10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended October 31, 2017

OR

☐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 000-51277

GRANITE FALLS ENERGY, LLC

(Exact name of registrant as specified in its charter)

Minnesota	41-1997390
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

15045 Highway 23 SE, Granite Falls, MN 56241-0216

(Address of principal executive offices)

(320) 564-3100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Membership Units

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     ☐  Yes    ☒  No

Indicated by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     ☐  Yes    ☒  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     ☒  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically 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).     ☒  Yes    ☐  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒

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,” “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer ☐	Accelerated Filer  ☐
Non-Accelerated Filer ☒(do not check if a smaller reporting company)	Smaller Reporting Company ☐
Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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

The aggregate market value of the 20,094 membership units held by non-affiliates of the registrant (computed by reference to the most recent offering price of membership units) was $20,094,000 as of April 30, 2017. The membership units are not listed on an exchange or otherwise publicly traded. Additionally, the membership units are subject to significant restrictions on transfer under the registrant’s operating and member control agreement. The value of the membership units for this purpose has been based solely upon the initial offering price of the membership units. In determining this value, the registrant has assumed that all of its governors, chief executive officer, chief financial officer and beneficial owners of 5% or more of its outstanding membership units are affiliates, but this assumption shall not apply to or be conclusive for any other purpose.

As of January 29, 2018, there were 30,606 membership units outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant has incorporated by reference into Part III of this Annual Report on Form 10-K portions of its definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Annual Report (October 31, 2017). This proxy statement is referred to in this report as the 2018 Proxy Statement.

INDEX

	Page Number
PART I	3
Item 1. Business	3
Item 1A. Risk Factors	19
Item 1B. Unresolved Staff Comments	29
Item 2. Properties	29
Item 3. Legal Proceedings	29
Item 4. Mine Safety Disclosures	29
PART II	30
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	30
Item 6. Selected Financial Data	33
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	53
Item 8. Financial Statements and Supplementary Data	56
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	81
Item 9A. Controls and Procedures	81
Item 9B. Other Information	82
PART III	82
Item 10. Directors, Executive Officers and Corporate Governance	82
Item 11. Executive Compensation	82
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	82
Item 13. Certain Relationships and Related Transactions, and Director Independence	82
Item 14. Principal Accountant Fees and Services	82
PART IV	83
Item 15. Exhibits, Financial Statement Schedules	83
SIGNATURES	87

1

CAUTION REGARDING FORWARD LOOKING STATEMENTS

This annual report contains historical information, as well as forward-looking statements regarding our business, financial condition, results of operations, performance and prospects. All statements that are not historical or current facts are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and relate to future events, our future financial performance, or our expected future operations and actions. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “future,” “intend,” “could,” “hope,” “predict,” “target,” “potential,” or “continue” or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions based on current information and involve numerous assumptions, risks and uncertainties, including, but not limited to the following:

· Fluctuations in the prices of grain, utilities and ethanol, which are affected by various factors including weather, production levels, supply, demand, and availability of production inputs;

· Changes in the availability and price of corn and natural gas;

· Changes in general economic conditions or the occurrence of certain events causing an economic impact in the agriculture, oil or automobile industries;

· Fluctuations in the price of crude oil and gasoline;

· Ethanol may trade at a premium to gasoline at times, causing a disincentive for discretionary blending of ethanol beyond the requirements of the federal Renewable Fuel Standard (“RFS”) and resulting in a negative impact on ethanol prices and demand;

· Changes in federal and/or state laws and environmental regulations including elimination, waiver or reduction of the Renewable Fuels Standard, may have an adverse effect on our business;

· Any impairment of the transportation, storage and blending infrastructure that prevents ethanol from reaching markets;

· Any effect on prices of distillers’ grains and ethanol resulting from actions in international markets;

· Changes in our business strategy, capital improvements or development plans;

· The effect of our risk mitigation strategies and hedging activities on our financial performance and cash flows;

· Alternative fuel additives may be developed that are superior to, or cheaper than ethanol;

· Changes or advances in plant production capacity or technical difficulties in operating our plants;

· Our ability to profitably operate our ethanol plants and maintain positive margins and generate free cash flow, which may impact our ability to meet current obligations, invest in our business, service our debt and satisfy the financial covenants contained in our credit agreement with our lender;

· Changes in interest rates or the lack of credit availability;

· Our ability to make distributions in light of financial covenants in our credit facility;

· Our ability to retain key employees and maintain labor relations;

· The supply of ethanol rail cars in the market has fluctuated in recent years and may affect our ability to obtain new tanker cars or negotiate new leases at a reasonable fee when our current leases expire;

· Any delays in shipping our products by rail and corresponding decreases in our sales or production as a result of shipping delay and ethanol storage constraints;

· Our units are subject to a number of transfer restrictions, no public market exists for our units, and we do not expect one to develop.

Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the reasons described in Part I, Item 1A. “Risk Factors” of this Form 10-K.  We undertake no duty to update these forward-looking statements, even though our situation may change in the future.  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 with these cautionary statements. Unless otherwise stated, references in this report to particular years or quarters refer to our fiscal years ended October 31 and the associated quarters of those fiscal years.

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INDUSTRY AND MARKET DATA

Much of the information in this report regarding the ethanol industry, including government regulation relevant to the industry, the market for our products and competition is from information published by the Renewable Fuels Association (“RFA”), a national trade association for the U.S. ethanol industry, as well as other publicly available information from governmental agencies or publications. Although we believe these sources are reliable, we have not independently verified the information.

AVAILABLE INFORMATION

Our principal executive offices are located at 15045 Highway 23 SE, Granite Falls, Minnesota 56241, and our telephone number is 320-564-3100. We make available free of charge on or through our Internet website, www.granitefallsenergy.com, all of our reports and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (SEC).  The Securities and Exchange Commission also maintains an Internet site (http://www.sec.gov) through which the public can access our reports.  We will provide electronic or paper copies of these documents free of charge upon request.

PART I

When we use the terms “Granite Falls Energy” or “GFE” or similar words in this Annual Report on Form 10-K, unless the context otherwise requires, we are referring to Granite Falls Energy, LLC and our operations at our ethanol production facility located in Granite Falls, Minnesota.  When we use the terms “Heron Lake BioEnergy”,  “Heron Lake”, or “HLBE” or similar words, unless the context otherwise requires, we are referring to Heron Lake BioEnergy, LLC and its wholly owned subsidiary, HLBE Pipeline Company, LLC, through which HLBE holds a 73.0% controlling interest in Agrinatural Gas, LLC. When we use the terms the “Company”, “we”, “us”, “our” or similar words in this Annual Report on Form 10-K, unless the context otherwise requires, we are referring to Granite Falls Energy, LLC and our consolidated wholly- and majority owned subsidiaries. 

ITEM 1.BUSINESS

Overview

Granite Falls Energy, LLC is a Minnesota limited liability company formed on December 29, 2000  for the purpose of constructing, owning and operating a fuel-grade ethanol plant located in Granite Falls, Minnesota. 

In July 2013, we  acquired controlling interest in Heron Lake BioEnergy, LLC (“Heron Lake BioEnergy” or “HLBE”), which owns an ethanol plant located near Heron Lake, Minnesota.  As of October 31, 2017, we control approximately 50.7% of HLBE’s outstanding membership units through our wholly owned subsidiary, Project Viking, L.L.C. As a result of our majority ownership, we have the right to appoint five (5) of the nine (9) governors to HLBE’s board of governors under its member control agreement.

On November 1, 2016,  we subscribed to purchase 1,500 capital units of Ring-neck Energy & Feed, LLC (“Ring-neck”) at a price of $5,000 per unit for a total of $7,500,000 and paid a subscription deposit of $750,000.  By letter dated July 12, 2017, GFE was notified of Ringneck’s acceptance of GFE’s subscription.  On August 2, 2017, GFE borrowed $7.5 million under its credit facility with Project Hawkeye, LLC (“Project Hawkeye”), an affiliate of Fagen, Inc., which is a member of GFE, and paid $6,750,000 to Ringneck as payment of the remaining balance of GFE’s subscription. Details regarding our subscription for investment in Ringneck are provided below in the section below titled “Investment.”  Details of the Project Hawkeye credit facility are provided below in the section below entitled “ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Indebtedness - Granite Falls Energy - GFE’s Other Credit Arrangement”.

Our business consists primarily of the production and sale of ethanol and its co-products (wet, modified wet and dried distillers’ grains, corn oil and corn syrup) locally, and throughout the continental U.S. However, as markets allow, our products can be, and have been, sold in the export markets.   Our revenues from operations come from three primary sources: sales of fuel ethanol, sales of distillers’ grains and sales of corn oil at GFE’s ethanol plant and HLBE’s ethanol plant. 

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Our Facilities

Our business consists primarily of producing ethanol and its related co-products, including wet, modified and dried distillers’ grains, as well as corn oil. Our ethanol production operations are carried out at our ethanol plant located in Granite Falls, Minnesota and at the ethanol plant operated by HLBE located near Heron Lake, Minnesota.

The GFE plant has an annual production capacity of approximately 63 million gallons of denatured ethanol, but is currently permitted to produce up to 70 million gallons of undenatured ethanol on a twelve month rolling sum basis. The HLBE plant has an approximate annual production capacity of approximately 65 million gallons of denatured ethanol, but is currently permitted to produce up to approximately 72.3 million gallons of undenatured fuel-grade ethanol on a twelve-month rolling sum basis.  We intend to continue working toward increasing production at both the GFE and HLBE plants to take advantage of the additional production allowed pursuant to our permits as long as we believe it is profitable to do so.

HLBE also owns a controlling 73.0% interest in Agrinatural Gas, LLC (“Agrinatural”), through its wholly owned subsidiary, HLBE Pipeline Company, LLC. The remaining 27.0% non-controlling interest is owned by Rural Energy Solutions, LLC (“RES”).  Agrinatural is a natural gas pipeline company that was formed to construct, own, and operate the natural gas pipeline that provides natural gas to HLBE’s ethanol production facility and other customers through a connection with the natural gas pipeline facilities of Northern Border Pipeline Company in Cottonwood County, Minnesota.  Agrinatural owns approximately 190 miles of natural gas pipeline and provides natural gas to HLBE’s ethanol plant and other commercial, agricultural and residential customers through a connection with the natural gas pipeline facilities of Northern Border Pipeline Company.  Agrinatural’s revenues are generated through natural gas distribution fees and sales.

Operating Segments

Accounting Standards Codification (“ASC”) 280, “Segment Reporting,” establishes the standards for reporting information about segments in financial statements. Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Therefore, in applying the criteria set forth in ASC 280, the Company determined that based on the nature of the products and production process and the expected financial results, the Company’s operations at GFE’s ethanol plant and HLBE’s plant, including the production and sale of ethanol and its co-products, are aggregated into one reporting segment.

Additionally, we also realize relatively immaterial revenue from natural gas pipeline operations at Agrinatural, HLBE’s majority owned subsidiary.  Before and after accounting for intercompany eliminations, these revenues from Agrinatural’s represent less than 1% of our consolidated revenues and have little to no impact on the overall performance of the Company.  Therefore, our management does not separately review Agrinatural’s revenues, cost of sales or other operating performance information.  Rather, management reviews Agrinatural’s natural gas pipeline financial data on a consolidated basis with our ethanol production operating segment. Additionally, management believes that the presentation of separate operating performance information for Agrinatural’s natural gas pipeline operations would not provide meaningful information to a reader of the Company’s financial statements and would not achieve the basic principles and objectives of ASC 280.

We currently do not have or anticipate we will have any other lines of business or other significant sources of revenue other than the sale of ethanol and its co-products, which include distillers’ grains and non-edible corn oil.

Financial Information

Please refer to “ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” for information about our revenue, profit and loss measurements, and total assets and liabilities and “ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” for our consolidated financial statements and supplementary data.

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Principal Products

The principal products from ethanol production at GFE’s plant and HLBE’s plant, and from which we derive nearly all our revenue, are fuel-grade ethanol, distillers’ grains, and non-edible corn oil.  In addition, HLBE’s plant also has miscellaneous other revenue generated by sales of corn syrup, a by-product of the ethanol production process, and revenues from Agrinatural’s natural gas pipeline operations.  We did not introduce any new products or services as part of our ethanol production segment during our fiscal year ended October 31, 2017. 

The table below shows the approximate percentage of our total revenue which is attributable to each of our principal products for each of the last three fiscal years.

	Fiscal Year 2017		Fiscal Year 2016		Fiscal Year 2015
Ethanol	81.1	%	79.3	%	78.0	%
Distillers' Grains	13.6	%	15.8	%	18.7	%
Corn Oil	4.5	%	4.1	%	2.7	%
Misc. Other Revenue*	0.8	%	0.8	%	0.6	%

*Includes incidental sales of corn syrup at HLBE’s plant and revenues from natural gas pipeline operations at Agrinatural, net of intercompany eliminations for distribution fees paid by HLBE to Agrinatural for natural gas transportation services.

Ethanol

Ethanol is a type of alcohol produced in the U.S. principally from corn.  Ethanol is ethyl alcohol, a fuel component made primarily from corn in the U.S. but can also be produced from various other grains. Ethanol is primarily used as:

· an octane enhancer in fuels;

· an oxygenated fuel additive that can reduce ozone and carbon monoxide vehicle emissions;

· a non-petroleum-based gasoline substitute; and

· as a renewable fuel to displace consumption of imported oil.

Ethanol produced in the U.S. is primarily used for blending with unleaded gasoline and other fuel products as an octane enhancer or fuel additive.  Ethanol is most commonly sold as E10 (10% ethanol and 90% gasoline), which is the blend of ethanol approved by the U.S. Environmental Protection Agency (“EPA”) for use in all American automobiles. Increasingly, ethanol is also available as E85, a higher percentage ethanol blend (85% ethanol and 15% gasoline) approved by the EPA for use in flexible fuel vehicles.

Distillers’ Grains

The principal co-product of the ethanol production process is distillers’ grains, a high protein and high-energy animal feed ingredient primarily marketed to the dairy and beef industries.  Dry mill ethanol processing creates three primary forms of distillers’ grains: wet distillers’ grains, modified wet distillers’ grains, and dried distillers’ grains with solubles.  Most of the distillers’ grains that we sell are in the form of dried distillers’ grains and modified/wet distillers’ grains.  Modified/wet distillers’ grains are processed corn mash that has been dried to approximately 50% moisture and has a shelf life of approximately 7 days. Modified/wet distillers’ grains are often sold to nearby markets.  Dried distillers’ grains with solubles are corn mash that has been dried to approximately 10% to 12% moisture.  It has an almost indefinite shelf life and may be sold and shipped to any market and fed to almost all types of livestock.

Corn Oil

We also extract non-edible crude corn oil during the thin stillage evaporation process immediately prior to production of distillers’ grains.  The corn oil that we produce is not food grade corn oil and therefore cannot be used for human consumption. Corn oil is used primarily as a biodiesel feedstock and as a supplement for animal feed.

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Principal Product Markets

As described below in “Distribution of Principal Products”, we market and distribute all of GFE’s and HLBE’s ethanol, distillers’ grains, and corn oil through professional third party marketers.  Our marketers make all decisions with regard to where our products are marketed and we have little control over the marketing decisions they make. 

Our ethanol, distillers’ grains and corn oil are primarily sold in the domestic market; however, as markets allow, our products can be, and have been, sold in the export markets. We expect our ethanol and distillers’ grains marketers to explore all markets for our products, including export markets.  We believe that there is some potential for increased international sales of our products. Nevertheless, due to high transportation costs, and the fact that we are not located near a major international shipping port, we expect a majority of our products to continue to be marketed and sold domestically.

Ethanol Markets

The markets in which our ethanol is sold will depend primarily upon the efforts of Eco-Energy, Inc. (“Eco-Energy”), which buys and markets our ethanol. There are local, regional, national, and international markets for ethanol.  The principal markets for our ethanol are petroleum terminals in the continental U.S.  The principal purchasers of ethanol are generally wholesale gasoline distributors or blenders.

We believe that local markets will be limited and must typically be evaluated on a case-by-case basis.  Although local markets may be the easiest to service, they may be oversold because of the number of ethanol producers near our plants, which may depress the price of ethanol in those markets.

Typically, a regional market is one that is outside of the local market, yet within the neighboring states.  Some regional markets include large cities that are subject to anti-smog measures in either carbon monoxide or ozone non-attainment areas, or that have implemented oxygenated gasoline programs, such as Chicago, St. Louis, Denver, and Minneapolis.  We consider our primary regional market to be large cities within a 450-mile radius of our ethanol plants.  In the national ethanol market, the highest demand by volume is primarily in the southern U.S. and the east and west coast regions.

We expect a majority of our ethanol to continue to be marketed and sold domestically. In addition, as domestic production of ethanol continues to expand, we anticipate increased international sales. Over our past fiscal year, exports of ethanol have increased with Brazil receiving the largest percentage of ethanol produced in the United States and Canada in second place. India, the Philippines and South Korea have also been top destinations.  However, ethanol export demand is more unpredictable than domestic demand and tends to fluctuate over time as it is subject to monetary and political forces in other nations. For example, a strong US Dollar is a force that may negatively impact ethanol exports from the United States.  Additionally, the imposition of tariffs and duties on imported ethanol from the U.S. can also negatively impact domestic export demand.

Although exports to China also substantially increased during 2016 over 2015, China imported negligible volumes during 2017.  This reduction was due to China’s increase of the tariff on ethanol imported from the U.S. and Brazil to 30% as of January 1, 2017, compared to a 5% tariff in 2016.  However, on September 13, 2017, China’s National Development and Reform Commission, the National Energy Board and 15 other state departments issued a joint plan to expand the use and production of biofuels containing up to 10% ethanol by 2020. There is no assurance the recently issued joint plan will lead to increased imports of US ethanol. 

During 2017 Brazil also adopted import quotas on imported ethanol, which is expected to negatively impact U.S. exports. On September 1, 2017, Brazil’s Chamber of Foreign Trade, or CAMEX, issued an official written resolution, imposing a 20% tariff on U.S. ethanol imports in excess of 150 million liters, or 39.6 million gallons per quarter. The ruling is valid for two years. According to the RFA, during September 2017, Brazil fell out of the top two customers of U.S. ethanol exports which is most likely the result of the implementation of the 20% tariff on imported ethanol. Exports to Brazil in September 2017 decreased by 20% compared to August 2017 exports and by 70% compared to the peak in May 2017. These tariffs have had, and likely will continue to have, a negative impact on the export market demand and prices for ethanol produced in the United States.

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On June 27, 2017, Mexico’s Energy Regulatory Commission (“CRE”) approved the use of 10% ethanol blends, effective immediately, up from 5.8%, in all but three of its largest cities: Mexico City, Guadalajara and Monterrey, which could lead to increased exports to Mexico. However, several lawsuits were filed in Mexico challenging the June 2017 decision by the CRE to approve the use of 10% ethanol blends. Although four of these lawsuits were dismissed, a fifth lawsuit was allowed to proceed for judicial review, despite precedent set by the Mexico Supreme Court for dismissal. The CRE is expected to defend its position before the judge makes a final decision. Should the judge rule in favor of the plaintiff, the case will go to the Mexico Supreme Court.

We transport our ethanol primarily by rail.  In addition to rail, we service certain regional markets by truck from time to time.  We believe that regional pricing tends to follow national pricing less the freight difference.

Distillers’ Grains Markets

We sell distillers’ grains as animal feed for beef and dairy cattle, poultry, and hogs. Most of the distillers’ grains that we sell are in the form of dried distillers’ grains.  Currently, the U.S. ethanol industry exports a significant amount of dried distillers’ grains, which may increase as worldwide acceptance grows. However, according to the U.S. Grains Council, total U.S. distiller’s grains exports through October 2017 were approximately 3% lower than distiller’s grains exports for the same period last year with Mexico, Turkey, South Korea, Canada, Thailand and Indonesia.

Historically, the United States ethanol industry exported a significant amount of distillers’ grains to China and Vietnam. However, during 2016, China began an anti-dumping and countervailing duty investigation related to distillers’ grains imported from the U.S. which contributed to a decline in distillers’ grains shipped to China during 2016. In January 2017, the Chinese issued final tariffs on U.S. distillers’ grains. The Chinese distillers’ grains anti-dumping tariffs range from 42.2% to 53.7% and the anti-subsidy tariffs range from 11.2% to 12%. The imposition of these duties has resulted in a significant decline in demand from this top importer requiring U.S. producers to seek out alternative markets.  In November 2017, the China Ministry of Commerce announced that the anti-subsidy tariffs would be repealed.  While the anti-subsidy tariffs may be removed, the substantial anti-dumping duties remain.  As a result, there is no guarantee that distillers’ grains exports to Chinese will resume.

Additionally, exports of U.S. distillers’ grains to Vietnam had halted completely due to Vietnam’s imposition of stricter regulations on fumigation in December 2016. However, in a statement issued September 1, 2017, the U.S. Grains Council announced that Vietnam is lifting its suspension of U.S. distillers’ grains imports and easing fumigation requirements.  The lift of this suspension may result in increased exports to Vietnam; however, there is no guarantee that the Vietnamese export market will achieve significant growth.

We also sell modified wet distillers’ grains, which typically have a shelf life of a maximum of seven days.  This provides for a much smaller, more local market and makes the timing of its sale critical. Further, because of its moisture content, the modified wet distillers’ grains are heavier and more difficult to handle. The customer must be close enough to justify the additional handling and shipping costs. As a result, modified wet distillers’ grains are principally sold only to local feedlots and livestock operations.

Various factors affect the price of distillers’ grain, including, among others, the price of corn, soybean meal and other alternative feed products, the performance or value of distillers’ grains in a particular feed market, and the supply and demand within the market.  Like other commodities, the price of distillers’ grains can fluctuate significantly.

Corn Oil Markets

Our corn oil is primarily sold to diesel manufacturers and, to a lesser extent, feed lot and poultry markets. We generally transport our corn oil by truck to users located primarily in the upper Midwest.

Distribution of Principal Products

GFE’s ethanol plant is located near Granite Falls, Minnesota, in Chippewa County.  It is served by the TC&W Railway which provides connection to the Canadian Pacific and Burlington Northern Santa Fe Railroads. The completion of our rail loop during our 2012 fiscal year enables us to load unit trains.  Our site is in close proximity to major highways that connect to major population centers such as Minneapolis, Minnesota; Chicago, Illinois; and Detroit, Michigan.

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HLBE’s ethanol plant is located near Heron Lake, Minnesota. It is served by the Union Pacific Railroad. HLBE’s site is also in close proximity to major highways that connect to major population centers such as Minneapolis, Minnesota; Chicago, Illinois; and Detroit, Michigan.

Ethanol Distribution

Eco-Energy is the ethanol marketer for both the GFE plant and HLBE plant. Pursuant to our marketing agreements, Eco-Energy purchases and markets the entire ethanol output of GFE’s and HLBE’s ethanol plants.  Under GFE’s ethanol marketing agreement, GFE is responsible for securing all of the rail cars necessary for the transport of ethanol by rail except for 43 rail cars leased to GFE by Eco-Energy. Under HLBE’s ethanol marketing agreement, Eco-Energy arranges for the transportation of HLBE’s ethanol. GFE and HLBE pay Eco-Energy a marketing fee per gallon of ethanol sold, as well as a fixed lease fee for rail cars leased from Eco-Energy. The marketing fee and timing of payments by Eco-Energy were negotiated based on prevailing market-rate conditions for comparable ethanol marketing services.

Our agreements with Eco-Energy expire on December 31, 2019.  However, the agreements provide for automatic renewals for three additional terms of three-years each unless terminated by either party by providing written notice to the other party at least 90 days prior to the end of the then current term. 

Distillers’ Grains Distribution

RPMG, Inc. (“RPMG”)  is the distillers’ grains marketer for our Granite Falls plant.  Pursuant to GFE’s distillers’ grains marketing agreement, RPMG markets all the distillers’ grains produced at the Granite Falls plant.  The contract commenced on February 1, 2011, with an initial term of one year, but continues in effect until terminated by either party.

Gavilon Ingredients, LLC (“Gavilon”)  is the distillers’ grains marketer for HLBE.  Under HLBE’s distillers’ grains marketing agreement, Gavilon purchases all of the distillers’ grains produced at our Heron Lake ethanol plant in exchange for a service fee. The contract commenced on November 1, 2013 with an initial term of six months, and will continue to remain in effect until terminated by either party at its unqualified option, by providing written notice of not less than 60 days to the other party.

Corn Oil Distribution

RPMG is also the corn oil marketer for both the GFE plant and the HLBE plant.  Currently, RPMG markets our corn oil, which is used primarily as a biodiesel feedstock and as a supplement for animal feed.  We pay RPMG a commission based on each pound of corn oil sold by RPMG under these marketing agreements.

Dependence on One or a Few Major Customers

As discussed above, we have exclusive ethanol marketing agreements with Eco-Energy. Additionally, we have agreements with RPMG and Gavilon to market all of the distillers’ grains produced at GFE’s plant and HLBE’s plant, respectively, and with RPMG to market all of the corn oil produced at our plants. We rely on Eco-Energy, RPMG and Gavilon for the sale and distribution of all of our products; therefore, we are highly dependent on Eco-Energy, RPMG and Gavilon for the successful marketing of our products. Any loss of these companies as our marketing agents for our ethanol, distillers’ grains, or corn oil could have a negative impact on our revenues.

Seasonality of Ethanol Sales

We experience some seasonality of demand for our ethanol. Since ethanol is predominantly blended with conventional gasoline for use in automobiles, ethanol demand tends to shift in relation to gasoline demand.  As a result, we experience some seasonality of demand for ethanol in the summer months related to increased driving.  In addition, we experience some increased ethanol demand during holiday seasons related to increased gasoline demand.

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Pricing of Corn and Ethanol

We expect that ethanol sales will represent our primary revenue source and corn will represent our primary component of cost of goods sold.  Therefore, changes in the price at which we can sell the ethanol we produce and the price at which we buy corn for our ethanol plants present significant operational risks inherent in our business. Trends in ethanol prices and corn prices are subject to a number of factors and are difficult to predict.

The price and availability of corn is subject to significant fluctuations depending upon a number of factors that affect commodity prices in general, including crop conditions, yields, domestic and global stocks, weather, federal policy and foreign trade. With the volatility of the weather and commodity markets, we cannot predict the future price of corn. Historically, ethanol prices have tended to correlate with corn prices, wholesale gasoline prices, with demand for and the price of ethanol increasing as supplies of petroleum decreased or appeared to be threatened, crude oil prices increased and wholesale gasoline prices increased. However, the prices of both ethanol and corn do not always follow historical trends. 

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 operate profitably because of the higher cost of operating our plants.  Because the market price of ethanol is not directly related to corn prices, we, like most ethanol producers, are not able to compensate for increases in the cost of corn through adjustments in our prices for our ethanol although we do see increases in the prices of our distillers’ grains during times of higher corn prices.Given that ethanol sales comprise a majority of our revenues, our inability to adjust our ethanol prices can result in a negative impact on our profitability during periods of high corn prices.

Ethanol prices were higher during fiscal year 2017 compared to fiscal year 2016.  Ethanol prices were higher during the fiscal year ended October 31, 2017 due to increased export demand which offset increased industry-wide production.  Management expects additional volatility for the price of ethanol in 2018.  Ethanol supply and demand both are expected to increase in 2018, which may lead to market imbalances.  Due to low ethanol and feedstock prices, exports grew in 2017 and are projected to continue to grow in 2018.  This is positive for the ethanol industry, but does introduce additional risk as international demand is more volatile than domestic demand.  U.S. gas demand was flat year over year in 2017, while ethanol as a percentage of the fuel supply increased slightly.  A decrease in demand for either gasoline or ethanol blends would adversely impact the price of ethanol, which could result in a material adverse effect on our business, results of operations and financial condition.

Sources and Availability of Raw Materials

The primary raw materials used in the production of ethanol at our plants are corn and natural gas.  Our plants also require significant and uninterrupted amounts of electricity and water. 

Corn

Ethanol production requires substantial amounts of corn. The cost of corn represented approximately 72.2%, 74.1%, and 73.5% of our cost of goods sold for the years ended October 31, 2017, 2016, and 2015, respectively. At GFE’s  current production rate of approximately 63 millon gallons of undenatured ethanol per year, the GFE plant requires approximately 21.5 million bushels of corn per year. The HLBE ethanol plant requires approximately 22.4 million bushels of corn per year to operate at is current production rate of approximately 65 million gallons of undenatured ethanol per year. 

GFE had  an exclusive corn storage and grain handling agreement with Farmers Cooperative Elevator (“FCE”), a member of GFE. Under the agreement, GFE had agreed to purchase all of the corn needed for the operation of the plant from FCE. The price of the corn purchased was the bid price FCE establishes for the plant plus a set fee per bushel.

