UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 2025 COMMISSION FILE NO. 001-09097
REX AMERICAN RESOURCES CORPORATION
(Exact name of registrant as specified in
its charter)
Registrant’s telephone number, including
area code (937) 276-3931
Securities registered pursuant to Section
12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $.01 par value REX New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes ☐No☑
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☑
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes☑ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☑ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filer☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth
company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. Yes ☑ No ☐
If securities are registered pursuant to
Section 12(b) of the Act, indicated by check mark whether the financial statements of the registrant included in the filing reflect
the correction of an error to previous issued financial statements. Yes ☐ No ☑
Indicate by check mark whether any of those
error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive offices during the relevant recovery period pursuant to §240.10D-1(b). Yes ☐ No ☑
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☑
At the close of business on July 31, 2024,
the aggregate market value of the registrant’s outstanding Common Stock held by non-affiliates of the registrant (for purposes
of this calculation, 2,095,851 shares beneficially owned by directors and executive officers of the registrant were treated as
being held by affiliates of the registrant), was $786,096,804.
There were 17,012,776 shares of the registrant’s
Common Stock outstanding as of March 27, 2025.
Documents Incorporated by Reference
Portions of REX American Resources Corporation’s
definitive Proxy Statement for its Annual Meeting of Shareholders on June 4, 2025 are incorporated by reference into Part III of
this Form 10-K.
Forward-Looking
Statements
This Form 10-K contains or may contain
forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such statements can be identified
by use of forward-looking terminology such as “may,” “expect,” “believe,” “estimate,”
“anticipate” or “continue” or the negative thereof or other variations thereon or comparable terminology.
Readers are cautioned that there are risks and uncertainties that could cause actual events or results to differ materially from
those referred to in such forward-looking statements. These risks and uncertainties include the risk factors set forth from time
to time in the Company’s filings with the Securities and Exchange Commission and include among other things: the impact of
legislative and regulatory changes, the price volatility and availability of corn, distillers grains, ethanol, distillers corn
oil, gasoline and natural gas, commodity market risk, ethanol plants operating efficiently and according to forecasts and projections,
logistical interruptions, success in permitting and developing the planned carbon sequestration facility near the One Earth Energy
ethanol plant, changes in the international, national or regional economies, the impact of inflation, the ability to attract employees,
weather, results of income tax audits, changes in income tax laws or regulations, the impact of U.S. foreign trade policy and tariffs,
changes in foreign currency exchange rates, the effects of terrorism or acts of war and the effect of pandemics on the Company’s
business operations, including impacts on supplies, demand, personnel and other factors. The Company does not intend to update
publicly any forward-looking statements except as required by law. Other factors that could cause actual results to differ materially
from those in the forward-looking statements are set forth in Item 1A.
Available
Information
REX makes available free of charge on its
Internet website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. REX’s
Internet website address is www.rexamerican.com. The contents of the Company’s website are not a part of this report.
PART I
Item 1. Business
References to “we”,
“us”, “our”, “REX” or “the Company” refer to REX American Resources Corporation
and its majority owned subsidiaries.
Fiscal Year
All references in this report to a particular
fiscal year are to REX’s fiscal year ended January 31. We refer to our fiscal year by reference to the year immediately preceding
the January 31 fiscal year end date. For example, “fiscal year 2024” means the period February 1, 2024 to January 31,
2025.
Corporate History and Background
REX was incorporated in Delaware in 1984
as a holding company. Our principal offices are located at 7720 Paragon Road, Dayton, Ohio 45459. Our telephone number is (937)
276-3931.
In 2006, we started investing in ethanol
production facilities. We are currently invested in three ethanol production entities – One Earth Energy, LLC (“One
Earth”), NuGen Energy, LLC (“NuGen”), and Big River Resources, LLC (“Big River”). 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. The federal production tax credits received through operation of this facility remain
under IRS audit. We now have one reportable segment, ethanol and by-products.
General Overview
We reported net income attributable to
REX common shareholders of $58.2 million in fiscal 2024 compared to approximately $60.9 million in fiscal 2023. Our ethanol business
had decreased profits in fiscal 2024 compared to fiscal 2023 primarily as a result of lower selling prices, offset partially by
a decrease in corn and natural gas prices. 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
$3.62 in August 2024 to a high of $4.97 in January 2025. S&P Global Platts ethanol pricing per gallon ranged from a low of
$1.38 in February 2024 to a high of $2.12 in June 2024.
