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Homeland Energy Solutions

Filed: 13 Aug 21, 5:14pm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
                    
FORM 10-Q
                    
xQuarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the fiscal quarter ended June 30, 2021
oTransition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
000-53202
(Entity File Number)
HOMELAND ENERGY SOLUTIONS, LLC
(Exact name of registrant as specified in its charter)
 
Iowa 20-3919356
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer Identification No.)
2779 Highway 24,Lawler,Iowa52154United States of America
(Address of principal executive offices)(Zip Code)(Country)
(563) 238-5555
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Title of each classTrading Symbol(s)Name of each exchange on which registered

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.        x Yes o No

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                             x Yes    o 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.
Large accelerated fileroAccelerated filero
Non-accelerated filerxSmaller Reporting Companyo
(Do not check if a smaller reporting company)Emerging Growth Companyo

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).      o Yes x No

As of August 13, 2021, we had 64,560 membership units outstanding.





PART I.        FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
Homeland Energy Solutions, LLC
Balance Sheets
June 30, 2021December 31, 2020
 ASSETS(Unaudited)(Audited)
CURRENT ASSETS
Cash and cash equivalents$2,746,773 $5,072,227 
Accounts receivable8,797,164 4,121,778 
Inventory52,429,427 24,459,408 
Prepaid and other4,493,407 4,833,883 
Derivative instruments1,230,938 840,857 
Total current assets69,697,709 39,328,153 
PROPERTY AND EQUIPMENT
Land and improvements23,260,902 23,260,902 
Buildings8,777,302 8,777,302 
Equipment241,628,905 240,429,826 
Construction in progress1,111,200 620,832 
274,778,309 273,088,862 
Less accumulated depreciation153,044,476 144,554,643 
Total property and equipment121,733,833 128,534,219 
OTHER ASSETS
Right of use asset operating leases, net2,307,790 3,116,941 
Utility rights, net of amortization of $1,932,965 and $1,864,769375,064 443,260 
Other assets4,220,646 4,116,647 
Total other assets6,903,500 7,676,848 
TOTAL ASSETS$198,335,042 $175,539,220 

See Notes to Unaudited Financial Statements.
3

Homeland Energy Solutions, LLC
Balance Sheets (continued)
June 30, 2021December 31, 2020
LIABILITIES AND MEMBERS' EQUITY(Unaudited)(Audited)
CURRENT LIABILITIES
Accounts payable$10,287,050 $20,836,019 
Accrued expenses1,410,001 1,219,705 
Current portion operating lease liability1,489,257 1,637,878 
Total current liabilities13,186,308 23,693,602 
COMMITMENTS AND CONTINGENCIES (Note 5)
LONG-TERM LIABILITIES
Long term debt15,189,000 
Operating lease liability, less current portion818,533 1,479,063 
Total long-term liabilities16,007,533 1,479,063 
MEMBERS' EQUITY (64,560 units issued and outstanding)169,141,201 150,366,555 
TOTAL LIABILITIES AND MEMBERS' EQUITY$198,335,042 $175,539,220 

See Notes to Unaudited Financial Statements.

4

Homeland Energy Solutions, LLC
Statements of Operations
(Unaudited)

Three Months EndedThree Months EndedSix Months EndedSix Months Ended
June 30, 2021June 30, 2020June 30, 2021June 30, 2020
Revenue$130,691,378 $63,862,205 $227,068,328 $128,899,443 
Costs of goods sold116,577,854 59,284,228 205,798,353 128,249,051 
Gross profit14,113,524 4,577,977 21,269,975 650,392 
Selling, general and administrative expenses1,131,308 831,256 2,363,684 1,836,269 
Operating income (loss)12,982,216 3,746,721 18,906,291 (1,185,877)
Other income (expense)
Interest (expense)(132,863)(219,068)(233,599)(444,124)
Interest income10,787 14,470 12,759 43,014 
Other income49,211 419,699 89,195 300,244 
Total other income (expense)(72,865)215,101 (131,645)(100,866)
Net income (loss)$12,909,351 $3,961,822 $18,774,646 $(1,286,743)
Basic & diluted net income (loss) per capital unit$199.96 $61.37 $290.81 $(19.93)
Weighted average number of units outstanding for the calculation of basic & diluted net income (loss) per capital unit64,560 64,560 64,560 64,560 
Distribution per Unit$$$$

See Notes to Unaudited Financial Statements.

5

Homeland Energy Solutions, LLC
Statements of Cash Flows
(Unaudited)
Six Months EndedSix Months Ended
June 30, 2021June 30, 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)$18,774,646 $(1,286,743)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization8,558,030 8,043,348 
Unrealized (gain) loss on risk management activities(390,081)567,094 
Unrealized loss on trading securities activities74,070 
     (Loss) on disposal of property and equipment(3,254)
Change in working capital components:
Accounts receivable(4,675,386)2,946,395 
Inventory(27,970,019)449,077 
Prepaid and other340,476 334,987 
Accounts payable and other accrued expenses(9,717,307)(4,248,264)
Net cash provided by (used in) operating activities(15,079,641)6,876,710 
CASH FLOWS FROM INVESTING ACTIVITIES
Sales of trading securities32,025,459 
Payments for equipment and construction in progress(2,330,814)(2,542,303)
Proceeds from sale of equipment32,000 
(Increase) in other assets(103,999)(202,526)
Net cash provided by (used in) investing activities(2,434,813)29,312,630 
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings907,675 
Payments on long-term borrowings(3,000,000)
Advances on term revolving loan145,462,000 
Payments on term revolving loan(130,273,000)
Repurchase of membership units(30,000,000)
Net cash provided by (used in) financing activities15,189,000 (32,092,325)
Net increase (decrease) in cash and cash equivalents(2,325,454)4,097,015 
Cash and Cash Equivalents - Beginning5,072,227 17,274,703 
Cash and Cash Equivalents - Ending$2,746,773 $21,371,718 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest$193,441 $437,088 
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Accounts payable issued for property and equipment additions$402,332 $207,240 

See Notes to Unaudited Financial Statements.
6

Homeland Energy Solutions, LLC
Statements of Changes in Members' Equity


Members' Equity
Balance - December 31, 2019$153,975,555 
Net loss for the three-month period ended March 31, 2020(5,248,565)
Balance - March 31, 2020$148,726,990 
Net income for three-month period ended June 30, 20203,961,822 
Balance - June 30, 2020$152,688,812 


Members' Equity
Balance - December 31, 2020$150,366,555 
Net income for the three-month period ended March 31, 20215,865,295 
Balance - March 31, 2021$156,231,850 
Net income for three-month period ended June 30, 202112,909,351 
Balance - June 30, 2021$169,141,201 


See Notes to Unaudited Financial Statements.

7

Homeland Energy Solutions, LLC
Notes to Unaudited Financial Statements

1.NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company's audited financial statements for the year ended December 31, 2020, contained in the Company's annual report on Form 10-K for 2020.

In the opinion of management, the interim condensed financial statements reflect all adjustments considered necessary for fair presentation. The adjustments made to these statements consist only of normal recurring adjustments.

