanding	3,334
Series C Units Outstanding	1,000

The Series A, B and C unit holders all vote on certain matters with equal rights. The Series C unit holder has the right to elect one member of the Board of Directors (the “Board”). The Series B unit holder has the right to elect two Board members. Series A unit holders as a group have the right to elect the remaining number of directors not elected by the Series C and B unit holders.

Note 5: Revolving Loan/Credit Agreements

FCSA/CoBank

The Company entered into a credit agreement with Farm Credit Services of America, FLCA (“ FCSA ”) and CoBank, ACB, as cash management provider and agent (“CoBank ”) which provides the Company with a term loan in the amount of $30,000,000 (the “ Term Loan ”) and a revolving term loan in the amount of up to $36,000,000 (the “ Revolving Term Loan ,” together with the Term Loan, the “ FCSA Credit Facility ”). The FCSA Credit Facility is secured by a security interest on all of the Company’s assets.

The Term Loan provides for payments by the Company to FCSA of quarterly installments of $1,500,000 each, beginning on December 20, 2014 with a maturity date of September 20, 2019. The Revolving Term Loan has a maturity date of June 1, 2023 and requires reductions in principal availability in increments of $6,000,000 each June 1 commencing on June 1, 2020. Under the FCSA Credit Facility, the Company has the right to select from the several LIBOR based interest rate options with respect to each of the Term Loan and the Revolving Term Loan.

As of March 31, 2015, there was $47.4 million outstanding under the FCSA Credit Facility with an additional $15.6 million available under the Revolving Term Loan.

Bunge

Effective June 23, 2014, the Company amended and restated its Subordinated Term Loan Note by and between the Company and Bunge (the “Bunge Term Loan Note”). On December 22, 2014, the Company paid to Bunge in full the entire $19.9 million of subordinated debt then outstanding to Bunge under the Bunge Term Loan Note. Interest on the Bunge subordinated debt was $0 and $742 thousand for the three months ended March 31, 2015 and 2014 and $297 thousand and $1.5 million for the six months ended March 31, 2015 and 2014, respectively.

ICM

Effective June 23, 2014, the Company amended and restated its Subordinated Term Loan Note by and between the Company and ICM, Inc. (the “ICM Term Loan Note”). On December 22, 2014, the Company paid in full to ICM the entire $6.8 million of subordinated debt then outstanding to ICM under the ICM Term Loan Note. Interest on the ICM subordinated debt was $0 and $255 thousand for the three months ended March 31, 2015 and 2014 and $102 thousand and $511 thousand for the six months ended March 31, 2015 and 2014, respectively.

Notes payable

Notes payable consists of the following:



	March 31, 2015		September 30, 2014
	(000's)		(000's)
Term Loan payable to FSCA bearing interest at LIBOR plus 3.35% (3.53% at March 31, 2015)	$	27,000	$	30,000
Revolving Term Loan payable to FSCA bearing interest at LIBOR plus 3.35% (3.53% at March 31, 2015)	20,416		—
Note payable to affiliate Bunge	—		19,865
Note payable to affiliate ICM	—		6,847
Other	3,923		212
	51,339		56,924
Less Current Maturities	6,481		6,052
Total Long Term Debt	$	44,858	$	50,872

The approximate aggregate maturities of notes payable as of March 31, are as follows:



2015	$	6,481

2016	6,643

2017	6,515

2018	6,537

2019	3,560

2020 and Thereafter	21,603

Total	$	51,339

Note 6: Fair Value Measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company used various methods including market, income and cost approaches. Based on these approaches, the Company often utilized certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observable inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy.

The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:


Level 1 -	Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.


Level 2 -	Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.


Level 3 -	Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

A description of the valuation methodologies used for instruments measured at fair value, including the general classifications of such instruments pursuant to the valuation hierarchy, is set below.

Put Option liability. The put option liability consists of an agreement between the Company and ICM that contains a conditional obligations to repurchase feature. In accordance with accounting for put options as a liability, the Company calculated the fair value of the put option under Level 3, using a valuation model. Using this model, the estimated value between the issue date and March 31, 2015 increased by $0.6 million. Future unrealized gains and losses related to the change in fair value of the put option liability will be included in other expense on the Statement of Operations.

Derivative financial instruments. Commodity futures and exchange traded options are reported at fair value utilizing Level 1 inputs. For these contracts, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the Chicago Mercantile Exchange (“CME”) market. Ethanol contracts are reported at fair value utilizing Level 2 inputs from third-party pricing services. Forward purchase contracts are reported at fair value utilizing Level 2 inputs. For these contracts, the Company obtains fair value measurements from local grain terminal values. The fair value measurements consider observable data that may include live trading bids from local elevators and processing plants which are based on the CME market.