On February 27, 2017, GFE and FCE executed an amendment to the corn storage and grain handling agreement. Pursuant to the terms of the amendment, GFE and FCE agreed to amend the corn storage and grain handling agreement to accelerate the termination date of the agreement to midnight August 31, 2017.  In exchange for the early termination, GFE paid an early termination fee to FCE of approximately $255,000 in August 2017. Prior to the amendment, the termination date of the corn storage and grain handling agreement was set to expire on November 2017.

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On June 1, 2017, GFE began posting bids for the purchase of corn directly from grain elevators, farmers, and local dealers within approximately 80 miles of Granite Falls, Minnesota.  On September 1, 2017, GFE began accepting delivery of corn at its Granite Falls plant.  Typically, HLBE purchases its corn directly from grain elevators, farmers, and local dealers within approximately 80 miles of Heron Lake, Minnesota. Neither GFE’s nor HLGE’s members are obligated to deliver corn to the Granite Falls plant or Heron Lake plant. 

GFE and HLBE generally purchase corn through spot cash, fixed-price forward, basis only, and futures only contracts. Our fixed-price forward contracts specify the amount of corn, the price and the time period over which the corn is to be delivered.  These forward contracts are at fixed prices indexed to Chicago Board of Trade (“CBOT”) prices. Our plants corn requirements can be contracted in advance under fixed-price forward contracts or options. The parameters of these contracts are based on the local supply and demand situation and the seasonality of the price. For delayed pricing contracts, producers will deliver corn to either the GFE or HLBE plant, but the pricing for that corn and the related payment will occur at a later date. We may also purchase a portion of our corn on a spot basis. For our spot purchases, GFE and HLBE post daily corn bids so that corn producers can sell to directly to our plants on a spot basis. 

In addition, both plants’ facilities have sufficient corn storage capacity, with the capability to store approximately 8 days of corn supply at HLBE and approximately 18 days of corn supply at the GFE plant.    

We compete with ethanol producers in close proximity for the supplies of corn we will require to operate our plants.  There are 8 ethanol plants within an approximate 50 mile radius of HLBE’s plant and 5 ethanol plants within an approximate 50 mile radius of the GFE plant. The existence of other ethanol plants, particularly those in close proximity to our plants, increase the demand for corn and may result in higher costs for supplies of corn. We also compete with other users of corn, including ethanol producers regionally and nationally, producers of food and food ingredients for human consumption (such as high fructose corn syrup, starches, and sweeteners), producers of animal feed and industrial users.

Since corn is the primary raw material we use to produce our products, the availability and cost of corn can have a significant impact on the profitability of our operations. Corn prices were lower during our 2017 fiscal year as a result of several consecutive years of favorable corn crops which has increased the amount of corn available to us. As a result of these favorable corn crops, we have not had difficulty securing the corn we need to operate our ethanol plants at prices that have allowed us to operate profitably. If we experience a drought or other unfavorable weather condition during our 2018 fiscal year, the price we pay for corn and the availability of corn near our plants could be negatively impacted. If we experience a localized shortage of corn, we may be forced to purchase corn from producers who are farther away from our ethanol plants which can increase our transportation costs.

Utilities

Natural Gas

Natural gas is a significant input to our manufacturing process. The cost of natural gas represented approximately 6.3%, 5.1%, and 6.7%, of our cost of sales for the years ended October 31, 2017, 2016, and 2015, respectively.

We do not anticipate any problems securing the natural gas we require to continue to operate our plants at capacity during our 2018 fiscal year or beyond.  At GFE’s plant, we pay Center Point Energy/Minnegasco a per unit fee to move the natural gas through the pipeline, and we have guaranteed to move a minimum of 1,500,000 mmBTU annually through December 31, 2025, which is the ending date of the agreement.  GFE also has an agreement with U.S. Energy Services, Inc.  On our behalf, U.S. Energy Services procures contracts with various natural gas vendors to supply the natural gas necessary to operate the GFE plant.  We determined that sourcing our natural gas from a variety of vendors is more cost-efficient than using an exclusive supplier.

HLBE has a facilities agreement with Northern Border Pipeline Company, which allows HLBE to access an existing interstate natural gas pipeline located approximately 16 miles north from its plant.  HLBE has entered into a firm natural gas transportation agreement with its majority owned subsidiary, Agrinatural.  Under the terms of the firm natural gas transportation agreement, Agrinatural will provide natural gas to the HLBE plant with a specified price per MMBTU for a term ending on October 31, 2021, with an automatic renewal option for an additional five year period.  HLBE also has a base agreement for the sale and purchase of natural gas with Constellation NewEnergy—Gas Division, LLC (“Constellation”). HLBE buys all of its natural gas from Constellation and this agreement runs through March 31, 2019.

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The prices for and availability of natural gas are subject to volatile market conditions.  These market conditions often are affected by factors beyond our control such as higher prices as a result of colder than average weather conditions or natural disasters, overall economic conditions and foreign and domestic governmental regulations and relations.  Significant disruptions in the supply of natural gas could impair our ability to manufacture ethanol and more significantly, dried distillers’ grains for our customers.  Furthermore, increases in natural gas prices or changes in our natural gas costs relative to natural gas costs paid by competitors may adversely affect our results of operations and financial condition.

Electricity

Our plants require a continuous supply of electricity.  We have agreements in place to supply electricity to our plants.  We do not anticipate any problems securing the electricity that we require to continue to operate our plants at capacity during our 2018 fiscal year or beyond.

Water

We do not anticipate any problems securing the water that we require to continue to operate our plants at capacity during our 2018 fiscal year or beyond. GFE obtains the water necessary to operate its from the Minnesota River with an adjustable gravity-flow intake system.

HLBE obtains its water pursuant to an industrial water supply agreement with the City of Heron Lake and Jackson County, Minnesota.

Risk Management and Hedging

The profitability of our operations is highly dependent on the impact of market fluctuations associated with commodity prices.  We use various derivative instruments as part of an overall strategy to manage market risk and to reduce the risk that our ethanol production will become unprofitable when market prices among our principal commodities and products do not correlate.  

In order to mitigate our commodity and product price risks, we enter into hedging transactions, including forward corn, ethanol, distillers’ grains and natural gas contracts, in an attempt to partially offset the effects of price volatility for corn and ethanol.  However, we are not always presented with an opportunity to lock in a favorable margin and our plant’s profitability may be negatively impacted during periods of high grain prices. We also enter into over-the-counter and exchange-traded futures, swaps and option contracts for corn, ethanol and distillers’ grains, designed to limit our exposure to increases in the price of corn and manage ethanol price fluctuations.  

Although we believe that our hedging strategies can reduce the risk of price fluctuations, the financial statement impact of these activities depends upon, among other things, the prices involved and our ability to physically receive or deliver the commodities involved.  Our hedging activities could 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 corn and ethanol prices move in reaction to market trends and information, our income statement will be affected depending on the impact such market movements have on the value of our derivative instruments

Hedging arrangements expose us to the risk of financial loss in situations where the counterparty to the hedging contract defaults or, in the case of exchange-traded contracts, where there is a change in the expected differential between the price of the commodity underlying the hedging agreement and the actual prices paid or received by us for the physical commodity bought or sold.  There are also situations where the hedging transactions themselves may result in losses, as when a position is purchased in a declining market or a position is sold in a rising market. Hedging losses may be offset by a decreased cash price for corn and natural gas and an increased cash price for ethanol and distillers’ grains.

We have established a risk management committee which assists the board and our risk management manager to, among other things, establish appropriate policies and strategies for hedging and enterprise risk. We continually monitor and manage our commodity risk exposure and our hedging transactions as part of our overall risk management policy.  As a result, we may vary the amount of hedging or other risk mitigation strategies we undertake, and we may choose not to engage in hedging transactions.  Our ability to hedge is always subject to our liquidity and available capital.

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Process Improvement

We are continually working to develop new methods of operating the ethanol plants more efficiently.  We continue to conduct process improvement activities in order to realize these efficiency improvements.

Patents, Trademarks, Licenses, Franchises and Concessions

We do not currently hold any patents, trademarks, franchises, or concessions.  We were granted a license by ICM, Inc. (“ICM”) to use certain ethanol production technology necessary to operate our ethanol plants.  The cost of the license granted by ICM was included in the amount we paid to Fagen, Inc. to design and build our ethanol plants.

Competition

Ethanol Competition

Domestic Competition

We sell our ethanol in a highly competitive market.  Ethanol is a commodity product where competition in the industry is predominantly based on price. On a national scale, we are in direct competition with numerous other ethanol producers.  According to the RFA, as of October 27, 2017, there are approximately 214 biorefineries with a total nameplate capacity of approximately 16.2 billion gallons of ethanol per year, with an additional six plants under expansion or construction with capacity to produce an additional 463 million gallons.  However, the RFA estimates that approximately 2.6% of the ethanol production capacity in the U.S. was not operating as of October 27, 2017. 

The following table identifies the top five largest ethanol producers in the U.S. along with their production capacities.

	Nameplate Capacity
Company	(mmgy)
Poet Biorefining	1,662
Archer Daniels Midland	1,616
Green Plains, Inc.	1,370
Valero Renewable Fuels	1,265
Flint Hills Resources LP	820

Updated: October 27, 2017, Renewable Fuels Association

Each of the large ethanol producers above are capable of producing significantly more ethanol than we produce. These producers and other large producers are, among other things, capable of producing a significantly greater amount of ethanol or have multiple ethanol plants that may help them achieve certain benefits that we could not achieve with one ethanol plant. This could put us at a competitive disadvantage to other ethanol producers.

Larger ethanol producers may have an advantage over us from economies of scale and stronger negotiating positions with purchasers.  Large producers own multiple ethanol plants and may have flexibility to run certain facilities while shutting or slowing down production at their other facilities. This added flexibility may allow these producers to compete more effectively, especially during periods when operating margins are unfavorable in the ethanol industry. Some large producers own ethanol plants in geographically diverse areas of the U.S. and as result, may be able to more effectively spread the risk they encounter related to feedstock prices. Some of our competitors are owned subsidiaries of larger oil companies, such as Valero Renewable Fuels and Flint Hills Resources. Because their parent oil companies are required to blend a certain amount of ethanol each year, these competitors may be able to operate their ethanol production facilities at times when it is unprofitable for us to operate our ethanol plant. Further, new products or methods of ethanol production developed by larger and better-financed competitors could provide them competitive advantages over us and harm our business.

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Local Competition

A majority of the U.S. ethanol plants, and therefore, the greatest number of gallons of ethanol production capacity, are concentrated in the corn-producing states of Iowa, Nebraska, Illinois, Indiana, Minnesota, South Dakota, Ohio, Wisconsin, Kansas, and North Dakota.  According to the RFA, as of October 27, 2017, Minnesota is one of the top producers of ethanol in the U.S. with 21 ethanol plants producing an aggregate of approximately 1.5 billion gallons of ethanol per year.Therefore, we face increased regional and local competition because of the location of our ethanol plant. 

Eco-Energy markets out ethanol primarily on a regional and national basis.  We compete with other ethanol producers both for markets in Minnesota and markets in other states. We believe that we are able to reach the best available markets through the use of our experienced marketer and by the rail delivery methods we use. We believe that we can compete favorably with other ethanol producers due to our proximity to ample grain, natural gas, electricity and water supplies at favorable prices.

International Competition

In addition to intense competition with domestic producers of ethanol, we have faced increased competition from ethanol produced in foreign countries. Depending on feedstock prices, ethanol imported from foreign countries may be less expensive than domestically-produced ethanol.  However, foreign demand, transportation costs and infrastructure constraints may temper the market impact on the U.S. Ethanol imports have been lower in recent years and ethanol exports have been higher. However, if demand for imported ethanol were to increase again, demand for domestic ethanol may be reduced, which could lead to lower domestic prices and lower operating margins. Large international companies with much greater resources than ours have developed, or are developing, increased foreign ethanol production capacities. Many international suppliers produce ethanol primarily from inputs other than corn, such as sugar cane, and have cost structures that may be substantially lower than U.S. based ethanol producers including us. Many of these international suppliers are companies with much greater resources than us with greater production capacities.

Alternative Fuels and Other Fuel Additives Competition

Alternative fuels and alternative ethanol production methods are continually under development. New ethanol products or methods of ethanol production developed by larger and better-financed competitors could provide them competitive advantages over us and harm our business.

We anticipate increased competition from renewable fuels that do not use corn as the feedstock. Many of the current ethanol production incentives are designed to encourage the production of renewable fuels using raw materials other than corn. One type of ethanol production feedstock that is being explored is cellulose. Cellulose is found in wood chips, corn stalks and rice straw, amongst other common plants. Several companies and researchers have commenced pilot projects to study the feasibility of commercially producing cellulosic ethanol.

A few companies have completed commercial scale cellulosic ethanol plants. If this technology can be profitably employed on a commercial scale, it could potentially lead to ethanol that is less expensive to produce than corn based ethanol. Cellulosic ethanol may also capture more government subsidies and assistance than corn based ethanol. This could decrease demand for our product or result in competitive disadvantages for our ethanol production process.

In addition to competing with ethanol producers, we also compete with producers of other gasoline oxygenates.  Many gasoline oxygenates are produced by other companies, including oil companies.  The major oil companies have significantly greater resources than we have to develop alternative products and to influence legislation and public perception of ethanol. Historically, as a gasoline oxygenate, ethanol primarily competed with two gasoline oxygenates, both of which are ether-based: MTBE (methyl tertiary butyl ether) and ETBE (ethyl tertiary butyl ether).  While ethanol has displaced these two gasoline oxygenates, the development of ethers intended for use as oxygenates is continuing and we will compete with producers of any future ethers used as oxygenates.

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A number of automotive, industrial and power generation manufacturers are developing alternative fuels and clean power systems using fuel cells, plug-in hybrids, electric cars or clean burning gaseous fuels. Electric car technology has recently grown in popularity, especially in urban areas. While there are currently a limited number of vehicle recharging stations, there has been increased focus on developing these recharging stations to make electric car technology more feasible and widely available in the future. Additional competition from these other sources of alternative energy, particularly in the automobile market, could reduce the demand for ethanol, which would negatively impact our profitability.

Distillers’ Grains Competition

The amount of distillers’ grains produced annually in North America has increased significantly as the number of ethanol plants increased.  We compete with other producers of distillers’ grains products both locally and nationally, with more intense competition for sales of distillers’ grains among ethanol producers in close proximity to our ethanol plant.  These competitors may be more likely to sell to the same markets that we target for our distillers’ grains.

Distillers’ grains are primarily used as an animal feed, competing with other feed formulations using corn and soybean meal. As a result, we believe that distillers’ grains prices are positively impacted by increases in corn and soybean prices. In recent years the U.S. ethanol industry has increased exports of distillers’ grains which management believes has positively impacted demand and prices for distillers’ grains in the U.S. However, with the recent imposition of Chinese import duties on U.S. distillers’ grains, distillers’ grains exports have been negatively impacted, increasing the domestic supply of distillers’ grains. Increased domestic supply has had a corresponding negative impact on distillers’ grains prices and has decreased the price of distillers’ grains as compared to a comparable volume of corn. In the event these distillers’ grains exports continue to decrease, it could result in increased competition among ethanol producers for sales of distillers’ grains and could negatively impact distillers’ grains prices in the U.S.

Corn Oil Competition

We compete with many ethanol producers for the sale of corn oil. Many ethanol producers have installed the equipment necessary to separate corn oil from the distillers’ grains they produce which has increased competition for corn oil sales and has resulted in lower market corn oil prices.

Government Ethanol Supports

The ethanol industry is dependent on several economic incentives to produce ethanol, the most significant of which is the federal Renewable Fuels Standard (the “RFS”). The RFS is a national program that does not require that any renewable fuels be used in any particular area or state, allowing refiners to use renewable fuel blends in those areas where it is most cost-effective. The RFS has been, and we expect will continue to be, a significant factor impacting ethanol usage.

Under the RFS, the EPA is supposed to pass an annual rule that establishes the number of gallons of different types of renewable fuels that must be used in the U.S. by refineries, blenders, distributors and importers whichis called the renewable volume obligations (“RVOs”). The EPA has the authority to waive the mandates in whole or in part if one of two conditions is met: 1) there is inadequate domestic renewable fuel supply, or 2) implementation of the mandate requirement severely harms the economy or environment of a state, region or the U.S.

The RFS sets the statutory RVO for corn-based ethanol at 15 billion gallons beginning in 2016 and each year thereafter through 2022. On November 23, 2016, the EPA announced the final rule for 2017 RVOs, which was set at 15.0 billion gallons for corn-based ethanol.  This rule is set at 100% of the original conventional biofuel requirement of 15.0 billion gallons, and is considered a favorable outcome by the industry.

On July 5, 2017, the United States Environmental Protection Agency (“EPA”) released a proposed rule to set the 2018 renewable volume requirements (“RVOs”) for conventional ethanol at 15.0 billion gallons while lowering the RVO for advanced alternatives, reducing overall RVOs to 19.24 billion gallons for 2018.

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On October 19, 2017, EPA Administrator Pruitt issued a letter to several U.S. Senators representing states in the Midwest reiterating his commitment to the text and spirit of the RFS. He stated that the EPA would meet the November 30, 2017 deadline for issuing final 2018 volume requirements, that the EPA’s preliminary analysis suggests that final volume requirements should be set at amounts at or greater than those provided in the July proposed rule for 2018.  On November 30, 2017, the EPA announced the final 2018 RVOs, and consistent with EPA Administrator Pruitt’s October 2017 letter, set the RVOsfor conventional ethanol at 15.0 billion gallons, advanced biofuels at 4.29 billion gallons and cellulosic ethanol at 0.29 billion gallons, for overall RVOs of 19.29 billion gallons for 2018.  Although this final rule achieves the statutory RVO for conventional corn-based ethanol originally set by Congress when the RFS was enacted, it reduces the overall RVOs below the overall statutory level of 26 billion gallons. 

The following chart illustrates the potential U.S. ethanol demand based on the schedule of minimum usage established by the RFS program through the year 2022 (in billions of gallons):

					Maximum Amount of Corn-based
		Total Renewable Fuel	Cellulosic Ethanol	Advanced	Ethanol That Can Be Used to
Year	RVO Source	RVO	Minimum Requirement	Biofuel	Satisfy Total Renewable Fuel RVO
2017	RFS Statute	24.00	5.5	9.00	15.00
	EPA Final Rule(1)	19.28	0.31	4.28	15.00
2018	RFS Statute	26.00	7.00	11.00	15.00
	EPA Final Rule(2)	19.29	0.29	4.29	15.00
2019	RFS Statute	28.00	8.50	13.00	15.00
2020	RFS Statute	30.00	10.50	15.00	15.00
2021	RFS Statute	33.00	13.50	18.00	15.00
2022	RFS Statute	36.00	16.00	21.00	15.00

(1)Final EPA RFS RVOs for 2017 issued November 2016.

(2)Final EPA RFS RVOs for 2018 issued November 2017.

Current ethanol production capacity exceeds the EPA’s 2017 and 2018 RVOs that can be satisfied by corn-based ethanol.  According to the RFS, if mandatory renewable fuel volumes are reduced by at least 20% for two consecutive years, the EPA is required to modify, or reset, statutory volumes through 2022. Since 2018 is the first year the total proposed RVOs were more than 20% below statutory levels, in September 2017, the EPA Administrator Pruitt directed his staff to initiate the required technical analysis to perform any future reset consistent with the reset rules. Since the final 2018 RVOs are more than 20% below statutory levels, if 2019 RVOs are also more than 20% below statutory levels, the RVO reset will be triggered under RFS.  As a result, the EPA will be required to modify statutory volumes through 2022 within one year of the trigger event, based on the same factors used to set the RVOs post-2022. If the statutory RVOs are reduced as a result of reset, it could have an adverse effect on the market price and demand for ethanol which would negatively impact our financial performance.

Beginning in January 2016, various ethanol and agricultural industry groups petitioned a federal appeals court to hear a legal challenge to of the EPA’s decision to reduce the total renewable fuel volume requirements for 2014-2016 through use of its “inadequate domestic supply” waiver authority.  On July 28, 2017, the U.S. Court of Appeals for the D.C. Circuit ruled in favor of the petitioners, concluding that the EPA erred in its exercise of “inadequate domestic supply” waiver authority by considering demand-side constraints. As a result, the Court vacated the EPA’s decision to reduce the total renewable fuel volume requirements for 2016, and remanded to the EPA to address the 2016 total renewable fuels volume requirements. While management believes the decision should benefit the ethanol industry overall by clarifying the EPA's waiver analysis is limited to consideration of supply-side factors only, no direct impact on the Company is expected from the decision.

Management anticipates that there will be further legal challenges to the EPA's reduction in the volume requirements, including the final rules for 2017 and 2018. However, if the EPA's decision to reduce the volume requirements under the RFS is allowed to stand, or if the volume requirements are further reduced, it could have an adverse effect on the market price and demand for ethanol which would negatively impact our financial performance.

Beyond the federal mandates, there are limited domestic markets for ethanol.  Further, opponents of ethanol such as large oil companies will likely continue their efforts to repeal or reduce the RFS through lawsuits or lobbying of Congress.  If such efforts are successful in further reducing or repealing the blending requirements of the RFS, a significant decrease in ethanol demand may result and could have a material adverse effect on our results of operations, cash flows and financial condition, unless additional demand from exports or discretionary or E85 blending develops.

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Most ethanol that is used in the U.S. is sold in a blend called E10. E10 is a blend of 10% ethanol and 90% gasoline. E10 is approved for use in all standard vehicles. Estimates indicate that gasoline demand in the U.S. is approximately 140 billion gallons per year. Assuming that all gasoline in the U.S. is blended at a rate of 10% ethanol and 90% gasoline, the maximum demand for ethanol is 14.0 billion gallons per year.  This is commonly referred to as the “blend wall,” which represents a theoretical limit where more ethanol cannot be blended into the national gasoline pool. This is a theoretical limit because it is believed that it would not be possible to blend ethanol into every gallon of gasoline that is being used in the U.S. and it discounts the possibility of additional ethanol used in higher percentage blends such as E15 and E85. These higher percentage blends may lead to additional ethanol demand if they become more widely available and accepted by the market.

There is growing availability of E85 for use in flexible fuel vehicles, however it is limited due to lacking infrastructure. In addition, the industry has been working to introduce E15 to the retail market since the EPA approved its use vehicles model year 2001 and newer. However, wide spread adoption of E15 is hampered by regulatory and infrastructure hurdles in many states, as well as consumer acceptance. Additionally, sales of E15 may be limited because: (i) it is not approved for use in all vehicles; (ii) the EPA requires a label that management believes may discourage consumers from using E15; and (iii) retailers may choose not to sell E15 due to concerns regarding liability. In addition, different gasoline blendstocks may be required at certain times of the year in order to use E15 due to federal regulations related to fuel evaporative emissions. This may prevent E15 from being used during certain times of the year in various states. As a result, management believes that E15 may not have an immediate impact on ethanol demand in the U.S.

Many in the ethanol industry believe that it will be difficult to meet the stator RFS RVOs in future years without an increase in the percentage of ethanol that can be blended with gasoline for use in standard (non-flex fuel) vehicles. In EPA Administrator Pruitt’s October 2017 letter, he also stated that the EPA is actively exploring its authority to remove arbitrary barriers to the year-rounds use of E15 and other mid-level ethanol blends so that E15 may be sold throughout the year without disruption. However, it is unclear what regulatory framework, if any, will emerge.

Obligated parties use renewable identification numbers (“RINs”) to show compliance with RFS-mandated volumes. RINs are attached to renewable fuels by producers and detached when the renewable fuel is blended with transportation fuel or traded in the open market. The market price of detached RINs affects the price of ethanol in certain markets and influences the purchasing decisions by obligated parties. In November 2016, the EPA also proposed denying a petition to change the point of obligation under the RFS to the parties that own the gasoline before it is sold. EPA Administrator Pruitt’s October 2017 letter stated that the EPA would soon finalize a decision to deny the request to change the point of obligation for RINs from refiners and importers to blenders and that the EPA will not pursue regulations to allow ethanol exports to generate RINs.  Management believes that these statements represent actions that would likely have a positive impact on the ethanol industry either directly or indirectly.

Compliance with Environmental Laws and Other Regulatory Matters

Our business subjects us to various federal, state, and local environmental laws and regulations, including: those relating to discharges into the air, water, and ground; the generation, storage, handling, use, transportation, and disposal of hazardous materials; and the health and safety of our employees. These laws and regulations require us to obtain and comply with numerous permits to construct and operate our ethanol plants, including water, air, and other environmental permits.  The costs associated with obtaining these permits and meeting the conditions of these permits have increased our costs of construction and production. 

Additionally, compliance with environmental laws and permit conditions in the future could require expensive pollution control equipment or operational changes to limit actual or potential impacts to the environment, as well as significant management time and expense.  A violation of these laws, regulations or permit conditions can result in substantial fines, natural resource damage, criminal sanctions, permit revocations, and/or plant shutdown, any of which could have a material adverse effect on our operations. Although violations and environmental non-compliance still remain a possibility following our conversion from coal to natural gas combustion, the exposure to the company has been greatly reduced.

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Our plants’ air permits require certain on-going performance testing to be completed periodically to ensure compliance with minor source emission limits. On May 12, 2017, HLBE submitted a letter to the Minnesota Pollution Control Agency (“MPCA”) regarding the certain non-compliant results from on-going performance testing required under its air permit. Since reporting to MPCA, The Company cooperated with MPCA’s review of the non-compliant tests and maintainedopen communication with MPCA staff to resolve the matter.On October 17, 2017, HLBE entered into a stipulation agreement with MPCA relating to the non-compliant test results.  Under the stipulation agreement, HLBE agreed to pay a civil penalty of $63,500, which was paid in October 2017.

In the fiscal year ended October 31, 2017,  GFE and HLBE incurred costs and expenses of approximately $156,000 and $265,000, respectively, complying with environmental laws, including HLBE’s civil penalty for non-compliance.  Although we have been successful in obtaining all of the permits currently required to operate our plants, any retroactive change in environmental regulations, either at the federal or state level, could require us to obtain additional or new permits or spend considerable resources in complying with such regulations.

On January 13, 2015 and March 30, 2015, HLBE and GFE, respectively, submitted efficient producer petitions to the EPA.  The EPA awarded efficient producer pathway approval to HLBE and GFE on March 12, 2015 and May 13, 2015, respectively.  In the approval determinations, the EPA’s analysis indicated that HLBE achieved at least a 20.1% reduction and GFE achieved a 26.0% reduction in GHG emissions for their non-grandfathered volumes compared to the baseline lifecycle GHG emissions.

Pursuant to the award approval, HLBE and GFE are only authorized to generate RINs for each plant’s non-grandfathered volumes if each plant can demonstrate that all ethanol produced at the plant during an averaging period (defined as the prior 365 days or the number of days since the date EPA efficient producer pathway approval) meets the 20% GHG reduction requirement. To make these demonstrations, HLBE and GFE must develop compliance plans and keep certain records as specified in the approvals. Additionally, the EPA approvals require that HLBE and GFE register with the EPA as a renewable fuel producer for the non-grandfathered volumes.    Although we believe GFE and HLBE will be able to maintain continuous compliance with the 20% reduction in GHG emissions requirement, there is no guarantee that we will do so.  If GFE or HLBE do not maintain continuous compliance with the 20% reduction in GHG emissions requirement, we will not be able issue RINs for the non-grandfathered volumes of ethanol produced at the plants.  As a result, we may be forced to rely on exports sales for these non-grandfathered volumes ethanol, which could adversely affect our operating margins, which, in turn could adversely affect our results of operations, cash flows and financial condition.

The California Air Resources Board, or CARB, has adopted a Low Carbon Fuel Standard, or LCFS, requiring a 10% reduction in average carbon intensity of gasoline and diesel transportation fuels from 2010 to 2020.  After a series of rulings that temporarily prevented CARB from enforcing these regulations, the federal appellate court reversed the federal district court finding the LCFS constitutional and remanding the case back to federal district court to determine whether the LCFS imposes a burden on interstate commerce that is excessive in light of the local benefits. On June 30, 2014, the United States Supreme Court declined to hear the appeal of the federal appellate court ruling and CARB recently re-adopted the LCFS with some slight modifications. The LCFS could have a negative impact on demand for corn-based ethanol and result in decreased ethanol prices affecting our ability to operate profitably.

In February 2013, an anti-dumping tariff was imposed as a regulation by the Council of the European Union ethanol produced in the United States and exported to Europe. The Company does not export any ethanol to Europe at this time. However, continuation of this duty or imposition of tariffs by other countries or regions could reduce United States exports to Europe, and possibly other export markets. A reduction of exports to Europe could have an adverse effect on domestic ethanol prices, as the available supply of ethanol for the domestic market would increase.

