10-Q FQE 12-31-11

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.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).



ASSETS	December 31, 2011		September 30, 2011
	(Unaudited)
Current Assets
Cash and equivalents	$	7,843,233	$	4,672,997
Accounts receivable, primarily related party	4,908,921		6,304,409
Other receivables	1,342,057		1,520,697
Commodities derivative instruments, at fair value	3,425		—
Inventory	11,985,474		11,659,863
Prepaid expenses	93,271		160,105
Total current assets	26,176,381		24,318,071

Property, Plant and Equipment
Land	351,280		351,280
Land improvements	4,023,408		3,984,703
Buildings	5,459,632		5,317,814
Plant and equipment	81,519,734		80,731,194
Construction in progress	704,421		649,325
	92,058,475		91,034,316
Less accumulated depreciation	28,532,322		27,670,319
Net property, plant and equipment	63,526,153		63,363,997

Other Assets
Investment in RPMG	605,000		605,000
Patronage equity	725,660		725,660
Deposits	40,150		185,150
Total other assets	1,370,810		1,515,810

Total Assets	$	91,073,344	$	89,197,878



LIABILITIES AND MEMBERS' EQUITY	December 31, 2011		September 30, 2011
	(Unaudited)
Current Liabilities
Accounts payable	$	10,626,472	$	7,225,527
Accrued expenses	4,442,467		2,710,116
Commodities derivative instruments, at fair value	—		21,062
Accrued loss on firm purchase commitments	231,000		444,000
Current maturities of long-term debt	26,655,329		30,831,502
Interest rate swaps, at fair value	403,731		827,887
Total current liabilities	42,358,999		42,060,094

Long-Term Liabilities
Notes payable	37,164		86,353
Contracts payable	275,000		275,000
Total long-term liabilities	312,164		361,353

Commitments and Contingencies	—		—

Members’ Equity	48,402,181		46,776,431

Total Liabilities and Members’ Equity	$	91,073,344	$	89,197,878



	Three Months Ended			Three Months Ended
	December 31, 2011			December 31, 2010
	(Unaudited)			(Unaudited)
Revenues, primarily related party	$	37,427,000		$	30,752,961

Cost of Goods Sold
Cost of goods sold	36,330,308			25,865,389
Lower of cost or market inventory adjustment	140,754			—
Total Cost of Goods Sold	36,471,062			25,865,389

Gross Profit	955,938			4,887,572

General and Administrative Expenses	675,307			1,091,547

Operating Income	280,631			3,796,025

Other Income (Expense)
Interest income	14,233			12,820
Other income	1,800,685			45,878
Interest expense	(474,799		)	(571,001		)
Total other income (expense), net	1,340,119			(512,303		)

Net Income	$	1,620,750		$	3,283,722

Basic and diluted for each:

Weighted Average Units Outstanding	40,213,973			40,193,973

Net Income Per Unit	$	0.04		$	0.08



	Three Months Ended			Three Months Ended
	December 31, 2011			December 31, 2010
Cash Flows from Operating Activities	(Unaudited)			(Unaudited)
Net income	$	1,620,750		$	3,283,722
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	862,003			1,470,598
Change in fair value of derivative instruments	(26,025		)	(217,022		)
Equity-based compensation	5,000			—
Lower of cost or market inventory adjustment	140,754			—
Noncash patronage equity	—			(132,819		)
Change in operating assets and liabilities:
Restricted cash	—			(44,947		)
Accounts receivable	1,395,488			(726,160		)
Other receivables	178,640			(134,199		)
Inventory	(466,365		)	(846,478		)
Prepaid expenses	66,834			2,908
Other assets	145,000			—
Accounts payable	3,400,945			1,468,372
Accrued expenses	1,519,351			559,441
Cash settlements on interest rate swap	(422,618		)	(316,060		)
Net cash provided by operating activities	8,419,757			4,367,356

Cash Flows from Investing Activities
Capital expenditures	(1,024,159		)	(509,274		)
Net cash used in investing activities	(1,024,159		)	(509,274		)

Cash Flows from Financing Activities
Debt repayments	(4,225,362		)	(815,331		)
Net cash used in financing activities	(4,225,362		)	(815,331		)

Net Increase in Cash and Equivalents	3,170,236			3,042,751
Cash and Equivalents - Beginning of Period	4,672,997			6,760,815
Cash and Equivalents - End of Period	$	7,843,233		$	9,803,566

Supplemental Disclosure of Cash Flow Information
Interest paid net of swap settlements	$	416,164		$	635,964

The accompanying condensed unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). 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 nine-month period ended September 30, 2011, contained in the Company's Transition Report on Form 10-KT.

In the opinion of management, the interim condensed unaudited financial statements reflect all adjustments considered necessary for fair presentation. The adjustments made to these statements consist only of normal recurring adjustments. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2012.

Management uses estimates and assumptions in preparing these financial statements in accordance with 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. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment, valuation of derivatives, inventory, patronage equity and purchase commitments; analysis of long-lived assets impairment and other contingencies. Actual results could differ from those estimates.

