Quarterly Report (10-q)

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 ended June 30, 2013

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 June 30, 2013 , the aggregate market value of the Membership Units held by non-affiliates (computed by reference to the most recent offering price of such Membership Units) was $52,134,000 .

As of June 30, 2013 , the Company had 8,805 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	15
Item 3.	QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISKS	26
Item 4.	CONTROLS AND PROCEDURES	26
	PART II – OTHER INFORMATION	27
Item 1.	LEGAL PROCEEDINGS	27
Item 1A.	RISK FACTORS	27
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	27
Item 3.	DEFAULTS UPON SENIOR SECURITIES	27
Item 4.	MINE SAFETY DISCLOSURES	28
Item 5.	OTHER INFORMATION	28
Item 6.	Exhibits	28
	SIGNATURES	29
	CERTIFICATIONS	SEE EXHIBITS 31 AND 32

PART I – FINANCIAL STATEMENTS

Item 1. Financial Statements

1

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

ASSETS	June 30, 2013			September 30, 2012
	(Unaudited)
Current Assets
Cash and cash equivalents	$	9,732		$	6,285
Restricted cash	303			302
Accounts receivable	333			268
Accounts receivable, related party	10,724			12,088
Derivative financial instruments	1,789			976
Inventory	17,748			12,427
Derivative financial instruments, related party	—			4,013
Prepaid expenses and other	678			394
Total current assets	41,307			36,753

Property, Plant and Equipment
Land	2,064			2,064
Plant, building and equipment	204,952			204,597
Office and other equipment	751			751
	207,767			207,412
Accumulated depreciation	(62,146		)	(53,679		)
Net property and equipment	145,621			153,733

Other Assets
Financing costs, net of amortization of $3,607 and $3,202, respectively	596			1,001
Other assets	896			896
	1,492			1,897
Total Assets	$	188,420		$	192,383

Notes to Condensed Unaudited Financial Statements are an integral part of this statement

2

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

LIABILITIES AND MEMBERS' EQUITY	June 30, 2013			September 30, 2012
	(Unaudited)
Current Liabilities
Accounts payable	$	1,343		$	1,366
Accounts payable, related parties	6,705			3,937
Derivative financial instruments, related party	1,671			—
Accrued expenses	2,287			2,837
Accrued expenses, related parties	2,283			1,657
Current maturities of notes payable	27,076			20,001
Total current liabilities	41,365			29,798

Long Term Liabilities
Notes payable, less current maturities	109,174			115,023
Other long-term liabilities	425			500
Total long term liabilities	109,599			115,523



Members' Equity
Members' capital
13,139 Units issued and outstanding	76,474			76,474
Accumulated (deficit)	(39,018		)	(29,412		)
Total members' equity	37,456			47,062

Total Liabilities and Members' Equity	$	188,420		$	192,383

Notes to Condensed Unaudited Financial Statements are an integral part of this statement

3

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

(Unaudited)
	Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012

Revenues	$	94,472		$	79,820		$	247,996		$	264,897
Cost of Goods Sold
Cost of goods sold-non hedging	92,069			81,065			247,195			257,677
Realized & unrealized hedging (gains) losses	(2,336		)	(538		)	443			(4,275		)
	89,733			80,527			247,638			253,402

Gross Margin (Loss)	4,739			(707		)	358			11,495

General and administrative expenses	942			1,048			2,930			3,378

Operating Income (Loss)	3,797			(1,755		)	(2,572		)	8,117

Other Income (Expense)
Interest and other income	20			11			76			81
Interest expense	(2,316		)	(2,409		)	(7,110		)	(7,342		)
	(2,296		)	(2,398		)	(7,034		)	(7,261		)

Net Income (Loss)	$	1,501		$	(4,153	)	$	(9,606	)	$	856

Weighted average units outstanding - basic	13,139			13,139			13,139			13,139
Weighted average units outstanding - diluted	29,375			13,139			13,139			13,139
Income (loss) per unit - basic	$	114.24		$	(316.09	)	$	(731.11	)	$	65.15
Income (loss) per unit - diluted	$	83.71		$	(316.09	)	$	(731.11	)	$	65.15

Notes to Condensed Unaudited Financial Statements are an integral part of this statement

4

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

(Unaudited)
	Nine Months Ended			Nine Months Ended
	June 30, 2013			June 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(9,606	)	$	856
Adjustments to reconcile to net cash provided by operating activities:
Depreciation	8,546			8,566
Amortization	405			351
Accrued interest added to long term debt	1,952			1,717
(Gain) loss on disposal of property	18			11
(Increase) decrease in current assets:
Accounts receivable	1,299			7,430
Inventories	(5,321		)	(1,150		)
Prepaid expenses and other	(284		)	(502		)
Derivative financial instruments, related party	5,684			(3,188		)
Derivative financial instruments	(813		)	(462		)
Decrease in other long-term liabilities	(75		)	(75		)
Increase (decrease) in current liabilities:
Accounts payable	2,745			(92		)
Accrued expenses	76			(1,115		)
Net cash provided by operating activities	4,626			12,347

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment	(452		)	(709		)
Proceeds from Sale of Assets	—			1
Increase in restricted cash	(1		)	(61		)
Net cash (used in) investing activities	(453		)	(769		)

CASH FLOWS FROM FINANCING ACTIVITIES
Payments for financing costs	—			(120		)
Dividends paid to members	—			(1,000		)
Proceeds from notes payable	74,900			9,756
Payments on borrowings	(75,626		)	(22,983		)
Net cash (used in) financing activities	(726		)	(14,347		)

Net increase (decrease) in cash and cash equivalents	3,447			(2,769		)

CASH AND EQUIVALENTS
Beginning	6,285			11,007
Ending	$	9,732		$	8,238

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Use of deposit for financing fee	$	—		$	203
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	$	3,855		$	6,684
Notes to Condensed Unaudited Financial Statements are an integral part of this Statement.

5

SOUTHWEST IOWA RENEWABLE ENERGY, LLC

Notes to Condensed 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 can operate at up to 118% of its 110 million gallon nameplate capacity. The Company sells its ethanol, modified wet distillers grains with solubles, corn syrup, and corn oil in the continental United States. The Company sells its dried distillers grains with solubles in the continental United States, Mexico, and the Pacific Rim.

Note 2: Summary of Significant Accounting Policies

Basis of Presentation and Other Information

The balance sheet as of September 30, 2012 was derived from the Company’s audited balances as of that date. The accompanying financial statements as of and for the three and nine month periods ended June 30, 2013 and 2012 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, 2012 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, dried distillers grains, and modified wet distillers grains with solubles (co-products) are sold through a distillers grains agreement (the “ DG Agreement ”) with Bunge, based on market prices. Corn oil is sold through a corn oil agreement (the “ Corn Oil Agency Agreement ”) with Bunge based on market prices. Marketing fees, agency fees, and commissions due to the marketers 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.

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 June 30, 2013 and September 30, 2012, management had determined no allowance was necessary. Receivables are written off when deemed uncollectible 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 can result in lower profit margins and, therefore, represent unfavorable market conditions. This is especially true when market conditions do not allow the Company to pass along increased corn costs to

6

customers. 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-trade futures and option contracts. From time to time, when market conditions are appropriate and the Company has sufficient working capital available, the Company will enter into derivative contracts to hedge its exposure to price risk related to forecasted corn needs and forward corn purchase contracts. The Company uses cash, futures and options contracts to hedge changes to the commodity prices of corn and ethanol.

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 June 30, 2013, the Company was committed to sell 3,726.5 gallons of ethanol and 66,698 tons of distillers grains and solubles.

Forward corn purchase contracts are recognized as derivatives. Changes in fair value of forward corn contracts, which are marked to market each period, are included in costs of goods sold. As of June 30, 2013, the Company was committed to purchasing 3.886 million bushels of corn on a forward contract basis resulting in a total commitment of $21,354,883 . These forward contracts had a fair value of $19,683,660 at June 30, 2013. There are 0.025 million bushels in basis commitments, and .837 million bushels of unpriced corn, the price of which for both is at market price at time of purchase.