The following table summarizes financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2015 and September 30, 2014, categorized by the level of the valuation inputs within the fair value hierarchy:



	March 31, 2015
	Level 1		Level 2		Level 3
Assets:
Derivative financial instruments	$	285	$	—	$	—

Liabilities:
Derivative financial instruments	204		534		—
Change in fair value	—		—		5,300


	September 30, 2014
	Level 1		Level 2		Level 3
Assets:
Derivative financial instruments	$	844	$	—	$	—

Liabilities:
Derivative financial instruments	—		2,707		—

The following table summarizes the assumptions used in computing the fair value of the put options subject to fair value accounting at the date of issue and during the three months ended March 31, 2015



Put option assumptions:
Expected dividend yield	—	%
Risk-free interest rate	0.62	%
Expected volatility	50	%
Expected life (years)	2
Exercise price	$10,897
Company stock price	$6,444

The following table reflects the activity for liabilities measured at fair value using Level 3 inputs as of March 31, 2015:



Balance as of September 30, 2014	$	—
Put Option Issued December 17, 2014	4,700
Balance as of December 31, 2014	$	4,700
Change in Value - 3 months ending March 31, 2015	600
Balance as of March 31, 2015	$	5,300

Note 7: Related Party Transactions

Bunge

On December 5, 2014, the Company entered into an Amended and Restated Ethanol Purchase Agreement (the “Ethanol Agreement”) with Bunge. Under the Ethanol Agreement, the Company has agreed to sell Bunge all of the ethanol produced by the Company, and Bunge has agreed to purchase the same. The Company will pay Bunge a percentage fee for ethanol sold by Bunge, subject to a minimum and maximum annual fee. The initial term of the Ethanol Agreement expires on December 31, 2019, however it will automatically renew for one five-year term unless Bunge provides the Company with notice of election to terminate. The Company has incurred ethanol marketing expenses of $234 thousand and $366 thousand during the three months ended March 31, 2015 and 2014, respectively and $547 thousand and $698 thousand during the six months ended March 31, 2015 and 2014, respectively.

The Company and Bunge also entered into an Amended and Restated Grain Feedstock Agency Agreement on December 5, 2014 (the “ Agency Agreement ”). The Agency Agreement provides that Bunge will procure corn for the Company,the Company will pay Bunge a per bushel fee, subject to a minimum and maximum annual fee. The initial term of the Agency Agreement expires on December 31, 2019 and will automatically renew for one additional five year term unless Bunge provides notice of election to the Company to terminate. Expenses for corn procurement were $274 thousand and $310 thousand for the three months ended March 31, 2015 and 2014, respectively and were $606 thousand and $660 thousand for the six months ended March 31, 2015 and 2014, respectively.

Starting with the 2015 crop year, the Company is exploring using corn containing Syngenta Seeds, Inc.’s proprietary Enogen® technology (“ Enogen Corn ”) for a portion of its ethanol production needs. The Company will contract directly with growers to produce Enogen Corn for sale to the Company. Consistent with the Agency Agreement, the Company and Bunge entered into a Services Agreement regarding corn purchases (the “ Services Agreement ”). Under which, the Company will originate all Enogen Corn for its facility and Bunge will assist the Company with certain administrative matters related to Enogen Corn, including facilitating delivery to the facility. The Company will pay Bunge a per bushel service fee. The initial term of the Services Agreement expires on December 31, 2019 and will automatically renew for one additional five year term unless Bunge provides notice of election to the Company to terminate. There were no expenses for the Services Agreement for the three and six months ended March 31, 2015 and 2014.

On December 5, 2014, the Company and Bunge entered into an Amended and Restated Distiller’s Grain Purchase Agreement (the “ DG Purchase Agreement ”). Under the DG Purchase Agreement, Bunge will purchase all distiller’s grains produced by the Company, and will receive a fee based on the net sale price of distillers grains, subject to a minimum and maximum annual fee. The initial term of the DG Purchase Agreement expires on December 31, 2019 and will automatically renew for one additional five year term unless Bunge provides notice of election to the Company to terminate. The Company has incurred distiller's grains marketing expenses of $344 thousand and $490 thousand during the three months ended March 31, 2015 and 2014, respectively and expenses of $649 thousand and $1.0 million during the six months ended March 31, 2015 and 2014, respectively.

The Company and Bunge executed a letter agreement (the “ Letter Agreement ”) on December 5, 2015, terminating the Corn Oil Agency Agreement dated as of November 12, 2010 (the "Corn Oil Agency Agreement") by and between the Company and Bunge and the Risk Management Services Agreement by and between the Company and Bunge dated as of December 15, 2008. Expenses under this the terminated Corn Oil Agency Agreement were $0 and $52 thousand for the three months ended March 31, 2015 and 2014, respectively, and expenses were $67 thousand and $110 thousand for the six months ended March 31, 2015 and 2014, respectively.