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. We generally
participate in the oversight of our projects through our membership on the board of managers of the limited liability companies
that own the plants. We provide management oversight and direction with respect to most aspects of plant operations for our consolidated
ethanol companies. We have equity investments in three entities engaged in the production of ethanol as of January 31, 2025. The
following table is a summary of our ethanol entity ownership interests at January 31, 2025:
Entity Location REX’s Current Ownership Interest
One Earth Energy, LLC Gibson City, IL 75.9%
NuGen Energy, LLC Marion, SD 99.7%
The three entities own a total of six ethanol
production facilities, which in aggregate shipped approximately 727 million gallons of ethanol over the twelve-month period ended
January 31, 2025. REX’s effective ownership of ethanol gallons shipped for the twelve-month period ended January 31, 2025,
was approximately 294 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. 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, tariffs and international
disruptions caused by wars or conflicts. 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, trade negotiations,
and tariffs 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. 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. 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. In such cases, production at the ethanol plants may be reduced or stopped altogether
in order to minimize variable costs at individual plants.
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 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. However, the market for future ethanol sales contracts generally lags
the spot market with respect to ethanol prices. 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. 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; thus, we are unable
to predict the likelihood or amounts of future income or loss from the operations of our ethanol facilities.
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 was encountered almost 2,000 feet of Mt. Simon Sandstone, 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. In October 2022, we applied for a Class VI injection well permit for three wells with the U.S. Environmental
Protection Agency (“EPA”), and we continue to provide information to the EPA during the technical review of our application
upon request. We currently expect the EPA to prepare a draft permit by the second quarter of 2025 and make a final permit decision
by late in the third quarter of 2025, according to the EPA’s Class VI Permit Tracker Dashboard on their website. We have
now secured sufficient subsurface easements for the proposed first injection well to allow for sequestration of all the carbon
emissions from the One Earth Energy ethanol plant for a minimum of 15 years. We also need to obtain a county special-use zoning
permit for the sequestration site. In 2022, we began construction of a facility to capture, dehydrate, and compress carbon dioxide
from the One Earth Energy ethanol plant to a state suitable for sequestration. While we have completed the construction of the
capture and compression facility, testing has not yet been completed and we cannot begin construction of the pipeline or sequestration
well until further permits and approvals are received.
In October 2023, we submitted an application
to the Illinois Commerce Commission (“ICC”) for a certificate of authority under the state’s Carbon Dioxide Transportation
and Sequestration Act (the “CO2 Act”) to build a short pipeline to deliver carbon dioxide from the
One Earth Energy ethanol plant to the proposed sequestration site. We have obtained easements from all of the necessary landowners
for the use of their land for the pipeline for the first two wells. On May 26, 2024, however, the Illinois General Assembly passed
the Safety and Aid for the Environment in Carbon Capture and Sequestration Act (Senate Bill 1289), which was signed by the governor
in July 2024. The new legislation imposes additional safety, environmental and other requirements on obtaining permits and approvals
for carbon capture and sequestration facilities in Illinois, including CO2 pipelines. Further, the new legislation
imposes a moratorium on the issuance of new certificates of authority for the construction of CO2 pipelines until
the earlier of the date federal CO2 pipeline safety standards are finalized by the federal Pipeline and Hazardous
Materials Safety Administration (PHMSA) or, subject to certain other conditions, July 1, 2026. As a result of this legislation,
the ICC dismissed our application without prejudice, and we will be required to resubmit an application after rules are finalized
or subsequent to July 1, 2026.
Although we have made meaningful progress
and significant investments in the carbon sequestration project at One Earth Energy, we continue to work with the various government
agencies involved to obtain all required permits and approvals, with no assurance of the ultimate success or timing of the project.
Also see the discussion under “Trends and Uncertainties” on pages 25 and 26 of certain recently proposed legislation
that, if enacted, could impact our carbon sequestration project.
We also intend to concurrently expand the
One Earth ethanol plant. We received a construction permit from the EPA 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, we intend to apply for another permit
to 200 million gallons per year.
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 (“IRA”). The IRA created a new Clean Fuel Production Credit, available
for calendar years 2025 – 2027, of approximately $0.02 per ethanol gallon per CI point reduction below a 50 CI score threshold
to incentivize further increases in plant efficiencies within the industry. The U.S. Department of the Treasury has not yet issued
final rules on qualification for 45Z tax credits.