In addition, the Company 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. Although the contracts are intended to be effective economic hedges of specified risks, they are not designated as a hedge for accounting purposes and are recorded on the balance sheet at fair market value with changes in fair value recognized in current period earnings.

As part of its trading activity, the Company uses futures and option contracts offered through regulated commodity exchanges to reduce risk and risk of loss in the market value of inventories. To reduce that risk, the Company generally takes positions using cash and futures contracts and options. The gains or losses on derivative instruments are included in revenue if the contracts relate to ethanol, and cost of goods sold if the contracts relate to corn. During the nine months ended June 30, 2013 and June 30, 2012, the Company recorded a combined realized and unrealized loss (gain) of $442,530 and ($4,274,696) , respectively, as a component of cost of goods sold. During the nine months ended June 30, 2013 and 2012, the Company did not enter into any ethanol derivative contracts and therefore, did not record any gain (loss). 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 June 30, 2013 and September 30, 2012 at fair value are as follows:

7



	Balance Sheet Classification	June 30, 2013			September 30, 2012
Futures and option contracts
In gain position		$	974,475		$	806,710
In loss position		(196,975		)	(1,668,970		)
Cash held by broker		1,011,840			1,838,048
	Current asset	1,789,340			975,788

Forward contracts, corn, related party	Current asset	—			4,013,005

Forward contracts, corn, related party	Current (Liability)	$	1,671,223		$	—

Net futures and options contracts		$	118,117		$	4,988,793

The net realized and unrealized gains and losses on the Company’s derivative contracts for the three months ended June 30, 2013 and 2012 consist of the following:



	Statement of Operations Classification	June 30, 2013			June 30, 2012
Net realized and unrealized (gains) losses related to:
Purchase contracts (corn):
Forward contracts	Cost of Goods Sold	$	(149,993	)	$	(638,131	)
Futures and option contracts	Cost of Goods Sold	$	(2,186,007	)	100,502

The net realized and unrealized gains and losses on the Company’s derivative contracts for the nine months ended June 30, 2013 and 2012 consist of the following:



	Statement of Operations Classification	June 30, 2013			June 30, 2012
Net realized and unrealized (gains) losses related to:
Purchase contracts (corn):
Forward contracts	Cost of Goods Sold	$	4,559,039		$	(2,010,333	)
Futures and option contracts	Cost of Goods Sold	$	(4,116,509	)	$	(2,264,363	)

Inventory

Inventory is stated at the lower of cost or market value using the average cost method and which approximates the FIFO (first-in, first-out) method. Market value is based on current replacement values, except 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.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the following estimated useful lives:

8



	Buildings	40 Years

	Process Equipment	10 - 20 Years

	Office Equipment	3-7 Years

Maintenance and repairs are charged to expense as incurred; major improvements and betterments are capitalized.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows from operations are less than the carrying value of the asset group. An impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. In accordance with Company policies, management has evaluated the plant for possible impairment based on projected future cash flows from operations. In accordance with Company policies, management found no event to have occurred that would trigger an evaluation of the plant for possible impairment on future cash flows from operations during the nine months ending June 30, 2013.

Fair value of financial instruments

The carrying amounts of cash and cash equivalents, restricted cash, derivative financial instruments, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short term nature of these instruments. The fair value of financial instruments are valued under Level 2 inputs except for derivative financial instruments which are valued as disclosed in Note 6. The Company believes it is not practical to estimate the fair value of debt due to the lack of comparable available credit facilities.

Income (loss) Per Unit

Basic and diluted income (loss) per unit is computed using the weighted-average number of convertible units outstanding during the period. Units from convertible term notes are considered unit equivalents and are considered in the diluted income per unit computation, but have not been included in the computations of diluted income (loss) per unit for the nine months ended June 30, 2013 and 2012 and the three months ended June 30, 2012, because their effect would be anti-dilutive during those periods. Basic earnings and diluted per unit data were computed as follows (in thousands except per unit data):



	Three Months Ended					Nine Months Ended
	June 30, 2013		June 30, 2012			June 30, 2013			June 30, 2012
Numerator:
Net income (loss) for basic earnings per unit	$	1,501	$	(4,153	)	$	(9,606	)	$	856
Interest expense on convertible term note	958		—			—			—
Net income (loss) for diluted earnings per unit	$	2,459	$	(4,153	)	$	(9,606	)	$	856

Denominator:
Basic common units outstanding	13,139		13,139			13,139			13,139
Diluted common units outstanding	29,375		13,139			13,139			13,139
Income (loss) per unit basic	$	114.24	$	(316.09	)	$	(731.11	)	$	65.15
Income (loss) per unit diluted	$	83.71	$	(316.09	)	$	(731.11	)	$	65.15

Note 3: Inventory

Inventory is comprised of the following at:

9



	June 30, 2013		September 30, 2012
	(000's)		(000's)
Raw Materials - corn	$	5,108	$	2,731
Supplies and Chemicals	2,818		2,661
Work in Process	3,025		3,225
Finished Goods	6,797		3,810
Total	$	17,748	$	12,427

Note 4: Members’ Equity

At June 30, 2013 outstanding member units were:



A Units	8,805
B Units	3,334
C Units	1,000

The Series A, B and C unit holders all vote on certain matters with equal rights. The Series C unit holders as a group have the right to elect one member of the Board of Directors (the “ Board ”). The Series B unit holders as a group have the right to elect the number of Board members which bears the same proportion to the total number of Directors in relation to Series B outstanding units to total outstanding units. Based on this calculation, the Series B unit holders currently have 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

AgStar

The Company entered into a Credit Agreement, as amended (the “ Credit Agreement ”) with AgStar Financial Services, PCA (“ AgStar ”) and a group of lenders (together with AgStar, the “ Lenders ”) for $126,000,000 senior secured debt, consisting of a $101,000,000 term loan, a term revolver of $10,000,000 and a revolving working capital term facility of $15,000,000 . On March 29, 2013, the Company and AgStar entered into an amendment to the Credit Agreement to extend the term of the revolving working capital term facility through October 31, 2013 and eliminate the tangible net worth covenant; however the available credit under such revolving facility was reduced to $13,214,000 . Borrowings under the Credit Agreement initially accrued interest at a variable interest rate based on LIBOR plus 4.45% for each advance under the Credit Agreement. On September 1, 2011, the Company elected to convert 50% of the term note into a fixed rate loan at the lender’s bonds rate plus 4.45%, with a 6% floor (the rate was a fixed 6% at June 30, 2013). The portion of the term loan not fixed and the term revolver accrue interest equal to LIBOR plus 4.45%, with a 6% floor.

The Credit Agreement requires compliance with certain financial and non-financial covenants. Borrowings under the Credit Agreement are collateralized by substantially all of the Company’s assets. The term credit facility requires monthly principal payments. The loan is amortized over 114 months and matures on August 1, 2014 . Any borrowings are subject to borrowing base restrictions as well as certain prepayment penalties. The $10,000,000 term revolver is interest only until maturity on August 1, 2014 .

Under the terms of the Credit Agreement, as amended on March 29, 2013, the Company may draw a maximum $13,214,000 or 75 percent of eligible accounts receivable and eligible inventory on the revolving working capital term facility. As part of the revolving line of credit, the Company may request letters of credit to be issued up to a maximum of $5,000,000 in the aggregate. There were no outstanding letters of credit as of June 30, 2013. The revolving working capital term facility matures on October 31, 2013. There is $6,714,300 available under this loan as of June 30, 2013.

As of June 30, 2013 and September 30, 2012, the outstanding balance under the Credit Agreement was $77,924,481 and $84,866,648 , respectively. In addition to all the other payments due under the Credit Agreement, the Company must pay an annual

10

amount equal to 65% of the Company’s Excess Cash Flow (as defined in the Credit Agreement), up to a total of $6,000,000 per year, and $24,000,000 over the term of the Credit Agreement. No Excess Cash Flow payment is due at June 30, 2013.