Nature of Business
Homeland Energy Solutions, LLC (an Iowa Limited Liability Company) is located near Lawler, Iowa and was organized to pool investors for a 100 million gallon ethanol plant with distribution primarily throughout the United States. The Company has capacity to produce in excess of 190 million gallons annually and sells distillers dried grains and corn oil as byproducts of ethanol production.

Organization
Homeland Energy Solutions, LLC is organized as an Iowa limited liability company. The members' liability is limited as specified in Homeland Energy Solutions' operating agreement and pursuant to the Iowa Revised Uniform Limited Liability Company Act.

Significant Accounting Policies:

Accounting Estimates
Management uses estimates and assumptions in preparing these financial statements in accordance with United States Generally Accepted Accounting Principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.

Cash & Cash Equivalents
The Company maintains its accounts primarily at one financial institution. At various times, the Company's cash balances may exceed amounts insured by the Federal Deposit Insurance Corporation. The Company has not experienced losses in such accounts. Also included in cash and cash equivalents are highly liquid investments that are readily convertible into known amounts of cash, which are subject to an insignificant risk of change in value due to interest rate, quoted price or penalty on withdrawal and have an original maturity of three months or less.

Trading Securities
Investments bought and held principally for the purpose of selling them in the near term are classified as trading securities. Trading securities are measured at fair value using prices obtained from pricing services. Any interest, dividends, and unrealized or realized gains and losses on the trading securities are recorded as part of other income.

At June 30, 2021 and December 31, 2020, the Company held no trading securities. During the three and six months ended June 30, 2021, the Company had 0 interest, dividends and net unrealized gains from trading securities. During the three and six months ended June 30, 2020, the Company recorded interest, dividends and net unrealized gains from trading securities of approximately $500,000 and $181,000, respectively.

The Board of Directors voted to set aside up to $30 million in trading securities to be used by the Company for the repurchase of 25,860 membership units per the terms of an agreement with Mr. Retterath entered into on June 13, 2013 with the Company. These trading securities were used in April 2020 to repurchase the 25,860 membership units from Mr. Retterath.



8

Homeland Energy Solutions, LLC
Notes to Unaudited Financial Statements
Receivables
Credit sales are made primarily to two customers and no collateral is required. The Company carries these accounts receivable at original invoice amount with no allowance for doubtful accounts due to the historical collection rates on these accounts.

Investments
The Company has a less than 20% investment interest in Renewable Products Marketing Group, LLC ("RPMG"). This investment is being accounted for under the equity method of accounting, as the Company has significant influence, under which the Company's share of net income is recognized as income in the Company's statement of operations and added to the investment account. The investment balance is included in other assets and the income recognized as other income. The investment is evaluated for indications of impairment on a regular basis. A loss would be recognized when the fair value is determined to be less than the carrying value.

Revenue and Cost Recognition
The Company recognizes Revenue from Contracts with Customers following Accounting Standards Update (ASU) 2014-09. Under the ASU, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company generally has a single performance obligation in its arrangements with customers. The Company believes for its contracts with customers, control is transferred at a point in time, typically upon delivery to the customers. When the Company performs shipping and handling activities after the transfer of control to the customers (e.g., when control transfers prior to delivery), they are considered as fulfillment activities, and accordingly, the costs are accrued for when the related revenue is recognized. The Company generally expenses sales commissions when incurred because the amortization period would have been less than one year.

The following is a description of principal activities from which we generate revenue. Revenues from contracts with customers are recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services.

sales of ethanol;

sales of distiller grains; and

sales of corn oil;

All revenue recognized in the statement of operations is considered to be revenue from contracts with customers. The disaggregation of revenue according to product line, along with accounts receivable from contracts with customers, is as disclosed in Note 5.

Shipping costs incurred by the Company in the sale of ethanol and distiller grains are not specifically identifiable and as a result, revenue from the sale of ethanol and distiller grains is recorded based on the net selling price reported to the Company from the marketer. Rail car lease costs incurred by the Company in the sale and shipment of distiller grain products are included in the cost of goods sold.

Inventories
Inventories are generally valued at the lower of cost (first-in, first-out) or net realizable value.  In the valuation of inventories and purchase commitments, net realizable value is defined as estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation.

Property & Equipment
The Company reviews its property and equipment for impairment whenever events indicate that the carrying amount of the asset group may not be recoverable. If circumstances require an asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by the asset group to the carrying value of the asset group. If the carrying value of the asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
9

Homeland Energy Solutions, LLC
Notes to Unaudited Financial Statements
Derivative Instruments
The Company evaluates its contracts to determine whether the contracts are derivative instruments. Certain contracts that literally meet the definition of a derivative may be exempted from derivative accounting as normal purchases or normal sales. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that meet the requirements of normal purchases or sales are documented as normal and exempted from the accounting and reporting requirements of derivative accounting.
 
The Company enters into short-term cash, option and futures contracts as a means of securing purchases of corn, natural gas and sales of ethanol for the plant and managing exposure to changes in commodity and energy prices. All of the Company's derivatives are designated as non-hedge derivatives for accounting purposes, with changes in fair value recognized in net income (loss). Although the contracts are economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.
 
As part of its trading activity, the Company uses futures and option contracts through regulated commodity exchanges to manage its risk related to pricing of inventories. To reduce that risk, the Company generally takes positions using cash and futures contracts and options.
 
Realized and unrealized gains and losses related to derivative contracts related to corn and natural gas are included as a component of cost of goods sold and derivative contracts related to ethanol are included as a component of revenue in the accompanying financial statements. The fair values of contracts entered through commodity exchanges are presented on the accompanying balance sheet as derivative instruments. All contracts with the same counter party are reported on a net basis.

Net Income (Loss) per Unit
Basic and diluted net income (loss) per unit is computed by dividing net income (loss) by the weighted average number of members' units and members' unit equivalents outstanding during the period. There were no member unit equivalents outstanding during the periods presented; accordingly, the Company's basic and diluted net income per unit are the same.

Risks and Uncertainties
The Company has certain risks and uncertainties that it will experience during volatile market conditions, which can have a severe impact on operations. The Company's revenues are derived from the sale and distribution of ethanol, distiller grains and corn oil to customers primarily located in the United States. Corn for the production process is supplied to the plant primarily from local agricultural producers and from purchases on the open market. For the six months ended June 30, 2021, ethanol sales averaged approximately 75% of total revenues, while approximately 19% of revenues were generated from the sale of distiller grains. Corn oil sales attributed approximately 6% of revenues during this time period. For the six months ended June 30, 2021, corn costs averaged approximately 78% of cost of goods sold.

The Company's operating and financial performance is largely driven by the prices at which ethanol is sold and the net expense of corn. The price of ethanol is influenced by factors such as supply and demand, weather, government policies and programs, and unleaded gasoline and the petroleum markets. Excess ethanol supply in the market, in particular, puts downward pressure on the price of ethanol. The Company's largest cost of production is corn. The cost of corn is generally impacted by factors such as supply and demand, weather, and government policies and programs. The Company's risk management program is used to protect against the price volatility of these commodities.

