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What changed in REX AMERICAN RESOURCES Corp's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of REX AMERICAN RESOURCES Corp's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+239 added−240 removedSource: 10-K (2024-03-29) vs 10-K (2023-03-30)

Top changes in REX AMERICAN RESOURCES Corp's 2024 10-K

239 paragraphs added · 240 removed · 193 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeDepending on market and operating conditions, we may also sell modified distillers grains, or wet distillers grains, by removing less liquid content compared to DDGS. We also generate revenues from the sale of non-food grade corn oil produced at our facilities. Non-food grade corn oil is sold to the animal feed market, as well as biodiesel and other chemical markets.
Biggest changeDDGS is sold as a protein used in animal feed, which recovers a portion of the corn value not absorbed in ethanol production. Depending on market and operating conditions, we may also sell modified distillers grains, or wet distillers grains, by removing less liquid content compared to DDGS.
Consequently, we generally execute fixed price contracts for no more than four months into the future at any given time and we may lock in our corn or ethanol price without having a corresponding locked in ethanol or corn price for short durations of time.
Consequently, we generally execute fixed price ethanol contracts for no more than four months into the future at any given time and we may lock in our corn or ethanol price without having a corresponding locked in ethanol or corn price for short durations of time.
Ethanol is used by gasoline suppliers as an octane enhancer both for producing regular grade gasoline from lower octane blending stocks and for upgrading regular gasoline to premium grades. Legislation The United States ethanol industry is highly dependent upon federal and state legislation. See Item 1A. Risk Factors for a discussion of legislation affecting the U.S. ethanol industry.
Ethanol is used by gasoline suppliers as an octane enhancer both for producing regular grade gasoline from lower octane blending stocks and for upgrading regular gasoline to premium grades. 7 Legislation The United States ethanol industry is highly dependent upon federal and state legislation. See Item 1A. Risk Factors for a discussion of legislation affecting the U.S. ethanol industry.
The EPA, through consultation with the Department of Energy and the Department of Agriculture, can grant the refiner a full or partial waiver, or deny the waiver. The EPA issued 88 refinery exemptions for 2016-2018 compliance years, undercutting the statutory renewable fuel volumes by a total of 4.3 billion gallons.
The EPA, 6 through consultation with the Department of Energy and the Department of Agriculture, can grant the refiner a full or partial waiver, or deny the waiver. The EPA issued 88 refinery exemptions for 2016-2018 compliance years, undercutting the statutory renewable fuel volumes by a total of 4.3 billion gallons.
We own a majority interest in One Earth and NuGen. We also own a majority interest in an entity that owned and, until November 18, 2021, operated a refined coal facility. As we have ceased operating the refined coal facility, we began classifying the financial results of the operating segment as discontinued operations.
We own a majority interest in One Earth and NuGen. We also own a majority interest in an entity that owned and, until November 18, 2021, operated a refined coal facility. As we have 3 ceased operating the refined coal facility, we began classifying the financial results of the operating segment as discontinued operations.
We ceased operating the facility on November 18, 7 2021 and subsequently sold the facility. We began to report these results as discontinued operations in the third quarter of 2021.
We ceased operating the facility on November 18, 2021 and subsequently sold the facility. We began to report these results as discontinued operations in the third quarter of 2021.
We attempt to match quantities of these sales contracts with an appropriate quantity of grain purchase contracts over a given period of time when we can obtain an adequate gross margin resulting from the crush spread inherent in the contracts we have executed.
We attempt to match quantities of these sales contracts with an appropriate quantity of corn purchase contracts over a given period of time when we can obtain an adequate gross margin resulting from the crush spread inherent in the contracts we have executed.
We refer to the difference between the price per gallon of ethanol and the price per bushel of grain (divided by the realized yield) as the “crush spread.” Should the crush 4 spread decline, it is possible that our ethanol plants will generate operating results that do not provide adequate cash flows for sustained periods of time.
We refer to the difference between the price per gallon of ethanol and the price per bushel of corn (divided by the realized yield) as the “crush spread.” Should the crush spread decline, it is possible that our ethanol plants will generate operating results that do not provide adequate cash flows for sustained periods of time.
We refer to our fiscal year by reference to the year immediately preceding the January 31 fiscal year end date. For example, “fiscal year 2022” means the period February 1, 2022 to January 31, 2023. Corporate History and Background REX was incorporated in Delaware in 1984 as a holding company.
We refer to our fiscal year by reference to the year immediately preceding the January 31 fiscal year end date. For example, “fiscal year 2023” means the period February 1, 2023 to January 31, 2024. Corporate History and Background REX was incorporated in Delaware in 1984 as a holding company.
We attempt to manage the risk related to the volatility of commodity prices by utilizing forward grain and natural gas purchase contracts, forward ethanol, distillers grains and non-food grade corn oil sale contracts, and commodity futures agreements, as management deems appropriate.
We attempt to manage the risk related to the volatility of commodity prices by utilizing forward corn and natural gas purchase contracts, forward ethanol, distillers grains and distillers corn oil sale contracts, and commodity futures agreements, as management deems appropriate.
We have equity investments in three entities engaged in the production of ethanol as of January 31, 2023.
We have equity investments in three entities engaged in the production of ethanol as of January 31, 2024.
REX’s effective ownership of gallons shipped, for the twelve-month period ended January 31, 2023, by the ethanol production facilities in which we have ownership interests was approximately 271 million gallons. Our ethanol operations are highly dependent on commodity prices, especially prices for corn, ethanol, distillers grains, non-food grade corn oil and natural gas, and availability of corn.
REX’s effective ownership of gallons shipped, for the twelve-month period ended January 31, 2024, by the ethanol production facilities in which we have ownership interests was approximately 290 million gallons. Our ethanol operations are highly dependent on commodity prices, especially prices for corn, ethanol, distillers grains, distillers corn oil and natural gas, and availability of corn.
After 2022, RFS volumes are to be determined by the EPA in coordination with the Secretaries of Energy and Agriculture. The mandated volumes for conventional biofuel were to reach 15.0 billion gallons in 2015 and maintain that level until 2022.
After 2022, RFS volumes are to be determined by the EPA in coordination with the Secretaries of Energy and Agriculture. The mandated volumes for conventional biofuel were to reach 15.0 billion gallons in 2015 and maintain that level until 2022. The EPA has set conventional renewable fuel volumes of 15.0 billion gallons for 2023 through 2025.
S&P Global Platts ethanol pricing per gallon ranged from a low of $1.99 in February 2022 to a high of $2.88 in June 2022. The form and structure of our ethanol investments are tailored to the specific needs and goals of each project and the local farmer group or investor with whom we partner.
S&P Global Platts ethanol pricing per gallon ranged from a low of $1.52 in January 2024 to a high of $2.67 in June 2023. The form and structure of our ethanol investments are tailored to the specific needs and goals of each project and the local farmer group or investor with whom we partner.
According to the Renewable Fuels Association (“RFA”), the United States ethanol industry produced an estimated 15.4 billion gallons of ethanol in 2022, compared to 15.0 billion gallons in 2021. Approximately 1.4 billion gallons were exported from the United States in 2022.
According to the Renewable Fuels Association (“RFA”), the United States ethanol industry produced an estimated 15.6 billion gallons of ethanol in 2023, compared to 15.4 billion gallons in 2022. Approximately 1.4 billion gallons were estimated to have been exported from the United States in 2023.
According to the RFA, the United States ethanol industry consists of 199 plants in 25 states with an annual capacity of approximately 17.9 billion gallons of ethanol production. Domestic demand for ethanol is highly dependent upon federal and state legislation and regulations.
According to the RFA, the United States ethanol industry consists of 198 plants in 24 states with an annual capacity of approximately 18.0 billion gallons of ethanol production. Domestic demand for ethanol is highly dependent upon federal and state legislation and regulations.
Under RFS II, a small refiner that processes less than 75,000 barrels of oil per day can petition the EPA for a waiver of their requirement to acquire and submit renewable identification numbers (“RINs”).
Additionally, in 2023, the EPA restored 250 million gallons previously waived. Under RFS II, a small refiner that processes less than 75,000 barrels of oil per day can petition the EPA for a waiver of their requirement to acquire and submit renewable identification numbers (“RINs”).
In addition to competitive base wages, all employees are eligible for an incentive compensation program, a Company matched 401(k) plan, healthcare benefits, and paid time off. Service Marks We have registered the service marks “REX” and “Farmer’s Energy” with the United States Patent and Trademark Office. We are not aware of any adverse claims concerning our service marks. 8
We believe we offer market competitive compensation and benefit programs for our employees. In addition to competitive base wages, all employees are eligible for an incentive compensation program, a Company matched 401(k) plan, healthcare benefits, and paid time off. 8 Service Marks We have registered the service marks “REX” and “Farmer’s Energy” with the United States Patent and Trademark Office.
We can make no assurances that we will be successful in our efforts to find such opportunities. 5 Ethanol Industry Ethanol is a renewable fuel produced by processing corn and other biomass through a fermentation process that creates combustible alcohol that can be used as a fuel additive to reduce vehicle emissions from gasoline, as an octane enhancer to improve the octane rating of gasoline with which it is blended and, to a lesser extent, as a gasoline substitute.
Ethanol Industry Ethanol is a renewable fuel produced by processing corn and other biomass through a fermentation process that creates combustible alcohol that can be used as a fuel additive to reduce vehicle emissions from gasoline, as an octane enhancer to improve the octane rating of gasoline with which it is blended and, to a lesser extent, as a gasoline substitute.
We now have one reportable segment, ethanol and by-products. 3 General Overview We reported net income attributable to REX common shareholders of $27.7 million in fiscal 2022 compared to approximately $52.4 million in fiscal 2021. Our ethanol business had reduced profits in fiscal 2022 compared to fiscal 2021 as a result of lower crush spreads in fiscal 2022.
We now have one reportable segment, ethanol and by-products. General Overview We reported net income attributable to REX common shareholders of $60.9 million in fiscal 2023 compared to approximately $27.7 million in fiscal 2022. Our ethanol business had increased profits in fiscal 2023 compared to fiscal 2022 as a result of higher crush spreads in fiscal 2023.
Because the market prices of ethanol and distillers grains are not always directly related to corn prices (for example, demand for crude and other energy and related prices, the export market demand for ethanol and distillers grains, soybean meal prices, and the results of federal policy decisions and trade negotiations) , at times ethanol and distillers grains prices may not follow movements in corn prices.
Because the market prices of ethanol and distillers grains are not always directly related to corn prices (for example, demand for crude and other energy and related prices, the export market demand for ethanol and distillers grains, soybean meal prices, and the results of federal policy decisions and trade negotiations can impact ethanol and distillers grains prices) , at times ethanol and distillers grains prices may not follow movements in corn prices and, in an environment of higher corn prices or lower ethanol or distillers grains prices, reduce the overall margin structure at the plants.
The industry is attempting to expand ethanol blending above the current 10% for most vehicles in use. The EPA has approved the use of 15% ethanol (“E-15”), which has an octane rating of 88, in gasoline for cars, SUV’s and light duty trucks made in 2001 and later.
The EPA has approved the use of 15% ethanol (“E-15”), which has an octane rating of 88, in gasoline for cars, SUV’s and light duty trucks made in 2001 and later.
Previously, the EPA had not granted E-15 the same Reid vapor pressure (“RVP”) waiver as E-10 so it could only be sold from September 16 through May 31 for those vehicles in most markets. In May 2019, the EPA finalized regulatory changes to allow the same RVP waiver for E-15 for the summer months that it allows for E-10.
Previously, the EPA had not granted E-15 the same Reid vapor pressure (“RVP”) waiver as E-10 so it could only be sold from September 16 through May 31 for those vehicles in most markets. The EPA issued emergency waivers to allow the sale of E-15 for the summer months in both 2022 and 2023.
The two largest drivers of ethanol profitability are corn and ethanol pricing, both of which experienced significant volatility within the year. Chicago Board of Trade corn prices per bushel ranged from a low of $5.64 in July 2022 to a high of $8.18 in April 2022.
The two largest drivers of ethanol profitability are corn and ethanol pricing, both of which experienced significant volatility within the year. Chicago Board of Trade corn prices per bushel ranged from a low of $4.40 in January 2024 to a high of $6.85 in February 2023.
We expect our ethanol plants to produce approximately 2.9 gallons of denatured ethanol for each bushel of grain processed in the production cycle. We refer to the actual gallons of denatured ethanol produced per bushel of grain processed as the realized yield.
As a result, at times, we may operate our plants at negative or minimally positive operating margins. 4 We expect our ethanol plants to produce approximately 2.9 gallons of denatured ethanol for each bushel of corn processed in the production cycle. We refer to the actual gallons of denatured ethanol produced per bushel of corn processed as the realized yield.
Through our affiliate, One Earth Energy, LLC, we are in the exploratory stage of a carbon sequestration project near the One Earth Energy ethanol plant. A test well has been drilled to a total depth of approximately 7,100 feet, in which almost 2,000 feet of Mt. Simon Sandstone was encountered, which represents the region’s primary carbon storage resource.
One Earth Sequestration, LLC, a wholly owned subsidiary of One Earth Energy, LLC, is in the developmental stage of a carbon sequestration project near the One Earth Energy ethanol plant. A test well has been drilled to a total depth of approximately 7,100 feet, in which almost 2,000 feet of Mt.
