Risk Management

The Company's activities expose it to a variety of market risks, including the effects of changes in commodity prices. These financial exposures are monitored and managed by the Company as an integral part of its overall risk management program. The Company's risk management program focuses on the unpredictability of commodity markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on its operating results.

The Company maintains a risk management strategy that uses derivative instruments to minimize significant, unanticipated earnings fluctuations caused by market fluctuations. The Company's specific goal is to protect the Company from large moves in the commodity costs.

To reduce price risk caused by market fluctuations, the Company generally follows a policy of using exchange-traded futures and options contracts to minimize its net position of merchandisable agricultural commodity inventories and forward purchase and sale contracts. Exchange traded futures and options contracts are designated as non-hedge derivatives and are valued at market price with changes in market price recorded in operating income through cost of goods sold for corn derivatives and through revenue for ethanol derivatives. The Company treats all contracts with the same counterparty on a net basis on the balance sheet.

Derivatives not designated as hedging instruments are as follows:



	June 30, 2017			September 30, 2016
Derivative assets - corn contracts	$	189,025		$	1,179,588
Derivative assets - ethanol contracts	960			38,325
Derivative liabilities - corn contracts	(167,900		)	(118,750		)
Derivative liabilities - ethanol contracts	(2,814		)	(165,870		)
Cash held by (due to) broker	232,461			(435,616		)
Total	$	251,732		$	497,677

The effects on operating income from derivative activities is as follows:



	Three Months Ended						Nine Months Ended
	June 30, 2017			June 30, 2016			June 30, 2017			June 30, 2016
Gains (losses) in revenues due to derivatives related to ethanol sales:
Realized (loss)	$	(74,949	)	$	(78,288	)	$	(288,621	)	$	(7,945	)
Unrealized gain (loss)	63,546			(19,129		)	124,731			(16,362		)
Total effect on revenues	(11,403		)	(97,417		)	(163,890		)	(24,307		)

Gains (losses) in cost of goods sold due to derivatives related to corn costs:
Realized gain (loss)	120,488			(291,288		)	1,304,969			742,156
Unrealized gain (loss)	(27,550		)	1,281,778			(1,039,713		)	1,103,059
Total effect on corn cost	92,938			990,490			265,256			1,845,215
Gains in cost of goods sold due to derivatives related to natural gas costs:
Realized gain (loss)	2,500			(53,840		)	5,490			70,960
Unrealized gain	960			48,750			960			1,880
Total effect on natural gas cost	3,460			(5,090		)	6,450			72,840
Total effect on cost of goods sold	96,398			985,400			271,706			1,918,055
Total gain due to derivative activities	$	84,995		$	887,983		$	107,816		$	1,893,748

Unrealized gains and losses on forward contracts, in which delivery has not occurred, are deemed “normal purchases and normal sales”, and therefore are not marked to market in the Company's financial statements but are subject to a lower of cost or market assessment.