As part of its hedging strategy, the Company may enter into ethanol and corn commodity-based derivatives in order to protect cash flows from fluctuations caused by volatility in commodity prices in order to protect gross profit margins from potentially adverse effects of market and price volatility on ethanol sales and corn purchase commitments where the prices are set at a future date. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Ethanol derivative fair market value gains or losses are included in the results of operations and are classified as revenue and corn derivative changes in fair market value are included in cost of goods sold.



As of:	December 31, 2011 (unaudited)					September 30, 2011
Contract Type	# of Contracts	Notional Amount (Qty)		Fair Value		# of Contracts	Notional Amount (Qty)		Fair Value
Corn futures	30	150,000	bushels	$	3,425	10	50,000	bushels	$	(21,062	)
Total fair value				$	3,425				$	(21,062	)
Amounts are recorded separately on the balance sheet - negative numbers represent liabilities

The Company had approximately $17.7 million and $25.1 million of notional amount outstanding in interest rate swap agreements, as of December 31, 2011 and September 30, 2011, respectively, that exchange variable interest rates (three-month LIBOR) for fixed interest rates over the terms of the agreements. At December 31, 2011 and September 30, 2011, the fair value of the interest rate swaps totaled approximately $404,000 and $828,000, respectively, and are recorded as a liability on the balance sheets. These agreements are not designated as effective hedges for accounting purposes and the change in fair market value and associated net settlements are recorded in interest expense. The Company terminated one of the swap agreements in December 2011. The remaining swap agreement matures in April 2012.



Derivatives not designated as hedging instruments:

Balance Sheet - as of December 31, 2011 (unaudited)	Asset		Liability
Commodity derivative instruments, at fair value	$	3,425	$	—
Interest rate swaps, at fair value	—		403,731
Total derivatives not designated as hedging instruments for accounting purposes	$	3,425	$	403,731

Balance Sheet - as of September 30, 2011	Asset		Liability
Commodity derivative instruments, at fair value	$	—	$	21,062
Interest rate swaps, at fair value	—		827,887
Total derivatives not designated as hedging instruments for accounting purposes	$	—	$	848,949



Gain (loss)	Location of gain (loss) in fair value recognized in income	Amount of gain (loss) recognized in income during the three months ended December 31, 2011 (unaudited)			Amount of gain (loss) recognized in income during the three months ended December 31, 2010 (unaudited)
Ethanol derivative instruments	Revenues	$	—		$	(166,025	)
Corn derivative instruments	Cost of Goods Sold	(165,808		)	(212,582		)
Interest rate swaps	Interest Expense	1,537			(9,216		)
Total		$	(164,271	)	$	(387,823	)

The Company recorded inventory valuation impairments of $140,754 and $0 for the three months ended December 31, 2011 and 2010, respectively. The impairments, as applicable, were attributable primarily to decreases in market prices of corn and ethanol. The inventory valuation impairment was recorded in “Lower of cost or market adjustment” on the statement of operations.



As of	December 31, 2011 (unaudited)		September 30, 2011
Notes payable under loan agreement to bank	$	20,937,942	$	25,116,771
Subordinated notes payable	5,525,000		5,525,000
Capital lease obligations (Note 6)	229,551		276,084
Total Long-Term Debt	26,692,493		30,917,855
Less amounts due within one year	26,655,329		30,831,502
Total Long-Term Debt Less Amounts Due Within One Year	$	37,164	$	86,353

Market value of interest rate swaps	$	403,731	$	827,887
Less amounts due within one year	403,731		827,887
Total Interest Rate Swaps Less Amounts Due Within One Year	$	—	$	—

In December 2005, the Company entered into an interest rate swap transaction that effectively fixed the interest rate at 8.08% on the outstanding principal of the Fixed Rate Note, which is included in the total under notes payable under loan agreement to bank above. In December 2007, the Company entered into a second interest rate swap transaction that effectively fixed the interest rate at 7.695% on the outstanding principal of the December 2007 Fixed Rate Note. The Company terminated the second swap agreement in December 2011. Upon termination of this swap agreement, approximately $3.3 million of the Company's debt is now subject to a variable interest rate of 90 day LIBO plus 4.0% with a floor interest rate of 6%.



					Fair Value Measurement Using
	Carrying Amount as of December 31, 2011 (unaudited)		Fair Value as of December 31, 2011		Level 1		Level 2		Level 3
Assets
Commodities derivative instruments	$	3,425	$	3,425	$	3,425	$	—	$	—
Liabilities
Interest rate swaps	$	403,731	$	403,731	$	—	$	403,731	$	—

					Fair Value Measurement Using
	Carrying Amount as of September 30, 2011		Fair Value as of September 30, 2011		Level 1		Level 2		Level 3
Liabilities
Commodities derivative instruments	$	21,062	$	21,062	$	21,062	$	—	$	—
Interest rate swaps	827,887		827,887		—		827,887		—
Total	$	848,949	$	848,949	$	21,062	$	827,887	$	—

of the interest rate swap instruments are determined by using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each instrument. The analysis of the interest rate swaps reflect the contractual terms of the derivatives, including the period to maturity and uses observable market-based inputs and uses the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments are based on an expectation of future interest rates derived from observable market interest rate curves.