The Company is in compliance with all financial covenants under the Credit Agreement as of June 30, 2013; however, due to the low crush margins experienced in the first six months of the current fiscal year, it is unlikely we will meet the Fixed Charge Ratio, which is measured annually at September 30, using EBITDA for the previous twelve months. In addition, due to the timing of the debt maturity (August 1, 2014), as of September 30, 2013, GAAP requires all debt under the Credit Agreement to be classified as Current Maturity, which will severely distort the Working Capital covenant calculation. We are currently in conversation with AgStar to grant a temporary waiver on these two covenants as well as to renew the Credit Agreement.

Bunge

Bunge N.A. Holdings, Inc. (“ Holdings ”), an affiliate of Bunge, extended credit to the Company under a subordinated convertible term note, originally dated August 26, 2009 which was assigned by Holdings to Bunge effective September 28, 2012 (the “ Bunge Note ”). The Bunge Note is due on August 31, 2014 and repayment is subordinated to the Credit Agreement. The Bunge Note is convertible into Series U Units, at the option of Bunge, at the price of $3,000 per Unit. Interest accrues at the rate of 7.5% over six-month LIBOR. Principal and interest may be paid only after payment in full under the Credit Agreement. The balance, as of June 30, 2013 and September 30, 2012, was $35,349,149 and $33,922,334 , respectively, under the Bunge Note. There was $1,173,577 and $473,162 of accrued interest (included in accrued expenses, related parties) due to Bunge as of June 30, 2013 and September 30, 2012, respectively. Interest on the note accrues monthly and is added to the note principal on February 1 st and August 1 st each year.

The Company entered into a revolving note with Holdings dated August 26, 2009, providing for a maximum of $10,000,000 in revolving credit (the “ Bunge Revolving Note ”) which was assigned to Bunge effective September 28, 2012. Bunge has a commitment, subject to certain conditions, to advance up to $3,750,000 at the Company’s request under the Bunge Revolving Note; amounts in excess of $3,750,000 may be advanced by Bunge in its discretion. Interest accrues at the rate of 7.5% over six-month LIBOR. While repayment of the Bunge Revolving Note is subordinated to the Credit Agreement, the Company may make payments on the Bunge Revolving Note so long as it is in compliance with its borrowing base covenant and there is not a payment default under the Credit Agreement. The balance under the Bunge Revolving Note, as of June 30, 2013 and September 30, 2012, was $10,000,000 and $3,750,000 , respectively.

ICM

On June 17, 2010, ICM, Inc. (“ ICM ”) entered into a subordinated convertible term note to the Company (the “ ICM Term Note ”) in the amount of $9,970,000 , which is convertible at the option of ICM into Series C Units at a conversion price of $3,000 per unit. The ICM Term Note matures on August 31, 2014. As of June 30, 2013 and September 30, 2012, the accrued interest due (included in accrued expense, related party) to ICM was $404,484 and $163,068 , respectively. Interest on the note accrues monthly and is added to the note principal on February 1 st and August 1 st each year.

Notes payable consists of the following:

11



	June 30, 2013		September 30, 2012
$300,000 Note payable to IDED, a non-interest bearing obligation with monthly payments of $2,500 due through the maturity date of March 26, 2016 on the non-forgivable portion.	$	227,500	$	250,000
Convertible Notes payable to unit holders, bearing interest at LIBOR plus 7.50 to 10.5% (7.97% at June 30, 2013); maturity on August 31, 2014.	564,858		531,508
Note payable to affiliate Bunge, N.A., bearing interest at LIBOR plus 7.50 to 10.5% (7.97% at June 30, 2013); maturity on August 31, 2014.	35,349,149		33,922,334
Note payable to affiliate ICM, bearing interest at LIBOR plus 7.50 to 10.5% (7.97% at June 30, 2013); maturity on August 31, 2014.	12,183,404		11,691,666
Term facility payable to AgStar bearing interest at LIBOR plus 4.45% with a 6.00% floor (6.00% at June 30, 2013); maturity on August 1, 2014.	29,636,996		33,745,859
Term facility payable to AgStar bearing interest at a fixed 6%; maturity on August 1, 2014.	31,787,485		35,245,790
Term revolver payable to AgStar bearing interest at LIBOR plus 4.45% with a 6.00% floor (6.00% at June 30, 2013); maturity on August 1, 2014.	10,000,000		10,000,000
$15 million revolving working capital term facility payable to AgStar bearing interest at LIBOR plus 4.45% with a 6.00% floor (6.00% at June 30, 2013), matured March 29, 2013.	—		5,875,000
$13.214 million revolving working capital term facility payable to AgStar bearing interest at LIBOR plus 4.45% with a 6.00% floor (6.00% at June 30, 2013), maturing October 31, 2013.	6,500,000		—
Capital leases payable to AgStar bearing interest at 3.088% matured May 15, 2013.	—		12,256
Revolving line of credit payable to Bunge, bearing interest at LIBOR plus 7.50 to 10.5% with a floor of 3.00% (7.70% at June 30, 2013).	10,000,000		3,750,000
	136,249,392		135,024,413
Less Current Maturities	27,075,720		20,001,369
Total Long Term Debt	$	109,173,672	$	115,023,044

The approximate aggregate maturities of notes payable as of June 30 are as follows:



2014	$	27,075,720

2015	108,991,172

2016	182,500

Total	$	136,249,392

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 utilizes 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.

12

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.

Derivative financial statements . 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 June 30, 2013 and September 30, 2012, categorized by the level of the valuation inputs within the fair value hierarchy:



	June 30, 2103
	Level 1		Level 2		Level 3
Assets:
Derivative financial instruments	$	974,475	$	—	$	—

Liabilities:
Derivative financial instruments	196,975		1,671,223		—


	September 30, 2012
	Level 1		Level 2		Level 3
Assets:
Derivative financial instruments	$	806,710	$	4,013,005	$	—

Liabilities:
Derivative financial instruments	1,668,970		—		—

13

Note 7: Related Party Transactions and Major Customer

Bunge

On November 1, 2006, in consideration of its agreement to invest $20,004,000 in the Company, Bunge purchased the only Series B Units under an arrangement whereby the Company would (i) enter into various agreements with Bunge or its affiliates (discussed below) for management, marketing and other services, and (ii) have the right to elect a number of Series B Directors which are proportionate to the number of Series B Units owned by Bunge, as compared to all Units. Under the Company’s Third Amended and Restated Operating Agreement (the “ Operating Agreement” ), the Company may not, without Bunge’s approval (i) issue additional Series B Units, (ii) create any additional Series of Units with rights which are superior to the Series B Units, (iii) modify the Operating Agreement to adversely impact the rights of Series B Unit holders, (iv) change its status from one which is managed by managers, or vise versa, (v) repurchase or redeem any Series B Units, (vi) take any action which would cause a bankruptcy, or (vii) approve a transfer of Units allowing the transferee to hold more than 17% of the Company’s Units or to a transferee which is a direct competitor of Bunge.

Under the Ethanol Agreement, the Company sells Bunge all of the ethanol produced at its facility, and Bunge purchases the same. The Company pays Bunge a per-gallon fee for ethanol sold by Bunge, subject to a minimum annual fee of $750,000 and adjusted according to specified indexes after three years. The Ethanol Agreement runs through August 31, 2014 and will automatically renew for successive three-year terms thereafter unless one party provides the other with notice of their election to terminate 180 days prior to the end of the term. The Company has incurred expenses of $397,266 and $327,211 during the three months ended June 30, 2013 and 2012, respectively, and $1,019,779 and $1,320,490 during the nine months ended June 30, 2013 and 2012, respectively, under the Ethanol Agreement. Under a Risk Management Services Agreement effective January 1, 2009, Bunge agreed to provide the Company with assistance in managing its commodity price risks for a quarterly fee of $75,000 . The Risk Management Services Agreement has an initial term of three years and automatically renews for successive three year terms, unless one party provides the other notice of their election to terminate 180 days prior to the end of the term. Expenses under the Risk Management Services Agreement for the three months ended June 30, 2013 and 2012 were $75,000 and for the nine months ended June 30, 2013 and 2012 were $225,000 .