Employees

We compete with ethanol producers in close proximity for the personnel we will require to operate our plants.  The existence and development of other ethanol plants will increase competition for qualified managers, engineers, operators and other personnel.  We also compete for personnel with businesses other than ethanol producers and with businesses located within the Granite Falls and Heron Lake, Minnesota communities.

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As of the date of this report, we have 82 full time employees at our two consolidated ethanol plants, of which 42 are employed at the GFE plant and 40 are employed at the HLBE plant.  Of our total employees, 17 are involved primarily in management and administration with 10 employees at the GFE plant and 7 at the HLBE plant. The remaining employees are involved primarily in plant operations.  We do not currently anticipate any significant change in the number of employees at our plants.

On July 31, 2013, GFE entered into a management services agreement with HLBE.  Pursuant to the management services agreement, GFE provides its chief executive officer, chief financial officer, and commodity risk manager to act in those positions as part-time officers and managers of HLBE. Each person providing management services to HLBE under the management services agreement is subject to oversight by the HLBE board of governors.  However, GFE’s chief executive officer is solely responsible for hiring and firing persons providing management services under the management services agreement.

The term of the management services agreement automatically renews for successive one-year terms until either party gives the other party written notice of termination prior to expiration of the then current term. The management services agreement may also be terminated by either party for cause under certain circumstances.

GFE is responsible for and agreed to directly pay salary, wages, and/or benefits to the persons providing management services under the management services agreement.  Under the terms of the management services agreement, HLBE pays GFE 50% of the total salary, bonuses and other expenses and costs (including all benefits and tax contributions) incurred by GFE for the three management positions, paid on an estimated monthly basis with a “true-up” following the close of our fiscal year.

Financial Information about Geographic Areas

All of our operations are domiciled in the U.S. All of the products sold to our customers for fiscal years 2017, 2016, and 2015 were produced in the U.S. and all of our long-lived assets are domiciled in the U.S.  We have engaged third-party professional marketers who decide where our products are marketed and we have no control over the marketing decisions made by our third-party professional marketers. These third-party marketers may decide to sell our products in countries other than the U.S.  However, we anticipate that our products will primarily be sold in the U.S.    

Investment

On November 1, 2016, we subscribed to purchase 1,500 capital units of Ring-neck Energy & Feed, LLC (“Ring-neck”) at a price of $5,000 per unit for a total of $7,500,000.  We paid a down payment of $750,000 in connection with our subscription, and signed a promissory note for $6,750,000 for the remaining balance of the subscription. By letter dated July 12, 2017, GFE was notified of Ringneck’s acceptance of GFE’s subscription and that payment of the balance of GFE’s subscription due under the promissory note was due no later than August 2, 2017.  On August 2, 2017, GFE borrowed $7.5 million under its credit facility with Project Hawkeye, LLC (“Project Hawkeye”), an affiliate of Fagen, Inc., which is a member of GFE, and paid the remaining balance due on GFE’s subscription of $6,750,000 to Ringneck.  See below for the terms of GFE’s credit facility with Project Hawkeye.

Ringneck is a South Dakota limited liability company that intends to build an 80 million gallon per year ethanol manufacturing plant in outside of Onida, South Dakota in Sully County. GFE’s investment is sufficient to the right to appoint one director to the board of directors of Ringneck and GFE has appointed Steve Christensen, its CEO to serve as its appointed director. The units we acquired in Ringneck are subject to restrictions on transfer, therefore, this should not be considered a liquid investment.  It may take a significant amount of time before we realize a return on our investment, if we realize a return on the investment at all.

Ring-neck is offering the sale of its units pursuant to a private placement memorandum. Additionally, because Ring-neck is not conducting a federally-registered offering, we do not expect that information about Ring-neck will be available via the SEC’s EDGAR filing system. Therefore, it may be difficult for our investors to obtain information about Ring-neck.

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In connection with our subscription, GFE entered into a credit facility with Project Hawkeye,  pursuant to which GFE borrowed $7.5 million to finance the investment in Ringneck.Details of the Project Hawkeye credit facility are provided below in the section below entitled “PART II - ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Credit Arrangements”.

ITEM 1A.RISK FACTORS

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.  If any of the following risks actually occur, our results of operations, cash flows and the value of our units could be negatively impacted.

Risks Relating to Our Business

Our business is not significantly diversified, and we may not be able to adapt to changing market conditions or endure any decline in the ethanol industry.

Our success depends on our ability to efficiently produce and sell ethanol, and, to a lesser extent, distillers’ grains and corn oil. We do not have any other lines of business or other sources of revenue if we are unable to operate our ethanol plants and manufacture ethanol and its related co-products.  Further, all of our investments are in companies involved in the ethanol industry. Our majority owned subsidiary, HLBE, operates a natural gas pipeline through Agrinatural, its majority owned subsidiary.  Before and after accounting for intercompany eliminations, revenues from Agrinatural’s represent less than less than 1% of our consolidated revenues. Therefore, Agrinatural does not produce significant revenue to rely upon if we are unable to produce and sell ethanol and its co-products, or if the market for those products decline. As result, if economic or political factors adversely affect the market for ethanol and its co-products, we have no other line of business to fall back on.  Our lack of diversification means that we may not be able to adapt to changing market conditions, changes in regulation, increased competition or any significant decline in the ethanol industry.  Our business would also be significantly harmed if the ethanol plants could not operate at full capacity for any extended period of time.

Our profitability depends upon purchasing corn at lower prices and selling ethanol at higher prices and because the difference between ethanol and corn prices can vary significantly, our financial results may also fluctuate significantly.

The results of our ethanol production business are highly impacted by commodity prices. The substantial majority of our revenues are derived from the sale of ethanol. Our results of operations and financial condition are significantly affected by the cost and supply of corn and natural gas as our gross profit relating to the sale of ethanol is principally dependent on the difference between the price we receive for the ethanol we produce and the cost of corn and natural gas that we must purchase. Changes in the price and supply of corn and natural gas are subject to and determined by market forces over which we have no control, such as weather, domestic and global demand, shortages, export prices, and various governmental policies in the U.S. and around the world.

As a result of price volatility for these commodities, our operating results may fluctuate substantially. Increases in corn or natural gas prices or decreases in ethanol, distillers’ grains and corn oil prices may make it unprofitable to operate our plants. No assurance can be given that we will be able to purchase corn and natural gas at, or near, current prices and that we will be able to sell ethanol, distillers’ grains and corn oil at, or near, current prices. Consequently, our results of operations and financial position may be adversely affected by increases in the price of corn or natural gas or decreases in the price of ethanol, distillers’ grains and corn oil.

We seek to minimize the risks from fluctuations in the prices of corn and natural gas through the use of hedging instruments.  However, these hedging transactions also involve risks to our business.  If we were to experience relatively higher corn and natural gas costs compared to the selling prices of our products for an extended period of time, the value of our units may be reduced.

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Sustained negative operating margins may require some ethanol producers to temporarily limit or cease production.

Our ability and the ability of other ethanol producers to operate profitably is largely determined by the spread between the price paid for corn and the price received for ethanol.  If this spread is narrow or is negative for a sustained period, some ethanol producers may elect to temporarily limit or cease production until their possibility for profitability returns.  Although we currently have no plans to limit or cease ethanol production, we may be required to do so if we experience a period of sustained negative operating margins.  In such an event, we would still incur certain fixed costs, which would impact our financial performance.

Volatility in oil and gas prices may materially affect ethanol pricing and demand.

Ethanol has historically traded at a discount to gasoline.  When ethanol trades at a discount to gasoline it encourages discretionary blending, thereby increasing the demand for ethanol beyond required blending rates. Conversely, when ethanol trades at a premium to gasoline, there is a disincentive for discretionary blending and ethanol demand is negatively impacted.  Consequently, ethanol pricing and demand may also be volatile, which makes it difficult to manage profit margins and which could result in a material adverse effect on our business, results of operations and financial condition.

If the supply of ethanol exceeds the demand for ethanol, the price we receive for our ethanol and distillers’ grains may decrease.

Domestic ethanol production capacity has increased substantially over the past decade.  However, demand for ethanol may not increase as quickly as expected or to a level that exceeds supply, or at all. Excess ethanol production capacity may result from decreases in the demand for ethanol or increased domestic production or imported supply. There are many factors affecting demand for ethanol, including regulatory developments and reduced gasoline consumption as a result of increased prices for gasoline or crude oil. Higher gasoline prices could cause businesses and consumers to reduce driving or acquire vehicles with more favorable gasoline mileage, or higher prices could spur technological advances, such as the commercialization of engines utilizing hydrogen fuel-cells, which could supplant gasoline-powered engines. There are a number of governmental initiatives designed to reduce gasoline consumption, including tax credits for hybrid vehicles and consumer education programs.

Because ethanol production produces distillers’ grains as a co-product, increased ethanol production will also lead to increased production of distillers’ grains. An increase in the supply of distillers’ grains, without corresponding increases in demand, could lead to lower prices or an inability to sell our distillers’ grains production.

Management expects additional volatility for the price of ethanol in 2018.  Ethanol supply and demand both continued to increase in 2017 and are expected to increase in 2018, which may lead to market imbalances.  Due to low ethanol and feedstock prices, exports grew in 2017 and are projected to continue to grow in 2018.  This is positive for the ethanol industry, but does introduce additional risk as international demand is more volatile than domestic demand.  U.S. gas demand was flat year over year in 2017, while ethanol as a percentage of the fuel supply increased slightly.  A decrease in demand for either gasoline or ethanol blends would adversely impact the price of ethanol, which could result in a material adverse effect on our business, results of operations and financial condition.

The price of distillers’ grains is affected by the price of other commodity products, such as soybeans, and decreases in the price of these commodities could decrease the price of distillers’ grains.

Distillers’ grains compete with other protein-based animal feed products. The price of distillers’ grains may decrease when the price of competing feed products decrease. The prices of competing animal feed products are based in part on the prices of the commodities from which they are derived. Downward pressure on commodity prices, such as soybeans, will generally cause the price of competing animal feed products to decline, resulting in downward pressure on the price of distillers’ grains. The price of distillers’ grains is not tied to production costs. However, decreases in the price of distillers’ grains would result in less revenue from the sale of distillers’ grains and could result in lower profit margins.

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Historically, sales prices for distillers’ grains have been correlated with prices of corn. However, there have been occasions when the price increase for this co-product has lagged behind increases in corn prices. In addition, our distillers’ grains co-product competes with products made from other feedstocks, the cost of which may not have risen as corn prices have risen. Consequently, the price we may receive for distillers’ grains may not rise as corn prices rise, thereby lowering our cost recovery percentage relative to corn.

The prices of ethanol and distillers’ grains may decline as a result of trade barriers imposed by foreign countries with respect to ethanol and distillers’ grains originating in the U.S. and negatively affect our profitability.

An increasing amount of our industry’s products are being exported.  The U.S. ethanol industry was supported during our 2016 fiscal year with exports of ethanol which increased demand for our ethanol. Management believes these additional exports of ethanol were due to lower market ethanol prices in the U.S. and increased global demand for ethanol. However, these ethanol exports may not continue. 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 U.S.  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.

If U.S. producers can not satisfy import requirements imposed by countries importing distillers’ grains, export demand could be significantly reduced as a result. If export demand of distillers’ grains is significantly reduced as a result, the price of distillers’ grains in the U.S. would likely continue to decline which would have a negative effect on our revenue and could impact our ability to profitably operate which could in turn reduce the value of our units.

We face intense competition that may result in reductions in the price we receive for our ethanol, increases in the prices we pay for our corn, or lower gross profits.

Competition in the ethanol industry is intense. We face formidable competition in every aspect of our business from both larger and smaller producers of ethanol and distillers’ grains. Some larger producers of ethanol, such as POET Biorefining, Archer Daniels Midland Company, Cargill, Inc., Valero Energy Corporation, have substantially greater financial, operational, procurement, marketing, distribution and technical resources than we have. We may not be able to compete with these larger entities. These larger ethanol producers may be able to affect the ethanol market in ways that are not beneficial to us which could affect our financial performance.

Additionally, smaller competitors, such as farmer-owned cooperatives and independent companies owned by farmers and investors, have business advantages, such as the ability to more favorably procure corn by operating smaller plants that may not affect the local price of corn as much as a larger-scale plant like ours or requiring their farmer-owners to sell them corn as a requirement of ownership. Because Minnesota is one of the top producers of ethanol in the U.S., we face increased competition because of the location of our ethanol plants. Competing ethanol producers may introduce competitive pricing pressures that may adversely affect our sales levels and margins or our ability to procure corn at favorable prices. As a result, we cannot assure you that we will be able to compete successfully with existing or new competitors.

Until recently, oil companies, petrochemical refiners and gasoline retailers have not been engaged in ethanol production to a large extent. These companies, however, form the primary distribution networks for marketing ethanol through blended gasoline. During the past few years, several large oil companies have begun to penetrate the ethanol production market. If these companies increase their ethanol plant ownership or other oil companies seek to engage in direct ethanol production, such as Valero Renewable Fuels and Flint Hills Resources which are subsidiaries of larger oil companies, there may be a decrease in the demand for ethanol from smaller independent ethanol producers like us which could result in an adverse effect on our operations, cash flows and financial condition.

We also face increasing competition from international ethanol suppliers. Most international ethanol producers have cost structures that can be substantially lower than ours and therefore can sell their ethanol for substantially less than we can.

Competing ethanol producers may introduce competitive pricing pressures that may adversely affect our sales levels and margins or our ability to procure corn at favorable prices. As a result, we cannot assure you that we will be able to compete successfully with existing or new competitors.

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We engage in hedging transactions which involve risks that could harm our business.

We are exposed to market risk from changes in commodity prices.  Exposure to commodity price risk results from our dependence on corn and natural gas in the ethanol production process.  We seek to minimize the risks from fluctuations in the prices of corn, natural gas and ethanol through the use of hedging instruments.  The effectiveness of our hedging strategies is dependent on the price of corn, natural gas and ethanol and our ability to sell sufficient products to use all of the corn and natural gas for which we have futures contracts.  Our hedging activities may not successfully reduce the risk caused by price fluctuation which may leave us vulnerable to high corn and natural gas prices, as well as low ethanol prices.

Operational difficulties at our plants could negatively impact our sales volumes and could cause us to incur substantial losses.

We have experienced operational difficulties at our plants in the past that have resulted in scheduled and unscheduled downtime or reductions in the number of gallons of ethanol we produce. Some of the difficulties we have experienced relate to production problems, repairs required to our plants’ equipment and equipment maintenance, the installation of new equipment and related testing, and our efforts to improve and test our air emissions. Our revenues are driven in large part by the number of gallons of ethanol and the number of tons of distillers’ grains we produce. If our ethanol plants do not efficiently produce our products in high volumes, our business, results of operations, and financial condition may be materially adversely affected.

Our operations are also subject to operational hazards inherent in our industry and to manufacturing in general, such as equipment failures, fires, explosions, abnormal pressures, blowouts, pipeline ruptures, transportation accidents and natural disasters. Some of these operational hazards may cause personal injury or loss of life, severe damage to or destruction of property and equipment or environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. The occurrence of any of these operational hazards may materially adversely affect our business, results of operations and financial condition. Further, our insurance may not be adequate to fully cover the potential operational hazards described above or we may not be able to renew this insurance on commercially reasonable terms or at all.

Our operations and financial performance could be adversely affected by infrastructure disruptions and lack of adequate transportation and storage infrastructure in certain areas.

We ship our ethanol to our customers primarily by the railroad adjacent to our plant sites. We also have the potential to receive inbound corn via the railroad. Our customers require appropriate transportation and storage capacity to take delivery of the products we produce. Without the appropriate flow of natural gas to our plants, we may not be able to run at desired production levels or at all. Therefore, our business is dependent on the continuing availability of rail, highway and related infrastructure. Any disruptions in this infrastructure network, whether caused by labor difficulties, earthquakes, storms, other natural disasters, human error or malfeasance or other reasons, could have a material adverse effect on our business. We rely upon third-parties to maintain the rail lines from our plants to the national rail network, and any failure on their part to maintain the lines could impede our delivery of products, impose additional costs on us and could have a material adverse effect on our business, results of operations and financial condition.

In addition, lack of this infrastructure prevents the use of ethanol in certain areas where there might otherwise be demand and results in excess ethanol supply in areas with more established ethanol infrastructure, depressing ethanol prices in those areas. In order for the ethanol industry to grow and expand into additional markets and for our ethanol to be sold in these new markets, there must be substantial development of infrastructure including:

· additional rail capacity;

· additional storage facilities for ethanol;

· increases in truck fleets capable of transporting ethanol within localized markets;

· expansion of refining and blending facilities to handle ethanol; and

· growth in service stations equipped to handle ethanol fuels.

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The substantial investments that will be required for these infrastructure changes and expansions may not be made on a timely basis, if at all, and decisions regarding these infrastructure improvements are outside of our control. Significant delay or failure to improve the infrastructure that facilitates the distribution could curtail more widespread ethanol demand or reduce prices for our products in certain areas, which would have a material adverse effect on our business, results of operations or financial condition.

Rail logistical problems may result in delays in shipments of our products which could negatively impact our financial performance.

There has been an increase in rail traffic congestion throughout the U.S. primarily due to the increase in cargo trains carrying shale oil. From time to time, periodic high demand and unusually adverse weather conditions may cause rail congestion resulting in rail delays and rail logistical problems. Although we have not been materially affected by prior rail congestion period, future periods of congestion may affect our ability to operate our plants at full capacity due to ethanol storage capacity constraints, which in turn could have a negative effect on our financial performance.

We depend on our management and key employees, and the loss of these relationships could negatively impact our ability to operate profitably.

Our success depends in part on our ability to attract and retain competent personnel. For our ethanol plants, we must hire qualified managers, operations personnel, accounting staff and others, which can be challenging in a rural community.   Further, our current employees may decide to end their employment with us.  Competition for employees in the ethanol industry is intense, and we may not be able to attract and retain qualified personnel.

We are highly dependent on our management team to operate our ethanol plants.  We may not be able to replace these individuals should they decide to cease their employment with us, or if they become unavailable for any other reason.  Any loss of these officers and key employees may prevent us from operating the ethanol plants profitably and could decrease the value of our units.

Technology in our industry evolves rapidly, potentially causing our plants to become obsolete, and we must continue to enhance the technology of our plants or our business may suffer.

We expect that technological advances in the processes and procedures for processing ethanol will continue to occur. It is possible that those advances could make the processes and procedures that we utilize at our ethanol plants less efficient or obsolete. These advances could also allow our competitors to produce ethanol at a lower cost than we are able. If we are unable to adopt or incorporate technological advances, our ethanol production methods and processes could be less efficient than those of our competitors, which could cause our ethanol plants to become uncompetitive.

Competition from the advancement of alternative fuels may lessen the demand forethanol.

Alternative fuels, gasoline oxygenates and ethanol production methods are continually under development. A number of automotive, industrial and power generation manufacturers are developing alternative clean power systems using fuel cells, plug-in hybrids or clean burning gaseous fuels. Like ethanol, these emerging technologies offer an option to address worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns. If these alternative technologies continue to expand and gain broad acceptance and become readily available to consumers for motor vehicle use, we may not be able to compete effectively. This additional competition could reduce the demand for ethanol, resulting in lower ethanol prices that might adversely affect our results of operations and financial condition.

Our sales will decline, and our business will be materially harmed if our third party marketers do not effectively market or sell the ethanol, distillers’ grains and corn oil we produce or if there is a significant reduction or delay in orders from our marketers.

We have entered into agreements with a third parties to market our supply of ethanol, distillers’ grains and corn oil. Our marketers are independent businesses that we do not control. We cannot be certain that our marketers will market or sell our ethanol, distillers’ grains and corn oil effectively. Our agreements with our marketers do not contain requirements that a certain percentage of sales are of our products, nor do the agreements restrict the marketer’s ability to choose alternative sources for ethanol, distillers’ grains or corn oil.

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Our success in achieving revenue from the sale of ethanol, distillers’ grains and corn oil will depend upon the continued viability and financial stability of our marketers. Our marketers may choose to devote their efforts to other producers or reduce or fail to devote the necessary resources to provide effective sales and marketing support of our products. We believe that our financial success will continue to depend in large part upon the success of our marketers in operating their businesses.

If our marketers breach their contracts or do not have the ability, for financial or other reasons, to market all of the ethanol we produce or to market the co-products produced at our plants, we may not have any readily available alternative means to sell our products. Our lack of a sales force and reliance on these third parties to sell and market most of our products may place us at a competitive disadvantage. Our failure to sell all of our ethanol and co-products may result in lower revenues and reduced profitability.

We are exposed to credit risk resulting from non-payment by significant customers.

We have a concentration of credit risk because GFE sells all of the ethanol, distillers’ grains, and corn oil produced to two customers and HLBE sells all of its ethanol, distillers’ grains, and corn oil produced to three customers. Although we typically receive payments timely and within the terms of our marketing agreements with these customers, we continually monitor this credit risk exposure. These customers accounted for approximately 100.0%, 100.0% and 99.8% of GFE’s revenue for the years ended October 31, 2017, 2016, and 2015, respectively and approximately 98.3% and 96.7% of GFE’s outstanding accounts receivable balance at October 31, 2017 and 2016, respectively.  At HLBE, these customers accounted for approximately 99.5%, 98.3%, and 98.5% of HLBE’s revenue for the years ended October 31, 2017, 2016, and 2015, respectively and approximately 98.1% and 93.0% of HLBE’s outstanding accounts receivable balance at October 31, 2017 and 2016, respectively.  The inability of a third party to pay our accounts receivable may cause us to experience losses and may adversely affect our liquidity and our ability to make our payments when due.

Consumer resistance to the use of ethanol based on the belief that ethanol isexpensive, adds to air pollution, harms engines and/or takes more energy toproduce than it contributes may affect the demand for ethanol.

Certain individuals believe that the use of ethanol will have a negative impact on gasoline prices at the pump. Some also believe that ethanol adds to air pollution and harms car and truck engines. Still other consumers believe that the process of producing ethanol actually uses more fossil energy, such as oil and natural gas, than the amount of energy that is produced. These consumer beliefs could potentially be wide-spread and may be increasing as a result of recent efforts to increase the allowable percentage of ethanol that may be blended for use in conventional automobiles.  If consumers choose not to buy ethanol based on these beliefs, it would affect the demand for the ethanol we produce which could negatively affect our profitability and financial condition.

Risks Related to Regulation and Governmental Action

Our failure to comply with existing or future regulatory requirements could have a material adverse effect on our business, financial condition and results of operations.

We are subject to various federal, state and local environmental laws and regulations, including those relating to the discharge of materials into the air, water and ground. Certain aspects of our operations require environmental permits and controls to prevent and reduce air and water pollution, and these permits are subject to modification, renewal and revocation by issuing authorities including the Minnesota Pollution Control Agency. We could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions and third-party claims for property damage and personal injury as a result of violations of or liabilities under environmental laws or non-compliance with environmental permits. We could also incur substantial costs and experience increased operating expenses as a result of operational changes to comply with environmental laws, regulations and permits. We have previously incurred substantial costs relating to our air emissions permit and expect additional costs relating to this permit in the future.

Our plants’ air permits require certain on-going performance testing to be completed periodically to ensure compliance with minor source emission limits. On May 12, 2017, HLBE submitted a letter to the MPCA regarding the results of certain non-compliant tests. On October 17, 2017, HLBE entered into a stipulation agreement with the MPCA relating to these non-compliant tests.  Under the stipulation agreement, HLBE agreed to pay a civil penalty of $63,500, which was paid in October 2017. 

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Further, environmental laws and regulations are subject to substantial change. We cannot predict what material impact, if any, these changes in laws or regulations might have on our business. Future changes in regulations or enforcement policies could impose more stringent requirements on us, compliance with which could require additional capital expenditures, increase our operating costs or otherwise adversely affect our business. These changes may also relax requirements that could prove beneficial to our competitors and thus adversely affect our business. In addition, regulations of the EPA and the MPCA depend heavily on administrative interpretations. We cannot assure you that future interpretations made by regulatory authorities, with possible retroactive effect, will not adversely affect our business, financial condition and results of operations.  Failure to comply with existing or future regulatory requirements could have a material adverse effect on our business, financial condition and results of operations.

Because federal and state regulation heavily influence the supply of and demand for ethanol, changes in government regulation that adversely affect demand or supply will have a material adverse effect on our business.

Various federal and state laws, regulations and programs impact the supply of and demand for ethanol.  We believe the most important of these is the RFS, which sets minimum national volume standards for use of cellulosic, biomass-based diesel and total advanced renewable fuels.  The RFS helps support a market for ethanol that might disappear without this incentive. In the case of the RFS, while it creates a demand for ethanol, the existence of specific categories of renewable fuels also creates a demand for these types of renewable fuels and will likely provide an incentive for companies to further develop these products to capitalize on that demand. In these circumstances, the RFS may also reduce demand for ethanol in favor of the renewable fuels for which specific categories exist.

By statute, the RFS requires that 16.55 billion gallons be sold or dispensed in 2013, increasing to 36.0 billion gallons by 2022, but caps the amount of corn-based ethanol that can be used to meet the renewable fuels blending requirements at 15.0 billion gallons for 2015 and thereafter. On November 30, 2017, the EPA announced final RVO requirements for the RFS for calendar year 2018. The corn-based biofuel requirement of 15.0 billion gallons equating to the statutory requirement level as originally set by Congress when the RFS was enacted. However, the overall RVOs were set at 19.29 billion gallons for 2018, more than 20% below the overall statutory level of 26 billion gallons, due to decreases in the RVOs for cellulosic ethanol and advanced biofuels. 

According to the RFS, if mandatory renewable fuel volumes are reduced by at least 20% for two consecutive years, the EPA is required to modify, or reset, statutory volumes through 2022. Since 2018 is the first year the total RVOs are more than 20% below statutory levels, the EPA Administrator directed his staff to initiate the required technical analysis to perform any future reset consistent with the reset rules. If 2019 RVOs are also more than 20% below statutory levels, the RVO reset will be triggered under RFS II and the EPA will be required to modify statutory volumes through 2022 within one year of the trigger event, based on the same factors used to set the RVOs post-2022. Current ethanol production capacity exceeds the 2018 RVO standard which can be satisfied by corn-based ethanol. Reduction of blending requirements could reduce the demand for and price of ethanol. If demand for ethanol decreases, it could materially adversely affect our business, results of operations and financial condition.

Additionally, opponents of ethanol such as large oil companies will likely continue their efforts to repeal or reduce the RFS through lawsuits or lobbying of Congress. Successful reduction or repeal of the blending requirements of the RFS could have an adverse effect on the market price and demand for ethanol which would negatively impact our financial performance.

The EPA imposed E10 “blend wall” if not overcome will have an adverse effect on demand for ethanol.

We believe that the E10 “blend wall” is one of the most critical governmental policies currently facing the ethanol industry. The “blend wall” issue arises because of several conflicting requirements. First, the renewable fuels standards dictate a continuing increase in the amount of ethanol blended into the national gasoline supply. Second, the EPA mandates a limit of 10% ethanol inclusion in non-flex fuel vehicles, and the E85 vehicle marketplace is struggling to grow due to lacking infrastructure. The EPA policy of 10% and the RFS increasing blend rate are at odds, which is sometimes referred to as the “blend wall.” While the issue is being considered by the EPA, there have been no regulatory changes that would reconcile the conflicting requirements. In 2011, the EPA allowed the use of E15, gasoline which is blended at a rate of 15% ethanol and 85% gasoline, in vehicles manufactured in the model year 2001 and later. Management believes that many gasoline retailers will refuse to provide E15 due to the fact that not all standard vehicles will be allowed to use E15 and due to the labeling requirements the EPA may impose. As a result, the approval of E15 may not significantly increase demand for ethanol.

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The California Low Carbon Fuel Standard may decrease demand for corn based ethanol which could negatively impact our profitability.

California passed a Low Carbon Fuels Standard (“LCFS”) which requires that renewable fuels used in California must accomplish certain reductions in greenhouse gases which reductions are measured using a lifecycle analysis. Management believes that these regulations could preclude corn based ethanol produced in the Midwest from being used in California. California represents a significant ethanol demand market. If the ethanol industry is unable to supply corn based ethanol to California, it could significantly reduce demand for the ethanol we produce. This could result in a reduction of our revenues and negatively impact our ability to profitably operate the ethanol plant.

Meeting the requirements of evolving environmental, health and safety laws and regulations, and in particular those related to climate change, could adversely affect our financial performance.