The Primary Uses of Ethanol Blend component. Today, much of the ethanol blending in the U.S. is done to meet the RFS. Most regular gasoline is produced using blendstock with an octane rating of 84, which is then increased to 87 (the minimum octane rating required in most states) by adding 10% ethanol according to the RFA.
Most regular gasoline is produced using blendstock with an octane rating of 84, which is then increased to 87 (the minimum octane rating required in most states) by adding 10% ethanol according to the RFA. The industry is attempting to expand ethanol blending above the current 10% for most vehicles in use.
The EPA has not granted any small refinery waivers for 2019-2022 and has continued that stance in the proposed volumes for 2023-2025. There remain multiple ongoing legal challenges on how the EPA has handled the small refinery waivers. Ethanol Production The plants we have invested in are designed to use the dry milling method of producing ethanol.
The EPA has not granted any small refinery waivers for 2019-2022 and has continued that stance in the proposed volumes for 2023-2025. There remain multiple ongoing legal challenges to how the EPA has handled the small refinery waivers, including on November 22, 2023, a ruling by the Fifth U.S.
In the dry milling process, the entire corn kernel is first ground into flour, which is referred to as “meal,” and processed without separating out the various component parts of the grain. The meal is processed with enzymes, chemicals and water, and then placed in a high-temperature cooker.
Ethanol Production The plants in which we have invested are designed to use the dry milling method of producing ethanol. In the dry milling process, the entire corn kernel is first ground into flour, which is referred to as “meal,” and processed without separating out the various component parts of the grain.
Three-dimensional seismic testing has been performed, as well as geological modeling for predicting the movement of injected carbon and the plume area to determine maximum injection pressure, reservoir quality and storage capacity for the potential wells. We have applied for a Class VI injection well permit for three wells with the U.S. Environmental Protection Agency (“EPA”).
Simon Sandstone was encountered, which is the geological formation that is the region’s primary carbon storage resource. Three-dimensional seismic testing has been performed, as well as geological modeling for predicting the movement of injected carbon and the plume area to determine maximum injection pressure, reservoir quality and storage capacity for the potential wells.
Human Capital Resources The attraction, retention and development of employees is critical to our success. We accomplish these objectives through a variety of actions, including our competitive compensation policies, training initiatives and growth opportunities within our Company. At January 31, 2023, we had 122 employees at our two consolidated ethanol plants and at our corporate headquarters.
We also own our corporate headquarters office building, consisting of approximately 7,500 square feet, located in Dayton, Ohio. Human Capital Resources The attraction, retention and development of employees is critical to our success. We accomplish these objectives through a variety of actions, including our competitive compensation policies, discretionary stock award programs, training initiatives, and growth opportunities within our Company.
In addition, we conduct periodic safety audits performed by an independent third party. A portion of our incentive compensation plan rewards employees for attaining certain safety goals. We believe we offer market competitive compensation and benefit programs for our employees.
We conduct regularly scheduled safety meetings and require all employees to go through safety training. We evaluate employee safety incidents monthly and investigate such incidents promptly. In addition, we conduct periodic safety audits performed by an independent third party. A portion of our incentive compensation plan rewards employees for attaining certain safety goals.
The following table is a summary of our ethanol entity ownership interests at January 31, 2023: Entity REX’s Current Ownership Interest One Earth Energy, LLC 75.8% NuGen Energy, LLC 99.7% Big River Resources, LLC: Big River Resources W Burlington, LLC Big River Resources Galva, LLC Big River United Energy, LLC Big River Resources Boyceville, LLC 10.3% 10.3% 5.7% 10.3% The three entities own a total of six ethanol production facilities, which in aggregate shipped approximately 691 millions gallons of ethanol over the twelve-month period ended January 31, 2023.
The following table is a summary of our ethanol entity ownership interests at January 31, 2024: Entity Location REX's Current Ownership Interest One Earth Energy, LLC Gibson City, IL 75.8% NuGen Energy, LLC Marion, SD 99.7% Big River Resources, LLC: Big River Resources W Burlington, LLC Big River Resources Galva, LLC Big River United Energy, LLC Big River Resources Boyceville, LLC W.
We have no current plans to operate this technology and are maintaining patents in limited countries. We plan to seek and evaluate various investment opportunities including energy related, carbon sequestration, agricultural and other ventures we believe fit our investment criteria.
We plan to seek and evaluate various investment opportunities including energy related, carbon sequestration, agricultural and other ventures we believe fit our investment criteria. We can make no assurances that we will be successful in our efforts to find such opportunities.
If successful, we believe we would qualify for tax credits under section 45Q of the Internal Revenue Code (“45Q”) and section 45Z of the Internal Revenue Code (“45Z”) as outlined in the Inflation Reduction Act. During fiscal year 2013, we entered into a joint venture to file and defend patents for eSteam technology.
If the carbon sequestration project is successful, we believe we would qualify for tax credits under section 45Q of the Internal Revenue Code (“45Q”), based on tons of carbon sequestered, and section 45Z of the Internal Revenue Code (“45Z”), based on gallons of ethanol produced, as outlined in the Inflation Reduction Act.
With the starch elements of the corn consumed in the above-described process, the principal by-product produced by the dry milling process is dry distillers grains with solubles, or DDGS. DDGS is sold as a protein used in animal feed, which recovers a portion of the corn value not absorbed in ethanol production.
The anhydrous ethanol is then blended with a denaturant, such as natural gasoline, to render it undrinkable and thus not subject to beverage alcohol tax. With the starch elements of the corn consumed in the above-described process, the principal by-product produced by the dry milling process is dry distillers grains with solubles, or DDGS.
None of our employees are represented by a labor union. We expect this employment level to remain relatively stable. We consider our relationship with our employees to be good . We took measures to protect the health and safety of our employees during the COVID-19 pandemic while continuing to meet the needs of our customers.
At January 31, 2024, we had 117 employees at our two consolidated ethanol plants and at our corporate headquarters. None of our employees are represented by a labor union. We expect this employment level to remain relatively stable. We consider our relationship with our employees to be good .
Although we have made meaningful progress, we continue to complete documents required from various government agencies and obtain other approvals with no assurances of ultimate success.
We continue to pursue obtaining a county special-use zoning permit. Although we have made meaningful progress and significant investments in this project, we continue to complete required documentation for various government agencies and obtain permits and other approvals with no assurances of ultimate success. We also intend to concurrently expand the One Earth ethanol plant.
After fermentation, the resulting liquid is transferred to distillation columns where the ethanol is separated from the remaining “stillage” for fuel uses. 6 The anhydrous ethanol is then blended with a denaturant, such as natural gasoline, to render it undrinkable and thus not subject to beverage alcohol tax.
The meal is processed with enzymes, chemicals and water, and then placed in a high-temperature cooker. It is then transferred to fermenters where yeast is added and the conversion of sugar to ethanol begins. After fermentation, the resulting liquid is transferred to distillation columns where the ethanol is separated from the remaining “stillage” for fuel uses.
Facilities As of our fiscal year end, our consolidated ethanol entities owned a combined 1,342 acres of land and two facilities that shipped a combined quantity of approximately 266 million gallons of ethanol in fiscal year 2022. We also own our corporate headquarters office building, consisting of approximately 7,500 square feet, located in Dayton, Ohio.
The federal production tax credits received through ownership of this facility remain under IRS audit. Facilities As of our fiscal year end, our consolidated ethanol entities owned a combined 1,477 acres of land and two facilities that shipped a combined quantity of approximately 286 million gallons of ethanol in fiscal year 2023.
In addition, we have signed a construction contract to capture, dehydrate, and compress carbon to a state suitable for sequestration for the One Earth Energy ethanol plant. We are currently working on an engineering design study for a short pipeline to deliver carbon from the ethanol plant to the sequestration site.
In October 2022, we applied for a Class VI injection well permit for three wells with the U.S. Environmental Protection Agency (“EPA”). In addition, we have begun construction of a facility to capture, dehydrate, and compress carbon dioxide from the One Earth Energy ethanol plant to a state suitable for sequestration.
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In an environment of higher corn prices or lower ethanol or distillers grains prices, the overall margin structure at the plants could be reduced. As a result, at times, we may operate our plants at negative or minimally positive operating margins.
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Burlington, IA Galva, IL Dyersville, IA Boyceville, WI 10.3% 10.3% 5.7% 10.3% The three entities own a total of six ethanol production facilities, which in aggregate shipped approximately 716 million gallons of ethanol over the twelve-month period ended January 31, 2024.
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The patented technology is an enhanced method of heavy oil recovery involving zero emissions downhole steam generation. To date, we have not successfully had a field operation nor demonstrated that the technology is commercially feasible. We own 60% and our partner owns 40% of the entity named Future Energy, LLC, an Ohio limited liability company.
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We expect to complete construction by July 31, 2024, at which time testing of the facility could commence, upon completion of other infrastructure. In October 2023, we submitted an application with the Illinois Commerce Commission to build a short pipeline to deliver carbon dioxide from the ethanol plant to the sequestration site.
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The EPA has proposed conventional renewable fuel volumes of 15.0 billion gallons for 2023 and 15.25 billion gallons for both 2024 and 2025. Additionally, the proposal for 2023 also restores the remaining 250 million gallons previously waived in 2016.
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We recently received a permit to increase production from 150 million gallons of ethanol per year to 175 million gallons of ethanol per year. Once we achieve that level of production, planned for the first quarter of 2025, we intend to apply for a 200 million gallon per year permit from the EPA.
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It is then transferred to fermenters where yeast is added and the conversion of sugar to ethanol begins.
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Finally, we continue to work to identify ways to reduce our carbon intensity (“CI”) score at the One Earth plant with the intention of maximizing tax credits available under the Inflation Reduction Act.
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However, in July 2021, the U.S. Court of Appeals for the D.C. Circuit overturned the EPA ruling and stated the EPA had exceeded its authority.
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The Inflation Reduction Act created a new Clean Fuel Production Credit, available for calendar years 2025 – 2027, which established a credit of approximately $0.02 per ethanol gallon per CI 5 point reduction below a 50 CI score threshold to incentivize further increases in plant efficiencies within the industry.
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Then in April 2022, the EPA issued an emergency waiver to allow the sale of E-15 through May 20, 2022, and ultimately extended the waiver multiple times to allow for E-15 to be used throughout the remainder of the 2022 summer months. Certain Midwest states petitioned the EPA to allow year round sales of E-15 in their states.
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We expect the total cost of these projects to be approximately $165 million to $175 million, which we currently plan to pay from our available cash. As of January 31, 2024, we had spent $25.8 million since inception and were contractually committed to spend an additional $22.6 million toward the carbon sequestration project.
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On March 1, 2023, the EPA proposed a rule to allow this to occur in eight states beginning in 2024. A public comment period on the proposed rule will be open for 45 days. Clean air additive.
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As of January 31, 2024, we had spent $12.8 million since inception and were contractually committed to spend an additional $12.3 million toward plant capacity expansion and ongoing efforts to reduce our CI scoring.
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We continue to monitor the impact of the COVID-19 pandemic on our business, including our employees, and take appropriate actions to mitigate the impact, including emphasizing CDC guidelines. We conduct regularly scheduled safety meetings and require all employees to go through safety training. We evaluate employee safety incidents monthly and investigate such incidents promptly.
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NuGen Energy, LLC, our majority owned ethanol plant in Marion, South Dakota, signed an agreement to be part of Summit Carbon Solutions’ carbon capture and storage pipeline.
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Should Summit Carbon Solutions be able to obtain all necessary permits and approvals, the agreement would allow NuGen to share in the economic benefits of tax credits through the sale of the carbon dioxide output of its ethanol production facility for sequestration, as well as reduce its net carbon emissions.
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Circuit Court of Appeals (the “Court”) against the EPA on six SREs the EPA had previously denied. The Court remanded those six petitions back to the EPA and each refinery will continue to operate under temporary SREs granted to them by the Court.
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We also generate revenues from the sale of distillers corn oil produced at our facilities. Distillers corn oil is sold to the animal feed market, as well as biodiesel and other chemical markets. The Primary Uses of Ethanol Blend component. Today, much of the ethanol blending in the U.S. is done to meet the RFS.
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Eight Midwest states (Illinois, Iowa, Minnesota, Missouri, Nebraska, Ohio, South Dakota, and Wisconsin) petitioned the EPA to allow year-round sales of E-15 in their states. The EPA has approved this request beginning in 2025. Clean air additive.
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We are not aware of any adverse claims concerning our service marks.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSupreme Court, and on January 25, 2021, the Supreme Court partially ruled in favor of the small refiners, but only as to the interpretation of “extension” of a waiver. Flexible fuel vehicles (“FFVs”) receive preferential treatment in meeting federally mandated corporate average fuel economy (“CAFE”) standards for automobiles manufactured by car makers.
Biggest changeFlexible fuel vehicles (“FFVs”) receive preferential treatment in meeting federally mandated corporate average fuel economy (“CAFE”) standards for automobiles manufactured by car makers. High blend ethanol fuels such as E-85 result in lower fuel efficiencies. Absent the CAFE preferences, car makers would not likely build flexible-fuel vehicles.
In February 2010, the EPA released its final regulations on the Renewable Fuel Standard program. We believe our plants are grandfathered up to certain operating capacity, but plant expansion requires us to meet a 20% threshold reduction in greenhouse gas (GHG) emissions from a 2005 baseline measurement to produce ethanol eligible for the RFS II mandate.
