Financial Instruments And Risk Management

12 Months Ended

Dec. 31, 2013

Financial Instruments And Risk Management [Abstract]

Financial Instruments And Risk Management

Note 13 — Financial Instruments and Risk Management

DERIVATIVE INSTRUMENTS — The Company makes limited use of derivative instruments to manage certain risks related to commodity prices. The use of derivative instruments for risk management is covered by operating policies and is closely monitored by the Company’s senior management. The Company does not hold any derivatives for speculative purposes and it does not use derivatives with leveraged or complex features. Derivative instruments are traded primarily with creditworthy major financial institutions or over national exchanges such as the New York Mercantile Exchange (“NYMEX”).

The Company is subject to commodity price risk related to corn that it will purchase in the future for feedstock and DDGS and WDGS that it will sell in the future at its ethanol production facility. At December 31, 2013 and 2012, the Company had open physical delivery commitment contracts for purchase of approximately 3.1 million and 19.2 million bushels of corn, respectively, for processing at its ethanol plant. For the periods ended December 31, 2013 and 2012, the Company had open physical delivery commitment contracts for sale of approximately 0.5 million and 1.1 million equivalent bushels, respectively, of DDGS and WDGS. To manage the price risk associated with certain of these physical delivery commitments which have fixed prices, at December 31, 2013 and 2012, the Company had outstanding derivative contracts with a net short volume of approximately 0.5 million bushels and net short volume of 6.3 million bushels, respectively, that mature at future prices in effect on the expected date of delivery under the physical delivery commitment contracts. Additionally, at December 31, 2013, the Company had outstanding derivative contracts with a net short volume of 2.0 million bushels of corn to buy back when certain corn inventories are expected to be processed. The impact of marking to market these commodity derivative contracts decreased income before taxes by $0.1 million, increased income before taxes by $2.9 million, and decreased income before taxes by $0.3 million for the three years ended December 31, 2013, 2012 and 2011, respectively.

At December 31, 2013 and 2012, the fair value of derivative instruments not designated as hedging instruments are presented in the following table.

December 31, 2013

December 31, 2012

Asset Derivatives

Liabilitiy Derivatives

Asset Derivatives

Liabilitiy Derivatives

Balance

Balance

Balance

Balance

Sheet

Fair

Sheet

Fair

Sheet

Fair

Sheet

Fair

(Thousands of dollars)

Location

Value

Location

Value

Location

Value

Location

Value

Commodity derivative contracts

Accounts

Accounts

Accounts

Accounts

Receivable

$

224

Payable

$

291

Receivable

$

3,043

Payable

$

102

For the years ended December 31, 2013 and 2012, the gains and losses recognized in the consolidated and combined Income Statements for derivative instruments not designated as hedging instruments are presented in the following table.

		Amount of Gain (Loss) Recognized
			in Income on Derivative
(Thousands of dollars)	Statement of Income
Type of Derivative Contract	Location		2013		2012
Commodity	Fuel and ethanol costs
	of goods sold		$	8,516	$	(38,283)

The Company offsets certain assets and liabilities related to derivative contracts when the legal right of offset exists. Derivative assets and liabilities which have offsetting positions at December 31, 2013 and 2012 are presented in the following tables:

			Gross Amounts		Net Amounts of
	Gross Amounts		Offset in the		Assets Presented in
	of Recognized		Combined		the Combined
(Thousands of dollars)	Assets		Balance Sheet		Balance Sheet
At December 31, 2013
Commodity derivatives	$	233	$	(9)	$	224
At December 31, 2012
Commodity derivatives	$	6,727	$	(3,684)	$	3,043

			Gross Amounts		Net Amounts of
	Gross Amounts		Offset in the		Liabilities Presented
	of Recognized		Consolidated		in the Consolidated
(Thousands of dollars)	Liabilities		Balance Sheet		Balance Sheet
At December 31, 2013
Commodity derivatives	$	300	$	(9)	$	291
At December 31, 2012
Commodity derivatives	$	3,786	$	(3,684)	$	102

All commodity derivatives above are corn-based contracts associated with the Company’s Hereford ethanol plant as all positions related to Hankinson were assumed by the buyer in conjunction with the sale. Net derivative assets are included in Accounts Receivable presented in the table on the prior page and are included in Accounts Receivable on the Consolidated and Combined Balance Sheets; likewise, net derivative liabilities in the above table are included in Accounts Payable in the table above and are included in Accounts Payable and Accrued Liabilities on the Consolidated and Combined Balance Sheets. These contracts permit net settlement and the Company generally avails itself of this right to settle net. At December 31, 2013 and 2012 cash deposits of $2.9 million and $12.3 million, respectively, related to commodity derivative contracts were reported in Prepaid Expenses in the Consolidated and Combined Balance Sheets. These cash deposits have not been used to reduce the reported net liabilities on the corn-based derivative contracts at December 31, 2013 and 2012.