On January 30, 2020, the World Health Organization declared the coronavirus outbreak (COVID-19) a "Public Health Emergency of International Concern" and on March 11, 2020, declared COVID-19 a pandemic. The impact of COVID-19 has negatively impacted the Company’s operations, suppliers or other vendors, and customer base. Any future quarantines, labor shortages or other disruptions to the Company's operations, or those of their customers, may adversely impact the Company's revenues, ability to provide its services and operating results. In addition, a significant outbreak of epidemic, pandemic or contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, including the geographical area in which the Company operates, resulting in an economic downturn that could affect demand for its goods and services. The extent to which the coronavirus continues to impact the Company's results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and actions taken to contain the coronavirus or its impact, among others.
10

Homeland Energy Solutions, LLC
Notes to Unaudited Financial Statements

2.    INVENTORY

Inventory consisted of the following as of June 30, 2021 and December 31, 2020:
June 30, 2021December 31, 2020
Raw Materials$37,954,989 $15,909,576 
Work in Process4,434,341 2,923,041 
Finished Goods10,040,097 5,626,791 
Totals$52,429,427 $24,459,408 

3.    DEBT

Master Loan Agreement with Home Federal Savings Bank
On June 29, 2017, the Company amended and restated the Master Loan Agreement with Home Federal Savings Bank ("Home Federal"), amending the term revolving loan to provide funding to operate the plant and establishing a term loan to help fund the Company's $42 million expansion project. In return, the Company entered into agreements providing Home Federal a security interest in substantially all personal property located on Company property. The Company currently has 1 loan with Home Federal, a term revolving loan.

Term Revolving Loan
Under the terms of the Second Amended and Restated Second Supplement to the Master Loan Agreement, dated November 6, 2020, the Company has a $50 million term revolving loan which has a maturity date of November 6, 2025. Interest on the term revolving loan is due monthly and accrues at a rate equal to Prime Rate less 60 basis points, 2.65% on June 30, 2021. There was approximately $15.2 million outstanding on the term revolving loan and approximately $34.8 million available to be drawn as of June 30, 2021 and 0 balance outstanding and $50 million available as of December 31, 2020.

Covenants
During the term of the loans, the Company is subject to certain financial covenants at various times calculated monthly, quarterly or annually, including restriction of the payment of dividends and capital expenditures and maintenance of certain financial ratios including the minimum working capital and a fixed charge ratio as defined by the Master Loan Agreement. Failure to comply with the protective loan covenants or maintain the required financial ratios may cause acceleration of the outstanding principal balances on the loans and/or the imposition of fees, charges or penalties. The Company is in compliance with all financial covenants as of June 30, 2021.

4.    RELATED PARTY TRANSACTIONS

The Company has purchased corn and materials from members of its Board of Directors who own or manage elevators or are local producers of corn. Purchases during the three and six months ended June 30, 2021 totaled approximately $434,000 and $2,470,000, respectively and during the three and six months ended June 30, 2020 totaled approximately $509,000 and $1,171,000, respectively. Amounts due to these members were NaN and approximately $28,000 at June 30, 2021 and December 31, 2020, respectively.

5.    COMMITMENTS, CONTINGENCIES, AGREEMENTS

Ethanol, corn oil, and distiller grains marketing agreements and major customers

The Company has entered into a marketing agreement with RPMG to sell all denatured fuel ethanol produced at the plant at a mutually agreed on price, less commission and transportation charges. As of June 30, 2021, the Company had commitments to sell approximately 3 million gallons of ethanol at fixed prices and 45 million of its produced gallons of ethanol at basis price levels indexed against exchanges for delivery through September 30, 2021.

11

Homeland Energy Solutions, LLC
Notes to Unaudited Financial Statements
The Company has entered into a marketing agreement with RPMG to sell all industrial alcohol produced at the plant at a mutually agreed on price, less commission and transportation charges. As of June 30, 2021, the Company had 0 commitments to sell any gallons of industrial alcohol.

The Company has entered into a marketing agreement with RPMG to sell all corn oil produced at the plant at a mutually agreed on price, less marketing fees and transportation charges. As of June 30, 2021, the Company had commitments to sell approximately 5 million pounds of corn oil at various fixed and basis price levels indexed against exchanges for delivery through July 31, 2021.

The Company also has an investment in RPMG, included in other assets, totaling approximately $2,616,000 and $2,527,000 as of June 30, 2021 and December 31, 2020, respectively.

The Company has entered into a marketing agreement to sell all distiller grains produced at the plant to CHS, an unrelated party, at a mutually agreed on price, less commission and transportation charges. The agreement was renewed for another one year term on April 1, 2021. The agreement calls for automatic renewal for successive one-year terms unless 90-day prior written notice is given before the current term expires. As of June 30, 2021, the Company had approximately 67,000 tons of distiller grains sales commitments for delivery through November 2021 at various fixed prices.

Sales and marketing fees related to the agreements in place for the three and six months ended June 30, 2021 and 2020 were approximately as follows:
Three Months EndedSix Months EndedThree Months EndedSix Months Ended
June 30, 2021June 30, 2021June 30, 2020June 30, 2020
Sales ethanol$99,037,000 $170,768,000 $48,194,000 $96,147,000 
Sales distiller grains23,920,000 42,903,000 13,163,000 26,806,000 
Sales corn oil7,733,000 13,390,000 3,681,000 7,122,000 
Marketing fees ethanol$104,000 $258,000 $23,000 $83,000 
Marketing fees distiller grains218,000 414,000 191,000 396,000 
Marketing fees corn oil32,000 61,000 11,000 40,000 
As of June 30, 2021As of December 31, 2020
Amount due from RPMG$5,565,000 $1,451,000 
Amount due from CHS3,195,000 2,635,000 

At June 30, 2021, the Company had approximately $56,086,000 in outstanding priced corn purchase commitments for bushels at various prices and approximately 2,507,000 bushels of basis contracts through December 2022 accounted for under the normal purchase exclusion.

The Company has commitments for minimum purchases of various utilities such as natural gas and electricity over the next 12 months totaling approximately $516,000 accounted for under the normal purchase exclusion.

As of June 30, 2021, the Company had 0 natural gas locked in at fixed prices. As of June 30, 2020, approximately 1,932,000 decatherms of natural gas was locked into place at fixed prices through December 31, 2020 accounted for under the normal purchase exclusion.

6.    LEASE OBLIGATIONS

A lease exists when a contract conveys to a party the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The Company recognized a lease liability at the lease commencement date, as the present value of future lease payments, using an estimated rate of interest that the Company would pay to borrow equivalent funds on a collateralized basis. A lease asset is recognized based on the lease liability value and adjusted for any prepaid lease
12

Homeland Energy Solutions, LLC
Notes to Unaudited Financial Statements
payments, initial direct costs, or lease incentive amounts. The lease term at the commencement date includes any renewal options or termination options when it is reasonably certain that the Company will exercise or not exercise those options, respectively.