In February 2010, the EPA released its final regulations on the Renewable Fuel Standard program. We believe our plants are grandfathered up to certain operating capacity, but plant expansion requires us to 15 meet a 20% threshold reduction in greenhouse gas (GHG) emissions from a 2005 baseline measurement to produce ethanol eligible for the RFS II mandate.
Such business disruptions may result in our inability to meet customer demand or contract delivery requirements, as well as the potential loss of customers. 18 We ship much of our products and receive a portion of our corn via rail, which involves risks involving potential regulatory changes that could adversely affect our cash flows and operating results.
Such business disruptions may result in our inability to meet customer demand or contract delivery requirements, as well as the potential loss of customers. We ship much of our products and receive a portion of our corn via rail, which involves risks involving potential regulatory changes that could adversely affect our cash flows and operating results.
There are limited markets for ethanol other than what is federally mandated. Increased consumer acceptance of E15 and E85 fuel is likely necessary in order for ethanol to achieve significant market share growth beyond federal mandate levels. Consumer demand for gasoline may be impacted by emerging transportation trends, such as electric vehicles.
There are limited markets for ethanol other than what is federally mandated. Increased consumer acceptance of E15 and E85 fuel is likely necessary in order for ethanol to achieve significant market share growth beyond federal mandate levels. Consumer demand for gasoline may be impacted by emerging transportation trends, such as hybrid and electric vehicles.
Potential business disruption in available transportation due to natural disasters, severe weather conditions, the outbreak of a pandemic disease, significant track damage resulting from a train derailment, strikes or other interruptions by our transportation providers could result in delays in procuring and supplying raw materials to our ethanol facilities, or transporting ethanol and distillers grains to our customers.
Potential business disruption in available transportation due to natural disasters, severe weather conditions, the outbreak of a pandemic disease, significant track damage resulting from a train derailment, strikes or other interruptions by our transportation providers could result in delays in procuring and supplying raw materials 18 to our ethanol facilities, or transporting ethanol and distillers grains to our customers.
In addition, failure to adequately manage the risks associated with additional ethanol investments could have a material adverse effect on our business. 12 We may not successfully develop our planned carbon sequestration facility near the One Earth Energy ethanol plant. The Company has committed significant time and resources towards a carbon sequestration project near the One Earth Energy ethanol plant.
In addition, failure to adequately manage the risks associated with additional ethanol investments could have a material adverse effect on our business. We may not successfully develop our planned carbon sequestration facility near the One Earth Energy ethanol plant. The Company has committed significant time and resources towards a carbon sequestration project near the One Earth Energy ethanol plant.
As a result, ethanol prices are influenced by the supply and demand for gasoline, and our ethanol plants’ results of operations and financial position may be materially adversely affected if gasoline demand decreases or the price of gasoline declines making ethanol less economical. Distillers grains compete with other protein-based animal feed products.
As a result, ethanol prices are influenced by the supply and demand for gasoline, and our ethanol plants’ results of operations and financial position may be materially adversely affected if gasoline demand decreases or the price of gasoline declines making ethanol less economical. 10 Distillers grains compete with other protein-based animal feed products.
The prices for and availability of natural gas are subject to volatile market conditions. These market conditions often are affected by factors beyond the ethanol plants’ control, such as weather conditions, overall economic conditions, governmental regulation and foreign and domestic relations, including, but not limited to, the impacts from the Russian-Ukraine conflict.
The prices for and availability of natural gas are subject to volatile market conditions. These market conditions often are affected by factors beyond the ethanol plants’ control, such as weather conditions, overall economic conditions, export market, governmental regulation and foreign and domestic relations, including, but not limited to, the impacts from the Russian-Ukraine conflict.
Compliance with future laws or regulations with respect to emissions of carbon dioxide, or if we choose to expand capacity at certain of our plants, compliance with then-current regulations of carbon dioxide, could be costly and may prevent us from operating our plants as profitably, which may have a negative impact on our financial performance.
Compliance with future laws or regulations with respect to emissions of carbon dioxide, or if we choose to expand capacity at certain of our plants, compliance with then-current regulations of carbon dioxide, could be costly and may prevent us from operating our plants at full capacity or as profitably, which may have a negative impact on our financial performance.
The adoption of cellulosic ethanol as the preferred form of ethanol could have a significant adverse effect on our ethanol business. Our ethanol business is affected by environmental and other regulations which could impede or prohibit our ability to successfully operate our plants. Our ethanol production facilities are subject to extensive air, water and other environmental regulations.
The adoption of cellulosic ethanol as the preferred form of ethanol could have a significant adverse effect on our ethanol business. Our ethanol business is affected by environmental and other regulations which could impede or prohibit our ability to successfully operate our plants. Our ethanol production facilities are subject to extensive air, water discharge, and other environmental regulations.
Brazil is presently the second largest producer of ethanol in the world. Brazil’s ethanol production is sugarcane based, and, depending on feedstock prices, may be cheaper to produce than corn-derived ethanol. Under the RFS, certain parties were obligated to meet an advanced biofuel standard.
Brazil is presently the second largest producer of ethanol in the world. Brazil’s ethanol production is mostly sugarcane based, and, depending on feedstock prices, may be cheaper to produce than corn-derived ethanol. Under the RFS, certain parties were obligated to meet an advanced biofuel standard.
Over the past several years various pieces of legislation have been introduced to the U.S. Congress that were intended to reduce or eliminate ethanol 13 blending requirements. To date, none of the bills have been successful but they are an indication of the continued effort to undermine the EISA.
Over the past several years various pieces of legislation have been introduced to the U.S. Congress that were intended to reduce or eliminate ethanol blending requirements. To date, none of the bills have been successful but they are an indication of the continued effort to undermine the EISA.
Unfavorable changes in legislation or regulations could materially and adversely affect our results of operations and financial position. The inability to generate or obtain RINs could adversely affect our operating results . Virtually all our ethanol is sold with RINs that are used by customers to comply with RFS II.
Unfavorable changes in legislation or regulations could materially and adversely affect our results of operations and financial position. 14 The inability to generate or obtain RINs could adversely affect our operating results . Virtually all our ethanol is sold with RINs that are used by customers to comply with RFS II.
In addition, foreign ethanol producers may be able to produce ethanol at costs lower than ours. These risks could have significant adverse effects on our financial performance. We are exposed to credit risk from our sales of ethanol and distillers grains to customers.
In addition, foreign ethanol producers may 17 be able to produce ethanol at costs lower than ours. These risks could have significant adverse effects on our financial performance. We are exposed to credit risk from our sales of ethanol and distillers grains to customers.
Although many trade groups, academics and governmental agencies have supported ethanol as a fuel additive that promotes a cleaner environment, others have criticized ethanol production as consuming considerably 14 more energy and emitting more greenhouse gases than other biofuels and as potentially depleting water resources.
Although many trade groups, academics and governmental agencies have supported ethanol as a fuel additive that promotes a cleaner environment, others have criticized ethanol production as consuming considerably more energy and emitting more greenhouse gases than other biofuels and as potentially depleting water resources.
This could have a material adverse effect on our results of operations. Our revenue from the sale of distillers grains depends upon its continued market acceptance as an animal feed. Distillers grains is a by-product from the fermentation of corn to produce ethanol.
This could have a material adverse effect on our results of operations. 16 Our revenue from the sale of distillers grains depends upon its continued market acceptance as an animal feed. Distillers grains is a by-product from the fermentation of corn to produce ethanol.
In extreme cases, we could lose our cash deposits entirely. This would negatively impact our liquidity and results of operations. We may fail to realize the anticipated benefits of mergers, acquisitions, or other investments. We intend to continue seeking growth opportunities.
In extreme cases, we could lose our cash deposits entirely. This would negatively impact our liquidity and results of operations. 20 We may fail to realize the anticipated benefits of mergers, acquisitions, or other investments. We intend to continue seeking growth opportunities.
If the public became concerned 16 about the impact of distillers grains in the food supply or as an acceptable animal feed, the market for distillers grains could be negatively impacted, which would have a negative impact on our results of operations.
If the public became concerned about the impact of distillers grains in the food supply or as an acceptable animal feed, the market for distillers grains could be negatively impacted, which would have a negative impact on our results of operations.
If we are not successful on this project, our ethanol plant could be at a disadvantage in the industry as our inability to sequester our carbon could result in a higher carbon intensity (CI) score than our competitors if they are able to sequester their carbon.
If we are not successful on this project, our ethanol plant could be at a disadvantage in the industry as our inability to sequester our carbon could result in a higher CI score than our competitors if they are able to sequester their carbon.
Such risk remains even after production ceases at an operation to the extent the 19 environmental damage can be traced to the types of chemicals or compounds used or operations conducted in connection with the use of refined coal.
Such risk remains even after production ceases at an operation to the extent the environmental damage can be traced to the types of chemicals or compounds used or operations conducted in connection with the use of refined coal.
The price of distillers grains may decrease when the prices of competing feed products decrease. The prices of competing animal feed products 10 are based in part on the prices of the commodities from which these products are made. Historically, sales prices for distillers grains have tracked along with the price of corn.
The price of distillers grains may decrease when the prices of competing feed products decrease. The prices of competing animal feed products are based in part on the prices of the commodities from which these products are made. Historically, sales prices for distillers grains have tracked along with the price of corn.
The limitations on our ability to control day-to-day plant operations could adversely affect plant results of operations. We may not successfully acquire or develop additional ethanol investments. The growth of our ethanol business depends on our ability to identify and develop new ethanol investments.
The 12 limitations on our ability to control day-to-day plant operations could adversely affect plant results of operations. We may not successfully acquire or develop additional ethanol investments. The growth of our ethanol business depends on our ability to identify and develop new ethanol investments.
This operation is currently under audit by the IRS and if we were to lose these tax credits, it could have a material impact on our results of operations. Our refined coal operation and its by-products may result in environmental and product liability claims and environmental compliance costs.
This operation is currently under audit by the IRS and if we were to lose these tax credits, it could have a material adverse impact on our results of operations. 19 Our refined coal operation and its by-products may result in environmental and product liability claims and environmental compliance costs.
We may not be able to obtain a suitable replacement for antibiotics, should this be required, which would also negatively impact the market for distillers grains. An estimated 34% of distillers grains produced in the United States were exported in 2022. The price of distillers grains has benefitted from the exports of the product.
We may not be able to obtain a suitable replacement for antibiotics, should this be required, which would also negatively impact the market for distillers grains. An estimated 34% of distillers grains produced in the United States were exported in 2023. The price of distillers grains has benefitted from the exports of the product.
We believe that our tax return positions are fully supportable. However, certain positions may be successfully challenged by federal, state and local jurisdictions. We are currently undergoing a federal income examination related to tax credits claimed for the years ended January 31, 2015 through 2020.
We believe that our tax return positions are fully supportable. However, certain positions may be successfully challenged by federal, state and local jurisdictions. We are currently undergoing a federal income examination related to tax credits claimed for the years ended January 31, 2015 through 2022.
Our ability to generate returns and avoid write-offs in connection with this investment is subject to various risks and uncertainties. These include, but are not limited to, the risks and uncertainties as set forth below. Availability of the tax credits under IRC Section 45.
Our ability to avoid write-offs in connection with this investment is subject to various risks and uncertainties. These include, but are not limited to, the risks and uncertainties as set forth below. Availability of the tax credits under IRC Section 45.
In recent years, certain countries have refused to import U.S. distillers grains for a variety of reasons. If export shipments are rejected or delayed, the market price for distillers grains would be negatively impacted, which would have a negative impact on our ethanol results of operations. We extract non-food grade corn oil immediately prior to the production of distillers grains.
In recent years, certain countries have refused to import U.S. distillers grains for a variety of reasons. If export shipments are rejected or delayed, the market price for distillers grains would be negatively impacted, which would have a negative impact on our ethanol results of operations. We extract distillers corn oil immediately prior to the production of distillers grains.
In addition, we may not be able to match the appropriate quantity of corn contracts with quantities of ethanol, distillers grains and non-food grade corn oil contracts. Further, o ur results may be impacted by a mismatch of gains or losses associated with the positions during a reporting period when the physical commodity purchase or sale has not yet occurred.
In addition, we may not be able to match the appropriate quantity of corn contracts with quantities of ethanol, distillers grains and distillers corn oil contracts. Further, o ur results may be impacted by a mismatch of gains or losses associated with the positions during a reporting period when the physical commodity purchase or sale has not yet occurred.
This incentive could result in the reduction of the market price of ethanol to a level that is inadequate to generate sufficient cash flow to cover costs. Excess capacity may also result from decreases in the demand for ethanol, which could result from a number of factors, including, but not limited to, regulatory developments and reduced U.S. gasoline consumption.
This incentive could result in the reduction of the market price of ethanol to a level that is inadequate to generate sufficient cash flow to cover costs. A decrease in demand for ethanol may result in excess capacity, which could result from a number of factors, including, but not limited to, regulatory developments and reduced U.S. gasoline consumption.
If it is determined that non-food grade corn oil extraction adversely impacts the nutritional energy content of distillers grains, the value of the distillers grains we sell may be negatively impacted, which would have a negative impact on our results of operations. We face significant competition in the ethanol industry. We face significant competition for new ethanol investment opportunities.
If it is determined that distillers corn oil extraction adversely impacts the nutritional energy content of distillers grains, the value of the distillers grains we sell may be negatively impacted, which would have a negative impact on our results of operations. We face significant competition in the ethanol industry. We face significant competition for new ethanol investment opportunities.