When the EPA released its final regulations on RFS, these regulations grandfathered our plants at their current production capacity for the generation of RINs for compliance with RFS. Any expansion of our plants beyond the grandfathered volumes must meet a threshold of a 20% reduction in GHG emissions from a 2005 baseline measurement for the ethanol to be eligible to generate RINS for compliance with the RFS mandate.

In 2015, our plants were awarded “efficient producer” status under the pathway petition program for the non-grandfathered volumes of ethanol produced at our plants. Pursuant to the award approval, HLBE and GFE are only authorized to generate RINs for each plant’s non-grandfathered volumes if each plant can demonstrate that all ethanol produced at the plant during an averaging period (defined as the prior 365 days or the number of days since the date EPA efficient producer pathway approval) meets the 20% GHG reduction requirement.

Although we believe GFE and HLBE will be able to maintain continuous compliance with the 20% reduction in GHG emissions requirement as presently operated, there is no guarantee that we will not have to install carbon dioxide mitigation equipment or take other steps unknown to us at this time in order to comply with the efficient producer requirements or other future law or regulation.  Continued compliance with the efficient producer GHG reduction requirements or compliance with future law or regulation of carbon dioxide, could be costly and may prevent us from operating our plants as profitably, which may have an adverse impact on our operations, cash flows and financial position.

If we fail to comply with the 20% reduction in GHG emissions requirement, we will not be able to generate RINs for our non-grandfathered volumes of ethanol, which could adversely affect our operating margins.

We expect that nearly all of the anticipated demand for our ethanol production will be by customers obligated to comply with the RFS. The EPA's approval of our efficient producer petitions requires that the plant demonstrates continuous compliance with the 20% reduction in GHG emissions for all volumes of ethanol produced, not just non-grandfathered volumes of ethanol. If we cannot show continuous compliance with the requirement for all volumes of ethanol, we will not be able issue RINs for the non-grandfathered volumes of ethanol produced. If our ethanol production does not meet the requirements for RIN generation as administered by the EPA, we may be required to sell those gallons of ethanol without RINs at lower prices in the domestic market to compensate for the lack of RINs or sell these gallons of ethanol in the export market where RINs are not required, which could adversely affect our results of operations, cash flows and financial condition.

Risks Related to the Units

There is no public market for our units and no public market is expected to develop.

There is no established public trading market for our units, and we do not expect one to develop in the foreseeable future.  We have established through FNC Ag Stock, LLC, a Unit Trading Bulletin Board, a private online matching service, in order to facilitate trading among our members.  The Unit Trading Bulletin Board has been designed to comply with federal tax laws and IRS regulations establishing a “qualified matching service,” as well as state and federal securities laws.  The Unit Trading Bulletin Board does not automatically affect matches between potential sellers and buyers and it is the sole responsibility of sellers and buyers to contact each other to make a determination as to whether an agreement to transfer units may be reached.

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There are detailed timelines that must be followed under the Unit Trading Bulletin Board Rules and Procedures with respect to offers and sales of membership units. All transactions must comply with the Unit Trading Bulletin Board Rules, our member control agreement, and are subject to approval by our board of governors.  As a result, units held by our members may not be easily resold and members may be required to hold their units indefinitely. Even if members are able to resell our units, the price may be less than the members’ investment in the units or may otherwise be unattractive to the member.

There are significant restrictions on the transfer of our units.

To protect our status as a partnership for tax purposes and to assure that no public trading market in our units develops, our units are subject to significant restrictions on transfer and transfers are subject to approval by our board of governors. All transfers of units must comply with the transfer provisions of our member control agreement and the unit transfer policy adopted by our board of governors. Our board of governors will not approve transfers which could cause us to lose our tax status or violate federal or state securities laws. As a result of the provisions of our member control agreement, members may not be able to transfer their units and may be required to assume the risks of the investment for an indefinite period of time.

There is no assurance that we will be able to make distributions to our unit holders, which means that holders could receive little or no return on their investment.

Distributions of our net cash flow may be made at the sole discretion of our board of governors, subject to the provisions of the Minnesota Limited Liability Company Act, our member control agreement and restrictions imposed by lender under our credit facilities. Our credit facilities currently limit our ability to make distributions to our members. If our financial performance and loan covenants permit, we expect to make cash distributions at times and in amounts that will permit our members to make income tax payments, along with distributions in excess of these amounts. However, our board may elect to retain cash for operating purposes, debt retirement, plant improvements or expansion. Although we have made distributions in the past, there is no guarantee that we will be in a financial position to pay distributions in the future, that the terms of our credit facility will allow us to make distributions to our members, or that distributions, if any, will be at times or in amounts to permit our members to make income tax payments. Consequently, members may receive little or no return on their investment in the units.

Risks Related to Tax Issues in a Limited Liability Company

EACH UNIT HOLDER SHOULD CONSULT THE INVESTOR’S OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL AND STATE TAX CONSEQUENCES OF AN INVESTMENT IN GRANITE FALLS ENERGY, LLC AND ITS IMPACT ON THE INVESTOR’S TAX REPORTING OBLIGATIONS AND LIABILITY.

If we are not taxed as a partnership, we will pay taxes on all of our net income and you will be taxed on any earnings we distribute, and this will reduce the amount of cash available for distributions to holders of our units.

We consider Granite Falls Energy, LLC to be a partnership for federal income tax purposes. This means that we will not pay any federal income tax, and our members will pay tax on their share of our net income. If we are unable to maintain our partnership tax treatment or qualify for partnership taxation for whatever reason, then we may be taxed as a corporation. We cannot assure you that we will be able to maintain our partnership tax classification. For example, there might be changes in the law or our company that would cause us to be reclassified as a corporation. As a corporation, we would be taxed on our taxable income at rates of up to 35% for federal income tax purposes (21% beginning after December 31, 2017). Further, distributions would be treated as ordinary dividend income to our unit holders to the extent of our earnings and profits. These distributions would not be deductible by us, thus resulting in double taxation of our earnings and profits. This would also reduce the amount of cash we may have available for distributions.

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Your tax liability from your allocated share of our taxable income may exceed any cash distributions you receive, which means that you may have to satisfy this tax liability with your personal funds.

As a partnership for federal income tax purposes, all of our profits and losses “pass-through” to our unit holders. You must pay tax on your allocated share of our taxable income every year. You may incur tax liabilities from allocations of taxable income for a particular year or in the aggregate that exceed any cash distributions you receive in that year or in the aggregate. This may occur because of various factors, including but not limited to, accounting methodology, the specific tax rates you face, and payment obligations and other debt covenants that restrict our ability to pay cash distributions. If this occurs, you may have to pay income tax on your allocated share of our taxable income with your own personal funds.

You may not be able to fully deduct your share of our losses or your interest expense.

It is likely that your interest in us will be treated as a “passive activity” for federal income tax purposes. In the case of unit holders who are individuals or personal services corporations, this means that a unit holder’s share of any loss incurred by us will be deductible only against the holder’s income or gains from other passive activities, e.g., S corporations and partnerships that conduct a business in which the holder is not a material participant. Some closely held C corporations have more favorable passive loss limitations. Passive activity losses that are disallowed in any taxable year are suspended and may be carried forward and used as an offset against passive activity income in future years. Upon disposition of a taxpayer’s entire interest in a passive activity to an unrelated person in a taxable transaction, suspended losses with respect to that activity may then be deducted.

Interest paid on any borrowings incurred to purchase units may not be deductible in whole or in part because the interest must be aggregated with other items of income and loss that the unit holder has independently experienced from passive activities and subjected to limitations on passive activity losses.

Deductibility of capital losses that we incur and pass through to you or that you incur upon disposition of units may be limited. Capital losses are deductible only to the extent of capital gains plus, in the case of non-corporate taxpayers, the excess may be used to offset a portion of ordinary income. If a non-corporate taxpayer cannot fully utilize a capital loss because of this limitation, the unused loss may be carried forward and used in future years subject to the same limitations in the future years.

You may be subject to federal alternative minimum tax

Individual taxpayers are subject to an “alternative minimum tax” if that tax exceeds the individual’s regular income tax. For alternative minimum tax purposes, an individual’s adjusted gross income is increased by items of tax preference. We may generate such preference items. Accordingly, preference items from our operations together with other preference items you may have may cause or increase an alternative minimum tax to a unit holder. You are encouraged and expected to consult with your individual tax advisor to analyze and determine the effect on your individual tax situation of the alternative minimum taxable income you may be allocated, particularly in the early years of our operations.

Preparation of your tax returns may be complicated and expensive.

The tax treatment of limited liability companies and the rules regarding partnership allocations are complex. We will file a partnership income tax return and will furnish each unit holder with a Schedule K-1 that sets forth our determination of that unit holder’s allocable share of income, gains, losses and deductions. In addition to U.S. federal income taxes, unit holders will likely be subject to other taxes, such as state and local taxes, that are imposed by various jurisdictions. It is the responsibility of each unit holder to file all applicable federal, state and local tax returns and pay all applicable taxes. You may wish to engage a tax professional to assist you in preparing your tax returns and this could be costly to you.

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Any audit of our tax returns resulting in adjustments could result in additional tax liability to you.

The IRS may audit our tax returns and may disagree with the positions that we take on our returns or any Schedule K-1. If any of the information on our partnership tax return or a Schedule K-1 is successfully challenged by the IRS, the character and amount of items of income, gains, losses, deductions or credits in a manner allocable to some or all our unit holders may change in a manner that adversely affects those unit holders. This could result in adjustments on unit holders’ tax returns and in additional tax liabilities, penalties and interest to you. An audit of our tax returns could lead to separate audits of your personal tax returns, especially if adjustments are required.

ITEM 1B.UNRESOLVED STAFF COMMENTS

None.

ITEM 2.  PROPERTIES.

Our Granite Falls ethanol plant is located approximately three miles east of Granite Falls, Minnesota in Chippewa County at the junction of Highways 212 and 23.  The plant’s address is 15045 Highway 23 SE, Granite Falls, Minnesota. The ethanol plant sits on approximately 200 acres. This site includes an administrative building which serves as our headquarters.  The site also includes corn, ethanol, and distillers’ grains handling facilities.  All of our tangible and intangible property, real and personal, serves as the collateral for our credit facilities with United FCS, PCA.

HLBE’s ethanol plant is sited on approximately 216 acres of land located near Heron Lake, Minnesota.  The site includes corn, coal, ethanol, and distillers’ grains storage and handling facilities. Located on these 216 acres is an administration building that serves as HLBE’s headquarters.  The plant’s address is 91246 390th Avenue, Heron Lake, Minnesota 56137-3175.  All of HLBE’s real property is subject to mortgages in favor of its senior lender, Compeer Financial (formerly known as AgStar Financial Services, FCLA) as security for loan obligations.

HLBE’s majority owned subsidiary, Agrinatural, property consists of 187 miles of distribution main pipelines and service pipelines, together with the associated easement and land rights, a town border station, meters and regulators, office and other equipment and construction in process. All of Agrinatural’s real property and assets are subject to mortgages in favor of HLBE as security for loan obligations owed to HLBE.

HLBE’s and Agrinatural’s credit facilities are discussed in more detail under “ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Credit Arrangements”.

ITEM 3.LEGAL PROCEEDINGS

From time to time in the ordinary course of business, Granite Falls Energy, LLC or its subsidiaries may be named as a defendant in legal proceedings related to various issues, including workers’ compensation claims, tort claims, or contractual disputes. We are not currently involved in any material legal proceedings.

ITEM 4.MINE SAFETY DISCLOSURES

None.

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PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

There is no public trading market for our units. However, GFE has established an online unit trading bulletin board (“QMS”) through FNC Ag Stock, LLC, in order to facilitate trading in our units. The QMS has been designed to comply with federal tax laws and IRS regulations establishing a “qualified matching service,” as well as state and federal securities laws. The QMS consists of an electronic bulletin board that provides a list of interested buyers with a list of interested sellers, along with their non-firm price quotes. The QMS does not automatically affect matches between potential sellers and buyers and it is the sole responsibility of sellers and buyers to contact each other to make a determination as to whether an agreement to transfer units may be reached. We do not become involved in any purchase or sale negotiations arising from the QMS and have no role in effecting the transactions beyond approval, as required under our member control agreement, and the issuance of new certificates. We do not give advice regarding the merits or shortcomings of any particular transaction. We do not receive, transfer or hold funds or securities as an incident of operating the QMS. We do not receive any compensation for creating or maintaining the QMS. In advertising the QMS, we do not characterize Granite Falls Energy as being a broker or dealer or an exchange.  We do not use the QMS to offer to buy or sell securities other than in compliance with securities laws, including any applicable registration requirements.

There are detailed timelines that must be followed under the QMS rules and procedures with respect to offers and sales of membership units. All transactions must comply with the QMS rules and procedures, our member control agreement, and are subject to approval by our board of governors.

So long as we remain a publicly reporting company, information about the Company will be publicly available through the SEC’s filing system. However, if at any time we cease to be a publicly reporting company, we anticipate continuing to make information about the Company publicly available on our website in order to continue operating the QMS.

The following table contains historical information by fiscal quarter for the past two fiscal years regarding the actual unit transactions that were completed by our unit-holders during the periods specified.  We believe this most accurately represents the current trading value of the Company’s units.  The information was compiled by reviewing the completed unit transfers that occurred on our qualified matching service bulletin board during the quarters indicated.

Fiscal Quarter	Low Per Unit Price		High Per Unit Price		Total Units Traded
2016 1st	$	3,500	$	3,601	30
2016 2nd	$	—	$	—	—
2016 3rd	$	2,500	$	3,475	47
2016 4th	$	2,500	$	2,575	59
2017 1st	$	2,450	$	2,650	70
2017 2nd	$	2,703	$	3,000	83
2017 3rd	$	2,830	$	3,103	121
2017 4th	$	2,750	$	2,900	98

As a limited liability company, we are required to restrict the transfers of our membership units in order to preserve our partnership tax status.  Our membership units may not be traded on any established securities market or readily traded on a secondary market (or the substantial equivalent thereof).  All transfers are subject to a determination that the transfer will not cause Granite Falls Energy to be deemed a publicly traded partnership.

Issuer Repurchases of Equity Securities

We did not make any repurchases of our units during fiscal year 2017.

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Holders of Record

As of January 29, 2018, there were approximately 979 holders of record of our membership units. 

As of October 31, 2017 and January 29, 2018, there were no outstanding options or warrants to purchase, or securities convertible for or into, our units.

Distributions

Granite Falls Energy

Distributions by GFE to its unit holders are in proportion to the number of units held by each unit holder.  A unit holder’s distribution is determined by multiplying the number of units by distribution per unit declared.  GFE’s board of governors has complete discretion over the timing and amount of distributions to our unit holders. However, GFE’s  credit facility with United FCS, PCA provides that we may not declare any distributions other than, for each fiscal year, one or more distributions up to an aggregate of 100% of the net profit (determined according to GAAP) for such fiscal year; provided that the we are and will remain in compliance with all of the covenants, terms and conditions of the credit facility. If our financial performance and loan covenants permit, we expect to make future cash distributions at times and in amounts that will permit our members to make income tax payments, along with distributions in excess of these amounts. Cash distributions are not assured, however, and in the future, we may not be in a position to make distributions. Under Minnesota law, we cannot make a distribution to a member if, after the distribution, we would not be able to pay our debts as they become due or our liabilities, excluding liabilities to our members on account of their capital contributions, would exceed our assets.

Below is a table representing the cash distributions declared or paid to the members of Granite Falls Energy during the fiscal years ended October 31, 2017,  2016, and 2015, and subsequent to our fiscal year ended October 31, 2017.   Based on the covenants discussed above, all of the below distributions were approved by our lender prior to distribution.    

			Distribution		Distributed to GFE
Date Declared to GFE Members of Record:	Total Distribution		Per Unit		Members on:
December 21, 2017	$	11,783,310	$	385	January 29, 2018
December 22, 2016	$	11,171,190	$	365	January 26, 2017
December 17, 2015	$	9,640,886	$	315	January 25, 2016
December 18, 2014	$	32,136,300	$	1,050	January 19, 2015

Heron Lake BioEnergy

Distributions by HLBE to its unit holders are in proportion to the number of units held by each unit holder. A unit holder's distribution is determined by multiplying the number of units by distribution per unit declared. HLBE’s board of governors has complete discretion over the timing and amount of distributions to its unit holders. Distributions are restricted by certain loan covenants in its credit facility with Compeer.  Additionally, under Minnesota law, HLBE cannot make a distribution to a member if, after the distribution, its would not be able to pay its debts as they become due or its liabilities, excluding liabilities to its members on account of their capital contributions, would exceed its assets.

Below is a table representing the cash distributions declared or paid to HLBE’s members, as well as GFE’s share of the same, during the fiscal years ended October 31, 2017,  2016, and 2015 and subsequent to our fiscal year ended October 31, 2017.  Based on the covenants discussed above, all of the below distributions were approved by HLBE’s lender prior to distribution.

			Distribution		Distributed to HLBE	Total Distribution
Date Declared to HLBE Members of Record:	Total Distribution		Per Unit		Members on:	to GFE:
December 21, 2017(1)	$	8,572,532	$	0.11	January 29, 2018	$	4,342,341
December 17, 2015(2)	$	3,896,605	$	0.05	January 25, 2016	$	1,971,047
December 18, 2014(2)	$	9,351,853	$	0.12	January 19, 2015	$	4,730,514

(1)At the record date, GFE owned 24,475,824 Class A membership units and 15,000,000 Class B units of HLBE, or approximately 50.7% of the outstanding membership units of HLBE.

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(2)At the record dates, GFE owned 24,420,949 Class A membership units and 15,000,000 Class B units of HLBE, or approximately 50.6% of the outstanding membership units of HLBE.

Unregistered Sales of Equity Securities

The Company had no unregistered sales of securities during fiscal year 2017.

Securities Authorized for Issuance Under Equity Compensation Plans

As of the date of this annual report, we had no “equity compensation plans” (including individual equity compensation arrangements) under which any of our equity securities are authorized for issuance.

Performance Graph

The following graph shows a comparison of cumulative total member return since October 31, 2012, calculated on a dividend reinvested basis, for the Company, the NASDAQ Composite Index (the “NASDAQ”) and an index of other companies that have the same SIC code as the Company (the “SIC Code Index”). The graph assumes $100 was invested in each of the Company’s units, the NASDAQ, and the Industry Index on October 31, 2012. Data points on the graph are annual. Note that historic stock price performance is not necessarily indicative of future unit price performance.

Pursuant to the rules and regulations of the Securities and Exchange Commission, the performance graph and the information set forth therein shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

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ITEM 6.  SELECTED FINANCIAL DATA

The following table presents selected consolidated financial and operating data as of the dates and for the periods indicated.  Due to the acquisition of a majority ownership of HLBE on July 31, 2013 (through the acquisition of Project Viking), the following information includes consolidated financial and operating data for the fiscal years 2017, 2016, 2015, 2014, and the fourth quarter of fiscal year 2013 of HLBE. The selected consolidated balance sheet financial data as of October 31, 2017 and 2016 and the selected consolidated statement of operations data and other financial data for each of the years in the three-year period ended October 31, 2017 have been derived from the audited consolidated financial statements included elsewhere in this Form 10-K.  The selected consolidated balance sheet financial data as of October 31, 2015, 2014 and 2013 and the selected consolidated statement of operations data and other financial data for the years ended October 31, 2014 and 2013 have been derived from our audited consolidated financial statements that are not included in this Form 10-K. The consolidated financial statements consolidate the operating results and financial position of GFE and its wholly owned subsidiary, Project Viking, which owns 50.7% of HLBE at October 31, 2017. The remaining approximately 49.3% ownership of HLBE is included in the consolidated financial statements as a non-controlling interest. This selected consolidated financial data should be read in conjunction with “ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” and the consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K. Among other things, those financial statements include more detailed information regarding the basis of presentation for the following consolidated financial data (amounts in thousands,  except per unit data and unless context otherwise requires).

Statement of Operations Data for the
fiscal year ended October 31,	2017		2016		2015		2014		2013
Revenues	$	215,782	$	215,526	$	231,255	$	300,955	$	224,101
Cost of Goods Sold		194,683		198,627		208,654		237,434		210,078
Gross Profit		21,099		16,899		22,601		63,521		14,023
Operating Expenses		6,168		5,326		5,176		5,151		2,989
Operating Income		14,931		11,573		17,425		58,370		11,034
Other Income (Expense)		190		(345)		(478)		720		(476)
Net Income		15,121		11,228		16,947		59,090		10,558
Net Income Attributable to Non-controlling Interest		(3,636)		(2,505)		(3,360)		(10,317)		(527)
Net Income Attributable to Granite Falls Energy, LLC	$	11,485	$	8,723	$	13,587	$	48,773	$	10,031
Amounts Attributable to Granite Falls Energy, LLC:
Weighted Average Units Outstanding - Basic and Diluted		30,606		30,606		30,606		30,606		30,606
Net Income Per Unit - Basic and Diluted	$	375.26	$	285.00	$	443.92	$	1,593.61	$	327.78
Distributions Per Unit	$	365.00	$	315.00	$	1,050.00	$	180.00	$	—

Balance Sheet Data at October 31,	2017		2016		2015		2014		2013
Current Assets	$	45,203	$	40,349	$	35,513	$	49,402	$	21,470
Property and Equipment, net		72,271		78,968		84,304		88,028		88,809
Goodwill		1,372		1,372		1,372		1,372		1,372
Investment		7,500		—		—		—		—
Other Assets		743		782		821		860		1,022
Total Assets	$	127,090	$	121,471	$	122,011	$	139,662	$	112,673
Current Liabilities	$	8,980	$	14,337	$	9,139	$	11,580	$	11,323
Long-Term Debt, less current portion		8,466		1,393		6,712		2,112		32,982
Members' Equity Attributable to Granite Falls Energy, LLC		83,999		83,685		84,603		103,152		59,887
Non-controlling interest		25,645		22,056		21,557		22,818		8,481
Total Members' Equity		109,644		105,741		106,160		125,970		68,368
Total Liabilities and Members' Equity	$	127,090	$	121,471	$	122,011	$	139,662	$	112,673

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

General

We prepared the following discussion and analysis to help readers better understand our financial condition, changes in our financial condition, and results of operations for the fiscal year ended October 31, 2017.  This discussion should be read in conjunction with the consolidated financial statements included herewith and notes to the consolidated financial statements thereto and the risk factors contained herein.

Overview

Our business consists primarily of the production and sale of ethanol and its co-products (wet, modified wet and dried distillers’ grains, corn oil and corn syrup) locally, and throughout the continental U.S.  Our production operations are carried out at GFE’s plant located in Granite Falls, Minnesota and HLBE’s ethanol plant near Heron Lake, Minnesota.

The GFE plant has an annual production capacity of approximately 63 million gallons of denatured ethanol, but is currently permitted to produce up to 70 million gallons of undenatured ethanol on a twelve month rolling sum basis.  The HLBE plant has an approximate annual production capacity of 65 million gallons of denatured ethanol, but is currently permitted production capacity to produce approximately 72 million gallons of undenatured ethanol on a twelve-month rolling sum basis.  We intend to continue working toward increasing production to take advantage of the additional production allowed pursuant to our permits as long as we believe it is profitable to do so.

HLBE also owns a controlling 73.0% interest in Agrinatural, which is a natural gas distribution and sales company located in Heron Lake, Minnesota that owns approximately 190 miles of natural gas pipeline and provides natural gas to HLBE’s ethanol plant and other commercial, agricultural and residential customers through a connection with the natural gas pipeline facilities of Northern Border Pipeline Company.  Agrinatural's revenues are generated through natural gas distribution fees and sales.

Reportable Operating Segments

Our revenues from operations come from three primary sources: sales of fuel ethanol, sales of distillers' grains and sales of corn oil at GFE's ethanol plant and HLBE's ethanol plant.  Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.  Therefore, based on the criteria set forth in ASC 280 we have determined that based on the nature of the products and production process and the expected financial results, the Company’s operations at its ethanol plant and HLBE's plant, including the production and sale of ethanol and its co-products, are aggregated into one reporting segment.

Additionally, we also realize relatively immaterial revenue from natural gas pipeline operations at Agrinatural, HLBE's majority owned subsidiary. The intercompany transactions between HLBE and Agrinatural resulting from the firm natural gas transportation agreement between the two companies are eliminated in consolidation. After intercompany eliminations, revenues from Agrinatural represent less than less than 1% of our consolidated revenues and have little to no impact on the overall performance of the Company.  Therefore, our management does not separately review Agrinatural's operating performance information.  Rather, management reviews Agrinatural's natural gas pipeline financial data on a consolidated basis with our ethanol production operations segment. Additionally, management believes that the presentation of separate operating performance information for Agrinatural's natural gas pipeline operations would not provide meaningful information to a reader of the Company’s audited consolidated financial statements.

We currently do not have or anticipate that we will have any other lines of business or other significant sources of revenue other than the sale of ethanol and its co-products, which include distillers' grains and non-edible corn oil.

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Plan of Operations Through October 31, 2017

Over the next year we will continue our focus on operational improvements at our plants. These operational improvements include exploring methods to improve ethanol yield per bushel and increasing production output at our plants, continued emphasis on safety and environmental regulation, reducing our operating costs, and optimizing our margin opportunities through prudent risk-management policies.

We expect to have sufficient cash generated by continuing operations and availability on our credit facilities to fund our operations at our plants.  However, should we experience unfavorable operating conditions in the ethanol industry that prevent us from profitably operating our plants, we may need to seek additional funding.

In addition, we expect to continue to conduct routine maintenance and repair activities at the ethanol plants to maintain current plant infrastructure, as well as some small capital projects to improve operating efficency. We anticipate using cash we generate from our operations and our credit facilities for each plant to finance these plant upgrade projects.

Trends and Uncertainties Impacting Our Operations

The principal factors affecting our results of operations and financial conditions are the market prices for corn, ethanol, distillers’ grains and natural gas, as well as governmental programs designed to create incentives for the use of corn-based ethanol.  Other factors that may affect our future results of operation include those risks and factors discussed in this report at “PART I - Item 1. Business” and “PART I - Item 1A. Risk Factors”.

Our operations are highly dependent on commodity prices, especially prices for corn, ethanol, distillers’ grains and natural gas. As a result, our operating results can fluctuate substantially due to volatility in these commodity markets. The price and availability of corn is subject to significant fluctuations depending upon a number of factors that affect commodity prices in general, including crop conditions, yields, domestic and global stocks, weather, federal policy and foreign trade. Natural gas prices are influenced by severe weather in the summer and winter and hurricanes in the spring, summer and fall. Other factors include North American exploration and production, and the amount of natural gas in underground storage during injection and withdrawal seasons. Ethanol prices are sensitive to world crude oil supply and demand, domestic gasoline supply and demand, the price of crude oil, gasoline and corn, the price of substitute fuels and octane enhancers, refining capacity and utilization, government regulation and incentives and consumer demand for alternative fuels. Distillers’ grains prices are impacted by livestock numbers on feed, prices for feed alternatives and supply, which is associated with ethanol plant production.

We expect our ethanol plants to produce approximately 2.8 gallons of denatured ethanol for each bushel of grain processed in the production cycle. Because the market price of ethanol is not always directly related to corn, at times ethanol prices may lag price movements in corn prices and corn-ethanol price spread (the difference between the price per gallon of ethanol and the price per bushel of grain divided by 2.8) may be tightly compressed or negative. If the corn-ethanol spread is compressed or negative for sustained period, it is possible that our operating margins will decline or become negative and our ethanol plants may not generate adequate cash flow for operations. In such cases, we may reduce or cease production at our ethanol plants in order to minimize our variable costs and optimize cash flow.

For the fiscal year ended October 31, 2017 compared to fiscal year ended October 31, 2016, our average price per gallon of ethanol sold increased 1.7%. Although there has been an increased domestic supply of ethanol, the price of ethanol increased in part due to domestic demand as relatively low fuel prices resulted in increased consumers driving and increased export demand. The price of ethanol has also seen positive impact from the rising ethanol blend rates at the pump. In addition, because ethanol prices are typically directionally consistent with changes in corn and energy prices, lower corn prices were offset by rising crude oil and gasoline prices throughout the fiscal year which had a favorable effect on ethanol price. Management believes that, despite the uptick in ethanol price, the ethanol outlook moving into fiscal year 2018 will remain relatively flat and that our margins will remain tight due to abundant corn supplies and relatively flat gasoline demand.  

Exports of ethanol have also been increasing, however export demand for ethanol is less consistent compared to domestic demand which can lead to ethanol price volatility. During 2017 Brazil and China adopted import quotas and/or tariffs on the importation of ethanol which are expected to continue to negatively impact U.S. exports. China, the number three importer of U.S. ethanol in 2016, has imported negligible volumes since imposing a 30% tariff on U.S. and Brazil fuel ethanol on January 1, 2017. 