The Company leases rail cars and rail moving equipment with original terms up to 7 years. The Company is obligated to pay costs of insurance, taxes, repairs and maintenance pursuant to the terms of the leases. These costs are in addition to regular lease payments and are not included in lease expense. Rent expense incurred for the operating leases during the three and six months ended June 30, 2021 was approximately $492,000 and $953,000, respectively and for the same periods in 2020 was approximately $444,000 and $888,000, respectively. The lease agreements have maturity dates ranging from March 2022 to October 2025. The weighted average remaining life of the lease term for these leases was 1.39 years as of June 30, 2021.

The discount rate used in determining the lease liability for each individual lease was the Company's estimated incremental borrowing rate of 4.79%. The right-of-use asset operating lease, included in other assets, and operating lease liability, included in current and long term liabilities was approximately $2,307,790 and $3,116,941 as of June 30, 2021 and December 31, 2020, respectively.

At June 30, 2021, the Company had the following approximate minimum rental commitments under non-cancelable operating leases for the twelve month period ended June 30:
2022$1,564,000 
2023557,000 
2024156,000 
2025109,000 
Thereafter36,000 
         Total lease commitments$2,422,000 

A reconciliation of the undiscounted future payments in the schedule above and the lease liability recognized in the consolidated balance sheet as of June 30, 2021, is shown below.
Undiscounted future payments$2,422,000 
Discount effect(114,000)
$2,308,000 

7. DERIVATIVE INSTRUMENTS

The Company's activities expose it to a variety of market risks, including the effects of changes in commodity prices. These financial exposures are monitored and managed by the Company as an integral part of its overall risk-management program. The Company's risk management program focuses on the unpredictability of financial and commodities markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on its operating results.

To reduce price risk caused by market fluctuations, the Company generally follows a policy of using exchange traded futures and options contracts to reduce its net position of merchandisable agricultural commodity inventories and forward cash purchase and sales contracts and uses exchange traded futures and options contracts to reduce price risk. Exchange-traded futures contracts are valued at market price. Changes in market price of exchange traded futures and options contracts related to corn and natural gas are recorded in costs of goods sold and changes in market prices of contracts related to the sale of ethanol, if applicable, are recorded in revenues.

The Company uses futures or options contracts to fix the purchase price of anticipated volumes of corn to be purchased and processed in a future month. The Company's plant will grind approximately 65 million bushels of corn per year.  Over the next twelve months, the Company has hedged and anticipates hedging between 5% and 28% of its anticipated annual grind.  At June 30, 2021, the Company has hedged portions of its anticipated monthly purchases for corn averaging approximately 27% of its anticipated monthly grind over the next twelve months.
13

Homeland Energy Solutions, LLC
Notes to Unaudited Financial Statements
The following table represents the approximate amount of realized/unrealized gains (losses) and changes in fair value recognized in earnings on commodity contracts for the three and six months ending June 30, 2021 and 2020 and the fair value of derivatives as of June 30, 2021 and December 31, 2020:
Income Statement ClassificationRealized Gain (Loss) Change In Unrealized Gain (Loss)Total Gain (Loss)
Derivatives not designated as hedging instruments:
Commodity contracts for the
three months ended June 30, 2021Cost of Goods Sold$(13,143,000)$(1,700,000)$(14,843,000)
Commodity contracts for the
three months ended June 30, 2020Revenue$$(1,176,000)$(1,176,000)
Cost of Goods Sold1,433,000 (1,083,000)350,000 
Total$1,433,000 $(2,259,000)$(826,000)
Commodity contracts for the
six months ended June 30, 2021Cost of Goods Sold$(18,458,000)$2,267,000 $(16,191,000)
Commodity contracts for the
six months ended June 30, 2020Revenue$$(1,176,000)$(1,176,000)
Cost of Goods Sold4,183,000 (1,236,000)2,947,000 
Total$4,183,000 $(2,412,000)$1,771,000 
Balance Sheet ClassificationJune 30, 2021December 31, 2020
Futures contracts
In gain position$481,000 $
In loss position(4,446,000)(6,233,000)
Cash held by broker5,196,000 7,074,000 
Current Asset$1,231,000 $841,000 

8.    FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1: Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.
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Homeland Energy Solutions, LLC
Notes to Unaudited Financial Statements

Level 3: Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

A description of the valuation methodologies used for instruments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy, is set forth below:

Derivative financial instruments: Commodity futures and exchange-traded commodity options contracts are reported at fair value utilizing Level 1 inputs. For these contracts, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the CBOT and NYMEX markets. 

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
TotalLevel 1Level 2Level 3
As of June 30, 2021
Derivative financial instruments
Assets$481,000 $481,000 $$
     Liabilities$(4,446,000)$(4,446,000)$$
As of December 31, 2020
Derivative financial instruments
Liabilities$(6,233,000)$(6,233,000)$$

The Company's financial assets and liabilities not recorded at fair value, for which carrying value approximates fair value, consists of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and term revolver debt.

9.    LITIGATION MATTERS

Retterath

On August 1, 2013 Mr. Steve Retterath filed a lawsuit against the Company along with several directors, the Company's former CEO, former CFO, COO, a former director and the Company's outside legal counsel in Florida state court. In August 2016, this lawsuit was voluntarily dismissed without prejudice by the Retteraths. On August 14, 2013, the Company filed a lawsuit in Iowa state court to enforce the repurchase agreement the Company entered into with Mr. Retterath. No distributions have been paid to Mr. Retterath since the time of the original expected closing date of August 1, 2013. On June 15, 2017, the Iowa Court ruled in favor of Homeland that the repurchase agreement was valid and directed Mr. Retterath to perform his obligations under the repurchase agreement by August 1, 2017. Mr. Retterath subsequently filed various motions with the Iowa Court and was granted a stay regarding his obligation to perform the repurchase agreement while the court considered his post trial motions. On May 7, 2018, the Iowa Court denied Mr. Retterath's motions for a new trial and to reconsider the Iowa Court's prior ruling. In February 2020, the Iowa Supreme Court ruled in favor of the Company that the repurchase agreement was valid. In April 2020, the Company closed the repurchase of the membership units held by Mr. Retterath.

15

Homeland Energy Solutions, LLC
Notes to Unaudited Financial Statements

10. SUBSEQUENT EVENT

On July 22, 2021, the Company entered into an amendment to the revolving debt with Home Federal, creating a new $50 million revolving loan in addition to existing debt instruments. The agreements Homeland entered into with Home Federal were: (i) a Third Amendment to Amended and Restated Master Loan Agreement (the “Loan Amendment”); (ii) a Third Amended and Restated Second Supplement to Master Loan Agreement (the “Term Loan Amendment”); (iii) a Revolving Promissory Note (the “Promissory Note”); and (iv) a Fifth Amended and Restated Mortgage (the “Amended Mortgage”).

Pursuant to the Loan Amendment, the Company can borrow up to $50 million pursuant to the revolving loan. The amount available pursuant to the revolving loan decreases to $40 million on December 31, 2021 and decreases again to $30 million on May 31, 2022. Interest on the revolving loan accrues at a rate of 30 basis points less than the prime rate. There is a fee on the unused portion of the revolving loan equal to 0.30%. The maturity date of the revolving loan is November 6, 2025.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
    This report contains forward-looking statements that involve future events, our future performance and our expected future operations and actions. In some cases you can identify forward-looking statements by the use of words such as "may," "will," "should," "anticipate," "believe," "expect," "plan," "future," "intend," "could," "estimate," "predict," "hope," "potential," "continue," or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the reasons described in this report or in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. We are not under any duty to update the forward-looking statements contained in this report. We cannot guarantee future results, levels of activity, performance or achievements. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits, completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.