On June 26, 2009, the Company executed a Railcar Agreement with Bunge for the lease of 325 ethanol cars and 300 hopper cars which are used for the delivery and marketing of ethanol and distillers grains. Under the Railcar Agreement, the Company leases railcars for terms lasting 120 months and continuing on a month to month basis thereafter. The Railcar Agreement will terminate upon the expiration of all railcar leases. Expenses under this agreement were $815 thousand for the three months ended March 31, 2015 and 2014, net of subleases and accretion, respectively and expenses were $1.6 million for the six months ended March 31, 2015 and 2014. The Company entered into a one year sublease for 147 hoppers with Bunge that will expire September 14, 2015. The Company has subleased another 54 hopper cars to an unrelated third party, which expires March 25, 2019. The Company continues to work with Bunge to determine the need for ethanol and hopper cars in light of current market conditions, and the expected conditions in 2015 and beyond. The Company believes we will be able to fully utilize our fleet of hopper cars in the future, to allow us to cost-effectively ship distillers grains to distant markets, primarily the export markets.

ICM

In connection with the payoff of the subordinated debt the Company entered into the SIRE ICM Unit Agreement dated December 17, 2014 (the “ Unit Agreement ”). Under the Unit Agreement, the Company has agreed to grant ICM the right to sell to the Company its 1,000 Series C and 18 Series A Membership Units (the “ ICM Units ”) commencing anytime during the earliest of several alternative dates and events at the greater of $10,897 per unit or the fair market value (as defined in the agreement) on the date of exercise. The Company recorded an expense of $0.6 million for the three months ended March 31, 2015 and $5.3 million for the six months ended March 31, 2015 in conjunction with this put right under the Unit Agreement (the "Loss from debt extinguishment").

Note 8: Major Customer

The Company is party to the Ethanol and DG Purchase Agreements with Bunge for the exclusive marketing, selling, and distributing of all the ethanol, distillers grains, and syrup produced by the Company. Until December 5, 2014, the Company was also a party to the Corn Oil Agency Agreement with Bunge providing for the purchase by Bunge of all corn oil produced by the Company. Revenues from Bunge were $53.4 million and $80.9 million for the three months ended March 31, 2015 and 2014, respectively and $122.9 million and $158.4 million for the six months ended March 31, 2015 and 2014.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

General

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated financial condition and results of operations. This discussion should be read in conjunction with the consolidated financial statements included herewith and notes to the consolidated financial statements and our Form 10-K for the year ended September 30, 2014 including the consolidated financial statements, accompanying notes and the risk factors contained herein.

Cautionary Statements Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q contains historical information, as well as forward-looking statements that involve known and unknown risks and relate to future events, our future financial performance, or our expected future operations and actions. In some cases, you can identify forward-looking statements by terminology such as “may,” “will”, “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “future,” “intend,” “could,” “hope,” “predict,” “target,” “potential,” or “continue” or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions based on current information and involve numerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the reasons described in this report. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include:


•	Changes in the availability and price of corn, natural gas, and steam;


•	Our inability to comply with our credit agreements required to continue our operations;


•	Negative impacts that our hedging activities may have on our operations;


•	Decreases in the market prices of ethanol and distillers grains;


•	Ethanol supply exceeding demand; and corresponding ethanol price reductions;


•	Changes in the environmental regulations that apply to our plant operations including the levels of ethanol and other renewable fuel sources mandated by federal and state regulations;


•	Changes in plant production capacity or technical difficulties in operating the plant;


•	Changes in general economic conditions or the occurrence of certain events causing an economic impact in the agriculture, oil or automobile industries;


•	Changes in federal and/or state laws (including the elimination of any federal and/or state ethanol tax incentives);


•	Changes and advances in ethanol production technology;


•	Competition from alternative fuel additives;


•	Changes in interest rates and lending conditions of our loan covenants;


•	Our ability to retain key employees and maintain labor relations;

These forward-looking statements are based on management’s estimates, projections and assumptions as of the date hereof and include the assumptions that underlie such statements. Our actual results or actions could and likely will differ materially from those anticipated in the forward-looking statements for many reasons, including the reasons described in this reports. Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed below and in the section titled “Risk Factors” in our Form 10-K for the fiscal year ended September 30, 2014 and in our other prior Securities and Exchange Commission filings. These and many other factors could affect our future financial condition and operating results and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by the Company or on its behalf. We undertake no obligation to revise or update any forward-looking statements. The forward-looking statements contained in this report are included in the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended.