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 for the three months ended June 30, 2013 and 2012 were $1,093,931 and $1,215,534 , respectively. For the nine months ended June 30, 2013 and 2012, expenses were $3,290,430 and $3,647,258 , respectively. The Company has a sublease agreement for 100 hopper cars that are leased back to Bunge that expires on September 14, 2013 . As the sublease rate is less than the original lease rate, a loss was recorded at inception of the sublease and is being accreted to rent expense over the life of the sublease. Upon expiration of the sublease, the Company will continue to work with Bunge to determine the most economic use of the available ethanol and hopper cars in light of the current market conditions.

The Company entered into a Distillers Grain Purchase Agreement dated October 13, 2006, as amended (“ DG Agreement ”) with Bunge, under which Bunge is obligated to purchase from the Company and the Company is obligated to sell to Bunge all distillers grains produced at the facility. If the Company finds another purchaser for distillers grains offering a better price for the same grade, quality, quantity, and delivery period, it can ask Bunge to either market directly to the other purchaser or market to another purchaser on the same terms and pricing. The initial ten year term of the DG Agreement began February 1, 2009. The DG Agreement automatically renews for additional three year terms unless one party provides the other party with notice of election to not renew 180 days or more prior to expiration.

Under the DG Agreement, Bunge pays the Company a purchase price equal to the sales price minus the marketing fee and transportation costs. The sales price is the price received by Bunge in a contract consistent with the Company's DG Marketing Policy or the spot price agreed to between Bunge and the Company. Bunge receives a marketing fee consisting of a percentage of the net sales price, subject to a minimum yearly payment of $150,000 . Net sales price is the sales price less the transportation costs and rail lease charges. The transportation costs are all freight charges, fuel surcharges, and other accessorial charges applicable to delivery of distillers grains. Rail lease charges are the monthly lease payment for rail cars along with all administrative and tax filing fees for such leased rail cars. Expenses under this agreement for the three months ended June 30, 2013 and 2012 were $600,398 and $527,475 , respectively. Expenses for the nine months ended June 30, 2013 and 2012 were $1,695,470 and $1,561,072 , respectively.

On August 26, 2009, in connection with the original issuance of the Bunge Note to the Company also executed a Bunge Agreement—Equity Matters (the “ Equity Agreement ”), which was subsequently amended on June 17, 2010 and then assigned by Holdings to Bunge effective September 28, 2012. The Bunge Equity Agreement provides that (i) Bunge has preemptive rights to

14

purchase new securities in the Company, and (ii) the Company is required to redeem any Series U Units held by Bunge with 76% of the proceeds received by the Company from the issuance of equity or debt securities.

The Company is a party to a Grain Feedstock Supply Agreement (the “ Supply Agreement ”) with Bunge on July 15, 2008. Under the Supply Agreement, Bunge provides the Company with all of the corn it needs to operate the ethanol plant, and the Company has agreed to only purchase corn from Bunge. Bunge provides grain originators for purposes of fulfilling its obligations under the Supply Agreement. The Company pays Bunge a per-bushel fee for corn under the Supply Agreement, subject to a minimum annual fee of $675,000 and adjustments according to specified indexes after three years. The term of the Supply Agreement is 10 years , subject to earlier termination upon specified events. Expenses under this agreement for the three months ended June 30, 2013 and 2012 were $330,413 and $313,169 , respectively. For the nine months ended June 30, 2013 and 2012, expenses were $862,172 and $994,904 , respectively.

On November 12, 2010, the Company entered into a Corn Oil Agency Agreement with Bunge to market its corn oil (the “ Corn Oil Agency Agreement ”). The Corn Oil Agency Agreement has an initial term of three years and will automatically renew for successive three -year terms unless one party provides the other notice of their election to terminate 180 days prior to the end of the term. Expenses under this agreement for the three months ended June 30, 2013 and 2012 were $43,091 and $53,705 , respectively. For the nine months ended June 30, 2013 and 2012, expenses were $121,890 and $147,277 , respectively.

The Company and Bunge have also entered into certain term and revolving credit facilities. See Note 5 Revolving Loan/Credit Agreements for the terms of these financing arrangements.

ICM

On November 1, 2006, in consideration of its agreement to invest $6,000,000 in the Company, ICM became the sole Series C Member. As part of ICM’s agreement to invest in Series C Units, the Operating Agreement provides that the Company will not, without ICM’s approval (i) issue additional Series C Units, (ii) create any additional Series of Units with rights senior to the Series C Units, (iii) modify the Operating Agreement to adversely impact the rights of Series C Unit holders, or (iv) repurchase or redeem any Series C Units. Additionally, ICM, as the sole Series C Unit owner, is afforded the right to elect one Series C Director to the Board so long as ICM remains a Series C Member.

To induce ICM to agree to the ICM Term Note, the Company entered into an equity agreement with ICM (the “ ICM Equity Agreement ”) on June 17, 2010, whereby ICM (i) retains preemptive rights to purchase new securities in the Company, and (ii) receives 24% of the proceeds received by the Company from the issuance of equity or debt securities.

The Company and ICM have also entered into convertible term note. See Note 5 Revolving Loan/Credit Agreements for the terms of this financing arrangement.

Note 8: Major Customers

The Company is party to the Ethanol, Supply, and Corn Oil Agency Agreements with Bunge for the exclusive marketing, selling, and distributing of all the ethanol, distillers grains, syrup, and corn oil produced by the Company. Revenues with this customer were $ 92,332,125 and $ 77,051,420 for the three months ended June 30, 2013 and 2012, respectively. Revenues with this customer were $241,893,726 and $257,453,426 for the nine months ended June 30, 2013 and 2012, respectively.

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 annual report on Form 10-K for the year September 30, 2012 including the consolidated financial statements, accompanying notes and the risk factors contained herein.

15

Forward Looking Statements

This Quarterly Report on Form 10-Q of Southwest Iowa Renewable Energy, LLC (the “ Company, ” “ we ,” or “ us ”)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;


•	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;


•	Additional ethanol plants built in close proximity to our ethanol facility in southwest Iowa;


•	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; and


•	Volatile commodity and financial markets;


•	Continued price volatility in the price of corn; and


•	Decreased ethanol prices resulting from the oversupply of ethanol.

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, 2012 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.

16

Overview, Status and Recent Developments

The Company is an Iowa limited liability company, located in Council Bluffs, Iowa, formed in March, 2005 to construct and operate a 110 million gallon capacity ethanol plant. We began producing ethanol in February, 2009 and sell our ethanol, modified wet distillers grains with solubles, corn oil and corn syrup in the continental United States. We sell our dried distillers grains with solubles in the continental United States, Mexico, and the Pacific Rim.

One of the by-products of ethanol production is CO2. Effective April 2, 2013, the Company and an unaffiliated party, EPCO Carbon Dioxide Products, Inc., an Illinois corporation (" EPCO ”), entered into a Carbon Dioxide Purchase and Sale Agreement (the “ EPCO Agreement ”) pursuant to which the Company has agreed to supply, and EPCO has agreed to purchase, a portion of raw CO2 gas produced by the Company’s ethanol plant which meets certain specifications. EPCO will lease a portion of the Company’s property under a separate written lease, on which EPCO will construct a carbon dioxide liquefaction plant (the “ EPCO Plant ”). EPCO will use the EPCO Plant for the sole purpose of producing, marketing and selling food grade CO2 from the raw CO2 that EPCO purchases from the Company. Upon completion of the EPCO Plant and production thereunder the Company anticipates it will report sales of CO2.

Industry Factors Affecting Our Results of Operations

During the nine months ended June 30, 2013, the ethanol industry experienced some decompression of ethanol margins as a result of a combination of factors, including the following:

•

Corn prices increased substantially during the fiscal year ended September 30, 2012 (" Fiscal 2012 ") and traded at all-time highs during the fourth quarter of Fiscal 2012. Prices receded slightly in the first calendar year quarter of 2013 but remained high during the three months ended June 30, 2013 relative to the same period of Fiscal 2012. For the three months ended June 30, 2013 as compared to the three months ended June 30, 2012, the price per bushel paid was $7.25 and $6.53, respectively.