Overview

    Homeland Energy Solutions, LLC (referred to herein as "we," "us," the "Company," or "Homeland") is an Iowa limited liability company. Homeland was formed on December 7, 2005 for the purpose of pooling investors for the development, construction and operation of a 100 million gallon per year ethanol plant located near Lawler, Iowa. We began producing ethanol and distiller grains at the plant in April 2009. We completed installation of corn oil extraction equipment and commenced selling corn oil during our fourth quarter of 2011. During our fourth quarter of 2017, we completed a plant expansion project. The ethanol plant is now capable of operating at a rate in excess of 190 million gallons of ethanol per year.

On July 22, 2021, Homeland and Home Federal entered into an amendment to Homeland’s revolving loan with Home Federal creating a new $50 million revolving loan in addition to Homeland’s other current debt instruments. Pursuant to the loan amendment, we can borrow up to $50 million pursuant to the revolving loan. The amount available pursuant to the revolving loan decreases to $40 million on December 31, 2021 and decreases again to $30 million on May 31, 2022.

Results of Operations

Comparison of Fiscal Quarters Ended June 30, 2021 and 2020     

    The following table shows the results of our operations and the percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our statement of operations for the three months ended June 30, 2021 and 2020:
20212020
Income Statement DataAmount%Amount%
Revenue$130,691,378 100.0 $63,862,205 100.0 
Costs of goods sold116,577,854 89.2 59,284,228 92.8 
Gross profit14,113,524 10.8 4,577,977 7.2 
Selling, general and administrative expenses1,131,308 0.9 831,256 1.3 
Operating income12,982,216 9.9 3,746,721 5.9 
Other income (expense)(72,865)(0.1)215,101 0.3 
Net income$12,909,351 9.9 $3,961,822 6.2 

Revenue

    Our total revenue for our second quarter of 2021 was approximately 105% more than our total revenue for our second quarter of 2020 due primarily to increased average prices for our products.

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    For our second quarter of 2021, our total ethanol revenue was approximately 111% more than our second quarter of 2020 due to lower average prices we received for our ethanol during the 2020 period, as well as slightly fewer gallons sold in 2020.

    The average price per gallon we received for our ethanol during our second quarter of 2021 was approximately 96% more than the average price we received for our ethanol during our second quarter of 2020. Management attributes this increase in the average price we received for our ethanol with higher market gasoline prices, which impacts ethanol prices, during our second quarter of 2021 compared to the same period of 2020. Management believes that the COVID-19 pandemic impacted gasoline demand during the 2020 period. Management anticipates that the impact of the COVID-19 pandemic may continue for the rest of our 2021 fiscal year.

   ��We sold approximately 7% more gallons of ethanol during our second quarter of 2021 compared to the same period of 2020. Management attributes this increase to increased travel as people begin to travel more as restrictions on travel due to the COVID-19 pandemic are relaxing.
    
    Our total distiller grains revenue was approximately 82% more during our second quarter of 2021 compared to the same period of 2020, primarily due to an increased average price of distiller grains sold, as well as slightly more dried distiller grains sold. We sold approximately 11% more tons of distiller grains during our second quarter of 2021 compared to the same period of 2020 due to reduced production at the ethanol plant in 2020 during the COVID-19 pandemic. We primarily sell our distillers grains in the dried form. The average price we received for our dried distiller grains was approximately 64% higher during our second quarter of 2021 compared to the same period of 2020. Management anticipates that distiller grains prices will remain steady during the rest of our 2021 fiscal year due to anticipated stable distiller grains demand.

    Our total corn oil revenue was approximately 110% higher for our second quarter of 2021 compared to the same period of 2020 due to an increased average selling price per pound of corn oil during the 2021 period. We sold approximately 13% more pounds of corn oil during our second quarter of 2021 compared to the same period of 2020 primarily because of increased corn oil extraction efficiency during the 2021 period. The average price we received for our corn oil was approximately 86% higher during our second quarter of 2021 compared to the same period of 2020 due to increased demand in the corn oil market. Management anticipates that corn oil prices will increase slightly for the rest of our 2021 fiscal year since biodiesel production is typically higher during the summer months and corn oil is frequently used as the feedstock to produce biodiesel.

During our second quarter of 2021, we experienced no realized or unrealized losses on ethanol derivatives. By comparison, during the same period of 2020, we experienced combined realized and unrealized losses on our ethanol derivatives of approximately $1,176,000, which decreased our revenue.

Cost of Goods Sold

    Our total cost of goods sold was approximately 97% more for our second quarter of 2021 compared to the same period of 2020. Our cost of goods sold related to corn, without taking into account derivative instruments, was approximately 103% more during our second quarter of 2021 compared to our second quarter of 2020 due to higher average corn costs per bushel, along with slightly more bushels of corn ground. We used approximately 9% more bushels of corn during our second quarter of 2021 compared to the same period of 2020 due to increased overall production at the ethanol plant. Our average cost per bushel of corn was approximately 87% higher during our second quarter of 2021 compared to our second quarter of 2020 due primarily to increased corn demand. Management anticipates that corn costs will remain higher unless current market conditions change and corn demand is lower due to increased corn supply from new crop corn.

    We experienced increased natural gas costs during our second quarter of 2021 compared to the same period of 2020 primarily due to slightly higher average costs per MMBtu of natural gas used, along with slightly increased usage during the 2021 period. During our second quarter of 2021, our average delivered cost per MMBtu of natural gas was approximately 13% higher compared to the same period of 2020. In addition, we used approximately 13% more MMBtu of natural gas during our second quarter of 2021 compared to our second quarter of 2020 due to increased production at the ethanol plant.

    We engage in risk management activities that are intended to fix the purchase price of the corn and natural gas we require to produce ethanol, distiller grains and corn oil. During our second quarter of 2021, we experienced combined realized and unrealized losses of approximately $14.8 million related to our corn and natural gas derivative instruments which increased our cost of goods sold. During our second quarter of 2020, we had combined realized and unrealized gains of approximately $350 thousand which decreased our cost of goods sold related to our corn and natural gas derivative instruments. We recognize
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the gains or losses that result from changes in the value of our corn and natural gas derivative instruments in cost of goods sold as the changes occur.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses were more during the second quarter of 2021 than during our second quarter of 2020, primarily due to increased administrative labor and consulting fees in the current quarter.

Other Income (Expense)

    We had less interest expense during our second quarter of 2021 compared to the same period of 2020 due to having less outstanding debt. We had less other income during our second quarter of 2021 compared to the same period of 2020 due to less gains on our equity method investments in the 2021 period.