Overview, Status and Recent Developments

The Company is an Iowa LLC, located in Council Bluffs, Iowa, formed in March, 2005 to construct and operate a 125 million gallon capacity ethanol plant (the "Facility"). We began producing ethanol in February, 2009 and sell our ethanol, distillers grains, corn oil and corn syrup in the continental United States, Mexico, and the Pacific Rim.

Industry Factors Affecting our Results of Operations

In comparing the three months ended March 31, 2015 to the three months ended March 31, 2014, the ethanol industry experienced diminished ethanol margins as a result of a combination of factors.

•

Ethanol prices have decreased substantially during the three months ended March 31, 2015, from the same period in the previous fiscal year. For the three months ended March 31, 2015 compared to the three months ended March 31, 2014, the average price per gallon of ethanol sold decreased 36.7%. This was due to an increased supply of ethanol and reduced gasoline prices in the three months ended March 31, 2015 compared to the three months ended March 31, 2014


•	National railcar shipment issues prevented us from shipping the volume of ethanol that we desired.

Despite these factors, the ethanol outlook for the third and fourth quarters of Fiscal 2015 looks positive due to multiple factors.


•	The latest estimates of supply and demand provided by the U.S. Department of Agriculture (the "USDA") estimate the 2014/2015 ending corn stocks of 1.8 billion bushels, and forecast a 2014/2015 corn supply of 14.2 billion bushels, suggesting stable corn prices through the third and fourth quarters of Fiscal 2015.


•	Gasoline demand continues to increase over 2014 levels.

The production with lower corn prices and reduced ethanol prices, resulted in Gross Margin (Loss) of $(0.9) million during the three months ended March 31, 2015, as compared to Gross Margin of $22.2 million in the three months ended March 31, 2014.

Results of Operations

The following table shows our results of operations, stated as a percentage of revenue for the three months ended March 31, 2015 and 2014.



	Three Months Ended March 31, 2015					Three Months Ended March 31, 2014
	Amounts			% of Revenues		Amounts		% of Revenues
	in 000's					in 000's
Income Statement Data
Revenues	$	55,472		100.0	%	$	82,971	100.0	%
Cost of Good Sold
Material Costs	40,411			72.8	%	45,450		54.8	%
Variable Production Expense	8,352			15.1	%	9,746		11.7	%
Fixed Production Expense	7,623			13.7	%	5,554		6.7	%
Gross Margin (Loss)	(914		)	(1.6	)%	22,221		26.8	%
General and Administrative Expenses	1,130			2.0	%	1,151		1.4	%
Other Expenses and Interest Expense	266			0.5	%	1,920		2.3	%
Change in fair value of put option liability	600			1.1	%	—		—	%
Net Income (Loss)	$	(2,910	)	(5.2	)%	$	19,150	23.1	%

The following table shows our results of operations, stated as a percentage of revenue for the six months ended March 31, 2015 and 2014.



	Six Months Ended March 31, 2015				Six Months Ended March 31, 2014
	Amounts		% of Revenues		Amounts		% of Revenues
	in 000's				in 000's
Income Statement Data
Revenues	$	128,008	100.0	%	$	163,157	100.0	%
Cost of Good Sold
Material Costs	79,196		61.9	%	96,014		58.8	%
Variable Production Expense	18,634		14.6	%	19,790		12.1	%
Fixed Production Expense	14,459		11.3	%	11,019		6.8	%
Gross Margin	15,719		12.3	%	36,334		22.3	%
General and Administrative Expenses	2,515		2.0	%	2,357		1.4	%
Other Expenses and Interest Expense	986		0.8	%	3,968		2.4	%
Loss from debt extinguishment	4,700		3.7	%	—		—	%
Change in fair value of put option liability	600		0.5	%	—		—	%
Net Income	$	6,918	5.4	%	$	30,009	18.5	%

Revenues

Our revenue from operations is derived from three primary sources: sales of ethanol, distillers grains, and corn oil. The following chart displays statistical information regarding our revenues. The decrease in revenue from the three months ended March 31, 2015 compared to 2014 was due to the average price per gallon of ethanol decreasing by approximately 36.7% from the three months ended March 31, 2015 compared to the three months ended March 31, 2014 and a decrease in the average price per ton of distillers grains of approximately 36.7%, this was partially offset by a 3.2% increase in gallons of ethanol sold during the three months ended March 31, 2015 over the three months ended March 31, 2014. Corn oil revenue decreased 7.4% in the three months ended March 31, 2015 compared to the three months ended March 31, 2014. The decrease in revenue was attributable to the overall decrease in commodity prices for ethanol and DDGS.

The decrease in revenue from the six months ended March 31, 2015 compared to 2014 was due to the average price per gallon of ethanol decreasing by approximately 21.4% from the six months ended March 31, 2015 compared to the six months ended March 31, 2014 and a decrease in the average price per ton of distillers grains of approximately 38.2%, this was partially offset by a 3.3% increase in gallons of ethanol sold during the six months ended March 31, 2015 over the six months ended March 31, 2014. Corn oil revenue decreased 3.9% in the six months ended March 31, 2015 compared to the six months ended March 31, 2014.