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On September 1, 2017, Brazil’s Chamber of Foreign Trade imposed a 20% tariff on U.S. ethanol imports in excess of 150 million liters, or 39.6 million gallons per quarter. The ruling is valid for two years. According to the RFA, during September 2017, Brazil fell out of the top two customers of U.S. ethanol exports for the first time in 16 months. However, on June 27, 2017, the Energy Regulatory Commission of Mexico approved the use of 10% ethanol blends, effective immediately, up from 5.8%, in all but three of its largest cities: Mexico City, Guadalajara and Monterrey, which could lead to increased exports to Mexico. Any decrease in U.S. ethanol exports could adversely impact the market price of ethanol unless domestic demand increases or foreign markets are developed.

Corn prices trended upward during the first half of fiscal year 2017, becoming more volatile and trending down during the latter part of fiscal year 2017 as harvest was completed. The latest estimates of supply and demand provided by the U.S. Department of Agriculture (“USDA”) estimate the 2017-18 ending corn stocks at approximately 2.5 billion bushels, and project the 2017/18 corn supply at approximately 14.6 billion bushels with steady corn consumption for ethanol and co-products steady at approximately 5.5 billion bushels, suggesting lower corn prices into the first half of Fiscal 2018. Weather, world supply and demand, current and anticipated stocks, agricultural policy and other factors can contribute to volatility in corn prices. If corn prices rise, it will have a negative effect on our operating margins unless the price of ethanol and distillers grains out paces rising corn prices.

Our margins have also been, and could continue to be, negatively impacted due to the lower prices received for our distillers’ grains due to lower export demand and oversupply in the domestic market, along with increased corn and soybean availability.  Export demand from China and Vietnam, historically two of the largest importers of U.S. produced distillers grains, has significantly declined. In January year, China imposed significant anti-dumping and anti-subsidies on distillers’ grains imported from the U.S. which saw significant declines in exports of U.S. distillers’ grains to China.  However, in November 2017, the China Ministry of Commerce announced that the anti-subsidy tariffs would be repealed.  While the anti-subsidy tariffs may be removed, the more substantial anti-dumping duties remain.  As a result, we cannot forecast how much demand from China will come back into the marketplace and distillers’ grains prices could remain low unless additional demand can be created from other foreign markets or domestically.

Additionally, exports of U.S. distillers’ grains to Vietnam have halted completely due to Vietnam’s imposition of stricter regulations on fumigation in December 2016. However, in a statement issued September 1, 2017, the U.S. Grains Council announced that Vietnam is lifting its suspension of U.S. distillers’ grains imports and easing fumigation requirements.  The lift of this suspension may result in increased exports to Vietnam; however, there is no guarantee that the Vietnamese export market will achieve significant growth.  Management anticipates distillers’ grains prices will remain lower during the 2018 fiscal year, unless additional domestic demand or other foreign markets develop. Domestic demand for distillers’ grains could also remain low if corn prices decline and end-users switch to lower priced alternatives.  

Corn oil prices have also been adversely impacted by oversupply of corn oil due to the substantial increase in corn oil production during the last few years. Additionally, corn oil prices have been impacted by the oversupply of soybeans and the resulting lower price of soybean oil which competes with corn oil for biodiesel production. 

Given the inherent volatility in ethanol, distillers’ grains, non-food grade corn oil, grain and natural gas prices, we cannot predict the likelihood that the spread between ethanol, distillers’ grains, non-food grade corn oil and grain prices in future periods will be consistent compared to historical periods.

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Results of Operations for the Fiscal Years Ended October 31, 2017 and 2016 

The following table shows the results of our operations and the percentage of revenues, costs of goods sold, operating expenses and other items to total revenues in our audited consolidated statements of operations for the fiscal years ended October 31, 2017 and 2016 (amounts in thousands):

	Fiscal Year Ended October 31,
	2017				2016
Statement of Operations Data	Amount		%		Amount		%
Revenue	$	215,782	100.0	%	$	215,526	100.0	%
Cost of Goods Sold		194,683	90.2	%		198,627	92.2	%
Gross Profit		21,099	9.8	%		16,899	7.8	%
Operating Expenses		6,168	2.9	%		5,326	2.5	%
Operating Income		14,931	6.9	%		11,573	5.3	%
Other Income (Expense), net		190	0.1	%		(345)	(0.1)	%
Net Income		15,121	7.0	%		11,228	5.2	%
Less: Net Income Attributable to Non-controlling Interest		(3,636)	(1.7)	%		(2,505)	(1.2)	%
Net Income Attributable to Granite Falls Energy, LLC	$	11,485	5.3	%	$	8,723	4.0	%

Revenues

Our revenues from operations come from three primary sources: sales of fuel ethanol, sales of distillers’ grains and sales of corn oil. Our remaining consolidated revenues are attributable to miscellaneous other revenue from incidental sales of corn syrup at HLBE’s plant and revenues generated from natural gas pipeline operations at Agrinatural, of which HLBE owns a 73.0% controlling interest.

The following table shows the sources of our consolidated revenue and the approximate percentage of revenues from those sources to total revenues in our audited consolidated statements of operations for the fiscal year ended October 31, 2017 (amounts in thousands):

	Fiscal Year Ended  October 31, 2017
Revenue Sources	Sales Revenue		% of Total Revenues
Ethanol sales	$	175,073	81.1	%
Distillers' grains sales		29,239	13.6	%
Corn oil sales		9,702	4.5	%
Miscellaneous other		1,768	0.8	%
Total Revenues	$	215,782	100.0	%

The following table shows the sources of our consolidated revenue and the approximate percentage of revenues from those sources to total revenues in our audited consolidated statements of operations for the fiscal year ended October 31, 2016 (amounts in thousands):

	Fiscal Year Ended Fiscal October 31, 2016
Revenue Sources	Sales Revenue		% of Total Revenues
Ethanol sales	$	170,960	79.3	%
Distillers' grains sales		33,988	15.8	%
Corn oil sales		8,932	4.1	%
Miscellaneous other		1,646	0.8	%
Total Revenues	$	215,526	100.0	%

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Our total consolidated revenues increased by approximately 0.1% for the fiscal year ended October 31, 2017, as compared to the fiscal year 2016, primarily due to increases in the average price realized for our ethanol and corn oil which were partially mitigated by decreases in average price realized for our distillers’ grains.  The following table reflects quantities of our three primary products sold and the average net prices received for the fiscal years ended October 31, 2017 and 2016 (quanties in thousands):

	Fiscal Year Ended  October 31, 2017			Fiscal Year Ended  October 31, 2016
Product	Quantity Sold	Avg. Net Price		Quantity Sold	Avg. Net Price
Ethanol (gallons)	126,421	$	1.39	125,533	$	1.36
Distillers' grains (tons)	306	$	95.57	300	$	113.35
Corn oil (pounds)	35,240	$	0.28	34,238	$	0.26

Ethanol

Total revenues from sales of ethanol increased by approximately 2.4% for fiscal year 2017 compared to the fiscal year 2016 due primarily to an approximately 1.7%  increase in the average price per gallon we received for our ethanol coupled with an approximately 0.7% increase in the volumes sold from period to period. We produced and sold more ethanol gallons during fiscal year 2017 as compared to fiscal year 2016 primarily due to the timing of ethanol shipments and increases in ethanol production at the GFE and HLBE plants. Ethanol production was higher at our plants compared to prior year due to improvements we are making at our plants designed to increase ethanol production and improve efficiencies.  We are currently operating our plants above their respective nameplate capacities. Management anticipates relatively stable ethanol production and sales during our 2018 fiscal year. 

The increase in the price of ethanol was due in part to domestic demand as relatively low fuel prices resulted in increased consumers driving and increased export demand. In addition, because ethanol prices are typically directionally consistent with changes in corn and energy prices, lower corn prices were offset by rising crude oil and gasoline prices throughout the fiscal year which had a favorable effect on ethanol prices. 

We occasionally engage in hedging activities with respect to our ethanol sales. We recognize the gains or losses that result from the changes in the value of these derivative instruments in revenues as the changes occur.  Separately, ethanol derivative instruments resulted in losses of approximately $415,000 and $159,000 during the fiscal years ended October 31, 2017 and 2016, respectively.

Distillers’ Grains

Total revenues from sales of distillers’ grains decreased approximately 14.0%  for fiscal year 2017 compared to fiscal year 2016.  The decline in distillers' grains revenues is primarily attributable to an approximately 15.7% decrease in the average price per ton we received for our distillers’ grains from period to period, partially offset by an approximately 2.0% increase in the tons of distillers’ grains sold during fiscal year 2017 compared to fiscal year 2016.  

The increase in total tons of distillers’ grains sold during fiscal year 2017 compared to the fiscal year 2016 was due to an approximately 6.1% increase in distillers’ grains produced at HLBE’s plant, offset by an approximately 1.5% decrease in distillers’ grain production at the GFE plant. The decrease in tons produced at the GFE plant was due primarily to improved efficiencies of converting corn into ethanol which leads to less production of co-products such as distillers’ grains. GFE also increased the amount of corn oil it was extracting from our distillers’ grains during our 2017 fiscal year which reduced the total tons of distillers’ grains we had available for sale. The increase in tons produced at the HLBE plant was due primarily to an increase in distillers’ grains yield from period to period. Management anticipates relatively stable distillers’ grains production going forward.

The decline in the market price of distillers’ grains is due to lower domestic demand and lower export demand, particularly from China, as well as Vietnam. Reduced export demand from China and Vietnam, combined with lower corn and soybean prices, has led to an oversupply of distillers’ grains in the domestic market which has resulted in a decline in the price of distillers’ grains. Domestic demand for distillers’ grains may also remain low due to expansion of production capacity in the ethanol industry and end-users switching to lower priced alternatives. Management anticipates that distillers’ grains prices will remain lower during our 2018 fiscal year unless China reduces or eliminates its tariffs.

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Corn Oil

Separating the corn oil from our distillers’ grains decreases the total tons of distillers’ grains that we sell; however, our corn oil has a higher per ton value than our distillers’ grains. Total revenues from sales of corn oil increased by approximately 8.6% for fiscal year 2017 compared to the fiscal year 2016. This increase is attributable to an approximately 5.5% increase in the average price we received per pound of corn oil sold during fiscal year 2017 compared to fiscal year 2016, coupled with a 2.9% increase in pounds sold from period to period.

Management attributes the increase in corn oil prices during fiscal year 2017, in part, to increased demand from the biodiesel industry and due to the expansion of the RFS advanced biofuel mandate increasing the demand for biodiesel. However, the RVO for advanced biofuels in EPA’s final rule for 2018 RVO is significantly reduced in comparison to the statutory mandate.  As a result, the increased demand for corn oil from the biodiesel industry may not continue during fiscal year 2018, particularly if the biodiesel blenders' tax credit, which expired on December 31, 2016, is not extended. 

In December 2017, a bill, the Tax Extenders Act of 2017 (S. 2256), was introduced in the Senate which would renew the $1.00-per-gallon biodiesel and renewable diesel tax credits for biodiesel and blending biodiesel retroactively to January 1, 2017, and extending the tax credit through December 31, 2018. Due to the recent uncertainty in Congress, management cannot predict whether the tax credit extender bill will be passed by Congress as presently written or at all.  Although management believes that corn oil prices will remain relatively steady at the increased price levels, prices may decrease if there is an oversupply of corn oil production resulting from increased production rates at ethanol plants or if biodiesel producers begin to utilize lower-priced alternatives such as soybean oil or if biodiesel blenders’ tax credit is not renewed and biodiesel production declines.

Cost of Goods Sold

Our cost of goods sold decreased by approximately 2.0% for the fiscal year ended October 31, 2017, as compared to the fiscal year ended October 31, 2016.  Cost of goods sold, as a percentage of revenues, also decreased to approximately 90.2% for the fiscal year ended October 31, 2017, as compared to approximately 92.2% for the 2016 fiscal year due to a wider margin between the price of ethanol and the price of corn.  Approximately 90% of our total costs of goods sold is attributable to ethanol production.  As a result, the cost of goods sold per gallon of ethanol produced for the fiscal year ended October 31, 2017 was approximately $1.37 per gallon of ethanol sold compared to approximately $1.41 per gallon of ethanol produced for the fiscal year ended October 31, 2016. 

The following table shows the costs of corn and natural gas (our two largest single components of costs of goods sold), as well as all other components of cost of goods sold, which includes processing ingredients, electricity, and wages, salaries and benefits of production personnel, and the approximate percentage of costs of those components to total costs of goods sold in our audited consolidated statements of operations for the fiscal year ended October 31, 2017 (amounts in thousands):

	Fiscal Year Ended  October 31, 2017
	Cost		% of Cost of Goods Sold
	(in thousands)
Corn costs	$	140,623	72.2	%
Natural gas costs		12,209	6.3	%
All other components of costs of goods sold		41,851	21.5	%
Total Cost of Goods Sold	$	194,683	100.0	%

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The following table shows the costs of corn, natural gas and all other components of cost of goods sold and the approximate percentage of costs of those components to total costs of goods sold in our audited consolidated statements of operations for the fiscal year ended October 31, 2016 (amounts in thousands):

	Fiscal Year Ended  October 31, 2016
	Cost		% of Cost of Goods Sold
	(in thousands)
Corn costs	$	147,084	74.1	%
Natural gas costs		10,227	5.1	%
All other components of costs of goods sold		41,316	20.8	%
Total Cost of Goods Sold	$	198,627	100.0	%

Corn Costs

Our cost of goods sold related to corn decreased approximately 4.4% for our 2017 fiscal year compared to our 2016 fiscal year, due primarily to  a decrease of 4.7% in the average price per bushel paid for corn from period to period, partially offset by a 0.3% increase in the number of bushels of corn processed. The corn-ethanol price spread (the difference between the price per gallon of ethanol and the price per bushel of grain divided by 2.8) for our 2017 fiscal year was approximately $0.09 greater than the corn-ethanol price spread we experienced for same period of 2016.

The decrease in our cost per bushel of corn was primarily related to lower market corn prices due to increased market corn supplies by the strong corn harvest in the fall of 2016, resulting in a sufficient local supply of corn to the market. Due to the strong 2017 harvest, management anticipates that corn prices will remain lower during our first half of 2018 fiscal year.

For our fiscal years ended October 31, 2017 and 2016, our plants processed approximately 43.4 million and 43.3 million bushels of corn, respectively.   Management anticipates consistent corn consumption during our 2018 fiscal year compared to our 2017 fiscal year provided that we can maintain positive operating margins that allow us to continue to operate the ethanol plants at capacity.

From time to time we enter into forward purchase contracts for our corn purchases.  At October 31, 2017,  GFE had forward corn purchase contracts for approximately 3.0 million bushels for various delivery periods through December 2018 and HLBE had forward corn purchase contracts for approximately 1.8 million bushels for various delivery periods through October 2018. Comparatively, at October 31, 2016, GFE had forward corn purchase contracts for approximately 5.2 million bushels for various delivery periods through August 2017 and HLBE had forward corn purchase contracts for approximately 4.3 million bushels for various delivery periods through August 2017.

Our corn derivative positions resulted in gains of approximately $1.1 million and $708,000 for the fiscal years ended October 31, 2017 and 2016, respectively, which decreased cost of goods sold. We recognize the gains or losses that result from the changes in the value of our derivative instruments from corn in cost of goods sold as the changes occur.  As corn prices fluctuate, the value of our derivative instruments are impacted, which affects our financial performance. We anticipate continued volatility in our cost of goods sold due to the timing of the changes in value of the derivative instruments relative to the cost and use of the commodity being hedged. 

Natural Gas Costs

For our 2017 fiscal year, we experienced an increase of approximately 19.4% in our overall natural gas costs compared to our 2016 fiscal year.  This increase in cost of natural gas from period to period as was primarily the result of an increase in the average price per MMBTU of natural gas due to increased domestic and export demand and lower production which used up natural gas stocks that built up in 2015.  Management also anticipates higher natural gas prices during the winter months due to the typical seasonal natural gas cost increases experienced during the winter months.

From time to time we enter into forward purchase contracts for our natural gas purchases. Our natural gas derivative positions resulted in a loss of approximately $15,000 for the fiscal year ended October 31, 2017, which increased cost of goods sold.  Comparatively, our natural gas derivative positions resulting in a gain of approximately $33,000 for the fiscal year ended October 31, 2016, which decreased cost of goods sold. We recognize the gains or losses that result from the changes in the value of our derivative instruments from natural gas in cost of goods sold as the changes occur.

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Operating Expense

Operating expenses include wages, salaries and benefits of administrative employees at the plants, insurance, professional fees and similar costs.  Operating expenses as a percentage of revenues rose slightly to 2.9% of revenues for our fiscal year ended October 31, 2017 compared to 2.5% of revenues for our fiscal year ended October 31, 2016.  This increase was primarily due to an increase in our property taxes which was a result of the expiration of the State of Minnesota’s JOBZ program, which expired on December 31, 2015. Under the JOBZ program, our plants were exempt from property tax.

Our efforts to optimize efficiencies and maximize production may result in a decrease in our operating 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 operating expenses to remain relatively steady throughout the 2018 fiscal year.

Operating Income

Our operating income increased by approximately $3.4 million for our fiscal year ended October 31, 2017 compared to fiscal year 2016.  This increase resulted largely from increased prices for our ethanol relative to the price of corn and improved operating margin.

Other Income (Expense), Net

We had total other income, net for our fiscal year ended October 31, 2017 of approximately $190,000 compared to total other expense, net of approximately $345,000 for our fiscal year ended October 31, 2016.  We had more other income during fiscal year 2017 compared to fiscal year 2016 due to patronage income and decreased interest expense as a result of fewer borrowings under our credit facilities during the 2017 fiscal year.

Results of Operations for the Fiscal Years Ended October 31, 2016 and 2015 

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 audited consolidated statements of operations for the fiscal years ended October 31, 2016 and 2015 (amounts in thousands):

	Fiscal Year Ended October 31,
	2016				2015
Statement of Operations Data	Amount		%		Amount		%
Revenue	$	215,526	100.0	%	$	231,255	100.0	%
Cost of Goods Sold		198,627	92.2	%		208,654	90.2	%
Gross Profit		16,899	7.8	%		22,601	9.8	%
Operating Expenses		5,326	2.5	%		5,176	2.2	%
Operating Income		11,573	5.3	%		17,425	7.6	%
Other Income (Expense), net		(345)	(0.1)	%		(478)	(0.2)	%
Net Income		11,228	5.2	%		16,947	7.4	%
Less: Net Income Attributable to Non-controlling Interest		(2,505)	(1.2)	%		(3,360)	(1.5)	%
Net Income Attributable to Granite Falls Energy, LLC	$	8,723	4.0	%	$	13,587	5.9	%

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Revenues

The following table shows the sources of our consolidated revenue and the approximate percentage of revenues from those sources to total revenues in our audited consolidated statements of operations for the fiscal year ended October 31, 2016 (amounts in thousands):

	Fiscal Year Ended Fiscal October 31, 2016
Revenue Sources	Sales Revenue		% of Total Revenues
Ethanol sales	$	170,960	79.3	%
Distillers' grains sales		33,988	15.8	%
Corn oil sales		8,932	4.1	%
Miscellaneous other		1,646	0.8	%
Total Revenues	$	215,526	100.0	%

The following table shows the sources of our consolidated revenue and the approximate percentage of revenues from those sources to total revenues in our audited consolidated statements of operations for the fiscal year ended October 31, 2015 (amounts in thousands):

	Fiscal Year Ended  October 31, 2015
Revenue Sources	Sales Revenue		% of Total Revenues
Ethanol sales	$	180,472	78.0	%
Distillers' grains sales		43,181	18.7	%
Corn oil sales		6,131	2.7	%
Miscellaneous other		1,471	0.6	%
Total Revenues	$	231,255	100.0	%

Our total consolidated revenues decreased by approximately 6.8% for the fiscal year ended October 31, 2016, as compared to the fiscal year 2015, primarily due to decreases in the average price realized for our ethanol and distillers’ grains which were partially mitigated by increases in total volumes sold of our ethanol and corn oil.  

The following table reflects quantities of our three primary products sold and the average net prices received for the fiscal years ended October 31, 2016 and 2015 (quanties in thousands):

	Fiscal Year Ended  October 31, 2016			Fiscal Year Ended  October 31, 2015
Product	Quantity Sold	Avg. Net Price		Quantity Sold	Avg. Net Price
Ethanol (gallons)	125,533	$	1.36	122,992	$	1.47
Distillers' grains (tons)	300	$	113.35	314	$	137.33
Corn oil (pounds)	34,238	$	0.26	23,296	$	0.26

Ethanol

Total revenues from sales of ethanol decreased by approximately 5.3% for fiscal year 2016 compared to the fiscal year 2015 due primarily to an approximately 7.2% decline in the average price per gallon we received for our ethanol which was partially mitigated by approximately 2.1% increase in the volumes sold from period to period. We produced and sold more ethanol gallons during fiscal year 2016 as compared to fiscal year 2015 primarily due to the timing of ethanol shipments and increases in ethanol production at the GFE and HLBE plants. Ethanol production was higher at our plants compared to prior year due to capital improvements we are making at our plants designed to increase ethanol production. 

Our ethanol derivative instruments resulted in a loss of approximately $159,000 during the fiscal year ended October 31, 2016, which decreased our revenue.  In comparison, during the fiscal year ended October 31, 2015, we had no gains or losses on our ethanol derivative instruments.

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Distillers’ Grains

Total revenues from sales of distillers’ grains decreased approximately 21.3% for fiscal year 2016 compared to fiscal year 2015.  The decline in distillers' grains revenues is primarily attributable to an approximately 17.5% decrease in the average price per ton we received for our distillers’ grains from period to period. The effect of the decrease in average distillers’ grains price was compounded by an approximately 4.5% decrease in the tons of distillers’ grains sold during fiscal year 2016 compared to fiscal year 2015.  We sold less total tons of distillers’ grains during our 2016 fiscal year compared to the same period of 2015 due to increased efficiencies of converting corn into ethanol which leads to less production of co-products such as distillers’ grains. We also increased the amount of corn oil we were extracting from our distillers’ grains during our 2016 fiscal year which reduced the total tons of distillers’ grains we had available for sale.

Corn Oil

Total revenues from sales of corn oil increased by approximately 45.7% for fiscal year 2016 compared to the fiscal year 2015. This increase is attributable to an approximately 46.3% increase in pounds sold during fiscal year 2016 compared to fiscal year 2015 as the average price we received per pound of corn oil sold from period to period was relatively unchanged, decreasing approximately 0.4%.

Cost of Goods Sold

Our cost of goods sold decreased by approximately 4.8% for the fiscal year ended October 31, 2016, as compared to the fiscal year ended October 31, 2015. Our cost of goods sold as a percentage of revenues increased slightly to approximately 92.2% for the fiscal year ended October 31, 2016, as compared to approximately 90.2% for the 2015 fiscal year due to the narrowing of the margin between the price of ethanol and the price of corn.  Approximately 90% of our total costs of goods sold is attributable to ethanol production. As a result, the cost of goods sold per gallon of ethanol produced for the fiscal year ended October 31, 2016 was approximately $1.41 per gallon of ethanol sold compared to approximately $1.51 per gallon of ethanol produced for the fiscal year ended October 31, 2015. 

The following table shows the costs of corn and natural gas (our two largest single components of costs of goods sold), as well as all other components of cost of goods sold, which includes processing ingredients, electricity, and wages, salaries and benefits of production personnel, and the approximate percentage of costs of those components to total costs of goods sold in our audited consolidated statements of operations for the fiscal year ended October 31, 2016 (amounts in thousands):

	Fiscal Year Ended  October 31, 2016
	Cost		% of Cost of Goods Sold
	(in thousands)
Corn costs	$	147,084	74.1	%
Natural gas costs		10,227	5.1	%
All other components of costs of goods sold		41,316	20.8	%
Total Cost of Goods Sold	$	198,627	100.0	%

The following table shows the costs of corn, natural gas, and all other components of cost of goods sold and the approximate percentage of costs of those components to total costs of goods sold in our audited condensed consolidated statements of operations for the fiscal year ended October 31, 2015 (amounts in thousands):

	Fiscal Year Ended  October 31, 2015
	Cost		% of Cost of Goods Sold
Corn costs	$	153,379	73.5	%
Natural gas costs		13,994	6.7	%
All other components of costs of goods sold		41,281	19.8	%
Total Cost of Goods Sold	$	208,654	100.0	%

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Corn Costs

Our cost of goods sold related to corn decreased approximately 4.6% for our 2016 fiscal year compared to our 2015 fiscal year, due primarily to decrease of 4.9% in the average price per bushel paid for corn from period to period, despite a 0.9% increase in the number of bushels of corn processed. The corn-ethanol price spread (the difference between the price per gallon of ethanol and the price per bushel of grain divided by 2.8) for our 2016 fiscal year was approximately $0.03 narrower than the corn-ethanol price spread we experienced for same period of 2015.

The decrease in our cost per bushel of corn was primarily related to lower market corn prices due to increased market corn supplies by the strong corn harvest in the fall of 2015, resulting in a sufficient local supply of corn to the market and relatively lower corn demand.

For our fiscal years ended October 31, 2016 and 2015, our plants processed approximately 43.4 million and 43.0 million bushels of corn, respectively.  We were able to improve our corn conversion efficiency slightly during our 2016 fiscal year compared to 2015 which allowed us to produce more ethanol per bushel of corn. Management anticipates consistent corn consumption during our 2017 fiscal year compared to our 2016 fiscal year provided that we can maintain positive operating margins that allow us to continue to operate the ethanol plants at capacity.

At October 31, 2016, GFE had forward corn purchase contracts for approximately 5.2 million bushels, comprised of long corn positions on 3.3 million bushels, and short corn positions on 1.9 million bushels, for various delivery periods through August 2017. Comparatively at October 31, 2015, we had forward corn purchase contracts for approximately 2.6 million bushels for various delivery periods through December 2016, comprised of approximately 740,000 and 1.9 million bushels held by GFE and HLBE, respectively.

Our corn derivative positions resulted in gains of approximately $708,000 and $304,000 for the fiscal years ended October 31, 2016 and 2015, respectively, which decreased cost of goods sold.

Natural Gas Costs

For our 2016 fiscal year, we experienced a decrease of approximately 26.9% in our overall natural gas costs compared to our 2015 fiscal year.  The decrease in natural gas costs was primarily due lower natural gas prices due to ample supply. 

Our natural gas derivative positions resulted in a gain of approximately $33,000 for the fiscal year ended October 31, 2016, which decreased cost of goods sold. Comparatively, we had no gain or loss on natural gas derivative instruments during the fiscal year ended October 31, 2015.

Operating Expense

Operating expenses as a percentage of revenues rose slightly to 2.5% of revenues for our fiscal year ended October 31, 2016 compared to 2.2% of revenues for our fiscal year ended October 31, 2015.  This increase is due primarily to decreased revenues in fiscal year 2016.

Operating Income

The decrease in operating income for fiscal year 2016 compared to 2015 resulted largely from decreased prices for our ethanol and its co-products and the narrowing of our net operating margin

Other Income (Expense), Net

The decrease in other expenses is primarily due to a decrease in interest expense during our fiscal year ended October 31, 2016, compared to the same period of 2015 due to decreased borrowings on HLBE credit facilities. We also had an increase of approximately $62,000 in miscellaneous income for fiscal year 2016 as compared to fiscal year 2015.

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Changes in Financial Condition at October 31, 2017 and 2016

The following table highlights the changes in our financial condition at October 31, 2017 compared to October 31, 2016 (amounts in thousands):

	October 31, 2017		October 31, 2016
Current Assets	$	45,203	$	40,349
Total Assets	$	127,090	$	121,471
Current Liabilities	$	8,980	$	14,337
Long-Term Debt, less currrent portion	$	8,466	$	1,394
Members' Equity attributable to Granite Falls Energy, LLC	$	83,999	$	83,685
Non-controlling Interest	$	25,645	$	22,056

The increase in total assets is primarily due to an approximately $4.9 million increase in total current assets and GFE’s $7.5 million investment in Ringneck and property and equipment additions of approximately $2.3 million at October 31, 2017 compared to October 31, 2016. The change in our current assets is due to changes in working capital items.  Offsetting these increases was depreciation expense at both plants of approximately $9.4 million during fiscal year 2017. 

Total current liabilities decreased by approximately $5.4 million at October 31, 2017 compared to October 31, 2016.  This decrease was mainly due to an decreases of approximately $5.4 million in corn payable to FCE and approximately $1.9 million in checks drawn in excess of bank balance at October 31, 2017compared to October 31, 2016.  Offsetting these decreases was an increase in accounts payable of approximately $1.9 million at October 31, 2017 as compared to October 31, 2016. The decrease in our corn payable to FCE is due to the termination of our corn storage and grain handling agreement with FCE on August 31, 2017.  The increase in our accounts payable is due to the timing of payments to vendors.   