The Company is reviewing certain aspects
of the expansion portion of the project and its impact on the previously reported expected project costs. Due to this, along with
permitting delays and the impact of inflation, we have increased the budget for both projects to approximately $220 million to
$230 million, subject to further refinement as we move forward. We plan to pay for all costs from available cash. As of January
31, 2025, we had spent $55.7 million since inception and were contractually committed to spend an additional $0.9 million toward
the carbon sequestration project. If the carbon sequestration project is successful, we believe we will 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 IRA. However, 45Z credits are
only available for calendar years 2025 – 2027 and the regulations have not yet been finalized by the U.S. Department of the
Treasury. As of January 31, 2025, we had spent $59.9 million since inception and were contractually committed to spend an additional
$8.7 million toward plant capacity expansion and ongoing efforts to reduce our CI scoring.
In May 2023, 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 network, with storage planned to be in North Dakota. 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. In March
2025, South Dakota signed a bill into law that bans the use of eminent domain in connection with carbon dioxide pipelines. This
act could make the sequestration project for the NuGen Energy facility more difficult to materialize.
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. We have a stock buyback program
with an authorization level of an additional 504,219 shares at January 31, 2025. Subsequent to January 31, 2025 the
Company repurchased 281,709 shares for approximately $11.9 million through open market transactions. After these repurchases, a
total of 222,510 shares remained available to purchase under existing board authorization. On March 25, 2025, the Board of Directors
authorized the repurchase from time to time of up to an additional 1,500,000 shares through open market transactions, privately
negotiated transactions, or transactions by other means in accordance with applicable securities laws. We typically repurchase
our common stock when our stock price is trading at prices we deem to be a discount to the underlying value of our net assets.
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. The majority of ethanol produced in the United States is made from corn because
of its wide availability and ease of convertibility from large amounts of carbohydrates into glucose, the key ingredient in the
fermentation process that is used in producing alcohol. Ethanol production can also use feedstocks such as grain sorghum, switchgrass,
wheat, barley, potatoes and sugarcane as carbohydrate sources. Most ethanol plants have been located near large corn production
areas, such as Illinois, Indiana, Iowa, Minnesota, Nebraska, Ohio and South Dakota. Railway access and interstate access are vital
for ethanol facilities due to the large amount of raw materials and finished goods required to be shipped to and from the facilities.
An adequate supply of natural gas is key to maintaining optimal operating levels.
According to the Renewable Fuels Association
(“RFA”), the United States ethanol industry produced an estimated 16.1 billion gallons of ethanol in 2024, compared
to 15.6 billion gallons in 2023. Approximately 1.9 billion gallons were estimated to have been exported from the United States
in 2024. According to the RFA, the United States ethanol industry consists of 198 plants in 24 states with an annual capacity of
approximately 18.3 billion gallons of ethanol production.
Domestic demand for ethanol is highly dependent
upon federal and state legislation and regulations. On December 19, 2007, the Energy Independence and Security Act of 2007 (the
“Energy Act of 2007”) was enacted. The Energy Act of 2007 established new levels of renewable fuel mandates, including
two different categories of renewable fuels: conventional biofuels and advanced biofuels. The federal government mandates the use
of renewable fuels under Renewable Fuel Standard II (“RFS II”), established in October 2010. Corn-based ethanol is
considered a conventional biofuel. There were mandated volumes established as part of the RFS II for conventional and advanced
biofuels through
the year 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. Additionally, in 2023, the EPA restored 250 million gallons previously
waived. The EPA was required to propose Renewable Volume Obligations (“RVO”s) for 2026 by November 2024, but the administration,
at that time, indicated on July 8, 2024 an intention to propose RVOs for 2026 and beyond in March 2025, and finalize them in December
2025. The new administration has not yet provided an updated timeline for these rules.
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”). 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 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. In July 2024, the U.S. Court of Appeals for the
District of Columbia Circuit vacated many of the EPA’s 2022 Small Refinery Exemption (“SRE”) denials. The EPA
had denied 105 SREs in 2022. As a result of this Court ruling, the EPA has voluntarily moved to rescind the agency’s 2023
denial of 26 SREs. As of March 2025, there were 156 SRE waivers pending.
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. 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. 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. DDGS 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. 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. 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 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. The EPA issued emergency
waivers to allow the sale of E-15 for the summer months in the years 2022 through 2024. 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 but will consider requests from individual states to delay implementation by one
year. To date, Ohio and South Dakota have requested a one-year delay, which the EPA has now approved.