The estimated fair value of the Company's long-term debt, including the short-term portion, at December 31, 2011 and September 30, 2011 approximated the carrying value of approximately $26.7 and $30.9 million, respectively. Fair value was estimated using estimated variable market interest rates as of December 31, 2011. The fair values and carrying values consider the terms of the related debt and exclude the impacts of debt discounts and derivative/hedging activity.

The Company leases equipment under operating and capital leases through June 2015. The Company is generally responsible for maintenance, taxes, and utilities for leased equipment. Equipment under operating lease includes a locomotive and rail cars. Rent expense for operating leases was approximately $219,000 and $135,000 for the three months ended December 31, 2011 and 2010, respectively. Equipment under capital leases consists of office equipment and plant equipment.

To ensure an adequate supply of corn to operate the Plant, the Company enters into contracts to purchase corn from local farmers and elevators. At December 31, 2011, the Company had various fixed price contracts for the purchase of approximately 2,741,000 bushels of corn. Using the stated contract price for the fixed price contracts, the Company had commitments of approximately

The Company had construction in progress of approximately $704,000 at December 31, 2011 relating to three capital projects: replacement of the plant's bin sweeps, construction of a maintenance cold storage building, and installation of a corn oil extraction system. The Company anticipates that these projects will be completed during the second and third quarter of fiscal year 2012 for a total combined cost of approximately $2,500,000.

The Company has balances and transactions in the normal course of business with various related parties for the purchase of corn, sale of distillers grains and sale of ethanol. The related parties include Unit holders, members of the board of governors of the Company, and RPMG, Inc. (“RPMG”). Significant related party activity affecting the financial statements are as follows:



	December 31, 2011 (unaudited)		September 30, 2011
Balance Sheet
Accounts receivable	$	4,376,393	$	5,392,559
Accounts payable	1,265,001		757,460

	For the three months ended December 31, 2011 (unaudited)		For the three months ended December 31, 2010 (unaudited)
Statement of Operations
Revenues	$	33,643,658	$	27,129,188
Cost of goods sold	703,728		907,684
General and administrative	26,245		—

Inventory Purchases	$	6,733,684	$	1,791,574

The Company has certain risks and uncertainties that it experiences 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 and distillers grains to customers primarily located in the U.S. Corn for the production process is supplied to the plant primarily from local agricultural producers and from purchases on the open market. The Company's operating and financial performance is largely driven by prices at which the Company sells ethanol and distillers grains and by the cost at which it is able to purchase corn for operations. The price of ethanol is influenced by factors such as prices of supply and demand, weather, government policies and programs, and unleaded gasoline and the petroleum markets, although since 2005 the prices of ethanol and gasoline began a divergence with ethanol selling for less than gasoline at the wholesale level. 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, government policies and programs. The Company's risk management program is used to protect against the price volatility of these commodities.

The Company anticipates that the results of operations into fiscal 2012 will continue to be affected by volatility in the commodity markets. The volatility is due to various factors, including uncertainty with respect to the availability and supply of corn, increased demand for grain from global and national markets, speculation in the commodity markets, and demand for corn from the ethanol industry.

We prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition, and results of operations for the three month period ended December 31, 2011, compared to the same period of the prior fiscal year. This discussion should be read in conjunction with the condensed financial statements and notes and the information contained in the Company's Annual Report on Form 10-KT for the nine-month period ended September 30, 2011.

This report contains forward-looking statements that involve future events, our future performance and our future operations and actions. In some cases you can identify forward-looking statements by the use of words such as “may,” “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 following factors:



	Ÿ	Fluctuations in the price and market for ethanol and distillers grains;
	Ÿ	Availability and costs of products and raw materials, particularly corn and coal;
	Ÿ	Changes in the environmental regulations that apply to our plant operations and our ability to comply with such regulations;
	Ÿ	Ethanol supply exceeding demand and corresponding ethanol price reductions impacting our ability to operate profitably and maintain a positive spread between the selling price of our products and our raw material costs;
	Ÿ	Our ability to generate and maintain sufficient liquidity to fund our operations, meet debt service requirements and necessary capital expenditures;
	Ÿ	Our ability to continue to meet our loan covenants;
	Ÿ	Limitations and restrictions contained in the instruments and agreements governing our indebtedness;
	Ÿ	Results of our hedging transactions and other risk management strategies;
	Ÿ	Changes and advances in ethanol production technology; and
	Ÿ	Competition from alternative fuels and alternative fuel additives.
	Ÿ	Changes in or elimination of governmental laws, tariffs, trade or other controls or enforcement practices that currently benefit the ethanol industry including:
		Ÿ national, state or local energy policy - examples include legislation already passed such as the California low-carbon fuel standard as well as potential legislation in the form of carbon cab and trade;
		Ÿ federal and state ethanol tax incentives;
		Ÿ legislation mandating the use of ethanol or other oxygenate additives;
		Ÿ environmental laws and regulations that apply to our plant operations and their enforcement; or
		Ÿ reduction or elimination of tariffs on foreign ethanol.