•

The U.S. Energy Information Administration (the "EIA") currently forecasts an increase in ethanol production during the remainder of calendar year 2013. According to the EIA, industry average weekly production was 820,000 barrels per day from the nine months July 2012 through March 2013. The EIA is also forecasting average weekly production to increase to 870,000 barrels per day through September 2013 which equates to a 6% increase in production over the nine month period ended March 31, 2013. The EIA forecast for calendar year 2014 is currently 920,000 barrels per day.


•	The U.S. Department of Agriculture (the "USDA") projects corn production for 2013/2014 just below 14 billion bushels harvested in its July 11, 2013 World Agricultural Supply and Demand Estimates Report (the "USDA July Report") based in part, on the near record level of corn planted during the spring of 2013. This level of corn production could drive the cost of corn down further.

Because of the many environmental factors, primarily the drought during the summer of 2012, which compressed ethanol margins during the first quarter of the fiscal year ended September 30, 2013 ("Fiscal 2013"), that affected our results of operations, we decreased production substantially in the first quarter of Fiscal 2013 and then we slightly increased production back toward capacity in the second quarter of Fiscal 2013. During the third quarter of Fiscal 2013, we increased production further so that our plant began running at capacity. The increased production, coupled with an increase in the per gallon ethanol selling price, resulted in third quarter Fiscal 2013 net income of $1,501,000 compared to a net loss of ($4,153,000) for the same quarter of Fiscal 2012.

Results of Operations

The following table shows our results of operations, stated as a percentage of revenue for the three months ended June 30, 2013 and 2012.

17



	For the three months ended						For the three months ended
	June 30, 2013						June 30, 2012
	Amounts		% of Revenues		Gallons Average Price		Amounts			% of Revenues		Gallons Average Price
	in 000's						in 000's
Income Statement Data
Revenues	$	94,472	100.0	%	$	3.27	$	79,820		100.0	%	$	2.78
Cost of Good Sold
Material Costs	74,552		78.9	%	2.58		66,412			83.2	%	2.31
Variable Production Exp	9,028		9.6	%	0.31		8,113			10.2	%	0.28
Fixed Production Exp	6,153		6.5	%	0.21		6,002			7.5	%	0.21
Gross Margin (loss)	4,739		5.0	%	0.17		(707		)	(0.9	)%	(0.02		)
General and Administrative Expenses	942		1.0	%	0.03		1,048			1.3	%	0.04
Other Expenses	2,296		2.4	%	0.08		2,398			3.0	%	0.08
Net Income (Loss)	$	1,501	1.6	%	$	0.06	$	(4,153	)	(5.2	)%	$	(0.14	)

The following table shows our results of operations, stated as a percentage of revenue for the nine months ended June 30, 2013 and 2012.



	For the nine months ended								For the nine months ended
	June 30, 2013								June 30, 2012
	Amounts			% of Revenues		Gallons Average Price			Amounts		% of Revenues		Gallons Average Price
	in 000's								in 000's
Income Statement Data
Revenues	$	247,996		100.0	%	$	3.17		$	264,897	100.0	%	$	2.87
Cost of Good Sold
Material Costs	205,207			82.7	%	2.63			208,127		78.6	%	2.25
Variable Production Exp	25,055			10.1	%	0.32			27,530		10.4	%	0.30
Fixed Production Exp	17,376			7.0	%	0.22			17,745		6.7	%	0.19
Gross Margin	358			0.2	%	—			11,495		4.3	%	0.13
General and Administrative Expenses	2,930			1.2	%	0.04			3,378		1.3	%	0.04
Other Expenses	7,034			2.8	%	0.09			7,261		2.7	%	0.08
Net Income (Loss)	$	(9,606	)	(3.8	)%	$	(0.13	)	$	856	0.3	%	$	0.01

Revenues

Our revenue from operations is derived from four primary sources: sales of ethanol, distillers grains, corn oil, and corn syrup. The following chart displays statistical information regarding our revenues. We experienced a similar crush margin compression as the whole industry in the first quarter of Fiscal 2013. In response to this crush margin compression, production was decreased in the first and second fiscal quarters of Fiscal 2013. Crush margins decompressed during the third quarter of Fiscal 2013 and as a result, production was increased back toward normal levels. As a result, the revenue increased from the three months ended June 30, 2012 to the three months ended June 30, 2013 due to an increase in the ethanol sales per gallon of about $.28 per gallon on an increase of approximately 185,000 gallons sold. The combined dried distillers grains with solubles, wet distillers

18

grain with solubles and corn syrup average price increased from approximately $171 to $180 per ton and tonnage sold increased almost 7,000 tons between the two quarters. For the nine months ending June 30, 2013 compared to the nine months ending June 30, 2012, revenues decreased as a result of production being decreased in the first and second quarter. Ethanol sold decreased approximately 14,200,000 gallons. This was partially offset by a $.15 per gallon increase in revenue. Dried distillers grains, wet distillers grain, and corn syrup sales decreased by about 23,600 tons which was partially offset by the approximate $28 per ton increase.



	For the three months ended					For the three months ended
	June 30, 2013					June 30, 2012
	Gallons/Tons Sold	% of Revenues		Gallons/Tons Average Price		Gallons/Tons Sold	% of Revenues		Gallons/Tons Average Price
Statistical Revenue Information
Denatured Ethanol	28,920,871	76.43	%	$	2.35	28,735,866	74.53	%	$	2.07
Dry Distiller's Grains	68,314	17.32		239.57		71,827	18.54		209.92
Wet Distiller's Grains	32,725	3.27		94.53		26,870	3.02		89.59
Syrup	9,909	0.71		67.52		5,329	0.44		65.88
Corn Oil	2,873	2.27		745.08		3,581	3.47		773.33



	For the Nine Months ended					For the Nine Months ended
	June 30, 2013					June 30, 2012
	Gallons/Tons Sold	% of Revenues		Gallons/Tons Average Price		Gallons/Tons Sold	% of Revenues		Gallons/Tons Average Price
Statistical Revenue Information
Denatured Ethanol	78,154,892	74.58	%	$	2.37	92,351,685	77.49	%	$	2.22
Dry Distiller's Grains	174,794	17.85		252.85		221,657	16.68		200.63
Wet Distiller's Grains	100,107	4.37		108.36		78,410	2.57		86.68
Syrup	25,374	0.76		74.71		23,817	0.45		50.21
Corn Oil	8,286	2.46		736.50		9,818	2.81		758.12

Cost of Goods Sold

Our cost of goods sold as a percentage of our revenues was about 95.0% and 100.9% for the three months ended June 30, 2013 and 2012, respectively. For the nine months ended June 30, 2013 and 2012, our cost of goods sold as a percentage of revenue was about 99.8% and 95.7%, respectively. Our two primary costs of producing ethanol and distillers grains are corn and energy, with natural gas as our primary energy source and to a lesser extent, steam during the three months ended June 30, 2013. Unlike most ethanol producers in the United States which use natural gas as their primary energy source, our primary energy source has traditionally been steam but we can change between steam and natural gas. Given the lower prices for natural gas, we operated about 30% on natural gas during the three months ended June 30, 2013 and throughout all of Fiscal 2012. Under the Fifth Amendment to our Steam Service Contract dated March 13, 2013, we amended our existing steam contract to commit to using steam for substantially all of our needs when it is available at a price that is favorable compared to natural gas. If the natural gas price is higher than the contracted steam price, which is based on an energy index which includes coal costs and other factors, we will pay the contracted steam price . The Company applies the normal purchase and sale exemption to forward contracts relating to natural gas and steam and therefore these forward contracts are not marked to market.