In an attempt to partially offset the impact of volatility of commodity prices, we enter into: i) forward contracts to sell a portion of our ethanol, distillers grains, and non-food grade corn oil production and to purchase a portion of our corn and natural gas requirements and; ii) commodity futures and swap agreements.
In an attempt to partially offset the impact of volatility of commodity prices, we enter into: i) forward contracts to sell a portion of our ethanol, distillers grains, and distillers corn oil production and to purchase a portion of our corn and natural gas requirements and; ii) commodity futures and swap agreements.
In 2022 and 2021, the industry produced approximately 15.4 and 15.0 billion gallons, respectively, with the reduction from the peak year reflecting industry conditions and reduced demand. Thus, there have been significant changes in the supply and demand of ethanol over a relatively short period of time which could lead to difficulty in maintaining profitable operations at our ethanol plants.
In 2023 and 2022, the industry produced approximately 15.6 and 15.4 billion gallons, respectively, with the reduction from the peak year reflecting industry conditions and reduced demand. Thus, there have been significant changes in the supply and demand of ethanol over a relatively short period of time which could lead to difficulty in maintaining profitable operations at our ethanol plants.
If tariffs were raised on the foreign-sourced goods that lead to retaliatory actions, it could have material adverse effect on our business, financial condition and results of operations. The United States exported approximately 1.4 billion gallons of ethanol in 2022, up from approximately 1.2 and approximately 1.3 billion gallons in 2021 and 2020, respectively.
If tariffs were raised on the foreign-sourced goods that lead to retaliatory actions, it could have material adverse effect on our business, financial condition and results of operations. The United States exported an estimated 1.4 billion gallons of ethanol in 2023, up from approximately 1.3 and approximately 1.2 billion gallons in 2022 and 2021, respectively.
The completion of this project requires numerous government and landowner approvals. If we are not successful in obtaining all these approvals, we may not be able to complete this project and could result in a write off of our commitments and investments.
The completion and start-up of this project requires numerous government and landowner approvals. If we are not successful in obtaining all these approvals, we may not be able to complete this project and could result in a significant write off of our commitments and investments.
The corn harvest near our NuGen facility 9 for 2022 was negatively impacted by dry weather and we expect will impact the supply of corn until the 2023 harvest. Such a shortage or price impact could require our ethanol plants to suspend operations which would have a material adverse effect on our consolidated results of operations.
The corn harvest near our NuGen facility for 2022 was negatively impacted by dry weather and impacted the supply of corn until the 2023 harvest. Such a shortage or price impact could require our ethanol plants to suspend operations which would have a material adverse effect on our consolidated results of operations.
According to the RFA, domestic ethanol production capacity is approximately 17.9 billion gallons per year. Under RFS II, there were mandated volumes through 2022 for conventional and advanced biofuels. After 2022, RFS volumes are to be determined by the EPA in coordination with the Secretaries of Energy and Agriculture.
According to the RFA, domestic ethanol production capacity is approximately 18.0 billion gallons per year. Under RFS II, there were mandated volumes through 2022 for conventional and advanced biofuels. After 2022, RFS volumes are to be determined by the EPA in coordination with the Secretaries of Energy and Agriculture.
An increase in the supply of distillers grains and non-food grade corn oil, without corresponding increases in demand, could lead to lower prices or an inability to sell our ethanol plants’ distillers grains and non-food grade corn oil production.
An increase in the supply of distillers grains and distillers corn oil, without corresponding increases in demand, could lead to lower prices or an inability to sell our ethanol plants’ distillers grains and distillers corn oil production.
The inability of a customer to make payments to us for our accounts receivable may cause us to experience losses and may adversely impact our liquidity and our ability to make our payments when due. 17 We may not be able to hire and retain qualified personnel to operate our ethanol plants.
The inability of a customer to make payments to us for our accounts receivable may cause us to experience losses and may adversely impact our liquidity and our ability to make our payments when due. We may not be able to hire and retain qualified personnel to operate our ethanol plants and carbon sequestration facility.
Several studies are attempting to determine whether non-food grade corn oil extraction may impact the nutritional value of the resulting distillers grains.
Several studies are attempting to determine whether distillers corn oil extraction may impact the nutritional value of the resulting distillers grains.
The price of corn is influenced by weather conditions and other factors affecting crop yields, transportation costs, farmer planting decisions, exports, foreign production, the value of the U.S. dollar, and general domestic and foreign economic, market and regulatory factors, including, but not limited to, the impacts from the Russian-Ukraine conflict.
The price of corn is influenced by weather conditions and other factors affecting crop yields, transportation costs, farmer planting decisions, exports, foreign production, the value of the U.S. dollar, and general domestic 9 and foreign economic, market and regulatory factors, including, but not limited to, the impacts from the Russian-Ukraine conflict as well as other conflicts and political unrest, both foreign and domestic.
As a result of the volatility of the prices for these items, our returns may fluctuate substantially and our investments could experience periods of declining prices for their products and increasing costs for their raw materials, which could result in operating losses at our ethanol plants. Our returns on ethanol investments are highly sensitive to grain prices.
As a result of the volatility of the prices for these items, our returns may fluctuate substantially and our investments could experience periods of declining prices for their products and increasing costs for their raw materials, which could result in operating losses at our ethanol plants.
In 2022 and 2021, approximately 11.4 11 and 11.6 million metric tons, respectively, of distillers grains were exported, which represented approximately 34% and 36%, respectively, of U.S production. If producers and exporters of ethanol and distillers grains are subject to trade restrictions, or additional duties are imposed on exports, it may make it uneconomical to export these products.
In 2023 and 2022, an estimated 10.8 and 11.4 million metric tons, respectively, of distillers grains were exported, which represented approximately 34% of U.S production each year. If producers and exporters of ethanol and distillers grains are subject to trade restrictions, or additional duties are imposed on exports, it may make it uneconomical to export these products.
The U.S. ethanol industry is highly dependent upon a myriad of federal and state legislation and regulation and any changes in legislation or regulation could materially and adversely affect our results of operations and financial position.
Reduced demand for ethanol could cause our results of operations to be materially adversely affected. The U.S. ethanol industry is highly dependent upon a myriad of federal and state legislation and regulation and any changes in legislation or regulation could materially and adversely affect our results of operations and financial position.
Reduced gasoline consumption could occur as a result of increased prices for gasoline or crude oil, which could cause businesses and consumers to reduce driving or acquire vehicles with more favorable gasoline mileage or acquire non-gasoline powered vehicles. In addition, decreased overall economic activity could also lead to reduced gasoline consumption.
Reduced gasoline consumption could occur as a result of increased prices for gasoline or crude oil, which could cause businesses and consumers to reduce driving or acquire vehicles with more favorable gasoline mileage or acquire non-gasoline powered vehicles.
The spread between ethanol and corn prices can vary significantly. The gross margin at our ethanol plants depends principally on the spread between ethanol and corn prices. Fluctuations in the spread are likely to continue to occur.
The gross margin at our ethanol plants depends principally on the spread between ethanol, distillers grains, distillers corn oil, and corn prices. Fluctuations in the spread are likely to continue to occur.
If our production does not meet EPA requirements for RIN generation, as an efficient producer, in the future, we would have to purchase RINs in the open market or sell our ethanol at substantially lower prices to adjust for the absence of RINs. The price of RINs varies based on many factors and cannot be predicted.
If our production does not meet EPA requirements for RIN generation, as an efficient producer, in the future, we would have to purchase RINs in the open market or sell our ethanol at substantially lower prices, such as on the export market, to adjust for the absence of RINs.
Although most restrictions have been lifted, if in the future the virus continues to mutate or other viruses surface, it could lead to prolonged production stoppages at our ethanol plants and could result in an adverse material impact on the results of operations and on our financial position.
If in the future, this or other viruses surface, it could lead to prolonged production stoppages at our ethanol plants and could result in an adverse material impact on the results of operations and on our financial position.
The EPA has proposed conventional renewable fuel volumes of 15.0 billion gallons for 2023 and 15.25 billion gallons for 2024 and 2025. In addition, the proposal for 2023 also restores the remaining 250 million gallons previously waived in 2016. The implied excess capacity over the EPA proposed volumes could have an adverse effect on the results of our operations.
The EPA has set conventional renewable fuel volumes of 15.0 billion gallons for 2023 through 2025. In addition, for 2023 they restored 250 million gallons previously waived. The implied excess capacity over the EPA proposed volumes could have an adverse effect on the results of our operations.
This could have a negative impact on our financial performance. 15 Our ethanol business may become subject to various environmental and health and safety and property damage claims and liabilities. Operation of our ethanol business exposes the business to the risk of environmental and health and safety claims and property damage claims, such as failure to comply with environmental regulations.
Our ethanol business may become subject to various environmental and health and safety and property damage claims and liabilities. Operation of our ethanol business exposes the business to the risk of environmental and health and safety claims and property damage claims, such as failure to comply with environmental regulations.
An Indirect Land Use Charge is included in this lifecycle GHG emission calculation. This standard could have an adverse impact on the market for corn-based ethanol in California if corn-based ethanol fails to achieve lifecycle GHG emission reductions and in other states if they adopt similar standards.
This standard could have an adverse impact on the market for corn-based ethanol in California if corn-based ethanol fails to achieve lifecycle GHG emission reductions and in other states if they adopt similar standards. This could have a negative impact on our financial performance.
We also face the risk of ethanol production above our grandfathered capacity not qualifying for RINs if the plants do not meet certain emission requirements. The California Air Resources Board (“CARB”) adopted a Low Carbon Fuel Standard (“LCFS”) requiring a 10% reduction in GHG emissions from transportation fuels.
We also face the risk of ethanol production above our grandfathered capacity not qualifying for RINs if the plants do not meet certain emission requirements. The California Air Resources Board (“CARB”) adopted a LCFS requiring a 10% reduction in GHG emissions from transportation fuels. An Indirect Land Use Charge is included in this lifecycle GHG emission calculation.
Any advances in technology which require significant unanticipated capital expenditures to remain competitive or which reduce demand or prices for ethanol would have a material adverse effect on the results of our ethanol operations. In addition, alternative fuels, additives and oxygenates are continually under development.
In addition, advances in the development of alternatives to ethanol could significantly reduce demand for or eliminate the need for ethanol. 13 Any advances in technology which require significant unanticipated capital expenditures to remain competitive or which reduce demand or prices for ethanol would have a material adverse effect on the results of our ethanol operations.
Alternative fuel additives that can replace ethanol may be developed, which may decrease the demand for ethanol. It is also possible that technological advances in engine and exhaust system design and performance could reduce the use of oxygenates, which would lower the demand for ethanol. Reduced demand for ethanol could cause our results of operations to be materially adversely affected.
In addition, alternative fuels, additives and oxygenates are continually under development. Alternative fuel additives that can replace ethanol may be developed, which may decrease the demand for ethanol. It is also possible that technological advances in engine and exhaust system design and performance could reduce the use of oxygenates, which would lower the demand for ethanol.
Day-to-day operating control of minority owned plants generally remains with the local investor group. We do not have the ability to directly modify the operations of these plants in response to changes in the business environment or in response to any deficiencies in local operations of the plants.
We do not have the ability to directly modify the operations of these plants in response to changes in the business environment or in response to any deficiencies in local operations of the plants.
Acquisitions and similar transactions involve many risks that could harm our business, which include: ● The anticipated benefits of these transactions may not be fully realized, or take longer to realize than expected, ● Future acquisitions could result in operating losses or loss of investment, ● Future acquisitions may involve incurring debt to complete these transactions, which could have a material adverse effect on our financial condition, and ● Future acquisitions may require us to invest a significant portion of our excess cash, which could have a material adverse effect on our financial condition. 20 Rising focus on environmental, social and corporate governance matters from investors and regulators may increase our operating costs, bring down the value of our products and assets, and impact our ability to access capital markets.
Acquisitions and similar transactions involve many risks that could harm our business, which include: ● The anticipated benefits of these transactions may not be fully realized, or take longer to realize than expected, ● Future acquisitions could result in operating losses or loss of investment, ● Future acquisitions may involve incurring debt to complete these transactions, which could have a material adverse effect on our financial condition, ● Future acquisitions may require us to invest a significant portion of our excess cash, which could have a material adverse effect on our financial condition, and ● Our carbon sequestration investment may not be successful.
The EPA has proposed conventional renewable fuel volumes of 15.0 billion gallons for 2023 and 15.25 billion gallons for both 2024 and 2025. Additionally, the proposal for 2023 also restores the remaining 250 million gallons previously waived in 2016. Obligated parties use RINs to show compliance with RFS-mandated volumes.
The EPA has set conventional renewable fuel volumes of 15.0 billion gallons for 2023 through 2025 Additionally, for 2023, the EPA restored 250 million gallons previously waived. Obligated parties use RINs to show compliance with RFS-mandated volumes.
Failure to obtain sufficient RINs or reliance on invalid RINs could subject us to fines and penalties imposed by the EPA.
The price of RINs varies based on many factors and cannot be predicted. Failure to obtain sufficient RINs or reliance on invalid RINs could subject us to fines and penalties imposed by the EPA.
The financial returns on our ethanol investments are highly dependent on commodity prices, which are subject to significant volatility, uncertainty and regional supply shortages, so our results could fluctuate substantially. The financial returns on our ethanol investments are highly dependent on commodity prices, especially prices for corn, natural gas, ethanol, dried distillers grains, non-food grade corn oil and unleaded gasoline.