Red Trail Energy, LLC, a North Dakota limited liability company (the “Company,” “Red Trail,” or “we,” “our,” or “us”), owns and operates a 50 million gallon annual name-plate production ethanol plant near Richardton, North Dakota (the “Plant”). Our revenues are derived from the sale and distribution of our ethanol and distillers grains primarily in the continental United States. Corn is our largest cost component and our profitability is highly dependent on the spread between the price of corn and the price of ethanol.



	Three Months Ended December 31, 2011 (Unaudited)			Three Months Ended December 31, 2010 (Unaudited)
Statement of Operations Data	Amount		%	Amount			%
Revenues	$	37,427,000	100.00	$	30,752,961		100.00
Cost of Goods Sold	36,471,062		97.45	25,865,389			84.11
Gross Profit	955,938		2.55	4,887,572			15.89
General and Administrative Expenses	675,307		1.80	1,091,547			3.55
Operating Income	280,631		0.75	3,796,025			12.34
Other Income (Expense)	1,340,119		3.58	(512,303		)	(1.67	)
Net Income	$	1,620,750	4.33	$	3,283,722		10.68



	Three Months ended December 31, 2011		Three Months ended December 31, 2010
Production:
Ethanol sold (gallons)	12,532,704		12,030,926
Dried distillers grains sold (tons)	27,228		28,489
Modified distillers grains sold (tons)	17,696		15,035

Revenues:
Ethanol average price per gallon	$	2.43	$	2.16
Dried distillers grains average price per ton	$	192.20	$	133.73
Modified distillers grains average price per ton	$	95.95	$	70.44

Primary Inputs:
Corn ground (bushels)	4,643,253		4,405,682

Costs of Primary Inputs:
Corn average price per bushel (net of hedging)	$	6.56	$	4.64

Other Costs:
Chemical and additive costs per gallon of ethanol sold	$	0.093	$	0.091
Denaturant cost per gallon of ethanol sold	$	0.046	$	0.044
Electricity cost per gallon of ethanol sold	$	0.054	$	0.040
Direct Labor cost per gallon of ethanol sold	$	0.050	$	0.046

We experienced an increase in the gallons of ethanol sold in the three month period ended December 31, 2011 as compared to the same period in 2010. We sold 12,532,704 gallons of ethanol during the three month period ended December 31, 2011 compared to 12,030,926, for the same three month period ending in 2010. The primary reason for this increase was due to fewer gallons of ethanol produced in 2010 due to down time associated with boiler repairs in 2010. The average price we sold our ethanol at was $2.43 and $2.16 for the three month period ending December 31, 2011 and 2010, respectively.

We experienced a decrease in the amount of dried distillers grains and an increase in the amount of modified distillers grains sold in the three month period ended December 31, 2011 as compared to the same period in 2010. We sold 27,228 and 28,489 tons of dried distillers grains during the three month period ended December 31, 2011 and 2010, respectively. The average price per ton of dried distillers grains was $192.20 and $133.73 for the three month period ending December 31, 2011 and 2010, respectively. We also sold 17,696 and 15,035 tons of modified distillers grains during the three month period ended December 31, 2011 and 2010, respectively. The average price per ton of modified distillers grains was $95.95 and $70.44 for the three month period ending December 31, 2011 and 2010, respectively.

In the event that we further decrease our production of ethanol, our production of distillers grains would decrease accordingly. Such a decrease in our volume of production of ethanol and distillers grains would likely result in lower revenues. However, if we decreased production, we would require a corresponding decreased quantity of corn and coal, thereby lowering our costs of good sold. Therefore, the effect of a decrease in our revenue would be largely dependent on the market prices of the products we produce and the inputs we use to produce our products at the time of such a production decrease. We anticipate reducing production only if industry margins become unfavorable or we experience mechanical difficulties in operating the plant.

For the three months ended December 31, 2011, we received approximately 84% of our revenue from the sale of fuel ethanol and approximately 16% of our revenue from the sale of distillers grains. Our revenue from ethanol increased during the three months ended December 31, 2011 compared to the same period in 2010, as a result of increased ethanol prices. During the three months ended December 31, 2011, we experienced a increasing trend in the price we received for our ethanol. Higher ethanol prices have been met with historically high prices of corn which has placed pressure on our operating margins. If the price of ethanol and our revenues are outpaced by rising corn prices, management believes our operating margins will be pressured downward, which could significantly affect our liquidity.

There have been a number of developments in legislation that may impact the ethanol industry and our revenues. One such development concerns the federal Renewable Fuels Standard (RFS). The ethanol industry is benefited by the RFS which requires that a certain amount of renewable fuels must be used in the United States each year. In February 2010, the EPA issued new regulations governing the RFS. These regulations have been called RFS2. The most controversial part of RFS2 involves what is commonly referred to as the life-cycle analysis of greenhouse gas emissions. Specifically, the EPA adopted rules to determine which renewable fuels provided sufficient reductions in greenhouse gases, compared to conventional gasoline, to qualify under the RFS program. The scientific method of calculating these greenhouse gas reductions has been a contentious issue. Many in the ethanol industry were concerned that corn based ethanol would not meet the 20% greenhouse gas reduction requirement based on certain parts of the environmental impact model that many in the ethanol industry believed was scientifically suspect. However, RFS2 as adopted by the EPA provides that corn-based ethanol from modern ethanol production processes does meet the definition of a renewable fuel under the RFS program.