Comparison of Six Months Ended June 30, 2021 and 2020     

    The following table shows the results of our operations and the percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our statement of operations for the six months ended June 30, 2021 and 2020:
20212020
Income Statement DataAmount%Amount%
Revenue$227,068,328 100.0 $128,899,443 100.0 
Costs of goods sold205,798,353 90.6 128,249,051 99.5 
Gross profit21,269,975 9.4 650,392 0.5 
Selling, general and administrative expenses2,363,684 1.0 1,836,269 1.4 
Operating income (loss)18,906,291 8.3 (1,185,877)(0.9)
Other income (expense)(131,645)(0.1)(100,866)(0.1)
Net income (loss)$18,774,646 8.3 $(1,286,743)(1.0)

Revenue

    Our total revenue for our six months ended June 30, 2021 was approximately 76% more than our total revenue for our six months ended June 30, 2020 due primarily to increased average prices for our products.

    For our six months ended June 30, 2021, our total ethanol revenue was approximately 80% more than our six months ended June 30, 2020 due to lower average prices we received for our ethanol during the 2020 period, as well as slightly fewer gallons sold in 2020.

    The average price per gallon we received for our ethanol during our six months ended June 30, 2021 was approximately 70% more than the average price we received for our ethanol during our six months ended June 30, 2020. Management attributes this increase in the average price we received for our ethanol with higher market gasoline prices, which impacts ethanol prices, during our six months ended June 30, 2021 compared to the same period of 2020.

    We sold approximately 5% more gallons of ethanol during our six months ended June 30, 2021 compared to the same period of 2020. Management attributes this increase to increased travel as people begin to travel more as restrictions on travel due to the COVID-19 pandemic are relaxing.
    
    Our total distiller grains revenue was approximately 60% more during our six months ended June 30, 2021 compared to the same period of 2020, primarily due to an increased average price of distiller grains sold, as well as slightly more dried distiller grains sold. We sold approximately 4% more tons of distiller grains during our six months ended June 30, 2021 compared to the same period of 2020 due to reduced production at the ethanol plant in 2020 due to the COVID-19 pandemic.
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We primarily sell our distillers grains in the dried form. The average price we received for our dried distiller grains was approximately 53% higher during our six months ended June 30, 2021 compared to the same period of 2020.

    Our total corn oil revenue was approximately 88% higher for our six months ended June 30, 2021 compared to the same period of 2020 due to an increased average selling price per pound of corn oil during the 2021 period. We sold approximately 7% more pounds of corn oil during our six months ended June 30, 2021 compared to the same period of 2020 primarily because of increased corn oil extraction efficiency during the 2021 period. The average price we received for our corn oil was approximately 77% higher during our six months ended June 30, 2021 compared to the same period of 2020 due to increased demand in the corn oil market.

Cost of Goods Sold

    Our total cost of goods sold was approximately 61% more for our six months ended June 30, 2021 compared to the same period of 2020. Our cost of goods sold related to corn, without taking into account derivative instruments, was approximately 58% more during our six months ended June 30, 2021 compared to our six months ended June 30, 2020 due to higher average corn costs per bushel, along with slightly more bushels of corn ground. We used approximately 2% more bushels of corn during our six months ended June 30, 2021 compared to the same period of 2020 due to increased overall production at the ethanol plant. Our average cost per bushel of corn was approximately 54% higher during our six months ended June 30, 2021 compared to our six months ended June 30, 2020 due primarily to increased corn demand.

    We experienced increased natural gas costs during our six months ended June 30, 2021 compared to the same period of 2020 primarily due to slightly higher average costs per MMBtu of natural gas used, along with slightly increased usage during the 2021 period. During our six months ended June 30, 2021, our average delivered cost per MMBtu of natural gas was approximately 8% higher compared to the same period of 2020. In addition, we used approximately 4% more MMBtu of natural gas during our six months ended June 30, 2021 compared to our six months ended June 30, 2020 due to increased production at the ethanol plant.

    We engage in risk management activities that are intended to fix the purchase price of the corn and natural gas we require to produce ethanol, distiller grains and corn oil. During our six months ended June 30, 2021, we experienced combined realized and unrealized losses of approximately $16.2 million related to our corn and natural gas derivative instruments which increased our cost of goods sold. During our six months ended June 30, 2020, we had combined realized and unrealized gains of approximately $2.9 million which decreased our cost of goods sold related to our corn and natural gas derivative instruments. We recognize the gains or losses that result from changes in the value of our corn and natural gas derivative instruments in cost of goods sold as the changes occur.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses were more during the six months ended June 30, 2021 than during our six months ended June 30, 2020, primarily due to increased insurance expenses along with increased administrative labor and consulting fees in the current quarter.

Other Income (Expense)

    We had less interest expense during our six months ended June 30, 2021 compared to the same period of 2020 due to having less outstanding debt. We had less other income during our six months ended June 30, 2021 compared to the same period of 2020 due to fewer gains on our equity method investments in the 2021 period primarily due to investments liquidated in 2020.

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Changes in Financial Condition for the Six Months Ended June 30, 2021
Balance Sheet DataJune 30, 2021December 31, 2020
Total current assets$69,697,709 $39,328,153 
Total property and equipment121,733,833 128,534,219 
Total other assets6,903,500 7,676,848 
Total Assets$198,335,042 $175,539,220 
Total current liabilities$13,186,308 $23,693,602 
Total long-term liabilities16,007,533 1,479,063 
Total members' equity169,141,201 150,366,555 
Total Liabilities and Members' Equity$198,335,042 $175,539,220 

We had less cash and cash equivalents at June 30, 2021 compared to December 31, 2020 due to payments for deferred corn and capital projects offset by increased net income during the 2021 period. We had more accounts receivable at June 30, 2021 compared to December 31, 2020 due to the timing of our quarter end compared to payments we received from our marketers. As of June 30, 2021 we had more inventory compared to December 31, 2020 due to more raw materials on hand on the last day of the month along with an increase in value. We had fewer prepaid assets at June 30, 2021 compared to December 31, 2020 due to less prepaid insurance at June 30, 2021. As of June 30, 2021, the value of our derivative instruments was higher compared to December 31, 2020 due to changes in the value of our derivative instruments.

Our net property and equipment was lower at June 30, 2021 compared to December 31, 2020 due to depreciation, partially offset by capital additions. The value of our other assets was higher at June 30, 2021 compared to December 31, 2020 due to increases from investments, partially offset by amortization of our right-of-use asset at June 30, 2021 compared to December 31, 2020.

    Our accounts payable was less at June 30, 2021 compared to December 31, 2020 due primarily to having less deferred corn payments at June 30, 2021. Our accrued expenses were more at June 30, 2021 compared to December 31, 2020 due to lower payroll related liabilities at December 31, 2020.

Our long-term liabilities were more at June 30, 2021 compared to December 31, 2020 due to an increase in long term debt at June 30, 2021, partially offset by amortization of our operating lease liability.