Clean air additive. Ethanol
is employed by the refining industry as a fuel oxygenate, which when blended with gasoline, allows engines to combust fuel more
completely than gasoline that has not been oxygenated and thus reduce emissions from motor vehicles. Ethanol contains 35% oxygen,
which results in more complete combustion of the fuel in the engine cylinder. Oxygenated gasoline is used to help meet certain
federal and air emission standards.
Octane enhancer.
Ethanol increases the octane rating of gasoline with which it is blended. Octane is a measure of fuel performance. 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.
Refined Coal Facility
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. Using licensed technology, our plant applied two separate chemicals to
convert feedstock coal into refined coal, which was sold to the end user of the refined coal. The refined coal operating results
were subsidized by federal production tax credits through November 18, 2021, subject to meeting qualified emissions reductions
as governed by Section 45 of the IRC. We ceased operating the facility on November 18, 2021 and subsequently sold the facility.
The federal production tax credits received through ownership of this facility, approximately $58.2 million, remain under IRS audit.
Facilities
As of our fiscal year end, our consolidated
ethanol entities owned a combined 1,591 acres of land and two facilities that shipped a combined quantity of approximately 290
million gallons of ethanol in fiscal year 2024. 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. At January 31, 2025, we had 122 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.
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.
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.
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.
Item 1A. Risk Factors
We encourage you to carefully consider
the risks described below and other information contained in this report when considering an investment decision in REX common
stock. Any of the events discussed in the risk factors below may occur. If one or more of these events do occur, our results of
operations, financial condition or cash flows could be materially adversely affected. In this instance, the trading price of REX
stock could decline, and investors might lose all or part of their investment.
Risks Related to our Ethanol and By-Products
Business
The ethanol industry is changing rapidly
which could result in unexpected developments that could negatively impact our operations.
According to the RFA, the ethanol industry
grew from approximately 1.5 billion gallons of domestic annual ethanol production in 1999 to a peak of approximately 16.1 billion
gallons in 2018, which it matched in 2024. In 2023 and 2022, the industry produced approximately 15.6 and 15.4 billion gallons,
respectively, 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.
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, distillers
grains, distillers corn oil and gasoline, and availability of corn. 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.
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. 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.
Corn is the principal
raw material our ethanol plants use to produce ethanol and by-products. As a result, changes in the price of corn can significantly
affect our businesses. Rising corn prices result in higher production costs of ethanol and by-products. Because ethanol competes
with non-corn-based fuels, our ethanol plants may not be able to pass along increased grain costs to our customers. At certain
levels, grain prices may make ethanol uneconomical to produce.
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 as well as other conflicts and political unrest, both foreign
and domestic. These factors include government policies and subsidies with respect to agriculture, international trade and tariffs,
and global and local demand and supply. The significance and relative effect of these factors on the price of corn is difficult
to predict. Any event that tends to negatively affect the production and/or supply of corn, such as adverse weather or crop disease,
could increase corn prices and potentially harm the business of our ethanol plants, to include intermittent production slowdowns
or stoppages. Increasing domestic ethanol production could boost the demand for corn and result in increased corn prices. International
demand for corn could also result in higher or lower corn prices. Our ethanol plants may also have difficulty, from time to time,
in physically sourcing corn on economic terms due to regional supply shortages, transportation issues, delays in farmer marketing
decisions or unfavorable local pricing. 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.
Our risk management
strategies may be ineffective and may expose us to decreased profitability and liquidity.
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. The financial impact of these risk management activities is dependent upon, among other items, the
prices involved and our ability to receive or deliver the commodities
involved. Risk management
activities can result in financial loss when positions are purchased in a declining market or when positions are sold in an increasing
market. 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, our 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. We vary the amount and type of risk management techniques we utilize, and we may choose not to engage in any
risk management activities. Should we fail to properly manage the inherent volatility of commodity prices, our results of operations
and financial condition may be adversely affected.
The market for
natural gas is subject to market conditions that create uncertainty in the price and availability of the natural gas that our ethanol
plants use in their manufacturing process.
Our ethanol plants rely
upon third parties for their supply of natural gas, which is consumed as fuel in the production process. 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. Significant disruptions in
the supply of natural gas could impair or completely prevent the ethanol plants’ ability to economically manufacture ethanol
for their customers. Furthermore, increases in natural gas prices may adversely affect results of operations and financial position
at our ethanol plants.
Fluctuations in the selling price
of commodities may reduce profit margins at our ethanol plants.
Ethanol is marketed 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. 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. 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 and soybean meal. However, there have been instances
when the price increase for distillers grains has lagged increases in corn prices.
