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7. Agreements

6 Months Ended

Jun. 30, 2018

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 grain sorghum, 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 the Company’s grain purchases have been from J.D. Heiskell. Title and risk of loss of the corn pass to the Company when the corn is deposited into the Keyes Plant weigh bin. The term of the Corn Procurement and Working Capital Agreement expires on December 31, 2018 and the term can be automatically renewed for additional one-year terms. J.D. Heiskell further agrees to sell all ethanol the Company produces to Kinergy Marketing or other marketing purchasers designated by the Company and all WDG the Company produces to A.L. Gilbert. The Company markets and sells DCO to A.L. Gilbert and other third parties. The Company’s 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 sale 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 Corn Procurement and Working Capital Agreement during the three and six months ended June 30, 2018 and 2017 are as follows:

	As of and for the three months ended June 30,				As of and for the six months ended June 30,
	2018		2017		2018		2017
Ethanol sales	$	30,129	$	28,130	$	58,341	$	51,675
Wet distiller's grains sales		8,499		6,457		16,327		12,038
Corn oil sales		893		852		1,816		1,650
Corn/milo purchases		28,760		26,338		56,505		49,727
Accounts receivable		852		384		852		384
Accounts payable		2,241		1,719		2,241		1,719

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, the Ethanol Marketing Agreement matures on August 31, 2018 and the Wet Distillers Grains Marketing Agreement matures on December 31, 2018 with automatic one-year renewals thereafter. For the three months ended June 30, 2018 and 2017, the Company expensed marketing costs of $0.7 million and $0.7 million for each period, respectively, under the terms of both the Ethanol and the Wet Distiller’s Grains Marketing agreements. For the six months ended June 30, 2018 and 2017, the Company expensed marketing costs of $1.4 million and $1.2 million, respectively.

As of June 30, 2018, the Company entered into forward purchase contracts for approximately 36 thousand tons of corn, which is the principal raw material for ethanol production. The delivery of this grain will be expected through September 2018.

As of June 30, 2018, the Company has forward sales commitments for approximately 50 thousand tons of WDG. These committed sales will be expected through September 2018.

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.