Liquidity and Capital Resources

Our primary sources of liquidity as of June 30, 2021 were cash from our operations and our $50 million long-term revolving loan. Our credit facilities are described in greater detail below under "Short-Term and Long-Term Debt Sources." As of June 30, 2021, we had approximately $34.8 million available pursuant to our revolving loan and approximately $2.75 million in cash and cash equivalents. Based on financial forecasts performed by our management, we anticipate that we will have sufficient cash from our revolving loan and cash from our operations to continue to operate the ethanol plant at capacity for the next 12 months and beyond. However, should we experience unfavorable operating conditions in the future, we may have to secure additional debt or equity financing for working capital or other purposes.

The following table shows cash flows for the six months ended June 30, 2021 and 2020:
20212020
Net cash provided by (used in) operating activities$(15,079,641)$6,876,710 
Net cash provided by (used in) investing activities(2,434,813)29,312,630 
Net cash provided by (used in) financing activities15,189,000 (32,092,325)
Cash at beginning of period5,072,227 17,274,703 
Cash and cash equivalents at end of period$2,746,773 $21,371,718 

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Cash Flow From Operations

    Our operations used more cash during our first six months of 2021 compared to the same period of 2020 due primarily to decreased cash flow from changes in accounts receivable, inventory, and accounts payable during the 2021 period, partially offset by net income.

Cash Flow From Investing Activities

    Our investing activities used more cash during the 2021 period because of the lack of sales of trading securities during the 2021 period compared to the 2020 period.

Cash Flow From Financing Activities

    Our financing activities provided more cash during the 2021 period because of proceeds from long-term borrowings.
Short-Term and Long-Term Debt Sources

Master Loan Agreement with Home Federal Savings Bank

    On June 29, 2017, we entered into a new $30 million term loan (the "Term Loan") and increased and extended our existing revolving loan (the "Revolving Loan") with Home Federal Savings Bank ("Home Federal"). The Revolving Loan is described below. On November 6, 2020, we entered into an amendment of our credit facilities. On July 22, 2021, we entered into an amendment to our Revolving Loan with Home Federal, creating a new $50 million revolving loan in addition to our other current debt instruments, (the “Loan Amendment”). The Loan Amendment is described below.

Revolving Loan

    We have a $50 million term revolving loan which has a maturity date of November 6, 2025. Interest on the Revolving Loan accrues at Prime Rate less 60 basis points. We are required to make monthly payments of interest until the maturity date on November 6, 2025, on which date the unpaid principal balance of the Revolving Loan becomes due. We agreed to pay a fee of 30 basis points on a per annum basis on the unused portion of the Revolving Loan payable on a quarterly basis. As of June 30, 2021, we had approximately $15 million outstanding on the Revolving Loan and approximately $35 million available to be drawn. Interest accrued on the Revolving Loan as of June 30, 2021 at a rate of 2.65% per year.

Pursuant to the Loan Amendment in July, 2021, we can borrow up to an additional $50 million pursuant to the revolving loan. The amount available pursuant to the revolving loan decreases to $40 million on December 31, 2021 and decreases again to $30 million on May 31, 2022. Interest on the revolving loan accrues at a rate of 0.30% less than the prime rate. There is a fee on the unused portion of the revolving loan equal to 0.30%. The maturity date of this revolving loan is November 6, 2025.

Covenants

    In connection with the Master Loan Agreement, we are required to comply with certain debt covenants and financial ratios. We agreed to a debt service coverage ratio of 1:15 to 1:00 and a minimum working capital covenant of $30 million.  We are permitted to pay distributions to our members up to 100% of our net income for the year in which the distributions are paid provided that immediately prior to the distribution and after giving effect to the distribution, no default exists and we are in compliance with all of our loan covenants, including compliance with the financial covenants.  The maximum capital expenditure covenant was increased to $17.5 million in 2020, unless working capital exceeds $40 million, then there is no limit on capital expenditure.

    As of June 30, 2021, we were in compliance with all of our debt covenants and financial ratios. Management anticipates that we will be in compliance with all of our debt covenants and financial ratios for at least the next 12 months.

    Failure to comply with the loan covenants or to maintain the required financial ratios may cause acceleration of any future outstanding principal balances on the loans and/or the imposition of fees, charges or penalties. Any acceleration of the debt financing or imposition of the fees, charges or penalties may restrict or limit our access to the capital resources necessary to continue plant operations.

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    Should we default on any of our obligations pursuant to the Home Federal loans, Home Federal may terminate its commitment to provide us funds and declare any future unpaid principal balance of the loans, plus accrued interest, immediately due and payable. Events of default include the failure to make payments when due, our insolvency, any material adverse change in our financial condition or the breach of any of the covenants, representations or warranties we have made in the loan agreements.

Application of Critical Accounting Estimates

Management uses estimates and assumptions in preparing our financial statements in accordance with generally accepted accounting principles.  These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses.  Of the significant accounting policies described in the notes to our financial statements, we believe that the following are the most critical:

Derivative Instruments

    The Company evaluates its contracts to determine whether the contracts are derivative instruments. Certain contracts that literally meet the definition of a derivative may be exempted from derivative accounting as normal purchases or normal sales. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that meet the requirements of normal purchases or sales are documented as normal and exempted from the accounting and reporting requirements of derivative accounting.

    The Company enters into short-term cash, option and futures contracts as a means of securing purchases of corn, natural gas and sales of ethanol for the plant and managing exposure to changes in commodity and energy prices. All of the Company's derivatives are designated as non-hedge derivatives for accounting purposes, with changes in fair value recognized in net income. Although the contracts are economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.

    As part of its trading activity, the Company uses futures and option contracts through regulated commodity exchanges to manage its risk related to pricing of inventories. To reduce that risk, the Company generally takes positions using cash and futures contracts and options.

    Realized and unrealized gains and losses related to derivative contracts related to corn and natural gas are included as a component of cost of goods sold and derivative contracts related to ethanol are included as a component of revenues in the accompanying financial statements. The fair values of all contracts with the same counter-party are presented net on the accompanying balance sheet as derivative instruments net of cash due from/to broker.

Revenue Recognition

    Revenue from the sale of the Company's products is recognized at the time control transfer to the customers. This generally occurs upon shipment, loading of the goods or when the customer picks up the goods. Interest income is recognized as earned. Shipping costs incurred by the Company in the sale of ethanol and distiller grains are not specifically identifiable and as a result, revenue from the sale of ethanol and distiller grains is recorded based on the net selling price reported to the Company from the marketer.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    We are exposed to the impact of market fluctuations associated with commodity prices as discussed below. We have no exposure to foreign currency risk as all of our business is conducted in U.S. Dollars. We use derivative financial instruments as part of an overall strategy to manage market risk. We use cash, futures and option contracts to hedge changes to the commodity prices of corn, natural gas and ethanol. We do not enter into these derivative financial instruments for trading or speculative purposes, nor do we designate these contracts as hedges for accounting purposes.



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Interest Rate Risk

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from holding loans which bear variable interest rates. As of June 30, 2021, we had $15 million outstanding on our variable interest rate loans with interest accruing at a rate of 2.65%. Our variable interest rates are calculated by subtracting a set basis to the prime rate. If we were to experience a 10% increase in the prime rate, the annual effect such change would have on our income statement, based on the amount we had outstanding on our variable interest rate loans as of June 30, 2021, would be approximately $1.5 million.