19

Cost of goods sold also includes net (gains) or losses from derivatives and hedging relating to corn. We ground 10.6 million and 28.1 million bushels of corn at an average price of $7.28 and $7.34 per bushel during the three and nine months ended June 30, 2013, respectively as compared to 10.2 million and 32.7 million bushels at an average corn price of $6.49 and $6.36 per bushel during the three and nine months ended June 30, 2012, respectively. Our average steam and natural gas energy cost was $4.03 and $4.18 per MMBTU for the three and nine months ended June 30, 2013, respectively, compared to a $3.05 and $3.87 per MMBTU for the three and nine months ended June 30, 2012, respectively

Realized and unrealized losses related to our derivatives and hedging related to corn resulted in a decrease of approximately$2,336,000 and an increase of approximately $443,000 in our cost of goods sold for the three and nine months ended June 30, 2013, respectively, compared to decreases of about $538,000 and about $4,275,000 in our cost of goods sold for the three and nine months ended June 30, 2012, respectively. 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 a slight decrease when comparing the three and nine months ended June 30, 2013 and 2012 due to the production decrease. Fixed production expenses showed a slight increase when comparing the three months ended June 30, 2013 and 2012 because of repair and maintenance expenses. Comparing the nine months ended June 30, 2013 compared to the same period for 2012, fixed production expenses slightly increased because of general liability insurance.

General & Administrative Expense

Our general and administrative expenses as a percentage of revenues were 1.0% and 1.3% for the three months ended June 30, 2013 and 2012, respectively and were 1.2% and 1.3% for the nine month ended June 30, 2013 and 2012, respectively. 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 nine months ended June 30, 2013 were approximately $2,930,000, compared to approximately $3,378,000 for the nine months ended June 30, 2012. The decrease in general and administrative expenses from the nine months ended June 30, 2012 to June 30, 2013 is due primarily to a decrease in insurance and a reduction in administrative payroll/bonus. We expect our operating expenses to remain flat to slightly decreasing during the remainder of Fiscal 2013 compared to the Fiscal 2013 year-to-date amounts.

Other (Expense)

Our other expenses, primarily interest, for the three and nine months ended June 30, 2013 were approximately 2.4% and 2.8% of revenue compared to 3.0% and 2.7% of revenue for the three and nine months ended June 30, 2012, respectively. Expenses decreased approximately $227,000 from $7,261,000 for the nine months ended June 30, 2012 to $7,034,000 for the nine months ended June 30, 2013 because of a decrease in interest expense.

Selected Financial Data.

Adjusted EBITDA is defined as net income (loss) plus interest expense net of interest income, plus income tax expense (benefit) and plus depreciation and amortization, or EBITDA, as adjusted for unrealized hedging losses (gains). Adjusted EBITDA is not required by or presented in accordance with generally accepted accounting principles in the United States of America (“ GAAP ”), 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 Adjusted 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 Adjusted 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 Adjusted 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 Adjusted EBITDA as an analytical tool, including the following:

20


•	Adjusted EBITDA does not reflect our interest expense or the cash requirements to pay our 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 material 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 Adjusted 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 material limitations.

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

Adjusted EBITDA to net income (loss) for the three months ended June 30, 2013 and June 30, 2012 are as follows:



	For the three months		For the three months
	June 30, 2013		June 30, 2012
	in 000's		in 000's
EBITDA
Net Income (Loss)	$	1,501	$	(4,153	)
Interest Expense, interest income, and other income	2,161		2,273
Depreciation & Amortization	2,984		2,985
EBITDA	6,646		1,105

Unrealized Hedging (gain) loss	535		(322		)

Adjusted EBITDA	$	7,181	$	783

Adjusted EBITDA per unit	$	546.54	$	59.59

Adjusted EBITDA to net income (loss) for the nine months ended June 30, 2013 and June 30, 2012



	For the nine months			For the nine months
	June 30, 2013			June 30, 2012
	in 000's			in 000's
EBITDA
Net Income (Loss)	$	(9,606	)	$	856
Interest Expense, interest income, and other income	6,629			6,910
Depreciation & Amortization	8,951			8,917
EBITDA	5,974			16,683

Unrealized Hedging (gain) loss	3,985			(5,026		)

Adjusted EBITDA	$	9,959		$	11,657

Adjusted EBITDA per unit	$	757.97		$	887.21

21

Liquidity and Capital Resources

We are party to a Credit Agreement, as amended, with AgStar Financial Services, PCA (“ AgStar ”) and a group of lenders (together with AgStar, the "Lenders") in the original maximum principal amount of $126,000,000 senior secured debt, consisting of a $101,000,000 term loan, a $10,000,000 term revolving loan and a $13,214,300 working capital revolving line of credit. The parties amended the Credit Agreement on March 29, 2013 and the amendment reduced the available credit under the revolving working capital term facility from $15,000,000 to $13,214,000. As of June 30, 2013, we had an outstanding balance of $77,924,481 under our Credit Agreement. Under the terms of our Credit Agreement, we must pay an annual amount equal to 65% of our Excess Cash Flow (as defined in the Credit Agreement), up to a total of $6,000,000 per year, and $24,000,000 over the term of the Credit Agreement. Any borrowings are subject to borrowing base restrictions as well as certain prepayment penalties. Under our Credit Agreement, the borrowing base is defined as, “at any time, the lesser of: (i) $13,214,300, or (ii) the sum of: (A) seventy-five percent (75%) of our eligible accounts receivable, plus (B) seventy-five percent (75%) of our eligible inventory. In addition to compliance with the borrowing base, we are subject to various affirmative and negative covenants under the Credit Agreement. We were in compliance with all financial covenants under our Credit Agreement as of June 30, 2013. However, due to the low crush margins experienced in the first six months of the current fiscal year, it is unlikely we will meet the Fixed Charge Ratio, which is measured annually at September 30, using EBITDA for the previous twelve months. In addition, due to the timing of the debt maturity (August 1, 2014), as of September 30, 2013, GAAP requires all debt under the Credit Agreement to be classified as Current Maturity, which will severely distort the Working Capital covenant calculation. We are currently in conversation with AgStar to grant a temporary waiver on these two covenants as well as to renew the Credit Agreement.

Under our $13,214,000 revolving line of credit with the Lenders (the “ Revolving LOC ”), we had $6,500,000 outstanding as of June 30, 2013 and $5,875,000 outstanding as of September 30, 2012, with an additional $6,714,300 and $9,125,000 available at June 30, 2013 and September 30, 2012, respectively.

We entered into a revolving note with Bunge N.A. Holdings, Inc. (“ Holdings ”) dated August 26, 2009 (which Holdings assigned to Bunge effective September 28, 2012 (the “ Bunge Revolving Note ”), providing for the extension of a maximum of $10,000,000 in revolving credit. Bunge has a commitment, subject to certain conditions, to advance up to $3,750,000 at our request under the Bunge Revolving Note; amounts in excess of $3,750,000 may be advanced by Bunge in its discretion. Interest accrues at the rate of 7.5% over six-month LIBOR. While repayment of the Bunge Revolving Note is subordinated to the Credit Agreement, we may make payments on the Bunge Revolving Note so long as we are in compliance with our borrowing base covenant and there is not a payment default under the Credit Agreement. As of June 30, 2013 and September 30, 2012, the balance outstanding was $10,000,000 and $3,750,000, respectively, under the Bunge Revolving Note. Under the Bunge Revolving Note, we made certain standard representations and warranties.

As a result of our Credit Agreement, Revolving LOC, the Bunge Revolving Note, and our subordinated convertible term notes with Bunge and ICM, Inc. (the "Bunge/ICM Term Notes"), we have a significant amount of debt, and our existing debt financing agreements contain, and our future debt financing agreements may contain, restrictive covenants that limit distributions and impose restrictions on the operation of our business. The use of debt financing makes it more difficult for us to operate because we must make principal and interest payments on the indebtedness and abide by covenants contained in our debt financing agreements. The level of our debt has important implications on our liquidity and capital resources, including, among other things: (i) limiting our ability to obtain additional debt or equity financing; (ii) making us vulnerable to increases in prevailing interest rates; (iii) placing us at a competitive disadvantage because we may be substantially more leveraged than some of our competitors; (iv) subjecting all or substantially all of our assets to liens, which means that there may be no assets left for members in the event of a liquidation; and (v) limiting our ability to make business and operational decisions regarding our business, including, among other things, limiting our ability to pay dividends to our unit holders, make capital improvements, sell or purchase assets or engage in transactions we deem to be appropriate and in our best interest.