Long-term debt totaled approximately $8.5 million at October 31, 2017, which is approximately $7.1 million more than our long-term debt at October 31, 2016.  The increase is mostly due to borrowing under GFE’s Project Hawkeye credit facility of $7.5 million, which were used to pay for its investment in Ringneck, offset by scheduled principal payments of approximately $486,000.

Members’ equity attributable to Granite Falls Energy, LLC at October 31, 2017 increased by approximately $314,000 compared to October 31, 2016. The increase was due to net income attributable to Granite Falls Energy, LLC of approximately $11.5 million for the fiscal year ended  October 31, 2017, offset by distributions to our members of approximately $11.2 million during January 2017. 

Non-controlling interest totaled approximately $25.6 million at October 31, 2017.  This is directly related to recognition of the approximately 49.3% noncontrolling interest in HLBE at October 31, 2017.

Liquidity and Capital Resources

Our principal sources of liquidity consist of cash provided by operations, cash on hand, and available borrowings under our credit facility with United FCS and Compeer.  Our principal uses of cash are to purchase raw materials necessary to operate the ethanol plants and capital expenditures to maintain and upgrade our plants,  and to make distribution payments to our members. GFE’s grain storage expansion project and HLBE’s RTO replacement projects were funded from current earnings from operations.     

We do not currently anticipate any significant purchases of property and equipment that would require us to secure additional capital in the next twelve months. For our 2018 fiscal year, we anticipate completion of several smaller capital projects to maintain current plant infrastructure and improve operating efficency.  We expect to have sufficient cash generated by continuing operations and current lines of credit to fund our operations and complete our capital expenditures during our 2018 fiscal year and beyond. 

Management continues to evaluate conditions in the ethanol industry and explore opportunities to improve the efficiency and profitability of our operations which may require additional capital to supplement cash generated from operations and our current lines of credit.

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Year Ended Compared October 31, 2017 to Year Ended October 31, 2016

The following table summarizes our sources and uses of cash and equivalents from our audited consolidated statements of cash flows for the fiscal years ended October 31, 2017 and 2016 (amounts in thousands): 

	2017		2016
Net cash provided by operating activities	$	23,750	$	22,792
Net cash used in investing activities	$	(9,819)	$	(4,727)
Net cash used in financing activities	$	(6,071)	$	(16,964)
Net increase in cash	$	7,860	$	1,101

Operating Cash Flows

During the fiscal year ended October 31, 2017, net cash provided by operating activities increased by approximately $958,000 compared to the fiscal year ended October 31, 2016.  This increase from was due primarily to an approximately $3.9 million increase in net income, offset by a net increase of approximately $2.9 million of various working capital items.    

Investing Cash Flows

Cash used in investing activities increased approximately $5.1 million during fiscal year 2017 as compared to fiscal year 2016.  This increase was due primarily to GFE’s investment in Ringneck during fiscal year 2017.  During fiscal year 2017, we used $7.5 million of cash related to GFE’s subscription for its Ringneck investment and $2.3 million for capital expenditures at the GFE and HLBE plants.  Comparatively, during fiscal year 2016, we used a total of approximately $4.7 million of cash at the GFE plant for our grain bin storage expansion and at HLBE plant for our RTO replacement project,  as well as various plant improvements.

Financing Cash Flows

Cash used in financing activities decreased approximately $10.9 million during fiscal year 2017 as compared to fiscal year 2016. For fiscal year 2017, we used cash to make distributions of approximately $11.2 million to our unit holders, payments of approximately $1.9 million on checks drawn in excess of bank balances, payments of approximately $486,000 on HLBE’s long-term debt and purchased approximately $47,000 of units in HLBE,  which were offset by $7.5 million in proceeds from GFE’s Project Hawkeye loan.  In comparison, for fiscal year 2016,  we used cash to make distributions of approximately $9.6 million to our unit holders, $2.0 million to non-controlling interests, and payments of approximately $15.2 million on HLBE’s long-term debt, which were offset by approximately $9.8 million in proceeds from HLBE’s long-term debt and approximately $30,000 from checks in excess of bank balance. 

Year Ended October 31, 2016 Compared to Year Ended October 31, 2015

The following table summarizes our sources and uses of cash and equivalents from our consolidated statements of cash flows for the fiscal years ended October 31, 2016 and 2015 (amounts in thousands): 

	2016		2015
Net cash provided by operating activities	$	22,792	$	24,961
Net cash used in investing activities	$	(4,727)	$	(8,824)
Net cash used in financing activities	$	(16,964)	$	(30,649)
Net increase (decrease) in cash	$	1,101	$	(14,512)

Operating Cash Flows

During the fiscal year ended October 31, 2016, net cash provided by operating activities decreased by approximately $2.2 million compared to the fiscal year ended October 31, 2015. This decrease from was due primarily to an approximately $5.7 million decrease in net income, offset by a net increase of approximately $2.5 million of various working capital items.    Net income decreased for fiscal year 2016 by approximately 33.7% compared to fiscal year 2015, due to the lower average sales prices we received for our principal products.

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Investing Cash Flows

Cash used in investing activities was approximately $4.1 million less for fiscal year 2016, compared to fiscal year 2015. This decrease was due primarily to reduced payments for capital expenditures during fiscal year 2016.  During fiscal year 2016, we used cash at the GFE plant for our grain bin storage expansion and at HLBE plant for our RTO replacement project. Comparatively, during fiscal year 2015, we used cash at the HLBE plant to purchase a condenser and sieve beads to remediate the system pressure fluctuations, upgrade corn oil separation equipment, and make a down payment on the RTO replacement equipment. Additionally, during fiscal year 2015, we used cash at the GFE plant to for our grain bin storage expansion and rail loop projects.

Financing Cash Flows

Cash used in financing activities was approximately $13.7 million less for fiscal year 2016 compared to fiscal year 2015. For fiscal year 2016, we used cash to make payments of approximately $9.6 million in distributions to our unit holders, $2.0 million to non-controlling interests, and payments of approximately $15.2 million on HLBE’s long-term debt, which were offset by approximately $9.8 million in proceeds from HLBE’s long-term debt and approximately $30,000 from checks in excess of bank balance.  In comparison, for fiscal year 2015, we had proceeds of approximately $13.4 million in proceeds from HLBE’s long-term debt and approximately $1.8 million provided by checks drawn in excess of bank balance and made payments of approximately $9.2 million on HLBE’s long-term debt, $32.1 million in distributions to our unit holders, and approximately $4.6 million to non-controlling interests.

Credit Arrangements

Granite Falls Energy

Credit Arrangements with United FCS

GFE has a credit facility with United FCS for which Co-Bank serves as the administrative agent.  The credit facility orginally consisted of a long-term revolving term loan, with an aggregate principal commitment amount of $18,000,000 that reduced by $2,000,000 semi-annually beginning September 1, 2014, until final payment at maturity on March 1, 2018.  However, on September 8, 2017, GFE entered into amendment to the master loan agreement with United FCS to amend the United FCS credit facility to replace our long-term revolving loan with a seasonal revolving loan.  In connection therewith, our revolving term loan was terminated, and we executed a revolving credit supplement to establish the seasonal revolving loan. GFE had no outstanding balance on the revolving term loan at its termination on September 8, 2017. 

Under the seasonal revolving loan, GFE may borrow, repay, and re-borrow up to the aggregate principal commitment of $6.0 million until its maturity on October 1, 2018.  The outstanding balance on the seasonal revolving loan totaled $0 October 31, 2017.  Therefore, the aggregate principal amount available to GFE for additional borrowing was $6.0 million at October 31, 2017.

The seasonal revolving loan bears interest from date funds are first advanced on the loan through maturity, at a rate per annum equal to the sum of (x) the One Month LIBOR Index Rate plus (y) 2.75% per annum. The interest rate was 3.99% at October 31, 2017.

GFE pays an unused commitment fee on the unused portion of the seasonal revolving loan commitment at the rate of 0.250% per annum. The credit facility with United FCS is secured by substantially all of GFE’s assets.

GFE's credit facility with United FCS is subject to numerous financial and non-financial covenants that limit distributions and debt and require minimum working capital, minimum local net worth, and debt service coverage ratio, including the following:

· GFE may not create or incur any indebtedness except for debt to United FCS, accounts payable to trade creditors, subordinated debt owed to Project Hawkeye, or debt to other lenders in an aggregate amount not exceed $750,000 without the consent of Co-Bank or United FCS.

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· GFE may not make loans or advances or purchase capital stock, obligations or other securities, or make any capital contribution to or otherwise invest in any enty, other than trade credit in ordinary course of business, investments of GFE in HLBE as of the date of the amendment of the credit facility, or investments in Ringneck of up to $7.5 million.

· GFE may not create or incur any obligation as a lessee under operating leases except leases with Farm Credit Leasing Corporation, leases existing as of the date of the amendment of the credit facility, rail car leases provided such rail car leases may not exceed an initial or extended term of 120 months, and other leases which do not require GFE to make scheduled payments in any fiscal year in excess of $100,000.

· GFE must maintain working capital of at least $10.0 million. Working capital is calculated as GFE’s current assets, less GFE’s current liabilities.

· GFE must maintain local net worth of at least $34.0 million.  Local net worth is defined as total assets, minus total liabilities, minus investments by GFE in other entities.

· GFE must maintain a debt service coverage ratio of at least 1.5 to 1.0.  The debt service coverage ratio is calculated as GFE’s net income (after taxes), plus depreciation and amortization, minus extraordinary gains (plus losses), minus gain (plus loss) on asset sales and divided by $4.0 million.

· GFE may make member distributions of up to 75% of GFE’s net income without the consent of United FCS provided GFE remains in compliance with its loan covenants following the distribution.  Any member distributions in excess of 75% of GFE’s net income must be pre-approved by United FCS.

As of October 31, 2017, we were in compliance with these financial covenants.  However, if market conditions deteriorate in the future, circumstances may develop which could result in us violating the financial covenants or other terms of GFE’s credit facility. If we fail to comply with the terms of our credit agreement with United FCS, and United FCS refuses to waive the non-compliance, United FCS could terminate the credit facility and any commitment to loan funds to GFE.

Credit Arrangements with Fagen Energy and Project Hawkeye

In connection with GFE’s subscription for investment in Ringneck in November 2016, GFE entered into a credit facility with Fagen Energy, LLC (“Fagen Energy”), an affiliate of Fagen, Inc., which is a member of GFE. The Fagen Energy credit facility would have allowed GFE to borrow up to $7.5 million of variable-rate, amortizing non-recourse debt from Fagen Energy using the Ringneck investment as collateral. On August 2, 2017, GFE executed a termination and replacement agreement with Fagen Energy and Project Hawkeye, also an affiliate of Fagen, Inc., to terminate the Fagen Energy credit facility and the loan agreements entered into in conection with the Fagen Energy credit facility, and secure a replacement credit facility with Project Hawkeye on substantially the same as the terms under the terminated credit facility with Fagen Energy.

On August 2, 2017, the Fagen Energy credit facility was terminated and there were no amounts outstanding at termination. Simultaneously with the termination of the Fagen Energy credit facility, GFE entered into a replacement credit facility with Project Hawkeye. The terms of the replacement credit facility allow GFE to borrow up to $7.5 million of variable-rate, amortizing non-recourse debt from Project Hawkeye using the Ringneck investment as collateral.  On August 2, 2017, GFE borrowed $7.5 million under the Project Hawkeye credit facility to finance the balance of its investment in Ringneck. The outstanding balance on this loan was $7.5 million at October 31, 2017.

The Project Hawkeye loan bears interest from date funds are first advanced on the loan through maturity, at a rate per annum equal to the sum of (x) the One Month LIBOR Index Rate plus (y) 3.05% per annum, with an interest rate floor of 3.55%. The interest rate was 4.29% at October 31, 2017.

The Project Hawkeye loan  requires annual interest payments only for the first two years of the loan and monthly principal and interest payments for years 3 through 9 based on a 7-year amortization period.  The monthly amortized payments will be re-amortized following any change in interest rate. The entire outstanding principal balance of the loan, plus any accrued and unpaid interest thereon, is due and payable in full on August 2, 2026. GFE is permitted to voluntarily prepay all or any portion of the outstanding balance of this loan at any time without premium or penalty.

Pursuant to a pledge agreement entered into in connection with the Project Hawkeye loan, GFE’s obligations are secured by all of its right, title, and interest in its investment in Ringneck, including the 1,500 units subscribed for by GFE. The loan is non-recourse to all of GFE’s other assets, meaning that in the event of default, the only remedy available to Project Hawkeye will be to foreclose and seize all of GFE’s right, title and interest in its investment in Ringneck.

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Heron Lake BioEnergy

Credit Arrangements with Compeer

HLBE has a comprehensive credit facility with Compeer Financial, formerly known as AgStar Financial Services, FCLA (“Compeer”), which consists of a revolving term loan with a maturity date of March 1, 2022.  As part of the credit facility closing, HLBE entered into an administrative agency agreement with CoBank, ACP (“CoBank”), which appointed the administrative agent for the purpose of servicing the credit facility.   

Under the Compeer revolving term note, HLBE may borrow, repay, and re-borrow up to the aggregate principal commitment.  The revolving term loan principal commitment, initially $28.0 million, declines by $3.5 million annually, effective March 1, 2015 and continuing each anniversary thereafter until maturity on March 1, 2022.  In the event any amount is outstanding on this loan in excess of maximum aggregate principal commitment following a scheduled reduction, HLBE has agreed to repay principal on the loan until HLBE reachs the new reduced maximum aggregate principal commitment. 

The maximum aggregate principal commitment under this facility at October 31, 2017 and 2016 was $17.5 million and $21.0 million, respectively. There was no outstanding balance on the revolving term loan at October 31, 2017 and 2016.  Therefore, the aggregate principal amount available to HLBE for additional borrowing was $17.5 million and $21.0 million at October 31, 2017 and 2016, respectively.

Interest on this loan accrues at 3.25% above the One-Month London Interbank Offered Rate (LIBOR) Index rate.  HLBE may elect to enter into a fixed interest rate on this loan at various times throughout the term of the loan as provided in the loan agreements.  The interest rate was 4.49% and 3.45% at October 31, 2017 and 2016, respectively.

HLBE pays an unused commitment fee on the unused portion of the revolving term loan commitment at the rate of 0.50% per annum. The loan is secured by substantially all of HLBE's assets, including a subsidiary guarantee.

HLBE's credit facility with Compeer is subject to numerous financial and non-financial covenants that limit HLBE’s distributions and debt and require minimum working capital, minimum local net worth, and debt service coverage ratio, including the following:

· HLBE may not make loans or advances to Agrinatural, which exceed an aggregate principal amount of approximately $3.1 million without the consent of Compeer.  

· HLBE must maintain working capital of at least $8.0 million. Working capital is calculated as unconsolidated current assets plus the amount available under revolving term loan, less unconsolidated current liabilities.

· HLBE must maintain net worth of at least $32.0 million. Local net worth is defined as unconsolidated total assets, minus unconsolidated total liabilities plus the approximately $3.9 million of subordinated convertible debt that was converted into units on July 1, 2014.

· HLBE must maintain a debt service coverage ratio of at least 1.5 to 1.0. The debt service coverage ratio is, calculated on an unconsolidated basis, net income (after taxes), plus depreciation and amortization, minus non-cash dividends/income received, minus extraordinary gains (plus losses), minus gain (plus loss) on asset sales and divided by $4.0 million.

· HLBE may make member distributions of up to 65% of our net income without the consent of Compeer provided we remain in compliance with its loan covenants following the distribution.  Any member distributions in excess of 65% of HLBE’s net income must be pre-approved by Compeer.

As of October 31, 2017, HLBE was in compliance with these financial covenants. However, if market conditions deteriorate in the future, circumstances may develop which could result HLBE violating the financial covenants or other terms of its Compeer credit facility. If HLBE fails to comply with the terms of its credit agreement with Compeer, and Compeer refuses to waive the non-compliance, Compeer could terminate the credit facility and any commitment to loan funds to HLBE.

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Other HLBE Credit Arrangements

In addition to its primary credit arrangement with Compeer, HLBE has other material credit arrangements and debt obligations.

In October 2003, HLBE entered into an industrial water supply development and distribution agreement with the City of Heron Lake, Jackson County, and Minnesota Soybean Processors, an unrelated company. In consideration of this agreement, HLBE and Minnesota Soybean Processors are allocated equally the debt service on $735,000 in water revenue bonds that were issued by the City to support this project that mature in February 2019. The parties have agreed that prior to the scheduled expiration of the agreement, they will negotiate in good faith to replace the agreement with a further agreement regarding the wells and related facilities.

In May 2006, HLBE entered into an industrial water supply treatment agreement with the City of Heron Lake and Jackson County. Under this agreement, HLBE pays monthly installments over 24 months starting January 1, 2007 equal to one years’ debt service on approximately $3.6 million in water revenue bonds, which will be returned to HLBE if any funds remain after final payment in full on the bonds and assuming HLBE complies with all payment obligations under the agreement.

As of October 31, 2017 and 2016, there was a total of approximately $1.3 million and $1.6 million in outstanding water revenue bonds, respectively. HLBE classifies its obligations under these bonds as assessments payable. The interest rates on the bonds range from 0.50% to 8.73%.

To fund the purchase of the distribution system and substation for the HLBE plant, HLBE entered into a loan agreement with Federated Rural Electric Association pursuant to which it borrowed $600,000 by a secured promissory note. Under the note, HLBE was required to make monthly payments to Federated Rural Electric Association of $6,250 consisting of principal and an annual maintenance fee of 1% beginning on October 10, 2009. The balances of this loan was paid in full in September 2017.

HLBE also has a note payable to the minority owner of Agrinatural Gas, LLC in the amount of $100,000 and $200,000 at October 31, 2017 and 2016.  Interest on the note is One Month LIBOR rate plus 4.0% and payment is due on demand at the discretion of the board of managers of Agrinatural. The interest rate was approximately 5.24% and 4.53% at October 31, 2017 and 2016, respectively.

HLBE Loans to Agrinatural

Original Agrinatural Credit Facility

On July 29, 2014, HLBE entered into an intercompany loan agreement and related loan documents with Agrinatural (the “Original Agrinatural Credit Facility”). Under the Original Agrinatural Credit Facility, HLBE agreed to make a five-year term loan in the principal amount of $3.05 million to Agrinatural for use by Agrinatural to repay approximately $1.4 million of its outstanding debt and provide approximately $1.6 million of working capital to Agrinatural. The Original Agrinatural Credit Facility contains customary financial and non-financial affirmative covenants and negative covenants for loans of this type and size.

On March 30, 2015, HLBE entered into an allonge (the “Allonge”) to the July 29, 2014 note with Agrinatural. Under the terms of the Allonge, HLBE and Agrinatural agreed to increase the principal amount of the Original Agrinatural Credit Facility to approximately $3.06 million, defer commencement of repayment of principal until May 1, 2015, decrease the monthly principal payment to $36,000 per month and shorten maturity of the Original Agrinatural Credit Facility to May 1, 2019.

Interest on the Original Agrinatural Credit Facility was not amended and accrues at a variable rate equal to the One-Month LIBOR rate plus 4.0%, with the interest rate capped and not to exceed 6.0% per annum.  Accrued interest is due and payable on a monthly basis. Except as otherwise provided in the Allonge, all of the terms and conditions contained in the Original Agrinatural Credit Facility remain in full force and effect.

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In exchange for the Loan Agreement, the Agrinatural executed a security agreement granting HLBE a first lien security interest in all of Agrinatural’s equipment and assets and a collateral assignment assigning HLBE all of Agrinatural’s interests in its contracts, leases, easements and other agreements. In addition, RES, the minority owner of Agrinatural, executed a guarantee under which RES guaranteed full payment and performance of 27% of Agrinatural’s obligations to HLBE.

The balance of this loan was approximately $2.0 million and $2.4 million at October 31, 2017 and 2016, respectively.

Additional Agrinatural Credit Facility

On March 30, 2015, HLBE entered into a second intercompany loan agreement and related loan documents (the “Additional Agrinatural Credit Facility”) with Agrinatural. Under the Additional Agrinatural Credit Facility, HLBE agreed to make a four-year term loan in the principal amount of $3.5 million to Agrinatural for use by Agrinatural to repay its outstanding trade debt and provide working capital. The Additional Agrinatural Credit Facility contains customary financial and non-financial affirmative covenants and negative covenants for loans of this type and size.

Interest on the additional term loan accrues at a variable rate equal to the One-Month LIBOR rate plus 4.0%, with the interest rate capped and not to exceed 6.0% per annum.  Prior to May 1, 2015, Agrinatural is required to pay only monthly interest on the term loan.  Commencing May 1, 2015, Agrinatural is required to make monthly installments of principal plus accrued interest. The entire principal balance and accrued and unpaid interest on the term loan is due and payable in full on May 1, 2019.

On May 19, 2016, HLBE and Agrinatural amended the Additional Agrinatural Credit Facility, entering into amendment to the loan agreement dated March 30, 2015 (the “Amendment”).  Additionally, HLBE and Agrignatural entered into an allonge to the negotiable promissory note dated March 30, 2015 issued by Agrinatural to HLBE (the “Additional Allonge”) to increase the amount of the capital expenditures allowed by Agrinatural during the term of the facility and deferred a portion of the principal payments required for 2016. 

The Amendment provides that the portion of principal payments deferred in calendar year 2016 to continue to accrue interest at the rate set forth in the Note and become a part of the balloon payment due at maturity.  Additionally, for calendar years, 2017, 2018 and 2019, the Amendment provides that Agrinatural may, without consent of HLBE, proceed with and pay for capital expenditures in an amount up to $100,000 plus the amount of contributions in aid of construction received by Agrinatural from customers for capital improvements (“CIAC”), less a reserve for distribution to the Agrinatural members to cover the income or other taxes imposed as a result of receipt of CIAC in an amount equal to 40% of CIAC. Prior to the Amendment, Agrinatural’s capital expenditures were restricted to $100,000 per year.

In exchange for the Additional Agrinatural Credit Facility, Agrinatural executed a security agreement granting HLBE a first lien security interest in all of Agrinatural’s equipment and assets and a collateral assignment assigning HLBE all of Agrinatural’s interests in its contracts, leases, easements and other agreements. In addition, RES executed a guarantee under which RES guaranteed full payment and performance of 27% of Agrinatural’s obligations to HLBE under the Additional Agrinatural Credit Facility.

The balance of this loan was approximately $2.5 million and $2.9 million at October 31, 2017 and 2016, respectively.

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Contractual Obligations

The following table provides information regarding the contractual obligations of the Company as of October 31, 2017  (amounts in thousands):

			Less than		One to		Three to		Greater Than
	Total		One Year		Three Years		Five Years		Five Years
Long-Term Debt Obligations (1)	$	10,832	$	753	$	2,550	$	2,972	$	4,557
Operating Lease Obligations (2)		35,896		4,917		8,928		8,710		13,342
Purchase Obligations (3)		12,372		12,372		—		—		—
Total Contractual Obligations	$	59,100	$	18,042	$	11,478	$	11,682	$	17,899

⁽¹⁾ Long-term debt obligations include principal and estimated interest under our credit facilities based on the interest rates in effect as of October 31, 2017, assuming contractual maturities. (See Note 8 to the accompanying audited consolidated financial statements).

⁽²⁾ Operating lease obligations include GFE’s and HLBE’s rail car leases  (See Note 10 to the accompanying audited consolidated financial statements).

⁽³⁾ Purchase obligations consist of GFE’s and HLBE’s forward contracted corn deliveries.  The amounts were determined assuming prices, including freight costs, at current market prices as of October 31, 2017 for basis contracts that had not yet been fixed. (See Note 14 to the accompanying audited consolidated financial statements).

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements.

Critical Accounting Estimates

Note 1 to our consolidated financial statements contains a summary of our significant accounting policies, many of which require management to use estimates and assumptions. Accounting estimates are an integral part of the preparation of financial statements and are based upon management’s current judgment. We use our knowledge and experience about past events and certain future assumptions to make estimates and judgments involving matters that are inherently uncertain and that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. We believe that of our significant accounting policies, the following are most noteworthy because changes in these estimates or assumptions could materially affect our financial position and results of operations:

Revenue Recognition

The Company generally sells ethanol and related products pursuant to marketing agreements.  Revenues from the production of ethanol and its co-products are recorded when the customer has taken title and assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured.  Title is generally assumed by the buyer at the Company's shipping point. The Company believes there are no ethanol sales, during any given month, which should be considered contingent and recorded as deferred revenue.

In accordance with the Company's agreements for the marketing and sale of ethanol and related products, marketing fees and commissions due to the marketers are deducted from the gross sales price as earned. Shipping costs incurred by the Company in the sale of ethanol are not specifically identifiable and as a result, are recorded based on the net selling price reported to the Company from the marketer. Shipping costs incurred by the Company in the sale of co‑products are included in cost of goods sold.

Agrinatural recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee for the arrangement is fixed or determinable and collectability is reasonably assured.

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Derivative Instruments

From time to time, we enter into forward sales contracts for ethanol, distillers and corn oil, and purchase contracts for corn and natural gas to hedge our exposure to commodity price fluctuations.  These contracts 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. Accordingly, we classify these sales and purchase contracts as normal sales and purchase contracts and as a result, these contracts are not marked to market in our consolidated financial statements.

On occasion, in order to reduce the risks caused by market fluctuations, the Company hedges its anticipated corn, natural gas, and denaturant purchases and ethanol sales by entering into options and futures contracts. These contracts are used with the intention to fix the purchase price of anticipated requirements for corn in the Company's ethanol production activities and the related sales price of ethanol. The fair value of these contracts is based on quoted prices in active exchange-traded or over-the-counter market conditions. Although the Company believes its commodity derivative positions are economic hedges, none have been formally designated as a hedge for accounting purposes and derivative positions are recorded on the balance sheet at their fair market value, with changes in fair value recognized in current period earnings or losses. The Company does not enter into financial instruments for trading or speculative purposes.

Inventory

We value our inventory at the lower of cost or net realizable value using the first in first out method or net realized value. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. These valuations require the use of management’s assumptions which do not reflect unanticipated events and circumstances that may occur. In our analysis, we consider future corn costs and ethanol prices, break-even points for our plants and our risk management strategies in place through our use of derivative instruments. Given the significant assumptions required and the possibility that actual conditions will differ, we consider the valuation of the lower of cost or net realized value on inventory to be a critical accounting estimate.

Property and Equipment

Management’s estimate of the depreciable lives of property and equipment is based on the estimated useful lives. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment testing for assets requires various estimates and assumptions, including an allocation of cash flows to those assets and, if required, an estimate of the fair value of those assets. The Company tests for impairment at the asset group level, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. These valuations require the use of management’s assumptions, which do not reflect unanticipated events and circumstances that may occur. In our analysis, we consider future corn costs and ethanol prices, break-even points for our plant and our risk management strategies in place through our derivative instruments and forward contracts. Given the significant assumptions required and the possibility that actual conditions will differ, we consider the assessment of impairment of our long-lived assets to be a critical accounting estimate.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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. 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”).

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Interest Rate Risk

Exposure to interest rate risk results primarily from our credit facilities with our credit facilities with United FCS and Fagen Energy and HLBE’s credit facilities with Compeer and its note payable to the minority owner of Agrinatural. The specifics of these credit facilities are discussed in greater detail in “ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Credit Arrangements.”

At October 31, 2017,  there were no amounts outstanding under GFE’s credit facility with United FCS or HLBE’s credit facility with Compeer.  Therefore, at October 31, 2017,  we had exposure to interest rate risk only from the amounts outstanding under the Project Hawkeye credit facility and the note payable to the minority owner of Agrinatural. Below is a sensitivity analysis we prepared regarding our income exposure to changes in interest rates. The sensitivity analysis below shows the anticipated effect on our income from a 10% adverse change in interest rates for a one-year period from October 31, 2017.

Outstanding Variable
Rate Debt at		Interest Rate at		Interest Rate Following 10%		Approximate Adverse
October 31, 2017		October 31, 2017		Adverse Change		Change to Income
$	7,600,000	4.30	%	4.74	%	$	34,000

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 distillers’ 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.