Our cost of goods sold from the production of ethanol and distillers grains is primarily made up of corn and energy expenses. Our cost of goods sold as a percentage of revenues was 97.4% for the three months ended December 31, 2011 as compared to 84.1% for the same period in 2010. This increase in cost of goods sold as a percentage of revenues was primarily the result of the increase in corn prices for the three months ended December 31, 2011 as compared to the same period in 2010.

Competition for corn in our area has increased basis levels. Although we believe there is corn available nationally from a supply and demand standpoint, there is uncertainty over the amount, quantity, or quality of local corn for the plant. The cost of corn is the highest cost input to the plant and further increases in corn costs could dramatically affect our expected cost of goods sold. During the three month period ended December 31, 2011, corn prices fluctuated significantly and we expect continued volatility in corn prices for the rest of our fiscal year which could impact our cost of goods sold.

In the ordinary course of business, we entered into forward purchase contracts for our commodity purchases and sales. At December 31, 2011 we have forward corn purchase contracts for various delivery periods through May 2012 for a total commitment of approximately $17,606,000. Our outstanding corn derivatives are projected to settle by March 2012.

We purchase the coal needed to power our ethanol plant from a supplier under a long-term contract. This arrangement helps us to mitigate price volatility in the coal market. Our coal costs were down 20.1% during the three month period ended December 31, 2011 compared to the same period of 2010, primarily due incorporation of our alternative fuel burning capital project in May 2011.

Our general and administrative expenses as a percentage of revenues were 1.8% for the three months ended December 31, 2011 compared to 3.5% in the same period of 2010. General and administrative expenses include salaries and benefits of administrative employees, insurance, taxes, professional fees and other general administrative costs. We experienced a decrease in actual general and administrative expenses of approximately $416,000 for the three month period ended December 31, 2011 as compared to the same period in 2010. This decrease was primarily due to lower consulting fees. Our efforts to optimize efficiencies and maximize production may result in a decrease in our general and administrative expenses on a per gallon basis. However, because these expenses generally do not vary with the level of production at the plant, we expect our actual operating expenses to remain steady throughout the remainder of the 2012 fiscal year.

Our income from operations for the three months ended December 31, 2011 was approximately 0.75% of our revenues compared to an operating income of 12.34% for the same period in 2010. The decrease in our operating income for the three month period ended December 31, 2011 was primarily due to a decrease in the gross margin between the price we receive for our ethanol and our cost of corn.

Our other income for the three months ended December 31, 2011 was 3.6% of our revenues compared to other expense of (1.7%) of revenues for the same period in 2010. Our other income for the three month period ended December 31, 2011 consisted primarily of an alternative fuel tax credit of approximately $1,788,000 which was offset by interest expense. Our other expense for the three month period ended December 31, 2010 consisted primarily of interest expense.

Current Assets. Our accounts receivable were lower at December 31, 2011 compared to September 30, 2011 due to the majority of our receivables being sales of ethanol which was at a lower price per gallon at December 31, 2011 than at September 30, 2011. Our other receivables were also lower primarily due to having a lower amount due relating to the alternative fuel burning tax credit. The value of our inventory was slightly higher at December 31, 2011 compared to September 30, 2011 primarily because corn prices were higher at December 31, 2011. Our inventory is valued at the lesser of our cost associated with the our inventory or the market value of our inventory. When corn and ethanol prices increase, it results in a larger value being attributed to our inventory, even if the amount of ethanol and corn that we are holding in inventory is comparable. The amount we had in our restricted commodity derivatives margin account was slightly higher at December 31, 2011 compared to September 30, 2011 because we were not required to have cash to offset unrealized losses on our risk management positions at September 30, 2011 Our prepaid expenses were lower at December 31, 2011 compared to September 30, 2011 primarily due to the timing of a payment for maintenance performed during our shutdown in October 2011.

Property, Plant and Equipment. The gross value of our property, plant and equipment was higher at December 31, 2011 compared to September 30, 2011 due to placing our water filtration project in service, the purchase of employee housing, and expenditures relating to our corn oil extraction capital project. The net value of our property, plant and equipment was slightly higher at December 31, 2011 compared to September 30, 2011 due to our capital expenditures for the period exceeding increases in our accumulated depreciation. The increase in our construction in progress at December 31, 2011 compared to September 30, 2011 was primarily due to expenditures relating to our corn oil extraction project.

Current Liabilities. Our current liabilities were slightly higher at December 31, 2011 compared to September 30, 2011, primarily a net result of a significant increase in our liabilities for corn purchases offset by an additional principal payment on the current portion of our primary bank debt with First National Bank of Omaha (the "Bank"). Loss on firm purchase commitments is also lower at December 31, 2011 compared to September 30, 2011 primarily due to the recovery of previously accrued losses related to market price fluctuations for the period.