	Three Months Ended March 31, 2015				Three Months Ended March 31, 2014
	Amounts in 000's		% of Revenues		Amounts in 000's		% of Revenues
Product Revenue Information
Denatured and undenatured Ethanol	$	42,062	75.8	%	$	64,425	77.6	%
Distiller's Grains	11,173		20.1	%	16,122		19.4	%
Corn Oil	1,936		3.5	%	2,091		2.5	%
Other	301		0.5	%	333		0.4	%



	Six Months Ended March 31, 2015				Six Months Ended March 31, 2014
	Amounts in 000's		% of Revenues		Amounts in 000's		% of Revenues
Product Revenue Information
Denatured and undenatured Ethanol	$	101,660	79.4	%	$	124,855	76.5	%
Distiller's Grains	21,250		16.6	%	32,916		20.2	%
Corn Oil	4,560		3.6	%	4,744		2.9	%
Other	538		0.4	%	642		0.4	%

Cost of Goods Sold

Our cost of goods sold as a percentage of our revenues was 101.6% and 73.2% for the three months ended March 31, 2015 and 2014, respectively and 87.7% and 77.7% for the six months ended March 31, 2015 and 2014, respectively. Our two primary costs of producing ethanol and distillers grains are corn and energy, with steam and natural gas as our primary energy sources. Cost of goods sold also includes net (gains) or losses from derivatives and hedging relating to corn. The average price of corn used in ethanol production per bushel decreased 16.4% in the three months ended March 31, 2015 from 2014, respectively and decreased 19.7% in the six months ended March 31, 2015 from 2014, respectively. The amount of corn used in ethanol production increased by 0.6% in the three months ended March 31, 2015 from 2014 and decreased 0.1% in the six months ended March 31, 2015 from 2014. Our average steam and natural gas energy cost decreased 23.3% per MMBTU comparing the three months ended March 31, 2015 to 2014, respectively and decreased 9.3% per MMBTU comparing the six months ended March 31, 2015 to 2014.

Realized and unrealized gains (losses) related to our derivatives and hedging related to corn resulted in an decrease of $1.5 million in our cost of goods sold for the three months ended March 31, 2015, compared to an increase of $0.1 million in our cost of goods sold for the three months ended March 31, 2014. In the six months ended March 31, 2015 the realized and unrealized gains (losses) related to our derivatives and hedging related to corn resulting in an decrease of $1.8 million in our cost of goods sold compared to a increase of $2.3 million in cost of goods sold for the six months ended March 31, 2014. We recognize the gains or losses that result from the changes in the value of our derivative instruments related to corn in cost of goods sold as the changes occur. As corn prices fluctuate, the value of our derivative instruments are impacted, which affects our financial performance. We anticipate continued volatility in our cost of goods sold due to the timing of the changes in value of the derivative instruments relative to the cost and use of the commodity being hedged.

Variable production expenses showed an decrease when comparing the three months ended March 31, 2015 to the three months ended March 31, 2014 due to lower energy costs. Fixed production expenses increased when comparing the three months ended March 31, 2015 to three months ended March 31, 2014 due to higher maintenance expenses, including the annual shutdown, which was in March, 2015, and April, 2014. Variable production expenses showed a decrease when comparing the six months ended March 31, 2015 to the six months ended March 31, 2014 due to lower energy costs. Fixed production expenses increased when comparing the six months ended March 31, 2015 to six months ended March 31, 2014 due to higher maintenance expenses.

General & Administrative Expense

General and administrative expenses include salaries and benefits of administrative employees, professional fees and other general administrative costs. Our general and administrative expenses for the three months ended March 31, 2015 decreased 1.8% compared to the three months ended March 31, 2014 and six months ended March 31, 2015 increased 6.7% compared to the six months ended March 31, 2014. These changes are due primarily to the timing of the numerous 'capital projects' (new senior debt, subordinated debt payoff, new agreements with ICM and Bunge) during the last two quarters of Fiscal 2014 and the first quarter of Fiscal 2015. This second quarter of Fiscal 2015 had no significant projects.