The production of distillers grains has
increased as a result of increases in dry mill ethanol production in the United States. This could lead to price declines in what
we can sell our distillers grains for in the future. 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, synthetic aviation fuel markets. 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 IRA and growing Low Carbon Fuel Standard (“LCFS”) markets, resulting in an impact to
distillers corn oil demand. 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. A decrease in the price of or demand for distillers corn oil
could negatively impact our results of operations.
Inflation could impact
the cost and/or availability of material, labor and other input, which could adversely affect our operations.
We have experienced inflationary impacts
on key production inputs, labor costs consisting of both wages and other labor-related costs, services, equipment and other inputs.
These inflationary pressures could continue or worsen in future periods and may be beyond our control. We may not be able to pass
these increased costs along to our customers through the products we sell. As a result, inflation and higher prices could negatively
impact our results of operations.
We are currently working on carbon sequestration
and plant expansion projects at the One Earth plant. We have experienced permitting delays which could lead to inflationary pricing
increases on the construction.
The price of ethanol and distillers
grains may decline as a result of trade restrictions, duties or tariffs on ethanol and distillers grains exports from the United
States or from unfavorable foreign currency exchange rates.
Ethanol and other products that we produce
are sold into various other countries with trade agreements with the United States. If the United States were to withdraw from
or materially modify certain international trade agreements, our business, financial condition and results of operations could
be materially adversely affected. In addition, there have been increased threats of tariffs on imports by the current Trump administration.
If tariffs lead to retaliatory actions by countries that are markets for our products, it could have material adverse effect on
our business, financial condition and results of operations.
The United States exported an estimated
1.9 billion gallons of ethanol in 2024, up from approximately 1.4 and 1.3 billion gallons in 2023 and 2022, respectively. 36% of
the 2024 exports of ethanol were sold in Canada. Further, in 2024 and 2023, an estimated 12.2 and 10.8 million metric tons, respectively,
of distillers grains were exported by the United States, which represented approximately 37% and 34% in 2024 and 2023, respectively,
of U.S production. Of the total United States exports of distillers grains in 2024, 21% were exported to Mexico. If producers and
exporters of ethanol and distillers grains are subjected to trade restrictions, or additional duties or tariffs are imposed on
U.S. exports, particularly by Canada and Mexico, it may make it uneconomical to export these products. The industry has experienced
various trade policy disputes, tariffs and investigations in foreign countries that have adversely impacted the international demand
for our products. Reduced international demand could lead to further oversupply and reduce pricing.
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.
According to the RFA,
domestic ethanol production capacity is approximately 18.3 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. 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. In a manufacturing industry with excess capacity,
producers have an incentive to manufacture additional products for so long as the price exceeds the marginal cost of production
(i.e., the cost of producing only the next unit, without regard for interest, overhead or fixed costs). 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. 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.
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. 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. A decline in the price of distillers grains or distillers corn oil could
have a material adverse effect on the results of our business, financial condition, and results of operations.
Future demand for ethanol is uncertain
and changes in overall consumer demand for transportation fuel could affect demand.
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. 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. 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.
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. The completion and start-up of this
project requires numerous government 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 investment, which totals approximately
$55.7 million as of our most recent year-end. Recent delays in permitting could result in increased costs to complete the project.
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. 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 IRA.
Carbon capture and sequestration projects
are subject to federal, state, and local regulations.
In addition to our planned carbon sequestration
facility near our One Earth Energy ethanol plant, we have signed an agreement to deliver our carbon from the NuGen Energy facility
to an outside party. These projects may not result in any realized benefit due to delays or suspended operations. Investments being
made in these projects are based on regulatory guidelines, such as modeling for CI reductions, that may be adjusted outside of
our control and could deviate from our current strategy. Federal guidelines within the IRA could be changed to no longer include
corn-based ethanol from being eligible for certain tax incentives. Delays in the issuance or regulations or the elimination of
clean fuel and other incentives at the federal, state or local level could adversely affect our business. New legislation limiting
our ability to sequester carbon could be adopted at the federal, state or local levels.