The financial returns on our ethanol investments are highly dependent on commodity prices, which are subject to significant volatility, uncertainty and regional supply shortages, so our results could fluctuate substantially.
Such declines could have a material adverse effect on our results of operations. Increased ethanol production or decreases in demand for ethanol may result in excess production capacity in the ethanol industry, which may cause the price of ethanol, distillers grains and non-food grade corn oil to decrease.
As a result, inflation and higher prices could negatively impact our results of operations. Increased ethanol production or decreases in demand for ethanol may result in excess production capacity in the ethanol industry, which may cause the price of ethanol, distillers grains and distillers corn oil to decrease.
A decline in the price of distillers grains or non-food grade corn oil could have a material adverse effect on the results of our ethanol operations. The price of ethanol and distillers grains may decline as a result of trade restrictions or duties on ethanol and distillers grains exports from the United States or from unfavorable foreign currency exchange rates.
The price of ethanol and distillers grains may decline as a result of trade restrictions or duties on ethanol and distillers grains exports from the United States or from unfavorable foreign currency exchange rates.
In addition, because ethanol production produces distillers grains and non-food grade corn oil as by-products, increased ethanol production will also lead to increased supplies of distillers grains and non-food grade corn oil.
In addition, decreased overall economic activity could also lead to reduced gasoline consumption. 11 In addition, because ethanol production produces distillers grains and distillers corn oil as by-products, increased ethanol production will also lead to increased supplies of distillers grains and distillers corn oil.
A sustained narrow or negative spread, whether as a result of sustained high or increased corn prices or sustained low or decreased ethanol prices, would adversely affect the results of operations at our ethanol plants. Our risk management strategies may be ineffective and may expose us to decreased profitability and liquidity.
A sustained narrow or negative spread, whether as a result of sustained high or increased corn prices or sustained low or decreased ethanol prices, would adversely affect the results of operations at our ethanol plants. Our returns on ethanol investments are highly sensitive to corn prices.
High blend ethanol fuels such as E-85 result in lower fuel efficiencies. Absent the CAFE preferences, car makers would not likely build flexible-fuel vehicles. In recent years, automobile manufactures have backtracked in the production of FFVs for the U.S. Any change in CAFE preferences could reduce the growth of E-85 markets and result in lower ethanol prices.
In recent years, automobile manufactures have lowered the production of FFVs for the U.S. Any change in CAFE preferences could reduce the growth of E-85 markets and result in lower ethanol prices.
These types of claims could also be made against our ethanol business based upon the acts or omissions of other persons. Serious claims could have a material negative impact on our results of operations, financial position and future cash flows. During the early months of 2020, a new strain of COVID-19 spread into the United States and other countries.
These types of claims could also be made against our ethanol business based upon the acts or omissions of other persons. Serious claims could have a material negative impact on our results of operations, financial position and future cash flows. Our business is not diversified. Our financial results depend heavily on our ability to operate our ethanol plants profitably.
If we are unable to reduce our CI score, we may not be able to participate in the state and federal clean fuel programs, including federal tax credits outlined in the Inflation Reduction Act. Our ethanol plants may be adversely affected by technological advances and efforts to anticipate and employ such technological advances may prove unsuccessful.
If we are unable to reduce our CI score, we may not be able to participate in the state and federal clean fuel programs, including federal tax credits outlined in the Inflation Reduction Act. Carbon capture and sequestration projects are subject to federal, state, and local regulations.
We cannot predict when, or if, new technologies may become available, the rate of acceptance of new technologies by competitors or the costs associated with new technologies. In addition, advances in the development of alternatives to ethanol could significantly reduce demand for or eliminate the need for ethanol.
We cannot predict when, or if, new technologies may become available, the rate of acceptance of new technologies by competitors or the costs associated with new technologies.
There also have been pledges to ban the sale of internal combustion engines in countries such as Japan and the United Kingdom by 2035, as well as a statewide ban in California, which several states are imitating. If realized, these bans would accelerate the decline of liquid fuel demand and by extension demand for ethanol, biodiesel and renewable diesel.
Numerous automobile manufacturers have announced plans to phase out internal combustion engine production by the mid-2030s. There also have been pledges to ban the sale of internal combustion engines in countries such as Japan and the United Kingdom by 2035, as well as a statewide ban in California, which several states are imitating.
The development and implementation of new technologies may result in a significant reduction in the costs of ethanol production.
Our ethanol plants may be adversely affected by technological advances and efforts to anticipate and employ such technological advances may prove unsuccessful. The development and implementation of new technologies may result in a significant reduction in the costs of ethanol production.
Recent federal legislation seeks to address the ever-increasing demand for electric vehicle infrastructure. Reduced demand for ethanol could cause our results of operations to be materially impacted. We depend on our partners to operate certain of our ethanol investments . Our investments currently represent both majority and minority equity positions.
If realized, these bans would accelerate the decline of liquid fuel demand and by extension demand for ethanol, biodiesel and renewable diesel. Recent federal legislation seeks to address the ever-increasing demand for electric vehicle infrastructure. Reduced demand for ethanol could cause our results of operations to be materially impacted.
Any delays in obtaining additional financing, or our inability to do so, could have a material adverse impact on our financial results. Risks Related to our Refined Coal Operations We believe our refined coal production company qualified to earn tax credits under IRC Section 45 through November 18, 2021.
We idled our NuGen and One Earth ethanol plants for portions of fiscal year 2020, largely due to the impact of the pandemic. Risks Related to our Refined Coal Operations We believe our refined coal production company qualified to earn tax credits under IRC Section 45 through November 18, 2021.
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Most automobile manufacturers have made varying levels of commitments to phase out internal combustion engine production, such as General Motors with a target date of 2035 to phase out the production of gasoline and diesel-powered vehicles and Nissan targeting the early 2030s to convert their entire fleet to electric vehicles.
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The financial returns on our ethanol investments are highly dependent on commodity prices, especially prices for corn, natural gas, ethanol, distillers grains, distillers corn oil and gasoline, and availability of corn.
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Our ethanol development strategy depends on referrals, and introductions, to new investment opportunities from industry participants, such as ethanol plant builders and owners, financial institutions, marketing agents and others. We must continue to maintain favorable relationships with these industry participants, and a material disruption in these sources of referrals would adversely affect our ability to expand our ethanol investments.
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Our risk management strategies may be ineffective and may expose us to decreased profitability and liquidity.
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This action led to reduced values for RINs, and further action could decrease RIN values and ethanol pricing. In January 2020, the U.S Court of Appeals for the 10 th Circuit overturned the EPA’s granting of refinery exemptions to three refineries on two separate grounds.
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Such declines could have a material adverse effect on our results of operations. Pricing of distillers corn oil is primarily driven by the demand from renewable diesel, biodiesel, and to some extent, sustainable aviation fuel markets.
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The Court ruled refineries are eligible for SREs only if such waivers are extensions of waivers granted in previous years. The refineries did not qualify for waivers in the year prior to the year the EPA granted them.
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Distillers corn oil is marketed as a low-carbon feedstock to be used in these markets which may see expanded demand due to the extended blending tax credit, credits included in the Inflation Reduction Act and growing Low Carbon Fuel Standard (“LCFS”) markets, resulting in an impact to distillers corn oil demand.
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The Court also stated the disproportionate economic hardship of SREs should be based solely on whether compliance with RFS II creates such hardship, not whether compliance and other issues create the hardship. Two of the refiners appealed the decision to the U.S.
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With a lower CI score, distillers corn oil may see improved pricing compared to heating oil and soybean oil, which it has traditionally tracked closely in price. Alternatively, other feedstocks such as cooking oil and animal fats, with lower CI scoring, could be preferred over distillers corn oil.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings We are, from time to time, involved in various legal proceedings incidental to the conduct of our business.
Biggest changeItem 3. Legal Proceedings We are, from time to time, involved in various legal proceedings incidental to the conduct of our business. We believe that any current proceedings will not have a material adverse effect on our financial condition or results of operations. 22
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We believe that any current proceedings will not have a material adverse effect on our financial condition or results of operations. 21 Information About Our Executive Officers Set forth below is certain information about each of our executive officers.
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Name Age Position Stuart Rose 68 Executive Chairman of the Board* Zafar Rizvi 73 Chief Executive Officer and President* Douglas Bruggeman 62 Vice President-Finance, Chief Financial Officer and Treasurer Edward Kress 73 Secretary* *Also serves as a director. Stuart Rose was elected our Executive Chairman of the Board in 2015. Mr.
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Rose had served as our Chairman of the Board and Chief Executive Officer since our incorporation in 1984 as a holding company. Prior to 1984, Mr. Rose was Chairman of the Board and Chief Executive Officer of Rex Radio and Television, Inc., which he founded in 1980 to acquire the stock of a corporation which operated four retail stores.
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Zafar Rizvi was elected Chief Executive Officer in 2015. Mr. Rizvi has been our President and Chief Operating Officer since 2010, was Vice President from 2006 to 2010. From 1991 to 2006, Mr. Rizvi was our Vice President – Loss Prevention. Douglas Bruggeman has been our Vice President–Finance and Treasurer since 1989 and was elected Chief Financial Officer in 2003.
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From 1987 to 1989, Mr. Bruggeman was our Manager of Corporate Accounting. Mr. Bruggeman was employed with the accounting firm of Ernst & Young prior to joining us in 1986. Edward Kress has been our Secretary since 1984. Mr.
Removed
Kress has been a partner of the law firm of Dinsmore & Shohl LLP (formerly Chernesky, Heyman & Kress P.L.L.), our legal counsel, since 1988. Mr. Kress has practiced law in Dayton, Ohio since 1974.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe graph assumes an investment of $100 in our Common Stock and each index on January 31, 2018 and reinvestment of all dividends.
Biggest changeThe graph assumes an investment of $100 in our Common Stock and each index on January 31, 2019 and reinvestment of all dividends. Comparison of 5 Year Cumulative Total Return Assumes Initial Investment of $100 January 2024
There were no share repurchases in the fourth quarter of fiscal year 2022. Equity Compensation Plans Refer to Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters for information regarding shares authorized for issuance under equity compensation plans.
There were no share repurchases in the fourth quarter of fiscal year 2023. Equity Compensation Plans Refer to Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters for information regarding shares authorized for issuance under equity compensation plans.
Dividend Policy The Company has no history of paying cash dividends on our common stock. 22 Issuer Purchases of Equity Securities On August 31, 2021, our Board of Directors increased our share repurchase authorization by an additional 1,500,000 shares (split-adjusted). At January 31, 2023, a total of 876,786 shares remained available to purchase under this authorization.
Dividend Policy The Company has no history of paying cash dividends on our common stock. 23 Issuer Purchases of Equity Securities On August 31, 2021, our Board of Directors increased our share repurchase authorization by an additional 1,500,000 shares (split-adjusted). At January 31, 2024, a total of 876,786 shares remained available to purchase under this authorization.
Performance Graph The following graph compares the yearly percentage change in the cumulative total shareholder return on our Common Stock against the cumulative total return of the S&P 500 Stock Index and a peer group comprised of Alto Ingredients, Inc. and Green Plains, Inc. for the period commencing January 31, 2018 and ended January 31, 2023.
Performance Graph The following graph compares the yearly percentage change in the cumulative total shareholder return on our Common Stock against the cumulative total return of the S&P 500 Stock Index and a peer group comprised of Alto Ingredients, Inc. and Green Plains, Inc. for the period commencing January 31, 2019 and ended January 31, 2024.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Shareholder Information Our common stock is traded on the New York Stock Exchange under the symbol REX. As of March 29, 2023, there were 71 holders of record of our common stock, including shares held in nominee or street name by brokers.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Shareholder Information Our common stock is traded on the New York Stock Exchange under the symbol REX. As of March 28, 2024, there were 70 holders of record of our common stock, including shares held in nominee or street name by brokers.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations The following table summarizes our results from operations (amounts in thousands): Fiscal Year 2022 2021 Net sales and revenue $ 855,000 $ 774,802 Cost of sales 800,269 677,242 Gross profit $ 54,731 $ 97,560 Income before income taxes $ 47,479 $ 75,838 Provision for income taxes $ (9,542) $ (19,031) Net income attributable to REX common shareholders (continuing operations) $ 27,697 $ 47,572 Net income attributable to REX common shareholders (discontinued operations) $ - $ 4,792 27 The following table summarizes net sales and revenue by product group (amounts in thousands): Fiscal Year 2022 2021 Ethanol $ 649,501 $ 613,597 Dried distillers grains 139,118 125,009 Non-food grade corn oil 55,595 38,852 Modified distillers grains 11,579 9,104 Derivative financial instruments losses (1,024) (12,109) Other 231 349 Total, continuing operations $ 855,000 $ 774,802 Refined coal (discontinued operations) 1 $ - $ 400 1 Refined coal sales were recorded net of the cost of coal as the Company purchased the coal feedstock from the same customer to which the processed refined coal was sold.