Based on financial forecasts performed by our management, we anticipate that we will have sufficient cash from our current credit facilities and cash from our operations to continue to operate the ethanol plant for the next 12 months. We also anticipate that the term debt maturing in April 2012 will be refinanced with the Bank. Should we experience unfavorable operating conditions in the future, we may have to secure additional debt or equity sources for working capital or other purposes.



	2011 (unaudited)			2010 (unaudited)
Net cash provided by operating activities	$	8,419,757		$	4,367,356
Net cash used in investing activities	(1,024,159		)	(509,274		)
Net cash used in financing activities	(4,225,362		)	(815,331		)
Net increase in cash	$	3,170,236		$	3,042,751

Cash and cash equivalents, end of period	$	7,843,233		$	9,803,566

Cash provided by operating activities was $8,419,757 for the three months ended December 31, 2011 as compared to $4,367,356 cash provided by operating activities for the three months ended December 31, 2010. This increase was primarily due to increases in our accounts receivable and accounts payable balances which both directly relate to higher ethanol and corn prices. Our net income from operations for the three months ended December 31, 2011 was $1,620,750 as compared to net income of $3,283,722 for the same period in 2010.

We experienced an increase in cash used in investing activities for the three month period ended December 31, 2011 compared to the same period in 2010. Cash used in investing activities was $1,024,159 for the three months ended December 31, 2011 as compared to $509,274 for the same period in 2010. All of the cash used in investing activities in both 2011 and 2010 was for capital expenditures.

We had an increase in cash used for financing activities for the three month period ended December 31, 2011 as compared to the same period in 2010. Cash used for financing activities was $4,225,362 for the three months ended December 31, 2011 which included an additional principal payment of $3,300,000 made at the discretion of the Company. This cash flow is payment on our long-term debt.

Our liquidity, results of operations and financial performance will be impacted by many variables, including the market price for commodities such as, but not limited to, corn, ethanol and other energy commodities, as well as the market price for any co-products generated by the facility and the cost of labor and other operating costs. Assuming future relative price levels for corn, ethanol and distillers grains remain consistent we expect operations to generate adequate cash flows to maintain operations.

The Company currently has three capital projects in progress with approximately $704,000 incurred as of December 31, 2011. One of these projects is installation of new bin sweeps in the plant's corn silos. Completion of this project is dependent on corn inventory levels in the silos and we anticipate this project to be completed in the second or third quarter of fiscal 2012. Another capital project in process is construction of a maintenance storage building. We anticipate completion of this building in the second quarter of fiscal 2012. The third project is installation of a corn oil extraction system. We also anticipate completion of this project to occur in the second quarter of fiscal 2012. The projected total costs for these three projects is $2.5 million. During the three months ended December 31, 2011, the Company placed in service approximately $1.1 million for capital projects with the majority of these costs related to improvements to the plant's water filtration system.

The Company has a revolving line-of-credit of $7,000,000 available with a maturity date of April 2012. There were no amounts drawn on this line-of-credit as of December 31, 2011. The Company has received a financing commitment letter from First National Bank of Omaha (the "Bank") to refinance both its short and long-term debt sources and expects to secure a revolving line-of-credit as part of its debt refinancing in April 2012.



	Outstanding Balance (Millions)				Interest Rate						Estimated
Term Note	December 31, 2011 (Unaudited)		September 30, 2011 (Audited)		December 31, 2011 (Unaudited)			September 30, 2011 (Audited)			Quarterly Principal Payment Amount	Notes
Fixed Rate Note	$	17.7	$	18.3		6.00	%		6.00	%	$654,000	1, 2, 3
2007 Fixed Rate Note		3.3		6.8		6.00	%		6.00	%	$242,000	1, 2, 3
Long-Term Revolving Note		—		—		6.00	%		6.00	%		1, 2, 3, 4

4 - Funds withheld from the plant's design builder (approx $4,100,000) which were previously set aside in a money market account were applied to the Long-Term Revolving Note in March 2010 pursuant to the terms of the 7th Amendment to our loan agreement with Bank. Accordingly, those funds may ultimately be paid to the design builder depending upon the terms of any resolution of the dispute.

In December 2005, we entered into an interest rate swap transaction that effectively fixed the interest rate at 8.08% on the outstanding principal of the Fixed Rate Note. In December 2007, we entered into a second interest rate swap transaction that effectively fixed the interest rate at 7.695% on the outstanding principal of the December 2007 Fixed Rate Note. The Company terminated the second swap agreement in December 2011. Upon termination of this swap agreement, approximately $3.3 million of the Company's debt is now subject to the interest rate terms as described in the debt table above.