In July 2024, the governor of Illinois
signed the Safety and Aid for the Environment in Carbon Capture and Sequestration Act. This legislation imposes additional safety,
environmental and other requirements on obtaining permits and approvals for carbon capture and sequestration facilities in Illinois,
including CO2 pipelines. Further, the legislation imposes a moratorium on the issuance of new certificates of authority for the
construction of CO2 pipelines until the earlier of the date federal CO2 pipeline safety standards are finalized by the federal
Pipeline and Hazardous Materials Safety Administration (PHMSA) or, subject to certain other conditions, July 1, 2026. As a result
of this legislation, the ICC dismissed our pipeline application without prejudice, and we will be required to resubmit an application
after rules are finalized or subsequent to July 1, 2026. The delays and additional requirements imposed as a result of this act
could have an adverse impact on the cost and completion of our project.
There is currently legislation being debated in the Illinois General Assembly that would, if eventually
enacted, ban carbon sequestration projects if they overlie, underlie, or pass through as sole-source aquifer, including the aquifer’s
upstream areas that are part of the project review area, as identified by the U.S. EPA. The first well for our proposed carbon
sequestration project is located inside, but near the edge of, the Mahomet Sole Source Aquifer Project Review Area, within the
Sangamon River near Fisher Upstream Area. It is approximately five miles north of the Sangamon River and nearly six miles outside
of the mapped boundary of the Mahomet Aquifer, which has been designated as a sole source or principal aquifer by the U.S. EPA.
We believe our second and third sequestration well sites are outside the Mahomet Sole Source Aquifer Project Review Area. The outcome
of this proposed legislation could impact our ability to complete our project or materially impact the timing and cost of completion.
In March 2025, South Dakota signed a bill
into law that bans the use of eminent domain in connection with carbon dioxide pipelines. This act could make the sequestration
project for the NuGen Energy facility more difficult to materialize.
We depend on our partners to operate
certain of our ethanol investments.
Our investments currently represent both
majority and minority equity positions. 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. In addition, local plant operators, who also
represent the primary suppliers of corn and other crops to the plants, may have interests, such as the price and sourcing of corn
and other crops, that may differ from our interest, which is based solely on the operating profit of the plant. 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 or expansion.
The growth of our ethanol
business depends on our ability to identify and develop new ethanol investments. Any expansion strategy will depend on prevailing
market conditions for the price of ethanol and the cost of corn and natural gas and the expectations of future market conditions.
Additional financing may also be necessary to implement any expansion strategy, which may not be accessible or available on acceptable
terms. In addition, failure to adequately manage the risks associated with additional ethanol investments could have a material
adverse effect on our business.
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. For instance, any technological advances
in the efficiency or cost to produce ethanol from inexpensive cellulosic sources such as corn stalk, wheat, oat or barley straw
could have an adverse effect on our ethanol plants, because our plants are designed to produce ethanol from corn, which is, by
comparison, a raw material with other high value uses. 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.
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. 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.
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.
The renewable fuel standard program was
authorized under the Energy Policy Act of 2005 and was expanded under the Energy Independence and Security Act of 2007 (EISA).
EISA increased the amount of renewable fuel required to be blended into gasoline with RFS II and required a minimum usage of corn-derived
renewable fuels of 12.0 billion gallons in 2010, increasing annually by 600 million gallons to 15.0 billion gallons in 2015 through
2022, with no specified volume subsequent to 2022. After 2022, RFS volumes are to be determined by the EPA in coordination with
the Secretaries of Energy and Agriculture. The EPA has the authority to assign the mandated amounts of renewable fuels to be blended
into transportation fuel to individual fuel blenders. RFS II has been a primary factor in the growth of ethanol usage. 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.
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. The EPA was required to propose RVOs for 2026 by November 2024, but the administration, at that time, indicated on July
8, 2024 an intention to propose RVOs for 2026 and beyond in March 2025, and finalize them in December 2025. The new administration
has not yet provided an updated timeline for these rules.
Obligated parties use RINs to show compliance
with RFS-mandated volumes. RINs are attached to renewable fuels by producers and detached when the renewable fuel is blended with
transportation fuel or traded in the open market. The market price of detached RINs affects the price of ethanol in certain markets
and influences the purchasing decisions by obligated parties. As a result of fluctuations in RINs pricing, certain obligated parties
have petitioned the EPA and filed court actions to change the point of obligation or to seek relief from their obligation. The
EPA granted 88 total SREs for 2016 through 2018 totaling approximately 4.3 billion gallons. In recent years, the EPA had largely
denied small refiner waivers. In July 2024, the U.S. Court of Appeals for the District of Columbia Circuit vacated many of the
EPA’s 2022 SRE denials. The EPA had denied 105 SREs in 2022. As a result of this Court ruling, the EPA has voluntarily moved