Biggest changeShould these trends and uncertainties continue, our future operating results could be impacted. 27 Results of Operations The following table summarizes our results from operations (amounts in thousands): Fiscal Year 2023 2022 Net sales and revenue $ 833,384 $ 855,000 Cost of sales 735,166 806,398 Gross profit $ 98,218 $ 48,602 Income before income taxes $ 98,484 $ 47,479 Provision for income taxes $ (22,560) $ (9,542) Net income attributable to REX common shareholders $ 60,935 $ 27,697 The following table summarizes net sales and revenue by product group (amounts in thousands): Fiscal Year 2023 2022 Ethanol $ 635,420 $ 649,501 Dried distillers grains 139,173 139,118 Distillers corn oil 52,935 55,595 Modified distillers grains 5,584 11,579 Derivative financial instruments losses (37) (1,024) Other 309 231 Total $ 833,384 $ 855,000 The following table summarizes selected operating data: Fiscal Year 2023 2022 Average selling price per gallon of ethanol (net of hedging) $ 2.22 $ 2.44 Gallons of ethanol sold (in millions) 285.9 265.8 Average selling price per ton of dried distillers grains $ 213.55 $ 232.98 Tons of dried distillers grains sold 651,698 597,126 Average selling price per pound of distillers corn oil $ 0.60 $ 0.71 Pounds of distillers corn oil sold (in millions) 87.5 77.8 Average selling price per ton of modified distillers grains $ 103.54 $ 123.66 Tons of modified distillers grains sold 53,936 93,637 28 Comparison of Fiscal Years 2023 and 2022 (Consolidated Results) Net Sales and Revenue – Net sales and revenue in fiscal year 2023 decreased approximately 3% compared to fiscal year 2022.
Consequently, we generally execute fixed price contracts for no more than four months into the future at any given time and we may lock in our corn or ethanol price without having a corresponding locked in ethanol or corn price for short durations of time.
Consequently, we generally execute fixed price contracts for no more than four months into the future at any given time and we may lock in our corn or ethanol price without having a corresponding locked in ethanol or corn price for short durations of time.
Because the market price of ethanol and distillers grains are not always directly related to corn prices (for example, demand for crude and other energy and related prices, the export market demand for ethanol and distillers grains, soybean meal prices, and the results of federal policy decisions and trade negotiations can impact ethanol and distillers grains prices), at times ethanol and distillers grains prices may not follow movements in corn prices and, in an environment of higher corn prices or lower ethanol prices, reduce the overall margin structure at the plants.
Because the market prices of ethanol and distillers grains are not always directly related to corn prices (for example, demand for crude and other energy and related prices, the export market demand for ethanol and distillers grains, soybean meal prices, and the results of federal policy decisions and trade negotiations can impact ethanol and distillers grains prices) , at times ethanol and distillers grains prices may not follow movements in corn prices and, in an environment of higher corn prices or lower ethanol or distillers grains prices, reduce the overall margin structure at the plants.
In recent years, there has been much uncertainty on the enforcement of RFS II. When it was originally established, RFS II required the volume of “conventional” or corn derived ethanol to be blended with gasoline to increase each year until it reached 15.0 billion gallons in 2015 and required that it remain at that level through 2022.
In recent years, there has been much uncertainty in the enforcement of RFS II. When it was originally established, RFS II required the volume of “conventional” or corn derived ethanol to be blended with gasoline to increase each year until it reached 15.0 billion gallons in 2015 and required that it remain at that level through 2022.
As a result of the relatively short period of time our fixed price contracts cover, we generally cannot predict the future movements in our realized crush spread for more than four months. We utilize derivative financial instruments, primarily exchange traded commodity future contracts and swaps, in conjunction with our grain procurement and commodity marketing activities.
As a result of the relatively short period of time our fixed price contracts cover, we generally 29 cannot predict the future movements in our realized crush spread for more than four months. We utilize derivative financial instruments, primarily exchange traded commodity future contracts and swaps, in conjunction with our grain procurement and commodity marketing activities.
During fiscal year 2022, operating cash flow was provided by net income from continuing operations of approximately $37.9 million and adjustments of approximately $14.6 million, which consisted of depreciation, amortization of operating lease right-of-use assets, stock-based compensation expense, income from equity method investments, interest 31 income from investments, and the deferred income tax provision.
During fiscal year 2022, operating cash flow was provided by net income from continuing operations of approximately $37.9 million and adjustments of approximately $14.6 million, which consisted of depreciation, amortization of operating lease right-of-use assets, stock-based compensation expense, income from equity method investments, interest income from investments, and the deferred income tax provision.
Our effective rate is impacted by the noncontrolling interests of the companies we consolidate, as we recognize 100% of their income or loss before income taxes and noncontrolling interests. However, we only provide an income tax provision or benefit for our portion of the subsidiaries’ income or loss.
Our effective rate is impacted by the noncontrolling interests of the companies we consolidate, as we recognize 100% of their income or loss before income taxes and noncontrolling interests and only provide an income tax provision or benefit for our portion of the subsidiaries’ income or loss.
Management believes that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. 33 Revenue Recognition – We recognize sales of ethanol, distillers grains and non-food grade corn oil when obligations under the terms of the respective contracts with customers are satisfied; this occurs with the transfer of control of products, generally upon shipment from the ethanol plant or upon loading of the rail car used to transport the products.
Management believes that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective, or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. 33 Revenue Recognition – We recognize sales of ethanol, distillers grains and distillers corn oil when obligations under the terms of the respective contracts with customers are satisfied; this occurs with the transfer of control of products, generally upon shipment from the ethanol plant or upon loading of the rail car used to transport the products.
The Act also raises the carbon capture tax credit from $50 per metric ton to $85 per 26 metric ton, under section 45Q of the Internal Revenue Code (“45Q”).
The Act also raises the carbon capture tax credit from $50 per metric ton to $85 per metric ton, under section 45Q of the Internal Revenue Code (“45Q”).
We refer to the difference between the price per gallon of ethanol and the price per bushel of grain (divided by the realized yield) as the “crush spread.” Should the crush spread decline, it is possible that our ethanol plants will generate operating results that do not provide adequate cash flows for sustained periods of time.
We refer to the difference between the price per gallon of ethanol and the price per bushel of corn (divided by the realized yield) as the “crush spread.” Should the crush spread decline, it is possible that our ethanol plants will generate operating results that do not provide adequate cash flows for sustained periods of time.
Comparison of Fiscal Years 2021 and 2020 See “Item 7 Management’s discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended January 31, 2022. Liquidity and Capital Resources Our primary sources of cash have been income from operations.
Comparison of Fiscal Years 2022 and 2021 See “Item 7 Management’s discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended January 31, 2023. Liquidity and Capital Resources Our primary sources of cash have been income from operations.
As a result, at times, we may operate our plants at negative or minimally positive operating margins. We expect our ethanol plants to produce approximately 2.9 gallons of denatured ethanol for each bushel of grain processed in the production cycle. We refer to the actual gallons of denatured ethanol produced per bushel of grain processed as the realized yield.
As a result, at times, we may operate our plants at negative or minimally positive operating margins. We expect our ethanol plants to produce approximately 2.9 gallons of denatured ethanol for each bushel of corn processed in the production cycle. We refer to the actual gallons of denatured ethanol produced per bushel of corn processed as the realized yield.
One Earth Sequestration, LLC, a wholly owned subsidiary of One Earth Energy, LLC, is in the exploratory stage of a carbon sequestration project near the One Earth Energy ethanol plant. A test well has been drilled to a total depth of approximately 7,100 feet, in which almost 2,000 feet of Mt.
One Earth Sequestration, LLC, a wholly owned subsidiary of One Earth Energy, LLC, is in the developmental stage of a carbon sequestration project near the One Earth Energy ethanol plant. A test well has been drilled to a total depth of approximately 7,100 feet, in which almost 2,000 feet of Mt.
We attempt to match quantities of these sales contracts with an appropriate quantity of grain purchase contracts over a given period of time when we can obtain an adequate gross margin resulting from the crush spread inherent in the contracts we have executed.
We attempt to match quantities of these sales contracts with an appropriate quantity of corn purchase contracts over a given period of time when we can obtain an adequate gross margin resulting from the crush spread inherent in the contracts we have executed.
In addition, under RFS II, a small refiner that processes less than 75,000 barrels of oil per day can petition the EPA for a waiver of their requirement to submit renewable identification numbers (“RINs”) for the oil they process.
In addition, under RFS II, a small refiner that processes less than 75,000 barrels of oil per day can petition the EPA for a waiver of their requirement to submit renewable identification numbers (“RINs”).
Based on our forecasts, which are primarily based on estimates of plant production, prices of ethanol, corn, distillers grains, non-food grade corn oil and natural gas as well as other assumptions, management believes that cash flow from operating activities together with working capital will be sufficient to meet One Earth’s and NuGen’s respective liquidity needs.
Based on our forecasts, which are primarily based on estimates of plant production, prices of ethanol, corn, distillers grains, distillers corn oil and natural gas as well as other assumptions, management believes that cash flow from operating activities together with working capital will be sufficient to meet One Earth’s and NuGen’s respective liquidity needs.
We attempt to match quantities of ethanol, distillers grains and non-food grade corn oil sale contracts with an appropriate quantity of grain purchase contracts over a given period of time when we can obtain an adequate margin resulting from the crush spread inherent in the contracts we have executed.
We attempt to match quantities of ethanol, distillers grains and distillers corn oil sale contracts with an appropriate quantity of grain purchase contracts over a given period of time when we can obtain an adequate margin resulting from the crush spread inherent in the contracts we have executed.
Simon Sandstone was encountered, which represents the region’s primary carbon storage resource. Three-dimensional seismic testing has been performed, as well as geological modeling for predicting the movement of injected carbon and the plume area to determine maximum injection pressure, reservoir quality and storage capacity for the potential wells.
Simon Sandstone was encountered, which is the geological formation that is the region’s primary carbon storage resource. Three-dimensional seismic testing has been performed, as well as geological modeling for predicting the movement of injected carbon and the plume area to determine maximum injection pressure, reservoir quality and storage capacity for the potential wells.
Interest and Other Income – Interest and other income for fiscal year 2022 was approximately $13.0 million compared to approximately $0.1 million for fiscal year 2021. During the second quarter of 2022, the Company’s consolidated plants received COVID-19 relief grants from the USDA totaling approximately $7.8 million based on reduced production in 2020.
Interest and Other Income – Interest and other income for fiscal year 2023 was approximately $15.7 million compared to approximately $13.0 million for fiscal year 2022. During the second quarter of 2022, the Company’s consolidated plants received COVID-19 relief grants from the USDA totaling approximately $7.8 million based on reduced production in 2020.
REX’s effective ownership of gallons shipped, for the twelve-month period ended January 31, 2023, by the ethanol production facilities in which we have ownership interests was approximately 271 million gallons. Trends and Uncertainties Renewable Fuel Standard II (“RFS II”), established in October 2010, has been an important factor in the growth of ethanol usage in the United States.
REX’s effective ownership of gallons shipped, for the twelve-month period ended January 31, 2024, by the ethanol production facilities in which we have ownership interests was approximately 290 million gallons. 26 Trends and Uncertainties Renewable Fuel Standard II (“RFS II”), established in October 2010, has been an important factor in the growth of ethanol usage in the United States.
We attempt to manage the risk related to the volatility of commodity prices by utilizing forward grain and natural gas purchase contracts, forward ethanol, distillers grains and non-food grade corn oil sale contracts and commodity futures agreements, as management deems appropriate.
We attempt to manage the risk related to the volatility of commodity prices by utilizing forward corn and natural gas purchase contracts, forward ethanol, distillers grains and distillers corn oil sale contracts, and commodity futures agreements, as management deems appropriate.
Our investment in Big River, which has interests in four ethanol production plants, represents an effective ownership of approximately 38.0 million gallons of ethanol shipped in the trailing twelve months ended January 31, 2023.
Our investment in Big River, which has interests in four ethanol production plants, represents an effective ownership of approximately 38.4 million gallons of ethanol shipped in the trailing twelve months ended January 31, 2024.
However, the market for future ethanol sales contracts generally lags the spot market with respect to ethanol price.
However, the market for future ethanol sales contracts generally lags the spot market with respect to ethanol prices.
Approximately 2.6% of our net assets are restricted pursuant to the terms of various loan agreements of our equity method investee as of January 31, 2023. None of our consolidated subsidiaries or the parent company has restricted net assets at January 31, 2023.
Approximately 2.2% of our net assets are restricted pursuant to the terms of various loan agreements of Big River, our equity method investee, as of January 31, 2024. None of our consolidated subsidiaries or the parent company has restricted net assets at January 31, 2024.
Aggregate minimum lease payments under the operating lease agreements for future fiscal years as of January 31, 2023 totaled $17.0 million, with $5.6 million payable in the next twelve months. Refer to Note 7 – Leases included in the notes to consolidated financial statements for more information.
Aggregate minimum lease payments under the operating lease agreements for future fiscal years as of January 31, 2024 totaled $14.7 million, with $5.1 million payable in the next twelve months. Refer to Note 7 – Leases included in the notes to consolidated financial statements for more information.
Financing Activities – Net cash used in financing activities was approximately $17.0 million during fiscal year 2022 compared to approximately $11.1 million for fiscal year 2021. During fiscal year 2022, we purchased approximately 471,000 shares of our common stock for approximately $13.0 million in open market transactions.
Net cash used in financing activities was approximately $17.0 million during fiscal year 2022. During fiscal year 2022, we purchased approximately 471,000 shares of our common stock for approximately $13.0 million 32 in open market transactions.
Selling, General and Administrative (“SG&A”) Expenses – SG&A expenses for fiscal year 2022 were approximately $29.0 million (3.4% of net sales and revenue), an increase of approximately $0.5 million or 2% from approximately $28.5 million (3.7% of net sales and revenue) for fiscal year 2021.