Our Revolving LOC matures on October 31, 2013, our Credit Agreement matures on August 1, 2014 and our Bunge/ICM Term Notes mature on August 31, 2014. We are currently in discussion with various lenders, including our Lenders, Bunge and ICM, Inc., for new or modified credit facilities and term loans and we anticipate closing on new or modified credit facilities and term loans prior to the maturation of the current credit facilities and term loans.

Prices of our primary input (corn) and our principal products (ethanol and distillers grains) are expected to continue to stabilize in the fourth quarter of Fiscal 2013. Given the relative prices of these commodities and the operation of our risk management program in the quarter, we believe fourth quarter operating margins will improve from the third quarter of Fiscal 2013. We expect that in the last quarter of Fiscal 2013 our margins will improve due to an increase in yield per gallon, and improved crush margins.

Primary Working Capital Needs

22

Cash provided by operations for the nine months ended June 30, 2013 and June 30, 2012 was $4,626,000 and $12,347,000 respectively. This change is a result of increased corn and ethanol prices and decreased production. For the nine months ended June 30, 2013 and June 30, 2012, net cash (used in) investing activities was ($453,000) and ($769,000), respectively, primarily for fixed asset additions. For the nine months ended June 30, 2013 and June 30, 2012, net cash (used in) financing activities was ($726,000) and ($14,347,000), respectively. During the nine months ended June 30, 2013, pursuant to contractual terms, we made principal payments on our term loan under our Credit Agreement in the amount of $7,567,167 which was offset by additional net borrowing of our lines of credit.

During the fourth quarter of Fiscal 2013, we estimate that we will require approximately $71,190,000 for our primary input of corn and $3,955,000 for our energy sources of electricity, steam, and natural gas. We currently have approximately $6,714,300 available under our current revolving lines of credit to hedge commodity price fluctuations. We cannot estimate the availability of funds for hedging in the future.

We believe that our existing sources of liquidity, including cash on hand, available revolving credit and cash provided by operating activities, will satisfy our projected liquidity requirements, which primarily consists of working capital requirements, for the next twelve months. However, in the event that the market continues to experience significant price volatility and negative crush margins at the current levels or in excess of current levels, we may be required to explore alternative methods to meet our short-term liquidity needs including temporary shutdowns of operations, temporary reductions in our production levels, or negotiating short-term concessions from our lenders.

Trends and Uncertainties Impacting Ethanol and Our Future Operations

Commodity Price Risk

Our operations are highly dependent on commodity prices, especially prices for corn, ethanol and distillers grains. 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 feedstock through adjustments in prices charged for ethanol. We continue to monitor corn and ethanol prices and their effect on our longer-term profitability.

According to the EIA Short-Term Energy Outlook July report, ethanol production has been increasing since April 30, 2013 driven partly by increasing RFS targes and a strong demand for renewable identification numbers ("RINS"). While average daily production from July 2012 through March 2103 was 820,000 barrels per day, production has rebounded to 870,000 barrels per day and the EIA expects production levels to remain there through September. Production for the week ending July 15, 2013 was 881,000 barrels per day compared to 821,000 for the same week during 2012. The EIA projects ethanol production in calendar 2014 to average to 920,000 barrels per day.

The price of corn was volatile during calendar year 2012; reaching all-time highs in excess of $8.00 per bushel. However, corn prices have dramatically decreased in the last 2 months. As of July 29, 2013, the Chicago Mercantile Exchange (“ CME ”) near-month corn price for September, 2013 was $4.895; for December 2013 it was at $4.725; and for March 2014 it was $4.8525. If the CME near month prices hold, the lower prices will positively impact our cost of production during the respective periods. If the CME near month prices do not hold and the price of corn increases as a result of market factors, increasing corn prices will negatively affect our costs of production.

The USDA July Report projects U.S. corn production near or above record levels and world corn stocks to be the highest since 2001- 2002. U.S. Corn production for this crop season is expected to be just below 14 billion bushels. Ethanol Proudcer Magazine estimates ethanol usage of the corn production is expected to be 4.9 billion bushels up from the 4.65 billion bushels for the 2012/2013 market year. The Company anticipates that if corn production rises to pre-drought production levels, then the price of corn will decrease substantially which will increase the Company's net income.

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

23

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 corn prices changes.

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.

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, if qualified to do so, match the 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.

Risks Related to Government Mandates and Subsidies

The domestic market for ethanol is largely dictated by federal mandates for blending ethanol with gasoline. Federal and state governments have enacted numerous policies, incentives and subsidies to encourage the usage of domestically-produced alternative fuel solutions. The federal Renewable Fuels Standard II (" RFS2 "), as part of the Energy Independence and Security Act, has been, and will likely continue to be, a driving factor in the growth of ethanol usage. In October 2011, the U.S. House of Representatives introduced the RFS Flexibility Act to reduce or eliminate the volumes of renewable fuel use required by RFS2 based upon corn stocks-to-use ratios. The U.S. House of Representatives then introduced the Domestic Alternative Fuels Act of 2012 in January 2012 (which was re-introduced in March 2013) to modify RFS2 to include ethanol and other fuels produced from fossil fuels like coal and natural gas. The 2013 RFS mandate is for 16.55 billion gallons of renewable fuels of which corn based ethanol is expected to satisfy approximately 13.8 billion gallons.

In response to the recent drought conditions and other industry factors, new legislation aimed at reducing or eliminating renewable fuel use required by RFS2 has been introduced. The Renewable Fuel Standard Elimination Act, introduced in April 2013, targets the repeal of the renewable fuel program of the Environmental Protection Agency (the “EPA”). Also introduced in April 2013, the RFS Reform Bill would prohibit more than ten percent (10%) ethanol in gasoline and reduce the RFS2 mandated volume of renewable fuel. These bills have been assigned to a congressional committee for review before such bills are sent to the House or Senate. The enactment of these bills, or similar legislation aimed at eliminating or reducing the RFS2 mandates could have a material adverse impact on the ethanol industry as a whole and our business operations.

The EPA has issued proposed allocations of classes of renewable fuels, many of which are not yet final. Under the provisions of the Energy Independence and Security Act, the EPA has the authority to waive the mandated RFS2 requirements in whole or in part. To grant the waiver, the EPA administrator must determine, in consultation with the Secretaries of Agriculture and Energy, that one of two conditions has been met: (1) there is inadequate domestic renewable fuel supply or (2) implementation of the requirement would severely harm the economy or environment of a state, a region, or the U.S. We believe that any reversal or waiver in federal policy on the RFS2 could have a significant impact on the ethanol industry.

In April, 2012, the EPA approved the first applications for ethanol to be used to make E15. As E15 gains acceptance in the marketplace, we anticipate the demand for ethanol to increase, however such increase is not anticipated in the immediate near future. Future demand will be largely dependent upon the economic incentives to blend based upon the relative value of

24

gasoline versus ethanol and the RFS2. Any significant increase in production capacity beyond the RFS2 level might have an adverse impact on ethanol prices. Additionally, the RFS2 mandate with respect to ethanol derived from grain could be reduced or waived entirely. A reduction or waiver of the RFS2 mandate could adversely affect the prices of ethanol and our future performance.

In August 2012, governors from eight states filed formal requests with the EPA to waive the RFS2 requirements based on drought conditions. On November 16, 2012, the EPA denied the waiver request. Although the EPA denied this waiver request, we cannot guarantee that if future waiver requests are filed that the EPA will deny such requests. However, our operations could be adversely impacted if such a waiver is ever granted.

In addition, many in the ethanol industry are concerned that certain provisions of RFS2 as adopted may disproportionately benefit ethanol produced from sugarcane. This could make sugarcane based ethanol, which is primarily produced in Brazil, more competitive in the United States ethanol market. If this were to occur, it could reduce demand for the ethanol that we produce.