Commodity Price Risk Protection

We seek to minimize the risks from fluctuations in the prices of corn, ethanol, denaturant and natural gas through the use of derivative instruments. In practice, as markets move, we actively manage our risk and adjust hedging strategies as appropriate. We do not use hedge accounting which would match the gain or loss on our hedge positions to the specific commodity contracts being hedged. Instead, we are using fair value accounting for our hedge positions, which means that as the current market price of our hedge positions changes, the gains and losses are immediately recognized in our revenue or cost of goods sold depending on the commodity that is hedged. 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 October 31, 2017,  GFE had price protection in place for approximately 13% and 50% of GFE’s anticipated corn and natural gas needs, respectively, and 23%,  8% and 8% of GFE’s ethanol, distillers’ grains and corn oil sales, respectively, for the next 12 months.  As of October 31, 2017,  HLBE had price protection in place for approximately 7% and 14% of HLBE’s anticipated corn and natural gas needs, respectively, and 22%, 11%, and 15% of its ethanol, distillers’ grains and corn oil sales, respectively for the next 12 months.  As input prices move in reaction to market trends and information, our income statement will be affected depending on the impact such market movements have on the value of our derivative instruments. Depending on market movements, crop prospects and weather, these price protection positions may cause immediate adverse effects, but are expected to produce long-term positive growth for us.

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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 spot prices of corn, natural gas, and ethanol as of October 31, 2017, 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 October 31, 2017 for both the GFE and HLBE plants. The results of this analysis, which may differ from actual results, are as follows:

	Estimated Volume Requirements		Hypothetical Adverse
	for the next 12 months	Unit of	Change in Price as of		Approximate Adverse
	(net of forward and futures contracts)	Measure	October 31, 2017		Change to Income
Ethanol	94,300,000	Gallons	10	%	$	12,200,000
Corn	38,900,000	Bushels	10	%	$	11,400,000
Natural Gas	1,800,000	MMBTU	10	%	$	734,000

Participation in Captive Reinsurance Company

We participate in a captive reinsurance company (“Captive”). The Captive reinsures losses related to workman’s compensation, commercial property and general liability. Premiums are accrued by a charge to income for the period to which the premium relates and is remitted by our insurer to the captive reinsurer. The Captive reinsures losses in excess of a predetermined amount. The Captive insurer has estimated and collected a premium amount in excess of expected losses but less than the aggregate loss limits reinsured by the Captive. We have contributed limited capital surplus to the Captive that is available to fund losses should the actual losses sustained exceed premium funding. So long as the Captive is fully-funded through premiums and capital contributions to the aggregate loss limits reinsured, and the fronting insurers are financially strong, we cannot be assessed over the amount of our current contributions.

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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Governors

Granite Falls Energy, LLC and Subsidiaries

Granite Falls, Minnesota

We have audited the accompanying consolidated balance sheets of Granite Falls Energy, LLC and Subsidiaries (the “Company”) as of October 31, 2017 and 2016, and the related consolidated statements of operations, changes in members’ equity, and cash flows for each of the years in the three-year period ended October 31, 2017. Granite Falls Energy, LLC’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Granite Falls Energy, LLC and Subsidiaries as of October 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended October 31, 2017 in conformity with accounting principles generally accepted in the United States of America.

/s/ Boulay PLLP

Minneapolis, Minnesota

January 29, 2018

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Consolidated Balance Sheets

ASSETS	October 31, 2017		October 31, 2016
Current Assets
Cash	$	21,658,422	$	13,797,857
Restricted cash		75,189		—
Accounts receivable		7,622,601		6,654,994
Inventory		15,241,092		18,341,413
Commodity derivative instruments		244,294		1,228,926
Prepaid expenses and other current assets		361,340		325,989
Total current assets		45,202,938		40,349,179
Property and Equipment, net		72,271,013		78,968,016
Goodwill		1,372,473		1,372,473
Investment		7,500,000		—
Other Assets		743,106		781,254
Total Assets	$	127,089,530	$	121,470,922
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities
Current maturities of long-term debt	$	432,183	$	490,057
Checks drawn in excess of bank balance		—		1,866,683
Accounts payable		7,535,468		5,624,840
Corn payable to FCE		—		5,358,111
Commodity derivative instruments		40,379		—
Accrued expenses		972,043		997,319
Total current liabilities		8,980,073		14,337,010
Long-Term Debt, less current portion		8,465,502		1,393,669
Commitments and Contingencies
Members' Equity
Members' equity attributable to Granite Falls Energy, LLC consists of 30,606 units authorized, issued, and outstanding at both October 31, 2017 and 2016		83,998,672		83,684,529
Non-controlling interest		25,645,283		22,055,714
Total members' equity		109,643,955		105,740,243
Total Liabilities and Members' Equity	$	127,089,530	$	121,470,922

Notes to the Consolidated Financial Statements are an integral part of this Statement.

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Consolidated Statements of Operations

	Fiscal Year Ended October 31,
	2017		2016		2015
Revenues	$	215,782,391	$	215,526,226	$	231,254,508
Cost of Goods Sold		194,682,913		198,627,132		208,654,190
Gross Profit		21,099,478		16,899,094		22,600,318
Operating Expenses		6,167,883		5,325,569		5,175,915
Operating Income		14,931,595		11,573,525		17,424,403
Other Income (Expense):
Other income, net		457,275		99,735		38,169
Interest income		56,384		8,400		9,369
Interest expense		(323,708)		(453,398)		(525,108)
Total other income (expense), net		189,951		(345,263)		(477,570)
Net Income	$	15,121,546	$	11,228,262	$	16,946,833
Less: Net Income Attributable to Non-controlling Interest		(3,636,213)		(2,505,454)		(3,360,083)
Net Income Attributable to Granite Falls Energy, LLC	$	11,485,333	$	8,722,808	$	13,586,750
Weighted Average Units Outstanding - Basic and Diluted		30,606		30,606		30,606
Amounts attributable to Granite Falls Energy, LLC:
Net Income Per Unit - Basic and Diluted	$	375.26	$	285.00	$	443.92
Distributions Per Unit	$	365.00	$	315.00	$	1,050.00

Notes to the Consolidated Financial Statements are an integral part of this Statement.

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Consolidated Statement of Changes in Members’ Equity

	Members' Equity
	Attributable to
	Granite Falls		Non-controlling		Total Members'
	Energy, LLC		Interest		Equity
Balance - October 31, 2014	$	103,152,157	$	22,818,076	$	125,970,233
Distribution		(32,136,300)		(4,621,340)		(36,757,640)
Net income attributable to non-controlling interest		—		3,360,083		3,360,083
Net income attributable to Granite Falls Energy, LLC		13,586,750		—		13,586,750
Balance - October 31, 2015		84,602,607		21,556,819		106,159,426
Distribution		(9,640,886)		(2,006,559)		(11,647,445)
Net income attributable to non-controlling interest		—		2,505,454		2,505,454
Net income attributable to Granite Falls Energy, LLC		8,722,808		—		8,722,808
Balance - October 31, 2016		83,684,529		22,055,714		105,740,243
Distribution		(11,171,190)		—		(11,171,190)
Purchase of subsidiary units attributable to non-controlling interest		—		(46,644)		(46,644)
Net income attributable to non-controlling interest		—		3,636,213		3,636,213
Net income attributable to Granite Falls Energy, LLC		11,485,333		—		11,485,333
Balance - October 31, 2017	$	83,998,672	$	25,645,283	$	109,643,955

Notes to the Consolidated Financial Statements are an integral part of this Statement.

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Consolidated Statements of Cash Flows

	Year Ended October 31,
	2017		2016		2015
Cash Flows from Operating Activities:
Net income	$	15,121,546	$	11,228,262	$	16,946,833
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		9,357,674		9,681,148		9,650,226
Change in fair value of commodity derivative instruments		(699,536)		(581,400)		(303,925)
Gain on sale of assets		(88,340)		—		—
Changes in operating assets and liabilities:
Restricted cash		(75,189)		—		492,099
Commodity derivative instruments		1,724,547		28,509		923,628
Accounts recievable		(967,607)		3,012,478		(385,771)
Inventory		3,100,321		(6,129,388)		(1,486,881)
Prepaid expenses and other current assets		(35,351)		(66,127)		138,611
Accounts payable		(3,662,718)		5,276,025		(1,017,508)
Accrued expenses		(25,276)		342,769		4,556
Net Cash Provided by Operating Activities		23,750,071		22,792,276		24,961,868
Cash Flows from Investing Activities:
Payment for investment		(7,500,000)		—		—
Payments for capital expenditures		(2,318,948)		(4,727,305)		(8,824,669)
Net Cash Used in Investing Activities		(9,818,948)		(4,727,305)		(8,824,669)
Cash Flows from Financing Activities:
Proceeds from long-term debt		7,500,000		9,820,222		13,440,989
Payments on long-term debt		(486,041)		(15,166,428)		(9,169,704)
Checks drawn in excess of bank balance		(1,866,683)		30,001		1,836,682
Purchase of subsidiary units attributable to non-controlling interest		(46,644)		—		—
Distributions to non-controlling interests		—		(2,006,559)		(4,621,340)
Member distributions paid		(11,171,190)		(9,640,886)		(32,136,300)
Net Cash Used in Financing Activities		(6,070,558)		(16,963,650)		(30,649,673)
Net Increase (Decrease) in Cash		7,860,565		1,101,321		(14,512,474)
Cash - Beginning of Period		13,797,857		12,696,536		27,209,010
Cash - End of Period	$	21,658,422	$	13,797,857	$	12,696,536
Supplemental Cash Flow Information
Cash paid during the period for:
Interest expense	$	323,708	$	453,398		525,108
Supplemental Disclosure of Noncash Investing and Financing Activities
Purchase of equipment with trade-in value	$	146,845	$	—	$	—
Capital expenditures and construction in process included in accounts payable	$	215,235	$	—	$	422,451

Notes to the Consolidated Financial Statements are an integral part of this Statement.

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Granite Falls Energy, LLC (“GFE”) is a Minnesota limited liability company currently producing fuel-grade ethanol, distillers’ grains, and crude corn oil near Granite Falls, Minnesota and sells these products, pursuant to marketing agreements, throughout the continental U.S. and on the international market. GFE’s plant has an approximate annual production capacity of 60 million gallons, but is currently permitted to produce up to 70 million gallons of undenatured ethanol on a twelve month rolling sum basis.

Additionally, GFE owns a majority interest in Heron Lake BioEnergy, LLC (“HLBE”).  HLBE is a Minnesota limited liability company currently producing fuel-grade ethanol, distillers’ grains, and crude corn oil near Heron Lake, Minnesota and sells these products, pursuant to marketing agreements, throughout the continental U.S. HLBE’s plant has an approximate annual production capacity of 60 million gallons, but is currently permitted to produce up to 72.3 million gallons per year of undenatured ethanol on a twelve month rolling sum basis.  Additionally, HLBE, through a majority owned subsidiary, operates a natural gas pipeline that provides natural gas to the HLBE’s ethanol production facility and other customers.

Principles of Consolidation

The accompanying consolidated financial statements consolidate the operating results and financial position of GFE, and its approximately 50.7% owned subsidiary, HLBE (through GFE’s 100% ownership of Project Viking, L.L.C.).  Given GFE’s control over the operations of HLBE and its majority voting interest, GFE consolidates the financial statements of HLBE with its consolidated financial statements. The remaining approximately 49.3% ownership of HLBE is included in the consolidated financial statements as a non-controlling interest. HLBE, through its wholly owned subsidiary, HLBE Pipeline Company, LLC, owns 73.0% of Agrinatural Gas, LLC (“Agrinatural”). Given HLBE’s control over the operations of Agrinatural and its majority voting interest, HLBE consolidates the financial statements of Agrinatural with its consolidated financial statements, with the remaining approximately 27.0% ownership of HLBE attributed to the non-controlling interest. All intercompany balances and transactions are eliminated in consolidation.  All references to “we”, “us”, “our”, and the “Company” collectively refer to GFE and its wholly owned and majority owned subsidiaries.

Fiscal Reporting Period

The Company’s fiscal year end for reporting financial operations is October 31 for financial reporting purposes.

Accounting Estimates

Management uses estimates and assumptions in preparing these consolidated financial statements in accordance with generally accepted accounting principles in the U.S. of America. 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. The Company uses estimates and assumptions in accounting for the following significant matters, among others: economic lives of property and equipment, valuation of commodity derivatives, inventory, and inventory purchase and sale commitments, evaluation of rail car damages contingency,  and the assumptions used in the impairment analysis of long-lived assets, which includes goodwill. Actual results may differ from previously estimated amounts, and such differences may be material to our consolidated financial statements. The Company periodically reviews estimates and assumptions, and the effects of revisions are reflected in the period in which the revision is made.

Revenue Recognition

The Company generally sells ethanol and related products pursuant to marketing agreements. Revenues from the production of ethanol and the related products are recorded when the customer has taken title and assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured. Ethanol and related products are generally shipped free on board (FOB) shipping point.

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In accordance with the Company’s agreements for the marketing and sale of ethanol and related products, marketing fees and commissions due to the marketers are deducted from the gross sales price as earned. These fees and commissions are recorded net of revenues, as they do not provide an identifiable benefit that is sufficiently separable from the sale of ethanol and related products. Shipping costs paid by the Company to the marketer in the sale of ethanol are not specifically identifiable and, as a result, are recorded based on the net selling price reported to the Company from the marketer. Shipping costs incurred by the Company in the sale of distillers’ grains and corn oil are included in cost of goods sold.

Agrinatural recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee for the arrangement is fixed or determinable and collectability is reasonably assured.

Cost of Goods Sold

The primary components of cost of goods sold for the production of ethanol and related co-products are corn, energy, raw materials, overhead, depreciation, and direct labor.

Operating Expenses

The primary components of operating expenses are salaries and expenses for administrative employees, professional fees, board of governor expenses and property taxes

Cash

The Company maintains its accounts at multiple financial institutions, of which one is a member of the Company.  At times throughout the year, the Company’s cash balances may exceed amounts insured by the Federal Deposit Insurance Corporation. The Company does not believe it is exposed to any significant credit risk on its cash balances.

Restricted Cash

The Company is periodically required to maintain at its broker cash balances related to open commodity derivative instrument positions as discussed in Note 6.

Accounts Receivable

Credit terms are extended to customers in the normal course of business. The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral.

Accounts receivable are recorded at their estimated net realizable value. Accounts are considered past due if payment is not made on a timely basis in accordance with the Company’s credit terms. Accounts considered uncollectible are written off. The Company follows a policy of providing an allowance for doubtful accounts; however, based on historical experience, and its evaluation of the current status of receivables, the Company is of the belief that such accounts will be collectible in all material respects and thus an allowance was not necessary at October 31, 2017 or 2016.  It is at least possible this estimate will change in the future.

Inventory

Inventory is stated at the lower of cost or net realizable value. Cost for all inventories is determined using the first in first out method.  Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.  Inventory consists of raw materials, work in process, finished goods, and supplies. Corn is the primary raw material along with other raw materials.  Finished goods consist of ethanol, distillers’ grains, and corn oil.

Derivative Instruments

From time to time, the Company enters into derivative transactions to hedge its exposures to commodity price fluctuations. The Company is required to record these derivatives in the balance sheets at fair value.

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In order for a derivative to qualify as a hedge, specific criteria must be met and appropriate documentation maintained. Gains and losses from derivatives that do not qualify as hedges, or are undesignated, must be recognized immediately in earnings.  If the derivative does qualify as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will be either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Changes in the fair value of undesignated derivatives are recorded in earnings.

Additionally, the Company is required to evaluate its contracts to determine whether the contracts are derivatives.  Certain contracts that literally meet the definition of a derivative may be exempted 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 normal sales are documented as normal and exempted from accounting and reporting requirements, and therefore, are not marked to market in our consolidated financial statements.

In order to reduce the risks caused by market fluctuations, the Company occasionally hedges its anticipated corn, natural gas, and denaturant purchases and ethanol sales by entering into options and futures contracts. These contracts are used with the intention to fix the purchase price of anticipated requirements for corn in the Company’s ethanol production activities and the related sales price of ethanol. The fair value of these contracts is based on quoted prices in active exchange-traded or over-the-counter market conditions. Although the Company believes its commodity derivative positions are economic hedges, none have been formally designated as a hedge for accounting purposes and derivative positions are recorded on the balance sheet at their fair market value, with changes in fair value recognized in current period earnings or losses. The Company does not enter into financial instruments for trading or speculative purposes.

The Company has adopted authoritative guidance related to “Derivatives and Hedging,” and has included the required enhanced quantitative and qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses from derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. See further discussion in Note 6.

Other Intangibles

Other intangibles included as a component of other assets on the consolidated balance sheet are stated at cost and include road improvements located near the HLBE plant in which the Company has a beneficial interest in but does not own the road. The Company amortizes the assets over the economic useful life of 15 years. The Company recorded amortization expense in the amount of approximately $38,000 during each of the fiscal years ended October 31, 2017, 2016, and 2015.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided over the following estimated useful lives by use of the straight-line method.

Asset Description	Years
Land improvements	5-20	years
Railroad improvements	5-20	years
Process equipment and tanks	5-40	years
Administration building	10-40	years
Office equipment	3-10	years
Rolling stock	5-10	years

Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized.  Construction in progress expenditures will be depreciated using the straight-line method over their estimated useful lives once the assets are placed into service.

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Long-Lived Assets

Long-lived assets, such as property and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When determining impairment losses, a long-lived asset should be grouped with other assets or liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets or liabilities.  If circumstances require a long-lived asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including, but not limited to, discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No indicators of impairment existed during fiscal 2017, 2016, or 2015 that would have triggered impairment testing, and therefore, no impairment expense was recorded during fiscal 2017, 2016, or 2015.

Investment

On  November 1, 2016, GFE subscribed to purchase 1,500 capital units of Ringneck Energy & Feed, LLC (“Ringneck”) at a price of $5,000 per unit for a total of $7,500,000.  GFE paid a down payment of $750,000 in connection with the subscription, and signed a promissory note for $6,750,000 for the remaining balance of the subscription. By letter dated July 12, 2017, GFE was notified of Ringneck’s acceptance of GFE’s subscription and that payment of the balance of GFE’s subscription due under the promissory note was due not later than August 2, 2017.  On August 2, 2017, GFE paid $6,750,000 to Ringneck, the remaining balance of GFE’s subscription.  

Ringneck is a South Dakota limited liability company that is currently constructing an 80 million gallon per year ethanol manufacturing plant in outside of Onida, South Dakota in Sully County. GFE’s investment is sufficient to secure theCompany the right to appoint one director to the board of directors of Ringneck and GFE has appointed Steve Christensen, its CEO to serve as its appointed director.  

The investment will be accounted for by the equity method, under which the Company’s share of the net income of the investee is recognized as income in the Company’s Consolidated Statement of Operations and added to the investment account.  Any distributions received from the affiliates are treated as a reduction of the investment.

Fair Value of Financial Instruments

The Company’s accounting for fair value measurements of assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring or nonrecurring basis adhere to the Financial Accounting Standards Board (“FASB”) fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The Company has adopted guidance for fair value measurement related to nonfinancial items that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis.  The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy are as follows:

· Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

· Level 2 inputs include:

1. Quoted prices in active markets for similar assets or liabilities.

2. Quoted prices in markets that are observable for the asset or liability either directly or indirectly, for substantially the full term of the asset or liability.

3. Inputs that derived primarily from or corroborated by observable market date by correlation or other means.

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Notes to Consolidated Financial Statements

· Level 3 inputs are unobservable inputs for the asset or liability.

The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

Except for those assets and liabilities which are required by authoritative accounting guidance to be recorded at fair value in our balance sheets, the Company has elected not to record any other assets or liabilities at fair value. No events occurred during the fiscal years ended October 31, 2017, 2016, or 2015 that required adjustment to the recognized balances of assets or liabilities, which are recorded at fair value on a nonrecurring basis.

The carrying value of cash, accounts receivable, accounts payable and accrued liabilities approximates fair value due to the short maturity of these instruments. The Company obtains fair value measurements from an independent pricing service for corn derivative contracts.  The fair value measurements consider observable data that may include dealer quotes and live trading levels from the Chicago Board of Trade and New York Mercantile Exchange markets.  The fair value of the long-term debt is estimated based on anticipated interest rates which management believes would currently be available to the Company for similar issues of debt, taking into account the current credit risk of the Company and other market factors.  The Company believes the carrying value of the debt instruments approximate fair value.

Income Taxes

The Company is treated as a partnership for federal and state income tax purposes, and generally does not incur income taxes. Instead its earnings and losses are included in the income tax returns of its members. Therefore, no provision or liability for federal or state income taxes has been included in these financial statements. Differences between financial statement basis of assets and tax basis of assets is related to capitalization and amortization of organization and start-up costs for tax purposes, whereas these costs are expensed for financial statement purposes. In addition, the Company uses the alternative depreciation system for tax depreciation instead of the straight-line method that is used for book depreciation, which also causes temporary differences. The Company’s tax year end is December 31.

The Company had no significant uncertain tax positions as of October 31, 2017 or 2016 that would require disclosure, primarily due to the partnership tax status. The Company recognizes and measures tax benefits when realization of the benefits is uncertain under a two-step approach. The first step is to determine whether the benefit meets the more-likely-than-not condition for recognition and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%. Primarily due to the Company’s tax status as a partnership, the adoption of this guidance had no material impact on the Company’s financial condition or results of operations.

The Company files income tax returns in the U.S. federal and Minnesota state jurisdictions. For years before 2014, the Company is no longer subject to U.S. Federal or state income tax examinations.

Net Income per Unit

Basic net income per unit is computed by dividing net income by the weighted average number of members’ units outstanding during the period. Diluted net income per unit is computed by dividing net income 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, for all periods presented, the calculations of the Company’s basic and diluted net income per unit are the same.

Environmental Liabilities

The Company’s operations are subject to environmental laws and regulations adopted by various governmental entities in the jurisdiction in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its location. Accordingly, the Company has adopted policies, practices, and procedures in the areas of pollution control, occupational health, and the production, handling, storage, and use of hazardous materials to prevent material environmental or other damage, and to limit the financial liability, which could result from such events. Environmental liabilities are recorded when the liability is probable and the costs can be reasonably estimated. No expense has been recorded for the fiscal years ended October 31, 2017, 2016, or 2015.

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Notes to Consolidated Financial Statements

Goodwill

Goodwill represents the cost in excess of the fair value of net assets acquired. The Company conducts impairment assessments annually or when events indicate a triggering event has occurred. No indicators of impairment existed during fiscal 2017, 2016, or 2015 that would have triggered impairment testing, and therefore, no impairment expense was recorded during 2017, 2016, or 2015.

Reportable Operating Segments

Accounting Standards Codification (“ASC”) 280, “Segment Reporting,” establishes the standards for reporting information about segments in financial statements. Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Therefore, in applying the criteria set forth in ASC 280, the Company determined that based on the nature of the products and production process and the expected financial results, the Company’s operations at GFE’s ethanol plant and HLBE’s plant, including the production and sale of ethanol and its co-products, are aggregated into one reporting segment.

Additionally, the Company also realizes relatively immaterial revenue from natural gas pipeline operations at Agrinatural, HLBE’s majority owned subsidiary. Before and after accounting for intercompany eliminations, these revenues from Agrinatural’s represent less than less than 1% of our consolidated revenues and have little to no impact on the overall performance of the Company.  Therefore, the Company does not separately review Agrinatural’s revenues, cost of sales or other operating performance information.  Rather, the Company reviews Agrinatural’s natural gas pipeline financial data on a consolidated basis with the Company’s ethanol production operating segment. The Company believes that the presentation of separate operating performance information for Agrinatural’s natural gas pipeline operations would not provide meaningful information to a reader of the Company’s consolidated financial statements and would not achieve the basic principles and objectives of ASC 280.

Recently Issued Accounting Pronouncements

Contract Revenue Recognition (Evaluating)

In May 2014 and amended in August 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09 which amended the Revenue from Contracts with Customers (Topic 606) of the ASC. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for the Company beginning November 1, 2018. The Company is currently evaluating the guidance and its effect on its consolidated financial statements.

Leases (Evaluating)

In February 2016, the FASB adopted ASU No. 2016-02, Leases (Topic 842), which provides guidance for accounting for leases. The new guidance requires companies to recognize the assets and liabilities for the rights and obligations created by leased assets, initially measured at the present value of the lease payments. The accounting guidance for lessors is largely unchanged. The guidance will be effective for the Company beginning November 1, 2019.  The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

Restricted Cash (Evaluating)

In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which amended Statement of Cash Flows (Topic 230) of the ASC. The new guidance will require amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the consolidated statement of cash flows. The amendments will be effective for the Company beginning November 1, 2018. The Company is currently evaluating the impact that adoption of this guidance will have on its consolidated financial statements.

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Notes to Consolidated Financial Statements

2.  RISKS AND UNCERTAINTIES

The Company has certain risks and uncertainties that it experiences during volatile market conditions. These volatilities can have a severe impact on operations.  The Company’s revenues are derived primarily from the sale and distribution of ethanol, distillers’ grains and corn oil to customers primarily located in the U.S. Corn for the production process is supplied to our plants primarily from local agricultural producers and from purchases on the open market.  Ethanol sales typically average 75-90% of total revenues and corn costs typically average 65-85% of cost of goods sold.

The Company’s operating and financial performance is largely driven by the prices at which it sells ethanol and the net expense of corn. The price of ethanol is influenced by factors such as supply and demand, the weather, government policies and programs, unleaded gasoline prices and the petroleum markets as a whole. Excess ethanol supply in the market, in particular, puts downward pressure on the price of ethanol. The largest cost of production is corn. The cost of corn is generally impacted by factors such as supply and demand, the weather, government policies and programs, and a risk management program used to protect against the price volatility of these commodities. Market fluctuations in the price of and demand for these products may have a significant adverse effect on the Company’s operations, profitability and the availability and adequacy of cash flow to meet the Company’s working capital requirements.

The supply and demand for ethanol are impacted by federal and state legislation and regulation, most significantly the Renewable Fuels Standard (“RFS”), and any changes in legislation or regulation could cause the demand for ethanol to decline or its supply to increase, which could have a material adverse effect on our business, results of operations and financial condition, and the ability to operate at a profit.

On November 30, 2017, the EPA announced the final 2018 renewable volume requirements (“RVOs”)for conventional ethanol at 15.0 billion gallons, with the RVOs for advanced biofuels set at 4.29 billion gallons and cellulosic ethanol at 0.29 billon gallons, reducing overall RVOs to 19.29 billion gallons for 2018.  Although this final rule achieves the statutory RVO for conventional corn-based ethanol originally set by Congress when the RFS was enacted, it reduces the overall RVOs below the overall statutory level of 26 billion gallons.

According to the RFS, if mandatory renewable fuel volumes are reduced by at least 20% for two consecutive years, the EPA is required to modify, or reset, statutory volumes through 2022. Since 2018 is the first year the total proposed RVOs were more than 20% below statutory levels, in September 2017, the EPA Administrator directed his staff to initiate the required technical analysis to perform any future reset consistent with the reset rules. If 2019 RVOs are also more than 20% below statutory levels, the RVO reset will be triggered under RFS and the EPA will be required to modify statutory volumes through 2022 within one year of the trigger event, based on the same factors used to set the RVOs post-2022. If the statutory RVOs are reduced as a result of reset, it could have an adverse effect on the market price and demand for ethanol which would negatively impact our financial performance.

Additionally, opponents of ethanol such as large oil companies will likely continue their efforts to repeal or reduce the RFS through lawsuits or lobbying of Congress. Successful reduction or repeal of the blending requirements of the RFS could result in a significant decrease in ethanol demand.

Current ethanol production capacity is approximately 16.0 billion gallons according to the RFA and may increase during calendar year 2018 as several plants’ expansion projects come online. Although the release of the final 2018 RVOs maintaining the 15 billion gallon RVO for conventional corn-based ethanol together a letter issued by EPA Administrator Pruitt in October 2017 signals support from the EPA and the Trump administration for domestic ethanol production, the EPA and Trump administration could still elect to materially modify, repeal or otherwise invalidate the RFS.  It is unclear what regulatory framework and renewable volume requirements, if any, will emerge as a result of such reforms; however, any such reform could adversely affect the demand and price for ethanol and the Company's profitability.

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Notes to Consolidated Financial Statements

3. FAIR VALUE

The following table provides information on those derivative assets and liabilities measured at fair value on a recurring basis at October 31, 2017:

					Fair Value Measurement Using
					Quoted Prices		Significant Other		Significant
	Carrying Amount in				in Active Markets		Observable Inputs		Unobservable Inputs
Financial Asset:	Consolidated Balance Sheet		Fair Value		(Level 1)		(Level 2)		(Level 3)
Commodity Derivative Instruments - Corn	$	244,294	$	244,294	$	244,294	$	—	$	—
Financial Liabilities:
Commodity Derivative Instruments - Ethanol	$	24,998	$	24,998	$	36,500	$	(11,502)	$	—
Commodity Derivative Instruments - Natural Gas	$	15,381	$	15,381	$	—	$	15,381	$	—

The following table provides information on those derivative assets measured at fair value on a recurring basis at October 31, 2016:

					Fair Value Measurement Using
					Quoted Prices		Significant Other		Significant
	Carrying Amount in				in Active Markets		Observable Inputs		Unobservable Inputs
Financial Asset:	Consolidated Balance Sheet		Fair Value		(Level 1)		(Level 2)		(Level 3)
Commodity Derivative Instruments - Corn	$	451,575	$	451,575	$	451,575	$	—	$	—
Commodity Derivative Instruments - Ethanol	$	777,351	$	777,351	$	777,351	$	—	$	—

The Company determines the fair value of commodity derivative instruments by obtaining 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 Chicago Board of Trade market and New York Mercantile Exchange.  We determine the fair value of ethanol and natural gas Level 2 instruments by model-based techniques in which all significant inputs are observable in the markets noted above.