Selling, General and Administrative (“SG&A”) Expenses – SG&A expenses for fiscal year 2023 were approximately $29.4 million (3.5% of net sales and revenue), an increase of approximately $6.6 million or 29% from approximately $22.8 million (2.7% of net sales and revenue) for fiscal year 2022.
Net Income from Continuing Operations – As a result of the foregoing, net income from continuing operations was approximately $37.9 million for fiscal year 2022 versus approximately $56.8 million for fiscal year 2021.
Net Income from Continuing Operations – As a result of the foregoing, net income from continuing operations was approximately $75.9 million for fiscal year 2023 versus approximately $37.9 million for fiscal year 2022.
Income Taxes – Income taxes are recorded based on the current year amounts payable or refundable, as well as the consequences of events that give rise to deferred tax assets and liabilities based on differences in how those events are treated for tax purposes, net of valuation allowances.
We recorded no impairment charges in fiscal years 2023, 2022, and 2021. Income Taxes – Income taxes are recorded based on the current year amounts payable or refundable, as well as the consequences of events that give rise to deferred tax assets and liabilities based on differences in how those events are treated for tax purposes, net of valuation allowances.
Accrued expenses and other liabilities decreased approximately $2.8 million, which was primarily a result of operating lease payments of approximately $5.0 million partially offset by an increase in accrued income taxes of approximately $2.0 million. Net cash provided by operating activities was approximately $91.7 million for fiscal year 2021.
Accrued expenses and other liabilities decreased approximately $4.5 million, which was primarily a result of operating lease payments of approximately $5.4 million and a decrease in accrued income taxes of $2.0 million, partially offset by an increase in accrued payroll of approximately $3.8 million. Net cash provided by operating activities was approximately $54.8 million for fiscal year 2022.
Investing Activities – Net cash used in investing activities was approximately $198.5 million during fiscal year 2022 compared to net cash provided by investing activities of approximately $5.3 million during fiscal year 2021.
Investing Activities – Net cash provided by investing activities was approximately $28.4 million during fiscal year 2023 compared to net cash used in investing activities of approximately $198.5 million during fiscal year 2022.
Ethanol sales increased in fiscal year 2022 compared to fiscal year 2021 as the average price per gallon increased 10%, offset partially by a decrease in gallons sold of 4%. The increase in ethanol selling price resulted primarily from an increase in commodity prices.
Ethanol sales decreased in fiscal year 2023 compared to fiscal year 2022 as the average price per gallon decreased 9%, offset partially by an increase in gallons sold of 8%. The decrease in ethanol selling price resulted primarily from a decrease in commodity prices.
During fiscal year 2022, we used cash of approximately $4.0 million to purchase shares from and pay dividends to noncontrolling members of the entities that own One Earth’s and NuGen’s ethanol plants. Net cash used in financing activities was approximately $11.1 million during fiscal year 2021.
During fiscal year 2022, we used cash of approximately $4.0 million to purchase shares from and pay dividends to noncontrolling members of the entities that own One Earth’s and NuGen’s ethanol plants.
As of January 31, 2023, we had contracted future purchases of grain, natural gas, natural gas pipeline lease and other contracts for capital expenditures at our ethanol plants valued at approximately $87.7 million, with $75.1 payable in the next twelve months. Refer to Note 11 – Commitments included in the notes to consolidated financial statements for more information.
As of January 31, 2024, we had contracted future purchases of corn, natural gas, natural gas pipeline lease and other contracts for capital expenditures at our ethanol plants valued at approximately $126.3 million, with $123.0 million payable in the next twelve months. Refer to Note 11 – Commitments included in the notes to consolidated financial statements for more information.
During fiscal year 2022, we used cash of approximately $399.4 million for purchases of short-term investments and received cash of approximately $216.7 million related to maturities of these investments as certain of these investments remained outstanding at January 31, 2023. Net cash provided by investing activities was approximately $5.3 million during fiscal year 2021.
During fiscal year 2022, we used cash of approximately $399.4 million for purchases of short-term investments and received cash of approximately $216.7 million related to maturities of these investments as certain of these investments remained outstanding at January 31, 2023.
Accounts payable increased approximately $16.0 million, primarily a result of the timing of inventory receipts and vendor payments. Refundable income taxes increased $1.1 million as a result of the timing of estimated tax payments.
Accounts payable increased approximately $7.9 million, primarily a result of the timing of inventory receipts and vendor payments. Refundable income taxes increased $2.8 million as a result of the timing of estimated tax payments.
Operating Activities – Net cash provided by operating activities was approximately $54.8 million for fiscal year 2022 compared to approximately $91.7 million in fiscal year 2021.
Operating Activities – Net cash provided by operating activities was approximately $128.0 million for fiscal year 2023 compared to approximately $54.8 million in fiscal year 2022.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview We have been an investor in ethanol production facilities beginning in 2006 and a refined coal production facility during the period from 2017 through November 2021. We currently have equity investments in three ethanol production entities, two of which are majority ownership interests.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview We have been an investor in ethanol production facilities beginning in 2006 and were an investor in a refined coal production facility during the period from 2017 through November 2021.
The price and availability of corn is subject to significant fluctuations depending upon a number of factors that affect commodity prices in general, including crop conditions, the amount of corn stored on farms, weather, federal policy, foreign trade and international disruptions caused by wars or conflicts.
As a result of price volatility for these commodities, our operating results can fluctuate substantially. The price and availability of corn is subject to significant fluctuations depending upon several factors that affect commodity prices in general, including crop conditions, the amount of corn stored on farms, weather, federal policy, foreign trade, and international disruptions caused by wars or conflicts.
Income from Continuing Operations Before Income Taxes – As a result of the foregoing, income from continuing operations before income taxes was approximately $47.5 million for fiscal year 2022 versus approximately $75.8 million for fiscal year 2021. Provision for Income Taxes – Our effective tax rate was a provision of 20.1% and 25.1% for fiscal years 2022 and 2021, respectively.
Income Before Income Taxes – As a result of the foregoing, income before income taxes was approximately $98.5 million for fiscal year 2023 versus approximately $47.5 million for fiscal year 2022. Provision for Income Taxes – Our effective tax rate was a provision of 22.9% and 20.1% for fiscal years 2023 and 2022, respectively.
Big River paid dividends to REX of approximately $5.5 million during fiscal year 2021. Accounts receivable increased approximately $6.1 million, primarily a result of the timing of products shipped and the receipt of customer payments at One Earth and NuGen.
Big River paid dividends to REX of approximately $12.0 million during fiscal year 2023. Accounts receivable decreased approximately $2.0 million, primarily a result of the timing of products shipped and the receipt of 31 customer payments at One Earth and NuGen.
During fiscal year 2021, operating cash flow was provided by net income from continuing operations of approximately $56.8 million and adjustments of approximately $31.4 million, which consisted of depreciation, amortization of operating lease right-of-use assets, stock-based compensation expense, income from equity method investments, interest income from investments, and the deferred income tax provision.
During fiscal year 2023, operating cash flow was provided by net income from continuing operations of approximately $75.9 million and adjustments of approximately $20.2 million, which consisted of depreciation, amortization of operating lease right-of-use assets, stock-based compensation expense, income from equity method investments, interest income from investments, loss on sale of property and equipment, and the deferred income tax provision.
During fiscal years 2022 and 2021, our effective tax rate decreased 5.4% (approximately $2.5 million) and 6.8% (approximately $5.2 million), respectively, from the statutory rate, as a result of research and experimentation credits from our ethanol plants.
During fiscal years 2023 and 2022, our effective tax rate increased 2.2% (approximately $2.2 million) and 1.1% (approximately $0.5 million), respectively, as a result of section 162M compensation limitations. During fiscal year 2022, our effective tax rate decreased 5.4% (approximately $2.5 million) from the statutory rate, as a result of research and experimentation credits from our ethanol plants.
Ethanol Investments In fiscal year 2006, we entered the ethanol industry by investing in several entities organized to construct and subsequently operate, ethanol producing plants.
Ethanol Investments In fiscal year 2006, we entered the ethanol industry by investing in several entities organized to construct and subsequently operate ethanol producing plants. We are invested in three entities as of January 31, 2024, utilizing equity investments.
We have applied for a Class VI injection well permit for three wells with the EPA. In addition, we have signed a construction contract to capture, dehydrate, and compress carbon to a state suitable for sequestration for the One Earth Energy ethanol plant.
In October 2022, we applied for a Class VI injection well permit for three wells with the U.S. Environmental Protection Agency (“EPA”). In addition, we have begun construction of a facility to capture, dehydrate, and compress carbon dioxide from the One Earth Energy ethanol plant to a state suitable for sequestration.
Quantities sold at our consolidated plants during fiscal year 2022 did not change significantly from fiscal year 2021. Stronger commodity pricing in fiscal year 2022 contributed to the increase in sales between the two fiscal years.
While quantities sold at our consolidated plants during fiscal year 2023 did increase from 2022, weaker pricing across all our products in fiscal year 2023 contributed to the overall decrease in sales between the two fiscal years.
Noncontrolling Interests (continuing operations) – Income attributable to noncontrolling interests (continuing operations) was approximately $10.2 million and $9.2 million during fiscal years 2022 and 2021, respectively, and represents the other owners’ share of the income of NuGen and One Earth.
Noncontrolling Interests (continuing operations) – Income attributable to noncontrolling interests (continuing operations) was approximately $15.0 million and $10.2 million during fiscal years 2023 and 2022, respectively, and represents the other owners’ share of the income of NuGen and One Earth. 30 Net Income Attributable to REX Common Shareholders (continuing operations) – As a result of the foregoing, net income attributable to REX common shareholders (continuing operations) was approximately $60.9 million for fiscal year 2023 compared to $27.7 million for fiscal year 2022.
The remaining increase is primarily due to an increase in interest income as yields on our excess cash increased during fiscal year 2022 compared to fiscal year 2021.
Each plant received an additional payment from that program in 2023, combined totaling approximately $1.0 million. The remaining increase is primarily due to an increase in interest income as yields on our excess cash increased during fiscal year 2023 compared to fiscal year 2022.
On August 10, 2017, we purchased, through a 95.35% owned subsidiary, the entire ownership interest of an entity that owned a refined coal facility. We began operating the refined coal facility immediately after the acquisition.
S&P Global Platts ethanol pricing per gallon ranged from a low of $1.52 in January 2024 to a high of $2.67 in June 2023. On August 10, 2017, we purchased, through a 95.35% owned subsidiary, the entire ownership interest of an entity that owned a refined coal facility. We began operating the refined coal facility immediately after the acquisition.
Our primary uses of cash have been capital expenditures at our ethanol plants, stock repurchases, payments to noncontrolling interests holders and, in prior years, contributions to fund refined coal operating losses. Outlook – Our cash and short-term investments balance of approximately $280.9 million at January 31, 2023 included approximately $238.8 million held by One Earth and NuGen.
Our primary uses of cash have been capital expenditures at our ethanol plants and carbon sequestration project, stock repurchases, payments to noncontrolling interests holders and, in prior years, contributions to fund refined coal operating losses.
The recently enacted Inflation Reduction Act of 2022 will likely impact our business by creating a new Clean Fuel Production Credit, section 45Z of the Internal Revenue Code (“45Z”), that would be dependent on the level of greenhouse gas emissions reduction for each gallon of ethanol produced and sold, available for years 2025 to 2027.
The Inflation Reduction Act of 2022 will likely impact our business by creating a new Clean Fuel Production Credit, section 45Z of the Internal Revenue Code (“45Z”), available for years 2025 to 2027. The Clean Fuel Production Credit is established at approximately $0.02 per ethanol gallon per CI point reduction below a 50 CI score threshold.
The increase in the non-food grade corn oil selling price resulted primarily from an increase in demand from the biodiesel industry. Modified distillers grains sales increased 27% in fiscal year 2022 compared to fiscal year 2021 as the average selling price per ton increased 45%, offset partially by a 12% decrease in the number of tons sold.
Distillers corn oil sales decreased 5% in fiscal year 2023 compared to fiscal year 2022 as the average selling price per pound decreased approximately 15%. The decrease in the distillers corn oil selling price resulted primarily from a decrease in commodity prices. The price decrease was partially offset by an increase in pounds sold of 12%.
Dried distillers grains sales increased 11% in fiscal year 2022 compared to fiscal year 2021 as the average price per ton sold increased 18%, offset by a decrease in tons sold of 5%.
Modified distillers grains sales decreased 52% in fiscal year 2023 compared to fiscal year 2022 as the number of tons sold decreased 42%, coupled with a 16% decrease in the average selling price per ton.
Accrued expenses and other liabilities increased approximately $0.5 million, which was primarily a result of higher incentive compensation in fiscal year 2021, offset partially by operating lease payments made. Discontinued operations used cash of $6.7 million in fiscal year 2021.
Accrued expenses and other liabilities decreased approximately $2.8 million, which was primarily a result of operating lease payments of approximately $5.0 million partially offset by an increase in accrued income taxes of approximately $2.0 million.
The amount of these credits earned in future periods will vary depending on the level of qualifying research expenditures at our ethanol plants and changes in tax law. The provision for uncertain tax positions increased our effective tax rate 4.8% (approximately $2.3 million) and 10.9% (approximately $8.3 million) in fiscal year 2022 and 2021, respectively, from the statutory rate.