Commodity Price Risk

    We seek to minimize the risks from fluctuations in the prices of raw material inputs, such as corn and natural gas, and finished products, such as ethanol and distiller grains, through the use of hedging instruments. In practice, as markets move, we actively manage our risk and adjust hedging strategies as appropriate. Although we believe our hedge positions accomplish an economic hedge against our future purchases and sales, management has chosen not to use hedge accounting, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged. We are using fair value accounting for our hedge positions, which means as the current market price of our hedge positions changes, the realized or unrealized gains and losses are immediately recognized in our cost of goods sold or as an offset to revenues. The immediate recognition of hedging gains and losses under fair value accounting can cause net income to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged.

    As of June 30, 2021, we had price protection in place for approximately 27% of our anticipated corn needs, none of our natural gas needs and 1% of our ethanol sales for the next 12 months. A sensitivity analysis has been prepared to estimate our exposure to ethanol, corn and natural gas price risk. Market risk related to these factors is estimated as the potential change in income resulting from a hypothetical 10% adverse change in the average cost of our corn and natural gas prices and average ethanol price as of June 30, 2021, net of the forward and future contracts used to hedge our market risk for corn and natural gas usage requirements. The volumes are based on our expected use and sale of these commodities for a one year period from June 30, 2021. The results of this analysis, which may differ from actual results, are as follows:
Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)Unit of MeasureHypothetical Adverse Change in PriceApproximate Adverse Change to income
Natural Gas5,050,000 MMBTU10%$(1,893,750)
Ethanol192,235,200 Gallons10%(36,524,688)
Corn55,184,896 Bushels10%(32,835,013)

For comparison purposes, our sensitivity analysis for our second quarter of 2020 is set forth below.
Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)Unit of MeasureHypothetical Adverse Change in PriceApproximate Adverse Change to income
Natural Gas3,118,000 MMBTU10%$(530,060)
Ethanol186,000,000 Gallons10%(22,320,000)
Corn61,313,000 Bushels10%(18,393,900)

ITEM 4. CONTROLS AND PROCEDURES.

    We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures.

    Our management, including our Interim President and Chief Executive Officer (the principal executive officer) and Chief Financial Officer, (the principal financial officer), Beth Eiler, has reviewed and evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2021. Based on this review and evaluation, this officer believes that our
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disclosure controls and procedures are effective in ensuring that material information related to us is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission.

    For the fiscal quarter ended June 30, 2021, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.

ITEM 1. LEGAL PROCEEDINGS.

Retterath Lawsuit

    On August 14, 2013, the Company filed a lawsuit against Steve Retterath in the Iowa state court located in Polk County, Iowa. The purpose of the lawsuit was to enforce the terms of the repurchase agreement the Company executed with Mr. Retterath on June 13, 2013. The Company asked the Iowa state court to require Mr. Retterath to perform his obligations under the repurchase agreement pursuant to its terms. Mr. Retterath removed the case to federal court in the Federal District Court for the Southern District of Iowa in December 2013. The Company believed that this removal was improper and as a result the Company moved to remand the case back to the Iowa state court in Polk County which was granted. Mr. Retterath answered the lawsuit in August 2014, denying the validity of the repurchase agreement. In addition, the Iowa state court permitted Jason Retterath and Annie Retterath, the son and daughter-in-law of Steve Retterath, to be added as parties to the Iowa state lawsuit. In February 2015, the Company filed a motion for summary judgment asking the Iowa state court to enforce the repurchase agreement. The Retteraths also filed motions for summary judgment asking the Iowa state court to find the repurchase agreement invalid. On October 16, 2015, the Iowa state court entered a ruling granting Homeland's motion for summary judgment and determined no membership vote was required as Mr. Retterath has contended. The Iowa state court also denied the summary judgment motions filed by Mr. Retterath and his son and daughter-in-law.

    Mr. Retterath and his son and daughter-in-law filed a motion to add a significant number of additional parties to the Iowa lawsuit along with additional claims against the Company. We filed a resistance to Mr. Retterath's attempts to expand the scope of the Iowa lawsuit. In November 2016, the Iowa Court ruled that our original claims against Mr. Retterath would proceed to trial in January 2017 as scheduled and that any other issues that remain following that trial would be litigated after a ruling is issued in the January 2017 trial. The trial was held in January 2017. On June 15, 2017, the Iowa Court ruled in favor of Homeland that the repurchase agreement was valid and directed Mr. Retterath to perform his obligations under the repurchase agreement by August 1, 2017. Mr. Retterath subsequently filed motions with the Iowa Court to reconsider its ruling or alternatively award Mr. Retterath a new trial. Mr. Retterath also asked the Iowa Court to stay his obligation to perform the repurchase agreement until these motion are ruled on by the Iowa Court. The Iowa Court granted Mr. Retterath's stay while the court considered his post-trial motions. On May 7, 2018, the Iowa Court denied Mr. Retterath's motions for a new trial and to reconsider the Iowa Court's prior ruling. Mr. Retterath filed an appeal of the Iowa Court's decision. In February 2020, the Iowa Supreme Court ruled that the repurchase agreement is valid and enforceable. In April 2020, we closed the repurchase transaction. Now that the first part of the case is resolved, the additional matters Mr. Retterath added to the case in 2016 will be resolved by the court.

ITEM 1A. RISK FACTORS.

    There have been no material changes to the risk factors previously disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2020.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

    None.

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ITEM 5. OTHER INFORMATION.

    None.

ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

    (a)    The following exhibits are filed as part of this report.

Exhibit No.Exhibit
Fifth Amended and Restated Mortgage dated July 22, 2021 between Homeland Energy and Home Federal Savings Bank
Third Amendment to Amended and Restated Master Loan Agreement between Homeland Energy and Home Federal Savings Bank dated July 22, 2021
Term Revolving Note dated July 22, 2021 between Homeland Energy and Home Federal Savings Bank
Third Amended and Restated, Second Supplement to Master Loan Agreement between Homeland Energy and Home Federal Savings Bank dated July 22, 2021
Certificate Pursuant to 17 CFR 240.13a-14(a)*
Certificate Pursuant to 17 CFR 240.13a-14(a)*
Certificate Pursuant to 18 U.S.C. Section 1350*
Certificate Pursuant to 18 U.S.C. Section 1350*
101The following financial information from Homeland Energy Solutions, LLC's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in XBRL (eXtensible Business Reporting Language): (i) Balance Sheets as of June 30, 2021 and December 31, 2020, (ii) Statements of Operations for the three and six months ended June 30, 2021 and 2020, (iii) Statements of Cash Flows for the three and six months ended June 30, 2021 and 2020, and (iv) the Notes to Unaudited Financial Statements.*
________________________________
(*) Filed herewith.
(**) Furnished herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 HOMELAND ENERGY SOLUTIONS, LLC
  
Date:August 13, 2021/s/ Beth Eiler
 Beth Eiler
 Interim President and Chief Executive Officer
(Principal Executive Officer)
  
Date:August 13, 2021/s/ Beth Eiler
 Beth Eiler
 Chief Financial Officer
(Principal Financial Officer)

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