Other Expense

Our other expenses were approximately $0.3 million and $1.9 million for the three months ended March 31, 2015 and 2014, respectively, and were approximately 0.5% and 2.3% of our revenues for the three months ended March 31, 2015 and 2014, respectively. Also, our other expenses were approximately $1.0 million and $4.0 million for the six months ended March 31, 2015 and 2014, respectively, and were approximately 0.8% and 2.4% of our revenues for the six months ended March 31, 2015 and 2014, respectively. This decrease was due to the interest expense for the three months ended March 31, 2015 compared to 2014 decreasing $1.5 million and decreasing $2.8 million for the six months ended March 31, 2015 from 2014 as a result of repaying

approximately $27 million of subordinated debt in June 22, 2014 with a 1.25% reduction in interest rate on the remaining balances, and repaying approximately $28 million of senior debt between March 31, 2014 and March 31, 2015. The interest expense was also reduced due to the interest rate on senior debt decreasing from 6.0% to 3.51% starting with the refinance closing on June 23, 2014.

Loss on debt extinguishment and Change in fair value of put option liability

Our Loss on debt extinguishment expense and change in fair value of put option liability expense relates to the Unit Agreement with ICM, This is a non-cash charge, and will be re-evaluated quarterly for significant changes in value.

Selected Financial Data

Modified EBITDA is defined as net income plus interest expense net of interest income, plus depreciation and amortization, or EBITDA, as adjusted for unrealized hedging losses (gains) and the Loss from debt extinguishment. Modified EBITDA is not required by or presented in accordance with generally accepted accounting principles in the United States of America, and should not be considered as an alternative to net income, operating income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities or as a measure of our liquidity.

We present modified EBITDA because we consider it to be an important supplemental measure of our operating performance and it is considered by our management and Board of Directors as an important operating metric in their assessment of our performance.

We believe modified EBITDA allows us to better compare our current operating results with corresponding historical periods and with the operational performance of other companies in our industry because it does not give effect to potential differences caused by variations in capital structures (affecting relative interest expense, including the impact of write-offs of deferred financing costs when companies refinance their indebtedness), the amortization of intangibles (affecting relative amortization expense), unrealized hedging losses (gains) and other items that are unrelated to underlying operating performance. We also present modified EBITDA because we believe it is frequently used by securities analysts and investors as a measure of performance. There are a number of material limitations to the use of modified EBITDA as an analytical tool, including the following:


•	Modified EBITDA does not reflect our interest expense or the cash requirements to pay our principal and interest. Because we have borrowed money to finance our operations, interest expense is a necessary element of our costs and our ability to generate profits and cash flows. Therefore, any measure that excludes interest expense may have limitations.

•

Although depreciation and amortization are non-cash expenses in the period recorded, the assets being depreciated and amortized may have to be replaced in the future, and modified EBITDA does not reflect the cash requirements for such replacement. Because we use capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate profits. Therefore, any measure that excludes depreciation and amortization expense may have limitations.

We compensate for these limitations by relying heavily on our GAAP financial measures and by using modified EBITDA as supplemental information. We believe that consideration of modified EBITDA, together with a careful review of our GAAP financial measures, is the most informed method of analyzing our operations. Because modified EBITDA is not a measurement determined in accordance with GAAP and is susceptible to varying calculations, modified EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. The following table provides a reconciliation of modified EBITDA to net income (in thousands except per unit data):



	Three months ended			Three months ended			Six months ended			Six months ended
	March 31, 2015			March 31, 2014			March 31, 2015			March 31, 2014

EBITDA
Net Income	$	(2,910	)	$	19,150		$	6,918		$	30,009
Interest Expense, Net	391			1,936			1,118			3,988
Depreciation	2,882			2,870			5,774			5,727
EBITDA	363			23,956			13,810			39,724

Unrealized Hedging (Gain) Loss	71			(658		)	(1,411		)	(583		)
Loss from debt extinguishment	—			—			4,700			—
Change in fair value of put option liability	600			—			600			—

Modified EBITDA	$	1,034		$	23,298		$	17,699		$	39,141

Modified EBITDA per unit - basic	$	77.59		$	1,772.52		$	1,328.06		$	2,977.86

Liquidity and Capital Resources

As of March 31, 2015, we had a cash balance of $6.8 million, $15.6 million available under the term revolver and working capital of $12.2 million. As of March 31, 2014, we had a cash balance of $22.3 million, $21.4 million available under the term revolver and working capital of $(68.0) million.

In June, the Company announced the completion of a $66.0 million Senior Credit Agreement (the “Credit Agreement”) with FCSA and CoBank. The proceeds of the Credit Agreement were used to refinance senior bank debt previously outstanding and scheduled to mature in August 2014. The Credit Agreement provides the Company with a term loan of $30 million, due in 2019, and a revolving term loan of $36 million, due in 2023. Interest rate on the Credit Agreement is LIBOR plus 3.35%. The Credit Agreement resulted in a significantly lower interest rate than under the prior credit facility.

Primary Working Capital Needs

During the third quarter of Fiscal 2015, we estimate that we will require approximately $41.0 million for our primary input of corn and $4.0 million for our energy sources of electricity, steam, and natural gas. We currently have $15.6 million available under our Term Revolver for working capital needs. We cannot estimate the availability of funds for hedging in the future.

