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7. Agreements

9 Months Ended

Sep. 30, 2017

Working Capital Arrangement. Pursuant to a Corn Procurement and Working Capital Agreement with J.D. Heiskell, the Company agreed to procure whole yellow corn and milo primarily from J.D. Heiskell. The Company has the ability to obtain grain from other sources subject to certain conditions, however, in the past all of our grain purchases have been from J.D. Heiskell. Title and risk of loss of the corn and milo pass to the Company when the corn and milo are deposited into the weigh bin. The term of the Agreement expires on December 31, 2017 and is automatically renewed for additional one-year terms. J.D. Heiskell further agrees to sell all ethanol to Kinergy Marketing or other marketing purchasers designated by the Company and all WDG and corn oil to A.L. Gilbert. Our relationships with J.D. Heiskell, Kinergy Marketing, and A.L. Gilbert are well established and the Company believes that the relationships are beneficial to all parties involved in utilizing the distribution logistics, reaching out to widespread customer base, managing inventory, and building working capital relationships. Revenue is recognized upon delivery of ethanol to J. D. Heiskell as revenue recognition criteria have been met and any performance required of the Company subsequent to the delivery to J.D. Heiskell is inconsequential. These agreements are ordinary purchase and sale agency agreements for the Keyes plant.

The J.D. Heiskell sales activity associated with the Purchasing Agreement, Corn Procurement and Working Capital

Agreements during the three and nine months ended September 30, 2017 and 2016 are as follows:

	As of and for the three months ended September 30,				As of and for the nine months ended September 30,
	2017		2016		2017		2016
Ethanol sales	$	26,394	$	24,687	$	75,695	$	68,993
Wet distiller's grains sales		5,735		6,114		15,523		16,918
Corn oil sales		1,043		788		2,693		2,232
Corn/milo purchases		25,751		23,098		75,478		67,766
Accounts receivable		776		345		776		345
Accounts payable		1,976		1,241		1,976		1,241

Ethanol and Wet Distillers Grains Marketing Arrangement. The Company entered into an Ethanol Marketing Agreement with Kinergy Marketing and a Wet Distillers Grains Marketing Agreement with A. L. Gilbert. Under the terms of the agreements, subject to certain conditions, Kinergy agreed to market on an exclusive basis all the ethanol we produce and A. L. Gilbert agreed to market on an exclusive basis all the WDG we produce. The agreements with Kinergy Marketing and with A.L. Gilbert expire on August 31, 2018 and on December 31, 2017, respectively, each with automatic one-year renewals thereafter. For the three months ended September 30, 2017 and 2016, the Company expensed marketing costs of $0.6 million for each period, respectively, under the terms of both ethanol and wet distiller’s grains marketing agreements. For the nine months ended September 30, 2017 and 2016, the Company expensed marketing costs of $1.8 million and $1.7 million, respectively.

The Company entered into forward purchase contracts for approximately 0.9 million bushels of corn, which is the principal raw material for ethanol production. The delivery of this grain will be expected through December 2017.

In addition, the Company has forward sales commitments for approximately 56 thousand tons of WDG. These committed sales will be expected through December 2017.

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