As part of our construction loan agreement, we entered into three separate subordinated debt agreements totaling $5,525,000 and received funds from these debt agreements during 2006. Interest is charged at a rate of 2.0% over the Variable Rate Note interest rate (a total of 8% at December 31, 2011 and September 30, 2011). Per the terms of the Mediated Settlement Agreement (the Agreement) the Company entered into in November 2010 with two parties holding subordinated debt agreements

with the Company, interest on $4,000,000 of the subordinated debt continues to accrue subsequent to the date of the Agreement but is only due and payable if we fail to pass the Qualified Emissions Test as defined in the Agreement. The Company anticipates the Qualified Emissions Testing period to take place in the current fiscal year. Interest on the remaining $1,525,000 of subordinated debt is due and payable on a quarterly basis with a principal maturity date of April 16, 2012. The balance outstanding on all subordinated debt was $5,525,000 as of December 31, 2011 and September 30, 2011.

We issued two letters of credit in 2009 in conjunction with the issuance of certain grain warehouse and distilled spirits bonds. The letters of credit were issued in the amount of $500,000 and $250,000, respectively. The letters of credit are subject to a 2.0% quarterly commitment fee. The letters of credit remain outstanding at December 31, 2011

In 2006, we entered into a contract with the State of North Dakota through the Industrial Commission for a lignite coal grant not to exceed $350,000. We received $275,000 from this grant during 2006 with this amount currently shown in the long-term liability section of our Balance Sheet as Contracts Payable. Because we have not met the minimum lignite usage requirements specified in the grant for any year in which the plant has operated, we expect to have to repay the grant and are awaiting instructions from the Industrial Commission as to the terms of the repayment schedule. This repayment could begin at some point in 2012, but as of December 31, 2011 we have not received any instructions from the Industrial Commission.

Our most critical accounting policies, which are those that require significant judgment, include policies related to the carrying amount of property, plant and equipment; valuation of derivatives, inventory and purchase commitments of inventory; and analysis of long-lived assets impairment. An in-depth description of these can be found in our Annual Report on Form 10-KT for the nine-month transitional period ended September 30, 2011. Management has not changed the method of calculating and using estimates and assumptions in preparing our condensed financial statements in accordance with generally accepted accounting principles. There have been no changes in the policies for our accounting estimates for the quarter ended December 31, 2011.

We are exposed to the impact of market fluctuations associated with interest rates and 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, ethanol and natural gas. 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 pursuant to the requirements of Generally Accepted Accounting Principles (“GAAP”).

We enter in to fixed price contracts for corn purchases on a regular basis. It is our intent that, as we enter in to these contracts, we will use various hedging instruments (puts, calls and futures) to maintain a near even market position. For example, if we have 1 million bushels of corn under fixed price contracts we would generally expect to enter into a short hedge position to offset our price risk relative to those bushels we have under fixed price contracts. Because our ethanol marketing company (RPMG) is selling substantially all of the gallons it markets on a spot basis we also include the corn bushel equivalent of the ethanol we have produced that is inventory but not yet priced as bushels that need to be hedged.

Although we believe our hedge positions will accomplish an economic hedge against our future purchases, they are not designated as hedges for accounting purposes, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged. We use fair value accounting for our hedge positions, which means as the current market price of our hedge positions changes, the gains and losses are immediately recognized in our cost of sales. The immediate recognition of hedging gains and losses under fair value accounting can cause net income to be volatile from quarter to quarter and year to year due to the timing of the change in value of derivative instruments relative to the cost of the commodity being hedged. However, it is likely that commodity cash prices will have the greatest impact on the derivatives instruments with delivery dates nearest the current cash price.

We estimate that our expected corn usage will be between 18 million and 20 million bushels per calendar year for the production of approximately 50 million to 54 million gallons of ethanol. As corn prices move in reaction to market trends and information, our income statements will be affected depending on the impact such market movements have on the value of our derivative instruments.

We are exposed to market risk from changes in interest rates from holding revolving lines of credit and subordinated debt which bear variable interest rates. The interest rate on a majority of our senior debt has effectively been set at a fixed rate with the use of underlying interest rate swap agreements. As of December 31, 2011, we did not have any amounts drawn on our revolving lines of credit that exposes us to interest rate risk. Our subordinated debt bears variable interest rates and we had $5,525,000 outstanding in variable rate subordinated debt as of December 31, 2011. We anticipate that a hypothetical 1% change in the interest rate on our subordinated debt, from the rate in effect on December 31, 2011, would cause an adverse change to our income in the amount of approximately $44,200.

We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d - 15(e) under the Securities Exchange Act of 1934 (“Exchange Act”), as amended, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's (“SEC”) rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is

Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures as of December 31, 2011, have concluded that our disclosure controls and procedures are effective in ensuring that material information required to be disclosed is included in the reports that we file with the SEC.

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal controls over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected or will be detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies and procedures.

You should carefully read and consider the risks and uncertainties below and the other information contained in this report. The risks and uncertainties described below are not the only ones we may face. The following risks, together with additional risks and uncertainties not currently known to us or that we currently deem immaterial could impair our financial condition and results of operation.

The Federal Volumetric Ethanol Excise Tax Credit (“VEETC”) expired on December 31, 2011 and its absence could negatively impact our profitability. The ethanol industry has historically been benefited by VEETC which is a federal excise tax credit of 45 cents per gallon of ethanol blended with gasoline. This excise tax credit expired on December 31, 2011. It is unclear exactly how the absence of this tax credit will affect the ethanol market but it could negatively impact the price we receive for our ethanol and could negatively impact our profitability.