Commodity Price Risk

Our operations are highly dependent on commodity prices, especially prices for corn, ethanol and distillers grains and the spread between them. As a result of price volatility for these commodities, our operating results may fluctuate substantially. The price and availability of corn are subject to significant fluctuations depending upon a number of factors that affect commodity prices in general, including crop conditions, weather, governmental programs and foreign purchases. We may experience increasing costs for corn and natural gas and decreasing prices for ethanol and distillers grains which could significantly impact our operating results. Because the market price of ethanol is not directly related to corn prices, ethanol producers are generally not able to compensate for increases in the cost of corn through adjustments in prices for ethanol. We continue to monitor corn and ethanol prices and manage the "crush margin" to affect our longer-term profitability.

We enter into various derivative contracts with the primary objective of managing our exposure to adverse price movements in the commodities used for, and produced in, our business operations and, to the extent we have working capital available and available market conditions are appropriate, we engage in hedging transactions which involve risks that could harm our business. We measure and review our net commodity positions on a daily basis. Our daily net agricultural commodity position consists of inventory, forward purchase and sale contracts, over-the-counter and exchange traded derivative instruments. The effectiveness of our hedging strategies is dependent upon the cost of commodities and our ability to sell

sufficient products to use all of the commodities for which we have futures contracts. Although we actively manage our risk and adjust hedging strategies as appropriate, there is no assurance that our hedging activities will successfully reduce the risk caused by market volatility which may leave us vulnerable to high commodity prices. Alternatively, we may choose not to engage in hedging transactions in the future. As a result, our future results of operations and financial conditions may also be adversely affected during periods in which price changes in corn, ethanol and distillers grain to not work in our favor.

In addition, as described above, hedging transactions expose us to the risk of counterparty non-performance where the counterparty to the hedging contract defaults on its contract or, in the case of over-the-counter or 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. We have, from time to time, experienced instances of counterparty non-performance but losses incurred in these situations were not significant.

Although we believe our hedge positions accomplish an economic hedge against our future purchases and sales, management has chosen not to use hedge accounting, which would match any gain or loss on our hedge positions to the specific commodity purchase being hedged. We are using fair value accounting for our hedge positions, which means as the current market price of our hedge positions changes, the realized or unrealized gains and losses are immediately recognized in the current period (commonly referred to as the “mark to market” method). The immediate recognition of hedging gains and losses under fair value accounting can cause net income to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged. As corn prices move in reaction to market trends and information, our income statement will be affected depending on the impact such market movements have on the value of our derivative instruments. Depending on market movements, crop prospects and weather, our hedging strategies may cause immediate adverse effects, but are expected to produce long-term positive impact.

In the event we do not have sufficient working capital to enter into hedging strategies to manage our commodities price risk, we may be forced to purchase our corn and market our ethanol at spot prices and as a result, we could be further exposed to market volatility and risk. However, during the past year, the spot market has been advantageous.

Credit and Counterparty Risks

Through our normal business activities, we are subject to significant credit and counterparty risks that arise through normal commercial sales and purchases, including forward commitments to buy and sell, and through various other over-the-counter (OTC) derivative instruments that we utilize to manage risks inherent in our business activities. We define credit and counterparty risk as a potential financial loss due to the failure of a counterparty to honor its obligations. The exposure is measured based upon several factors, including unpaid accounts receivable from counterparties and unrealized gains (losses) from OTC derivative instruments (including forward purchase and sale contracts). We actively monitor credit and counterparty risk through credit analysis (by our marketing agent).

Impact of Hedging Transactions on Liquidity

Our operations and cash flows are highly impacted by commodity prices, including prices for corn, ethanol, distillers grains and natural gas. We attempt to reduce the market risk associated with fluctuations in commodity prices through the use of derivative instruments, including forward corn contracts and over-the-counter exchange-traded futures and option contracts. Our liquidity position may be positively or negatively affected by changes in the underlying value of our derivative instruments. When the value of our open derivative positions decrease, we may be required to post margin deposits with our brokers to cover a portion of the decrease or we may require significant liquidity with little advanced notice to meet margin calls. Conversely, when the value of our open derivative positions increase, our brokers may be required to deliver margin deposits to us for a portion of the increase. We continuously monitor and manage our derivative instruments portfolio and our exposure to margin calls and while we believe we will continue to maintain adequate liquidity to cover such margin calls from operating results and borrowings, we cannot estimate the actual availability of funds from operations or borrowings for hedging transactions in the future.

