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Derivatives | 9 Months Ended
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Sep. 30, 2023
Derivatives [Abstract] |
DERIVATIVES |
| 4. | DERIVATIVES.
The business and activities of the Company expose it to a variety of market risks, including risks related to changes in commodity prices. The Company monitors and manages these financial exposures as an integral part of its risk management program. This program recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effects that market volatility could have on operating results. Commodity Risk – Cash Flow Hedges – The Company uses derivative instruments to protect cash flows from fluctuations caused by volatility in commodity prices for periods of up to twelve months to protect gross profit margins from potentially adverse effects of market and price volatility on alcohol sales and purchase commitments where the prices are set at a future date and/or if the contracts specify a floating or index-based price. In addition, the Company hedges anticipated sales of alcohol to minimize its exposure to the potentially adverse effects of price volatility. These derivatives may be designated and documented as cash flow hedges and effectiveness is evaluated by assessing the probability of the anticipated transactions and regressing commodity futures prices against the Company’s purchase and sales prices. Ineffectiveness, which is defined as the degree to which the derivative does not offset the underlying exposure, is recognized immediately in cost of goods sold. For the three and nine months ended September 30, 2023 and 2022, the Company did not designate any of its derivatives as cash flow hedges. Commodity Risk – Non-Designated Hedges – The Company uses derivative instruments to lock in prices for certain amounts of corn and alcohols by entering into exchange-traded futures contracts or options for those commodities. These derivatives are not designated for hedge accounting treatment. The changes in the fair value of these contracts are recorded on the balance sheet and recognized immediately in cost of goods sold. The Company recognized net losses of $2,711,000 and net gains of $1,772,000 as the change in the fair value of these contracts for the three months ended September 30, 2023 and 2022, respectively. The Company recognized net gains of $2,463,000 and $20,164,000 as the change in the fair value of these contracts for the nine months ended September 30, 2023 and 2022, respectively. Non-Designated Derivative Instruments – The classification and amounts of the Company’s derivatives not designated as hedging instruments, and related cash collateral balances, are as follows (in thousands):
|  | As of September 30, 2023 |
|  | Assets |  |  | Liabilities |
Type of Instrument |  | Balance Sheet Location |  | Fair Value |  |  | Balance Sheet Location |  | Fair Value |
Cash collateral balance |  | Restricted cash |  | $ | 8,699 |  |  |  |  |  |  |
Commodity contracts |  | Derivative instruments |  | $ | 3,974 |  |  | Derivative instruments |  | $ | 7,249 |
|  | As of December 31, 2022 |
|  | Assets |  |  | Liabilities |
Type of Instrument |  | Balance Sheet Location |  | Fair Value |  |  | Balance Sheet Location |  | Fair Value |
Cash collateral balance |  | Restricted cash |  | $ | 13,069 |  |  |  |  |  |  |
Commodity contracts |  | Derivative instruments |  | $ | 4,973 |  |  | Derivative instruments |  | $ | 6,732 |
The above amounts represent the gross balances of the contracts; however, the Company does have a right of offset with each of its derivative brokers, but the Company’s intent is to close out positions individually, therefore, the positions are reported at gross. The classification and amounts of the Company’s recognized gains (losses) for its derivatives not designated as hedging instruments are as follows (in thousands):
|  |  |  | Realized Gains (Losses) |
|  |  |  | For the Three Months Ended September 30, |
Type of Instrument |  | Statements of Operations Location |  | 2023 |  |  | 2022 |
Commodity contracts |  | Cost of goods sold |  | $ | 6,206 |  |  | $ | (13,332 | )
|  |  |  | $ | 6,206 |  |  | $ | (13,332 | )
|  |  |  | Realized Gains |
|  |  |  | For the Nine Months Ended September 30, |
Type of Instrument |  | Statements of Operations Location |  | 2023 |  |  | 2022 |
Commodity contracts |  | Cost of goods sold |  | $ | 3,980 |  |  | $ | 16,143 |
|  |  |  | $ | 3,980 |  |  | $ | 16,143 |
|  |  |  | Unrealized Gains (Losses) |
|  |  |  | For the Three Months Ended September 30, |
Type of Instrument |  | Statements of Operations Location |  | 2023 |  |  | 2022 |
Commodity contracts |  | Cost of goods sold |  | $ | (8,917 | ) |  | $ | 11,560 |
|  |  |  | $ | (8,917 | ) |  | $ | 11,560 |
|  |  |  | Unrealized Gains (Losses) |
|  |  |  | For the Nine Months Ended September 30, |
Type of Instrument |  | Statements of Operations Location |  | 2023 |  |  | 2022 |
Commodity contracts |  | Cost of goods sold |  | $ | (1,517 | ) |  | $ | 4,021 |
|  |  |  | $ | (1,517 | ) |  | $ | 4,021 |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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