The Secondary Tariff on Imported Ethanol was eliminated in December 2011, and its absence could negatively impact our profitability. The secondary tariff on imported ethanol was allowed to expire in December 2011. Accordingly, it is possible that we could see an increase in ethanol produced in foreign countries being marketed in the Untied States which could negatively impact our profitability. The secondary tariff on imported ethanol was a 54 cent per gallon tariff on ethanol imports from certain

Increases in the price of corn may reduce our profitability. Our results of operations and financial condition are significantly affected by the price and supply of corn. Changes in the price and supply of corn are subject to and determined by market forces over which we have little control. Ethanol production requires substantial amounts of corn. Generally, higher corn prices will produce lower profit margins and, therefore, negatively affect our financial performance. If a period of high corn prices were to be sustained for some time, such pricing may reduce our ability to generate income because of the higher cost of operating our plant. This may make ethanol production unprofitable. We may not be able to offset any increase in the price of corn by increasing the price of our products. If we cannot offset increases in the price of corn, our financial performance may be materially and adversely affected.

The prices of ethanol and distillers grains may decline as a result of antidumping and antisubsidy investigations being conducted by foreign countries with respect to ethanol and distillers grains originating in the United Sates. An increasing amount of our industry's products are being exported. If producers and exporters of ethanol and distillers grains are subjected to trade barriers when selling products to foreign customers there may be a reduction in the price of these products in the United States. Declines in the price we receive for our products will lead to decreased revenues and may result in our inability to operate the ethanol plant profitably.



Exhibit No.			Exhibits
31.1			Certificate Pursuant to 17 CFR 240.13a-14(a)*
31.2			Certificate Pursuant to 17 CFR 240.13a-14(a)*
32.1			Certificate Pursuant to 18 U.S.C. Section 1350*
32.2			Certificate Pursuant to 18 U.S.C. Section 1350*
101			The following financial information from Red Trail Energy, LLC's Quarterly Report on Form 10-Q for the quarter ended December 31, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of December 31, 2011 and December 31, 2010, (ii) Statements of Operations for the three months ended December 31, 2011 and 2010, (iii) Statements of Cash Flows for the three months ended December 31, 2011 and 2010, and (iv) the Notes to Condensed Financial Statements.**



x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

	For the quarterly period ended December 31, 2011

	OR

o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

	For the transition period from to .

	COMMISSION FILE NUMBER 000-52033



North Dakota				76-0742311
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)

3682 Highway 8 South, P.O. Box 11, Richardton, ND 58652
(Address of principal executive offices)

(701) 974-3308
(Registrant's telephone number, including area code)



Large Accelerated Filer o	Accelerated Filer o
Non-Accelerated Filer x	Smaller Reporting Company o



	Page Number
PART I. FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3. Quantitative and Qualitative Disclosures about Market Risk	19
Item 4. Controls and Procedures	20
PART II. OTHER INFORMATION	21
Item 1. Legal Proceedings	21
Item 1A. Risk Factors	21
Item 2. Unregistered Sales of Equity Securities	22
Item 3. Defaults Upon Senior Securities	22
Item 4. (Removed and Reserved)	22
Item 5. Other Information	22
Item 6. Exhibits	22
SIGNATURES	23



As of	December 31, 2011 (unaudited)		September 30, 2011
Raw materials, including corn, chemicals and supplies	$	8,234,693	$	7,843,358
Work in process	1,143,451		1,276,576
Finished goods, including ethanol and distillers grains	1,414,040		1,480,899
Spare parts	1,193,290		1,059,030
Total inventory	$	11,985,474	$	11,659,863



	For the three months ended December 31, 2011 (unaudited)		For the three months ended December 31, 2010 (unaudited)
Loss on lower of cost or market adjustment for inventory on hand	$	140,754	$	—



Scheduled maturities for the twelve months ending December 31:
	Interest rate swaps		Long-term debt		Totals

2012	$	403,731	$	26,655,329	$	27,059,061
2013	—		35,796		35,796
2014	—		1,367		1,367
Thereafter	—		—		—
Total	$	403,731	$	26,692,493	$	27,096,224



	Operating Leases		Capital Leases
2012	$	546,340	$	201,094
2013	139,160		36,311
2014	97,550		1,398
2015	10,500		—
Thereafter	—		—
Total minimum lease commitments	$	793,550	238,802
Less amount representing interest			(9,251		)
Present value of minimum lease commitments included in liabilities on the balance sheet			$	229,551


•	Providing the Bank with current and accurate financial statements;


•	Maintaining certain financial ratios including minimum net worth, working capital and fixed charge coverage ratio;


•	Making, or allowing to be made, any significant change in our business or tax structure; and



		RED TRAIL ENERGY, LLC

Date:	February 14, 2012	/s/ Gerald Bachmeier
		Gerald Bachmeier
		President and Chief Executive Officer
		(Principal Executive Officer)

Date:	February 14, 2012	/s/ Kent Anderson
		Kent Anderson
		Chief Financial Officer
		(Principal Financial and Accounting Officer)