The amount of these credits earned in future periods will vary depending on the level of qualifying research expenditures at our ethanol plants and changes in tax law. We did not perform any qualifying research in fiscal year 2023.
During fiscal year 2021, we purchased approximately 252,000 shares of our common stock for approximately $6.6 million 32 in open market transactions. During fiscal year 2021, we used cash of approximately $4.8 million to purchase shares from and pay dividends to noncontrolling members of the entities that own One Earth’s and NuGen’s ethanol plants.
Financing Activities – Net cash used in financing activities was approximately $4.3 million during fiscal year 2023 compared to approximately $17.0 million for fiscal year 2022. During fiscal year 2023, we used cash of approximately $4.3 million to pay dividends to noncontrolling members of the entities that own One Earth’s and NuGen’s ethanol plants.
We expect our equity method investee to limit the payment of dividends based upon working capital and capital expenditure needs. We are investigating various uses of our excess cash. We have a stock buyback program with an authorization level of an additional approximately 877,000 shares at January 31, 2023.
One Earth Energy is currently working on a carbon sequestration project and is expected to have related capital expenditure needs. We expect our equity method investee to limit the payment of dividends based upon their working capital and capital expenditure needs. We are investigating various uses of our excess cash.
Depending on progress made on our carbon sequestration project, we expect capital expenditures to be in the range of approximately $60 million to $70 million in fiscal year 2023 for various expansion and CI score reduction projects at our consolidated ethanol plants.
Capital expenditures in fiscal year 2023 totaled approximately $37.7 million, primarily for various capital projects at our consolidated ethanol plants, including $14.4 million for expansion and CI scoring reduction projects at the One Earth facility and $15.5 million for the carbon sequestration project.
We are invested in three entities as of January 31, 2023, utilizing equity investments. 25 The following table is a summary of our ethanol entity ownership interests at January 31, 2023: Entity REX’s Current Ownership Interest One Earth Energy, LLC 75.8% NuGen Energy, LLC 99.7% Big River Resources, LLC: Big River Resources W Burlington, LLC Big River Resources Galva, LLC Big River United Energy, LLC Big River Resources Boyceville, LLC 10.3% 10.3% 5.7% 10.3% The three entities own a total of six ethanol production facilities, which in aggregate shipped approximately 691 millions gallons of ethanol over the twelve-month period ended January 31, 2023.
The following table is a summary of our ethanol entity ownership interests at January 31, 2024: Entity Location REX's Current Ownership Interest One Earth Energy, LLC Gibson City, IL 75.8% NuGen Energy, LLC Marion, SD 99.7% Big River Resources, LLC: Big River Resources W Burlington, LLC Big River Resources Galva, LLC Big River United Energy, LLC Big River Resources Boyceville, LLC W.
Our refined coal business ceased operations in November 2021 and the facility was subsequently sold. We have classified the refined coal business as discontinued operations. We may make additional alternative energy investments in the future and are currently working on a carbon sequestration project near our One Earth Energy location.
We may make additional alternative energy investments in the future and are currently working on a carbon sequestration project near our One Earth Energy location. Our ethanol operations are highly dependent on commodity prices, especially prices for corn, ethanol, distillers grains, distillers corn oil and natural gas, and availability of corn.
Grain accounted for approximately 83% ($667.4 million) of our cost of sales during fiscal year 2022 compared to approximately 84% ($568.9 million) during fiscal year 2021. Natural gas accounted for approximately 6% ($47.4 million) of our cost of sales during fiscal year 2022 compared to approximately 4% ($29.4 million) during fiscal year 2021.
Cost of Sales – Cost of sales for fiscal year 2023 decreased approximately $71.2 million, or 9%, over fiscal year 2022. Corn accounted for approximately 80% ($584.2 million) of our cost of sales during fiscal year 2023 compared to approximately 83% ($667.3 million) during fiscal year 2022.
These increases were partially offset by a decrease in outbound freight expense as fewer sales contracts provided for shipping to be paid by us compared to fiscal year 2021, as well as a decrease in rail car lease expense. 29 Equity in Income of Unconsolidated Ethanol Affiliates – During fiscal years 2022 and 2021, we recognized income of approximately $8.7 million and $6.6 million, respectively, from our equity investment in Big River Resources, LLC (“Big River”).
Equity in Income of Unconsolidated Ethanol Affiliates – During fiscal years 2023 and 2022, we recognized income of approximately $13.9 million and $8.7 million, respectively, from our equity investment in Big River Resources, LLC (“Big River”).
We expect that One Earth and NuGen will use a majority of their cash for working capital needs, capital expenditures, general corporate purposes and dividend payments. One Earth Energy is currently working on a carbon sequestration project and is expected to have related capital expenditure needs.
Outlook – Our cash and short-term investments balance of approximately $378.7 million at January 31, 2024 included approximately $331.1 million held by One Earth and NuGen. We expect that One Earth and NuGen will use a majority of their cash for working capital needs, capital expenditures, general corporate purposes and dividend payments.
On December 1, 2022, the EPA issued proposed Renewable Fuel Standard volume obligations for calendar years 2023-2025. The proposed volumes from conventional biofuels (which includes corn-based ethanol) were 15.0 billion gallons for 2023 and 15.25 billion gallons each for 2024 and 2025.
The volumes from conventional biofuels (which includes corn-based ethanol) were 15.0 billion gallons for 2023 through 2025. Additionally, in 2023, the EPA restored 250 million gallons previously waived.
Inventory increased approximately $4.8 million, primarily a result of larger quantities of raw materials and higher per unit costs at January 31, 2022. Prepaid expenses and other assets decreased approximately $0.2 million, primarily a result of a slight change in fair values of forward purchase contracts.
Inventory decreased approximately $21.8 million, primarily a result of smaller quantities of work-in-process materials and lower per unit costs at January 31, 2024.
We are currently working on an engineering Design study for a short pipeline to deliver carbon from the ethanol plant to the sequestration site. Although we have made meaningful progress, we continue to complete documents required from various government agencies and obtain other approvals with no assurances of ultimate success.
We continue to pursue obtaining a county special-use zoning permit. Although we have made meaningful progress and significant investments in this project, we continue to complete required documentation for various government agencies and obtain permits and other approvals with no assurances of ultimate success.
The increase in the dried 28 distillers grains selling price resulted primarily from an increase in corn prices as dried distillers grains prices often correlate with corn pricing. Non-food grade corn oil sales increased 43% in fiscal year 2022 compared to fiscal year 2021 as the average selling price per pound increased approximately 42%.
The decrease in the dried distillers grains selling price resulted primarily from a decrease in corn prices as dried distillers grains prices often correlate with corn pricing. The increase in tons sold was a result of increased ethanol production during fiscal year 2023.
Net Income Attributable to REX Common Shareholders (continuing operations) – As a result of the foregoing, net income attributable to REX common shareholders (continuing operations) was approximately $27.7 million for fiscal year 2022 compared to $47.6 million for fiscal year 2021.
We reported net income attributable to REX common shareholders of $60.9 million in fiscal 2023 compared to approximately $27.7 million in fiscal 2022. Our ethanol business had increased profits in fiscal 2023 compared to fiscal 2022 as a result of higher crush spreads in fiscal 2023.
Gross profit in fiscal year 2022 was 6.4% of net sales and revenue, versus approximately 12.6% of net sales and revenue in fiscal year 2021. The primary contributor to the decrease in gross profit was the decreased crush spread and higher natural gas prices.
Gross profit in fiscal year 2023 was 11.8% of net sales and revenue, versus approximately 5.7% of net sales and revenue in fiscal year 2022.
Capital expenditures in fiscal year 2021 totaled approximately $5.1 million, the majority of which were various projects at One Earth’s and NuGen’s ethanol plants. During fiscal year 2021, we used cash of approximately $88.9 million for purchases of short-term investments and received cash of approximately $99.3 million related to maturities of these investments.
During fiscal year 2023, we used cash of approximately $448.5 million for purchases of short-term investments and received cash of approximately $514.6 million related to the maturity of these types of these investments. Net cash used in investing activities was approximately $198.5 million during fiscal year 2022.
Net income attributable to REX common shareholders from discontinued operations, net of tax, for fiscal year 2021 was approximately $4.8 million. Net Income As a result of the foregoing, including results from both continuing and discontinued operations, net income attributable to REX common shareholders was approximately $27.7 million and approximately $52.4 million for fiscal years 2022 and 2021, respectively.
Net Income As there was no discontinued operations activity in fiscal years 2023 and 2022, net income attributable to REX common shareholders was the same as net income attributable to REX common shareholders (continuing operations).
Our ethanol business had reduced profits in fiscal 2022 compared to fiscal 2021 as a result of lower crush spreads in fiscal 2022. The two largest drivers of ethanol 24 profitability are corn and ethanol pricing, both of which experienced significant volatility within the year.
The two largest drivers of ethanol profitability are corn and ethanol pricing, both of which experienced significant volatility within the year. Chicago Board of Trade corn prices per bushel ranged from a low of $4.40 in January 2024 to a high of $6.85 25 in February 2023.
The increase in the modified distillers grains selling price resulted primarily from an increase in corn prices as distillers grain pricing often correlates with corn pricing. Losses on derivative financial instruments were approximately $1.0 million during fiscal year 2022, compared to $12.1 million in fiscal year 2021.
The decrease in the modified distillers grains selling price resulted primarily from a decrease in corn prices as distillers grain pricing often correlates with corn pricing. Our consolidated plants’ decisions to sell modified or dried distillers grains fluctuate from time to time based upon market conditions.
Removed
Our ethanol operations are highly dependent on commodity prices, especially prices for corn, ethanol, distillers grains, non-food grade corn oil, and natural gas, and availability of corn. As a result of price volatility for these commodities, our operating results can fluctuate substantially.
Added
We currently have equity investments in three ethanol production entities, two of which are majority ownership interests. Our refined coal business ceased operations in November 2021 and the facility was subsequently sold. We have classified the refined coal business as discontinued operations.
Removed
We utilize derivative financial instruments, primarily exchange traded commodity future contracts and swaps, in conjunction with certain of our grain procurement and commodity marketing activities. We reported net income attributable to REX common shareholders of $27.7 million in fiscal 2022 compared to approximately $52.4 million in fiscal 2021.
Added
We expect to complete construction by July 31, 2024, at which time testing of the facility could commence, upon completion of other infrastructure. In October 2023, we submitted an application with the Illinois Commerce Commission to build a short pipeline to deliver carbon dioxide from the ethanol plant to the sequestration site.
Removed
Chicago Board of Trade corn prices per bushel ranged from a low of $5.64 in July 2022 to a high of $8.18 in April 2022. S&P Global Platts ethanol pricing per gallon ranged from a low of $1.99 in February 2022 to a high of $2.88 in June 2022.
Added
NuGen Energy, LLC, our majority owned ethanol plant in Marion, South Dakota, signed an agreement to be part of Summit Carbon Solutions’ carbon capture and storage pipeline.
Removed
During fiscal year 2013, we entered into a joint venture to file and defend patents for eSteam technology. The patented technology is an enhanced method of heavy oil recovery involving zero emissions downhole steam generation. To date, we have not successfully had a field operation nor demonstrated that the technology is commercially feasible.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeOur exposures to market risk, which include the impact of our risk management activities, are based on the estimated effect on pre-tax income starting on January 31, 2023, are as follows (amounts in thousands): Commodity Estimated Total Volume for the Next 12 Months Unit of Measure Decrease in Pre-tax Income From a 10% Adverse Change in Price Ethanol 284,000 Gallons $60,787 Corn 101,429 Bushels $68,587 Distillers Grains 730 Tons $14,581 Non-food grade Corn Oil 82,435 Pounds $5,200 Natural Gas 7,400 MmBtu $2,067 35
Biggest changeOur exposures to market risk, which include the impact of our risk management activities, are based on the estimated effect on pre-tax income starting on January 31, 2024, are as follows (amounts in thousands): Commodity Estimated Total Volume for the Next 12 Months Unit of Measure Decrease in Pre-tax Income From a 10% Adverse Change in Price Ethanol 289,000 Gallons $ 42,203 Corn 100,000 Bushels $ 42,793 Distillers Grains 700 Tons $ 11,042 Distillers Corn Oil 92,000 Pounds $ 3,858 Natural Gas 7,400 MmBtu $ 2,010 35
At January 31, 2023, One Earth and NuGen combined had purchase commitments for approximately 18.0 million bushels of corn, the principal raw material for their ethanol plants. At January 31, 2023, One Earth and NuGen combined had purchase commitments for approximately 2.7 million MmBtu of natural gas.
At January 31, 2024, One Earth and NuGen combined had purchase commitments for approximately 17.4 million bushels of corn, the principal raw material for their ethanol plants. At January 31, 2024, One Earth and NuGen combined had purchase commitments for approximately 1.9 million MmBtu of natural gas.
At January 31, 2023, One Earth and NuGen had combined sales commitments for approximately 46.5 million gallons of ethanol, 101,000 tons of distillers grains and 9.9 million pounds of non-food grade corn oil. Not all of our commitments are at fixed price.
At January 31, 2024, One Earth and NuGen had combined sales commitments for approximately 52.7 million gallons of ethanol, 120,000 tons of distillers grains and 14.9 million pounds of distillers corn oil. Not all of our commitments are at fixed price.

Other REX 10-K year-over-year comparisons