The effects, positive or negative, on liquidity resulting from our hedging activities tend to be mitigated by offsetting changes in cash prices in our business. For example, in a period of rising corn prices, gains resulting from long grain derivative positions would generally be offset by higher cash prices paid to farmers and other suppliers in local corn markets. These offsetting changes do not always occur, however, in the same amounts or in the same period.

We expect that a $1.00 per bushel fluctuation in market prices for corn would impact our cost of goods sold by approximately $45 million, or $0.36 per gallon, assuming our plant operates at 100% of our capacity. We expect the annual impact to our results of operations due to a $0.50 decrease in ethanol prices will result in approximately a $62 million decrease in revenue.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

SIRE's management, under the supervision and with the participation of SIRE's president and chief executive officer and SIRE's director of finance, have evaluated the effectiveness of SIRE's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report. Based on that evaluation, SIRE's president and chief executive officer and SIRE's director of finance have concluded that, as of the end of the period covered by this quarterly report, SIRE's disclosure controls and procedures have been effective to provide reasonable assurance that the information required to be disclosed in the reports SIRE files or submits under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and (ii) accumulated and communicated to management, including SIRE's principal executive and principal financial officers or persons performing such functions, as appropriate, to allow timely decisions regarding disclosure. SIRE believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

No Changes in Internal Control Over Financial Reporting

No change in SIRE's internal control over financial reporting occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, SIRE's internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

On August 25, 2010, the Company entered into a Tricanter Purchase and Installation Agreement (the “Tricanter Agreement”) with ICM, pursuant to which ICM sold the Company a tricanter corn oil separation system (the “Tricanter Equipment”). Under the Tricanter Agreement, ICM has agreed to indemnify the Company from any and all lawsuit and damages with respect to the Company's installation and use of the Tricanter Equipment.

On August 5, 2013, GS Cleantech Corporation (“GS Cleantech”) filed a suit in United States District Court for the Southern District of Iowa, Western Division (Case No. 2:13-CV-00021-JAJ-CFB) (the "District Court"), naming the Company as a defendant (the “Lawsuit”). The Lawsuit alleges infringement of a patent assigned to GS Cleantech with respect to the corn oil separation technology used in the Tricanter Equipment. The Lawsuit seeks preliminary and permanent injunctions against the Company to prevent future infringement on the patent owned by GS CleanTech and damages in an unspecified amount adequate to compensate GS CleanTech for the alleged patent infringement, plus attorney's fees.

On October 23, 2014, the patents owned by GS CleanTech in the Lawsuit were found to be invalid by the District Court for the Southern District of Indiana (the “SD of Indiana District Court”). On January 15, 2015, the Company received a partial summary judgment finding in the Lawsuit by the SD of Indiana District Court consistent with the October 23, 2014 ruling.

The Company is not currently able to predict the final outcome of this Lawsuit with any degree of certainty as GS CleanTech retains the right to appeal summary judgment and there are still defendant cross-claims pending. Under the Tricanter Agreement, ICM is obligated to, and has retained counsel at its expense to defend the Company in this Lawsuit. However, in the event that damages are awarded as a result of this Lawsuit and, if ICM is unable to fully indemnify the Company for any reason, the Company could be liable for such damages. In addition, if GS CleanTech successfully appeals the summary judgment and wins at a trial, the Company may need to cease use of its current oil separation process and seek out a replacement or cease oil production altogether.

Item 1A. Risk Factors.

There have been no material changes to the risk factors disclosed in Item 1A of our Form 10-K for the fiscal year ended September 30, 2014. Additional risks and uncertainties, including risks and uncertainties not presently known to us, or that we currently deem immaterial, could also have an adverse effect on our business, financial condition and/or results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None

Item 6. Exhibits



31.1	Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) executed by the Principal Executive Officer.

31.2	Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) executed by the Principal Financial Officer.

32.1***	Rule 15d-14(b) Certifications (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) executed by the Principal Executive Officer.

32.2***	Rule 15d-14(b) Certifications (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) executed by the Principal Financial Officer.

101.XML^	XBRL Instance Document

101.XSD^	XBRL Taxonomy Schema

101.CAL^	XBRL Taxonomy Calculation Database

101.LAB^	XBRL Taxonomy Label Linkbase

101.PRE^	XBRL Taxonomy Presentation Linkbase

***	This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference.
^	Furnished, not filed.

SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		SOUTHWEST IOWA RENEWABLE ENERGY, LLC

Date:	May 6, 2015	/s/ Brian T. Cahill
		Brian T. Cahill, President and Chief Executive Officer

Date:	May 6, 2015	/s/ Brett L. Frevert
		Brett L. Frevert, CFO and Principal Financial Officer

SOUTHWEST IOWA RENEWABLE ENERGY, LLC - FORM 10-Q - May 6, 2015

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SOUTHWEST IOWA RENEWABLE ENERGY, LLC Reports