Many in the ethanol industry believe that it will be difficult to meet the RFS2 requirement in future years without an increase in the percentage of ethanol that can be blended with gasoline for use in standard (non-flex fuel) vehicles. Most ethanol that is used in the United States is sold in a blend called E10. E10 is a blend of 10% ethanol and 90% gasoline. E10 is approved for use in all standard vehicles. Estimates indicate that gasoline demand in the United States is approximately 134 billion gallons per year. Assuming that all gasoline in the United States is blended at a rate of 10% ethanol and 90% gasoline, the maximum demand for ethanol is 13.4 billion gallons per year. 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. This is a theoretical limit because it is believed that it would not be possible to blend ethanol into every gallon of gasoline that is being used in the United States and it discounts the possibility of additional ethanol used in higher percentage blends such as E85 used in flex fuel vehicles. The RFS2 requires that 36 billion gallons of renewable fuels must be used each year by 2022, which equates to approximately 27% renewable fuels used per gallon of gasoline sold. In order to meet the RFS2 mandate and expand demand for ethanol, management believes higher percentage blends of ethanol must be utilized in standard vehicles.

The EPA has approved the use of E15, gasoline which is blended at a rate of 15% ethanol and 85% gasoline, in vehicles manufactured in the model year 2001 and later, representing nearly two-thirds of all vehicles on the road. The first retail sales of E15 ethanol blends in the U.S. occurred in July 2012. According to the EPA, as of March 19, 2013, 76 fuel manufacturers were registered to sell E15. Prior to the final approval of E15 for sale, the EPA granted partial waivers for certain motor vehicles, subject to certain conditions. Sales of E15 may be limited because (i) it is not approved for use in all vehicles, (ii) the EPA requires a label that management believes may discourage consumers from using E15, and (iii) retailers may choose not to sell E15 due to concerns regarding liability. In addition, different gasoline blendstocks may be required at certain times of the year in order to use E15 due to federal regulations related to fuel evaporative emissions. This may prevent E15 from being used during certain times of the year in various states. As a result, E15 may not have an immediate impact on ethanol demand in the United States.

The Domestic Fuels Protection Act of 2012, which was re-introduced in March 2013, contains a provision to provide liability protection for claims based on the sale or use of certain fuels or fuel additives. If this act becomes law, domestic producers and sellers of ethanol and other renewable fuels would not be liable to consumers that unintentionally put transportation fuel into their motor vehicles for which such fuel has not been approved. In June 2013, the American Fuel Protection Act of 2013 was introduced which would make the United States exclusively liable for certain claims of liability for damages resulting from, or aggravated by, the inclusion of ethanol in transportation fuel. These bills are aimed at addressing concerns regarding potential liability which would discourage expanding market access for ethanol and other renewable fuels, including E15.

On July 1, 2011, Iowa retailers became eligible for a three cent per gallon tax credit for every gallon of E15 sold. Any reversal of the EPA waivers may nullify the tax credit for Iowa retailers and adversely affect the demand for E15.

In the past, the ethanol industry was impacted by the VEETC or blenders’ credit. The blenders’ credit expired on December 31, 2011 and was not renewed. VEETC provided a volumetric ethanol excise tax credit to $0.45 per gallon of pure ethanol and $0.38 per gallon for E85, a blended motor fuel containing 85% ethanol and 15% gasoline. As a result of the expiration of VEETC, we are seeing some negative impact on the price and demand for ethanol in the market due to reduced discretionary blending of ethanol. Discretionary blending occurs when gasoline blenders use ethanol to reduce the cost of blended gasoline. However, we do not believe that the expiration of VEETC will have a continued material effect on ethanol demand provided gasoline prices stay high and the RFS is maintained. Recently, there have been proposals in Congress to reduce or eliminate the RFS. Management does not believe that these proposals will be adopted in the near future. However, if the RFS is reduced or eliminated now that

25

the blenders' credit was allowed to expire, the market price and demand for ethanol will likely decrease which could negatively impact our financial performance.

Ethanol production in the U.S. was also benefited by a $0.54 per gallon tariff imposed on ethanol imported into the United States. On December 31, 2011, this tariff expired. Management believes that in the short-term, since the United States is a net exporter of ethanol, the expiration of the tariff will not have a significant impact on the United States ethanol industry. However, if other countries are able to increase their ethanol production, the expiration of the tariff may result in increased competition from foreign ethanol producers.

As a result of the conclusion of the anti-dumping legislation in the European Union relating to ethanol produced in the United States and exported to Europe, the European Commission confirmed that it will be imposing 9.5% anti-dumping duty on all US producers exporting to the European Union. The imposition of this duty could result in a decrease of exports of ethanol to Europe which could negatively impact the market price of ethanol in the United States.

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 core 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 spot markets. These offsetting changes do not always occur, however, in the same amounts or in the same period, with lag times of as much as twelve months.

We expect the annual impact on our results of operations due to a $1.00 per bushel fluctuation in market prices for corn to be approximately $39,300,000, or $0.36 per gallon, assuming our plant operates at 100% name plate capacity (production of 110,000,000 gallons of ethanol annually) assuming no increase in the price of ethanol. We expect the annual impact to our results of operations due to a $0.50 decrease in ethanol prices will result in approximately a $55,000,000 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.

The Company’s management, including its President and Chief Executive Officer (our principal executive officer), Brian T. Cahill, along with its Chief Financial Officer (our principal financial officer), Brett L. Frevert, have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934, as amending, the “ Exchange Act ”), as of June 30, 2013. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of

26

unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Based upon this review and evaluation, these officers believe that the Company’s disclosure controls and procedures are presently effective in ensuring that material information related to us is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission (the “ SEC ”).

The Company’s management, including the Company’s principal executive officer and principal financial officer, have reviewed and evaluated any changes in the Company’s internal control over financial reporting that occurred as of June 30, 2013 and there has been no change that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

The Company’s management assessed the effectiveness of the Company’s internal control over financing reporting as of June 30, 2013. In making this assessment, the Company’s management used the criteria set forth by the Committee Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Based on this assessment, the Company’s management concluded that, as of June 30, 2013, the Company’s integrated controls over financial report were effective.

This annual report does not include an attestation report of the company’s registered public accounting firm pursuant to the exemption under Section 989G of the Dodd-Frank Act of 2010.

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), 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.

The Company is not currently able to predict the outcome of this Lawsuit with any degree of certainty. Under the Tricanter Agreement, ICM is obligated to, and has indicated that it will, 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, 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, 2012. 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

27

Item 4. Mine Safety Disclosures.

None

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.

28

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:	August 14, 2013	/s/ Brian T. Cahill
		Brian T. Cahill, President and Chief Executive Officer

Date:	August 14, 2013	/s/ Brett L. Frevert
		Brett L. Frevert, CFO and Principal Financial Officer

29

Southwest Iowa Renewable... (GM) (USOTC:SWIOU)
Historical Stock Chart
From Jun 2024 to Jul 2024

Click Here for more Southwest Iowa Renewable... (GM) Charts.

Southwest Iowa Renewable... (GM) (USOTC:SWIOU)
Historical Stock Chart
From Jul 2023 to Jul 2024

Market Data

News

Trading Tools

Markets

Discover

Hot Features

Follow Feed

Options Flow

Monitor

SWIOU Southwest Iowa Renewable Energy LLC (GM)

Latest SWIOU Messages

Loading Messages....

Southwest Iowa Renewable Energy, Llc News

Loading Messages....

Your Recent History

Company

Business

Popular

Get The App

Trending Now

Toplists

Market Data

News

Trading Tools

Markets

Discover

Hot Features

Follow Feed

Options Flow

Monitor

SWIOU Southwest Iowa Renewable Energy LLC (GM)

Latest SWIOU Messages

Loading Messages....

Southwest Iowa Renewable Energy, Llc News

Loading Messages....

Your Recent History

Company

Business

Popular

Get The App