4. CONCENTRATIONS

Granite Falls Energy

GFE sold all of the ethanol, distillers’ grains, and corn oil produced at its plant to two customers under marketing agreements during the fiscal years ended October 31, 2017, 2016, and 2015.  

The percentage of GFE’s total revenues attributable to each of its two major customers for the fiscal years ended October 31, 2017, 2016, and 2015 were as follows:

	October 31, 2017	October 31, 2016	October 31, 2015
Eco-Energy, Inc. - Ethanol	81.8%	80.3%	79.1%
RPMG, Inc. - Distillers' Grains & Corn Oil	17.8%	19.7%	20.7%

The percentage of GFE’s total accounts receivable attributable to each of its two major customers at October 31, 2017 and 2016 were as follows:

	October 31, 2017	October 31, 2016
Eco-Energy, Inc. - Ethanol	82.0%	70.2%
RPMG, Inc. - Distillers' Grains & Corn Oil	16.3%	26.5%

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Notes to Consolidated Financial Statements

Heron Lake BioEnergy

HLBE sold all of the ethanol, distillers’ grains, and corn oil produced at its plant to three customers under marketing agreements during the fiscal years ended October 31, 2017, 2016, and 2015.  

The percentage of HLBE’s total revenues attributable to each of HLBE’s three major customers for the fiscal years ended October 31, 2017, 2016, and 2015 were as follows:

	October 31, 2017	October 31, 2016	October 31, 2015
Eco-Energy, Inc. - Ethanol	81.3%	78.5%	76.9%
Gavilon Ingredients, LLC - Distillers' Grains	13.7%	15.4%	19.2%
RPMG, Inc. - Corn Oil	4.5%	4.4%	2.4%

The percentage of HLBE’s total accounts receivable attributable to each of HLBE’s three major customers at October 31, 2017 and 2016 were as follows:

	October 31, 2017	October 31, 2016
Eco-Energy, Inc. - Ethanol	86.8%	78.6%
Gavilon Ingredients, LLC - Distillers' Grains	7.0%	11.1%
RPMG, Inc. - Corn Oil	4.3%	3.3%

5.  INVENTORY

Inventory consists of the following at October 31:

	2017		2016
Raw materials	$	4,488,923	$	9,098,492
Supplies		2,929,385		2,755,958
Work in process		1,281,292		1,347,754
Finished goods		6,541,492		5,139,209
Totals	$	15,241,092	$	18,341,413

The Company performs a lower of cost or net realizable value analysis on inventory to determine if the market values of certain inventories are less than their carrying value, which is attributable primarily to decreases in market prices of corn and ethanol. Based on the lower of cost or net realizable value analysis, the Company recorded a loss on ethanol inventories, as a component of cost of goods sold, of approximately $128,000 and $0 for the fiscal years ended October 31, 2017 and 2016, respectively

6.  DERIVATIVE INSTRUMENTS

The Company enters into corn, ethanol, and natural gas derivatives in order to protect cash flows from fluctuations caused by volatility in commodity prices for periods up to 24 months. These derivatives are put in place 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. Although these derivative instruments serve the Company’s purpose as an economic hedge, they 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

As of October 31, 2017, the total notional amount of GFE’s outstanding corn derivative instruments was approximately 1,495,000 bushels, comprised of long corn positions on 200,000 bushels that were entered into to hedge forecasted ethanol sales through December 2017, and short corn positions on 1,295,000 bushels that were entered into to hedge forecasted corn purchases through December 2018. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

As of October 31, 2017, the total notional amount of GFE’s outstanding ethanol derivative instruments was approximately 420,000 gallons that were entered into to hedge forecasted ethanol sales through November 2017.    

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Notes to Consolidated Financial Statements

As of October 31, 2017, GFE had approximately $75,000 cash collateral (restricted cash) and approximately $12,000 due to broker related to derivatives held by a broker.

As of October 31, 2017, the total notional amount of HLBE’s outstanding corn derivative instruments was approximately 1,120,000 bushels, comprised of long corn positions on 215,000 bushels that were entered into to hedge forecasted ethanol sales through December 2017, and short corn positions on 905,000 bushels that were entered into to hedge forecasted corn purchases through July 2018. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

As of October 31, 2017, HLBE had outstanding natural gas derivative instruments totaling 120,000 MMBTU entered into hedge forecasted natural gas purchases through February 2018.

As of October 31, 2017, the total notional amount of HLBE’s outstanding ethanol derivative instruments was approximately 420,000 gallons that were entered into to hedge forecasted ethanol sales through November 2017

As of October 31, 2017, HLBE did not have any cash collateral (restricted cash) and approximately $12,000 due to broker related to derivatives held by a broker.

The following tables provide details regarding the Company’s derivative instruments at October 31, 2017, none of which were designated as hedging instruments:

	Consolidated Balance Sheet location	Assets		Liabilities
Corn contracts - GFE	Commodity derivative instruments	$	102,650	$	—
Corn contracts - HLBE	Commodity derivative instruments		141,644		—
Ethanol contracts - GFE	Commodity derivative instruments		—		12,749
Ethanol contracts - HLBE	Commodity derivative instruments		—		12,249
Natural gas contracts - HLBE	Commodity derivative instruments		—		15,381
Totals		$	244,294	$	40,379

As of October 31, 2016, the total notional amount of GFE’s outstanding corn derivative instruments was approximately 5,220,000 bushels, comprised of long corn positions on 3,300,000 bushels that were entered into to hedge forecasted ethanol sales through March 2017, and short corn positions on 1,920,000 bushels that were entered into to hedge forecasted corn purchases through December 2016. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.  As of October 31, 2016, GFE did not have any cash collateral (restricted cash) related to derivatives held by a broker.

As of October 31, 2016, the total notional amount of HLBE’s outstanding corn derivative instruments was approximately 4,285,000 bushels, comprised of long corn positions on 3,100,000 bushels that were entered into to hedge forecasted ethanol sales through March 2017, and short corn positions on 1,185,000 bushels that were entered into to hedge forecasted corn purchases through August 2017. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding. As of October 31, 2016, HLBE did not have any cash collateral (restricted cash) related to derivatives held by a broker.

The following tables provide details regarding the Company’s derivative instruments at October 31, 2016, none of which were designated as hedging instruments:

	Consolidated Balance Sheet location	Assets		Liabilities
Corn contracts - GFE	Commodity derivative instruments	$	63,050	$	—
Corn contracts - HLBE	Commodity derivative instruments		388,525		—
Ethanol Contracts - GFE	Commodity derivative instruments		503,538		—
Ethanol Contracts - HLBE	Commodity derivative instruments		273,813		—
Totals		$	1,228,926	$	—

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Notes to Consolidated Financial Statements

The following tables provide details regarding the gains (losses) from Company’s derivative instruments in statements of operations, none of which are designated as hedging instruments:

	Consolidated Statement	Year Ended October 31,
	of Operations Location	2017		2016		2015
Corn contracts	Cost of Goods Sold	$	1,129,746	$	708,364	$	303,925
Ethanol contracts	Revenues		(414,829)		(159,322)		—
Natural gas contracts	Cost of Goods Sold		(15,381)		32,358		—
Total gain, net		$	699,536	$	581,400	$	303,925

7.  PROPERTY AND EQUIPMENT

A summary of property and equipment is as follows:

	October 31, 2017		October 31, 2016
Land and improvements	$	13,697,790	$	13,697,790
Railroad improvements		9,045,112		9,045,112
Process equipment and tanks		129,640,626		128,004,694
Administration building		569,328		569,328
Office equipment		989,690		907,652
Rolling stock		1,904,154		1,792,534
Construction in progress		777,655		315,631
		156,624,355		154,332,741
Less: accumulated depreciation		(84,353,342)		(75,364,725)
Net property and equipment	$	72,271,013	$	78,968,016

Depreciation expense totaled approximately $9,320,000,  $9,641,000, and $9,612,000 for the fiscal years ended October 31, 2017, 2016, and 2015, respectively.

8.  DEBT FACILITIES

Granite Falls Energy

GFE has a credit facility with a lender. This credit facility was originally a revolving term loan facility with an aggregate principal commitment amount of $18,000,000 that reduced by $2,000,000 semi-annually beginning September 1, 2014, until final payment at maturity on March 1, 2018.  On September 8, 2017, the revolving term loan was converted to a seasonal revolving loan in the amount of $6,000,000.  GFE had no outstanding balance on the revolving term loan at the time of conversion.  There was no outstanding balance on the seasonal revolving loan at October 31, 2017. Therefore, the aggregate principal amount available for borrowing by GFE under this seaonal revolving loan at October 31, 2017 was $6,000,000.

The interest rate on the seasonal revolving loan is based on the bank’s One Month London Interbank Offered Rate (“LIBOR”) Index Rate, plus 2.75%, which was 3.99% at October 31, 2017.

The credit facility requires GFE to comply with certain financial covenants at various times calculated monthly, quarterly or annually, including restriction of the payment of dividends and maintenance of certain financial ratios including minimum working capital, minimum net worth and a debt service coverage ratio as defined by the credit facility. Failure to comply with the protective loan covenants or maintain the required financial ratios may cause acceleration of the outstanding principal balances on the revolving term loan and/or the imposition of fees, charges or penalties. 

The credit facility is secured by substantially all assets of GFE. There are no savings account balance collateral requirements as part of this credit facility.

On August 2, 2017, GFE entered into a replacement credit facility with Project Hawkeye. The terms of the replacement credit facility allow GFE to borrow up to $7.5 million of variable-rate, amortizing non-recourse debt from Project Hawkeye

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Notes to Consolidated Financial Statements

using the Ringneck investment as collateral.  The Project Hawkeye loan bears interest from date funds are first advanced on the loan through maturity, at a rate per annum equal to the sum of the One Month LIBOR Index Rate plus 3.05% per annum, with an interest rate floor of 3.55% which equated to 4.29% at October 31, 2017.

The Project Hawkeye loan requires annual interest payments only for the first two years of the loan and monthly principal and interest payments for years three through nine based on a seven-year amortization period.  The monthly amortized payments will be re-amortized following any change in interest rate. The entire outstanding principal balance of the loan, plus any accrued and unpaid interest thereon, is due and payable in full on August 2, 2026. GFE is permitted to voluntarily prepay all or any portion of the outstanding balance of this loan at any time without premium or penalty.

Pursuant to a pledge agreement entered into in connection with the Project Hawkeye loan, GFE’s obligations are secured by all of its right, title, and interest in its investment in Ringneck, including the 1,500 units subscribed for by GFE. The loan is non-recourse to all of GFE’s other assets, meaning that in the event of default, the only remedy available to Project Hawkeye will be to foreclose and seize all of GFE’s right, title and interest in its investment in Ringneck.

As of October 31, 2017, GFE has borrowed $7.5 million under the Project Hawkeye credit facility to finance the balance of its investment in Ringneck.

Heron Lake BioEnergy

HLBE has a revolving term loan with a lender under which it could borrow, repay, and re-borrow in an amount up to $28,000,000 at any time prior to the March 1, 2022 maturity.  However, the available for borrowing under the revolving term note reduces by $3,500,000 annually, starting March 1, 2015 and continuing each anniversary thereafter until maturity. The aggregate principal commitment of this facility at October 31, 2017 was $17,500,000.  HLBE had no outstanding balance on the revolving term loan at October 31, 2017 and 2016. Therefore, at October 31, 2017 and 2016, the aggregate principal amount available to the Company for borrowing was $17,500,000 and $21,000,000, respectively.

Interest on the revolving term loan accrues at a variable rate equal to 3.25% above the LIBOR Index rate. HLBE may elect to enter into a fixed interest rate on this loan at various times throughout the term of the loan as provided in the loan agreements. The interest rate on the revolving term loan was 4.49%  and 3.45%  at October 31, 2017, and October 31, 2016, respectively.

HLBE also agreed to pay an unused commitment fee on the unused portion of the revolving term loan commitment at the rate of 0.50% per annum. The loan is secured by substantially all of the Company assets including a subsidiary guarantee. 

The credit facility contains customary covenants, including restrictions on the payment of dividends and loans and advances to Agrinatural, and maintenance of certain financial ratios including minimum working capital, minimum net worth and a debt service coverage ratio as defined by the credit facility. Failure to comply with the protective loan covenants or maintain the required financial ratios may cause acceleration of the outstanding principal balances on the revolving term loan and/or the imposition of fees, charges or penalties.

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Notes to Consolidated Financial Statements

Long-term debt consists of the following:

	October 31, 2017		October 31, 2016
GRANITE FALLS ENERGY:
Revolving term loan, see terms above.	$	—	$	—
Seasonal loan, see terms above.		—		—
Term note payable to Project Hawkeye, see terms above.		7,500,000		—
HERON LAKE BIOENERGY:
Revolving term loan to lending institution, see terms above.		—		—
Assessment payable as part of water treatment agreement, due in semi-annual installments of $189,393 with interest at 6.55%, enforceable by statutory lien, with the final payment due in 2021. HLBE made deposits for one years' worth of debt service payments of approximately $364,000, which is included with other assets that are held on deposit to be applied with the final payments of the assessment.		1,241,171		1,517,046
Assessment payable as part of water supply agreement, due in monthly installments of $3,942 with interest at 8.73%, enforceable by statutory lien, with the final payment due in 2019.		56,514		97,930
Note payable to electrical company with monthly payments of $6,250 with interest at 0.00% and a 1.00% maintenance fee due each October.  This note was paid in full in September 2017. The electrical company is a member of HLBE.		—		68,750
Note payable to non-controlling interest member of Agrinatural.  Interest is at One Month LIBOR plus 4.0%, which was approximately 5.24% and 4.53% at October 31, 2017 and 2016, respectively.  The note is considered due on demand with payments due at Agrinatural's Board of Managers' discretion.		100,000		200,000
Totals		8,897,685		1,883,726
Less: amounts due within one year		432,183		490,057
Net long-term debt	$	8,465,502	$	1,393,669

Based on the most recent debt agreements, estimated maturities of long-term debt at October 31, 2017 are as follows:

2018	$	432,183
2019		408,169
2020		1,398,227
2021		1,391,250
2022		1,071,429
Thereafter		4,196,427
Total debt	$	8,897,685

9. MEMBERS’ EQUITY

Granite Falls Energy

GFE has one class of membership units. The units have no par value and have identical rights, obligations and privileges.  Income and losses are allocated to all members based upon their respective percentage of units held.  As of October 31, 2017, 2016, and 2015, GFE had 30,606 membership units authorized, issued, and outstanding, respectively.

Subsequent to fiscal year end, in December 2017, GFE’s Board of Governors declared a cash distribution of $385 per unit or approximately $11,783,000 for GFE unit holders of record as of December 21, 2017 was paid by GFE in January 2018.

In December 2016, GFE’s Board of Governors declared a cash distribution of $365 per unit or approximately $11,171,000 for GFE unit holders of record as of December 21, 2016 to be paid by GFE on January 26, 2017.

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Notes to Consolidated Financial Statements

In December 2015, GFE’s Board of Governors declared a cash distribution of $315 per unit or approximately $9,641,000 for GFE unit holders of record as of December 17, 2015 was paid by GFE on January 25, 2016.

In December 2014, GFE’s Board of Governors declared a cash distribution of $1,050 per unit or approximately $32,136,000 for GFE unit holders of record as of December 18, 2014. This distribution was paid by GFE on January 19, 2015.

Heron Lake BioEnergy

Subsequent to year end, on December 21, 2017, HLBE’s board of governors declared a distribution of $0.11 per membership unit for a total of approximately $8,573,000 to be paid to members of record as of December 21, 2017.  The distribution was paid in January 2018.  Based on the covenants contained in HLBE’s lender’s credit facilities, the foregoing distribution was approved by its lender prior to distribution.

On December 17, 2015, HLBE’s board of governors declared a distribution of $0.05 per membership unit for a total of approximately $3,897,000 to be paid to HLBE unit holders of record as of December 18, 2015.  The distribution was paid on January 25, 2016. At December 17, 2015, GFE owned 39,420,949 Class A membership units and 15,000,000 Class B units of HLBE, and received an aggregate distribution from HLBE of $1,971,000.  The remaining $1,926,000 was distributed by HLBE to the non-controlling interest.

On December 18, 2014, HLBE’s board of governors declared a distribution of $0.12 per membership unit for a total of approximately $9,352,000 to be paid to HLBE unit holders of record as of December 18, 2014. The distribution was paid by HLBE on January 19, 2015.  At December 18, 2014, GFE owned 39,420,949 Class A membership units and 15,000,000 Class B units of HLBE, and received an aggregate distribution from HLBE of $4,731,000.  The remaining $4,621,000 was distributed by HLBE to the non-controlling interest.

10. LEASES

Granite Falls Energy

GFE has lease agreements with leasing companies for 218 rail cars for the transportation of GFE’s ethanol with various maturity dates through December 2026. The rail car lease payments are due monthly in the aggregate amount of approximately $181,000.

GFE has lease agreements with leasing companies for 115 hopper cars to assist with the transport of the distillers’ grains by rail with various maturity dates through November 2025. The rail car lease payments are due monthly in the amount of approximately $76,000.

Rent expense for GFE’s leases was approximately $3,163,000,  $2,985,000 and $2,204,000 for the fiscal years ended October 31, 2017, 2016,  and 2015, respectively.

Heron Lake BioEnergy

HLBE has lease agreements with leasing companies for 148 rail cars for the transportation of HLBE’s ethanol with various maturity dates through January 2027. The rail car lease payments are due monthly in the aggregate amount of approximately $127,000.

HLBE has lease agreement with leasing companies for 110 hopper cars to assist with the transport of the distillers’ grains by rail with various maturity dates through May 2027. During the fiscal year ended October 31, 2017, HLBE renewed a lease agreement for 50 hopper cars for an additional ten years with monthly lease payments of of approximately $25,000.  The rail car lease payments are due monthly in the amount of approximately $64,000.

Rent expense for HLBE’s leases was approximately $2,170,000,  $2,571,000 and $1,969,000 for the fiscal years ended October 31, 2017, 2016, and 2015, respectively.

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Notes to Consolidated Financial Statements

At October 31, 2017, the Company had the following minimum future lease for payments, which at inception had a non-cancelable term of more than one year:

November 1, 2017 to October 31, 2018	$	4,916,616
November 1, 2018 to October 31, 2019		4,532,800
November 1, 2019 to October 31, 2020		4,395,550
November 1, 2020 to October 31, 2021		4,393,800
November 1, 2021 to October 31, 2022		4,315,800
Thereafter		13,341,850
Total minimum lease commitments	$	35,896,416

11.  EMPLOYEE BENEFIT PLANS

GFE has a defined contribution plan available to all of its qualified employees. GFE contributes a match of 50% of the participant’s salary deferral up to a maximum of 3% of the employee’s salary.  GFE contributions totaled approximately $73,000,  $63,000, and $57,000 for the fiscal years ended October 31, 2017, 2016, and 2015, respectively.

HLBE has a defined contribution plan available to all of its qualified employees. HLBE contributes a match of 50% of the participant’s salary deferral up to a maximum of 4% of the employee’s salary.  HLBE contributions totaled approximately $90,000,  $85,000, and $81,000 for the fiscal years ended October 31, 2017, 2016, and 2015, respectively.

12. INCOME TAXES

The differences between the consolidated financial statement basis and tax basis of assets are estimated as follows:

	October 31, 2017		October 31, 2016
Consolidated financial statement basis of assets	$	127,089,530	$	121,470,922
Organization & start-up costs capitalized for tax purposes, net		268,166		357,554
Tax depreciation greater than book depreciation		(14,219,188)		(17,884,622)
Unrealized derivatives gains of commodity derivative instruments		(102,650)		(566,588)
Capitalized inventory		81,119		41,467
Net effect of consolidation of acquired subsidiary		(32,239,669)		(36,496,913)
Income tax basis of assets	$	80,877,308	$	66,921,820

There were no significant differences between the consolidated financial statement basis of liabilities and the income tax basis of liabilities at October 31, 2017 and 2016.

13. RELATED PARTY TRANSACTIONS

GFE Corn Storage and Grain Handling Agreement

GFE had a corn storage and grain handling agreement with Farmers Cooperative Elevator (“FCE”), a member of GFE. Under the agreement, GFE had agreed to purchase all of the corn needed for the operation of the plant from FCE. The price of the corn purchased was the bid price FCE establishes for the plant plus a set fee of per bushel.

On February 27, 2017, GFE and FCE executed an amendment to the corn storage and grain handling agreement with an effective date of February 21, 2017. Pursuant to the terms of the amendment, the parties agreed to amend the corn storage and grain handling agreement to accelerate the termination date of the agreement to midnight August 31, 2017.  Additionally, GFE began posting bids for the purchase of corn beginning June 1, 2017 and thereafter, but could not accept delivery of corn at its Granite Falls, Minnesota plant until September 1, 2017.  In August 2017, in exchange for the early termination, GFE paid an early termination fee to FCE of approximately $255,000. Prior to the amendment, the termination date of the corn storage and grain handling agreement was set to expire on November 2017.

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Notes to Consolidated Financial Statements

GFE purchased approximately $51,861,000 of corn from FCE during fiscal 2017, of which approximately $0 is included in corn payable at October 31, 2017.  GFE purchased approximately $75,865,000 of corn from FCE during fiscal 2016, of which approximately $5,358,000 is included in corn payable to FCE at October 31, 2016.  GFE purchased approximately $75,018,000 of corn from FCE during fiscal 2015, of which approximately $1,486,000 is included in corn payable to FCE at October 31, 2015.

GFE purchased corn from board members of approximately $945,000 for the fiscal year ended October 31, 2017, of which approximately $8,000 is included in accounts payable at October 31, 2017.

HLBE Corn Purchases - Members

HLBE purchased corn from its board members of approximately $9,811,000,  $15,008,000, and $11,032,000 during the fiscal years ended October 31, 2017, 2016, and 2015.

Agrinatural

During 2013, HLBE borrowed $300,000 from the non-controlling interest member of Agrinatural.  Total interest paid in relation to this note payable amounted to approximately $6,000, $20,000, and $16,000 for each of the years ended October 31, 2017, 2016, and 2015.

Swan Engineering

Agrinatural has management and operating agreement with Swan Engineering, Inc. (“SEI”). SEI, together with an unrelated third party owns Rural Energy Solutions, LLC (“RES”), the 27% minority owner of Agrinatural. Under the management and operating agreement, SEI provides  Agrinatural with day-to-day management and operation of Agrinatural’s pipeline distribution business. In exchange for these services, Agrinatural pays SEI an aggregate management fee equal to the fixed monthly base fee plus the variable customer management fee based on the number of customers served on the pipeline less the agreed monthly fee reduction of $4,500. For the year ended October 31, 2017, Agrinatural paid approximately $36,000 and $157,000 for the monthly base fee and variable customer management fee, respectively. For the year ended October 31, 2016, Agrinatural paid approximately $32,000 and $149,000 for the monthly base fee and variable customer management fee, respectively.  For the year ended October 31, 2015, the Company paid approximately $18,000 and $83,000 for the monthly base fee and variable customer management fee, respectively. The management and operating agreement with SEI expires July 1, 2019 unless earlier terminated for cause as defined in the agreement.

Agrinatural also has project management agreement with SEI. Pursuant to the project management agreement, SEI supervises all of Agrinatural’s pipeline construction projects. These projects are constructed by unrelated third-party pipeline construction companies. Under the project management agreement, Agrinatural pays SEI a total of 10% of the actual capital expenditures for construction projects approved by Agrinatural’s board of managers, excluding capitalized marketing costs. For the year ended October 31, 2017,  Agrinatural incurred approximately $44,000 for project management and capital work fees. For the year ended October 31, 2016,  Agrinatural paid approximately $68,000 for project management and capital work fees. For the year ended October 31, 2015, the Company paid approximately $19,000 for project management and capital work fees. The project management with SEI expires June 30, 2019 unless earlier terminated for cause as defined in the agreement.

Amounts due to SEI from Agrinatural included in accounts payable on the consolidated balance sheets totaled approximately $16,000 and $131,000 at October 31, 2017 and 2016, respectively

14. COMMITMENTS AND CONTINGENCIES

Corn Purchase Commitments

At October 31, 2017, GFE had cash and basis contracts for forward corn purchase commitments for approximately 3,041,000 bushels for deliveries through December 2018.

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Notes to Consolidated Financial Statements

At October 31, 2017, HLBE had cash and basis contracts for forward corn purchase commitments for approximately 1,769,000 bushels for deliveries through October 2018.

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Notes to Consolidated Financial Statements

Ethanol Marketing Agreement

GFE currently has an ethanol marketing agreement with Eco-Energy, Inc., an unrelated party (“Eco-Energy”). Pursuant to this marketing agreement, Eco-Energy purchases the entire ethanol output of GFE’s ethanol plant and arranges for the transportation of ethanol; however, GFE is responsible for securing all of the rail cars necessary for the transport of ethanol by rail except for 43 rail cars leased to GFE by Eco-Energy under the marketing agreement. GFE pays Eco-Energy a marketing fee per gallon of ethanol sold in consideration of Eco-Energy’s services, as well as a fixed lease fee for rail cars leased from Eco-Energy to GFE. During the third quarter of 2016, GFE amended its marketing agreement extending the term of the marketing agreement to December 31, 2019, with automatic renewals for additional three terms of three-year periods unless terminated by either party by providing written notice to the other party at least 90 days prior to the end of the then current term. Additionally, the amendment provides for certain negotiated changes to the marketing fees payable to Eco-Energy by GFE and  the timing of payments by Eco-Energy to GFE for the ethanol Eco-Energy purchases from GFE. The changes to the marketing fee and timing of payments by Eco-Energy were negotiated based on prevailing market-rate conditions for comparable ethanol marketing services. 

HLBE has an ethanol marketing agreement with Eco-Energy, an unrelated party, for the sale of ethanol. Under this marketing agreement, Eco-Energy purchases, markets and resells 100% of the ethanol produced at HLBE’s ethanol production facility and arranges for the transportation of HLBE’s ethanol. HLBE pays Eco-Energy a marketing fee per gallon of ethanol sold in consideration of Eco-Energy’s services, as well as a fixed lease fee for rail cars leased from Eco-Energy to the HLBE. During the third quarter of 2016, HLBE entered into an amendment with Eco-Energy extending the term of the marketing agreement to  December 31, 2019, with automatic renewals for additional three terms of three-year periods unless terminated by either party by providing written notice to the other party at least 90 days prior to the end of the then current term. Additionally, the amendment provides for certain negotiated changes to the marketing fees payable to Eco-Energy by HLBE and  the timing of payments by Eco-Energy to GFE for the ethanol Eco-Energy purchases from GFE.  The changes to the marketing fee and timing of payments by Eco-Energy were negotiated based on prevailing market-rate conditions for comparable ethanol marketing services. 

Ethanol marketing fees and commissions totaled approximately $1,159,000,  $1,256,000 and $1,234,000 for the fiscal years ended October 31, 2017, 2016, and 2015, respectively, and are included net within revenues.

Ethanol Contracts

At October 31, 2017, GFE had fixed and basis contracts to sell approximately $18,889,000 of ethanol for various delivery periods through March 2018, which approximates 56% of its anticipated ethanol sales for this that period.

At October 31, 2017, HLBE had fixed and basis contracts to sell approximately $18,414,000 of ethanol for various delivery periods through March 2018, which approximates 52% of its anticipated ethanol sales for this that period.

Distillers Grain Marketing Agreement

GFE has a distillers’ grains marketing agreement with RPMG, Inc. (“RPMG”), an unrelated party, for the purpose of marketing and selling all distillers’ grains produced by GFE. The contract commenced on February 1, 2011 with an initial term of one year, and will continue to remain in effect until terminated by either party at its unqualified option, by providing written notice of not less than 90 days to the other party. Distillers’ grains commissions to RPMG totaled approximately $276,000,  $335,000 and $421,000 for the fiscal years ended October 31, 2017, 2016, and 2015, respectively, and are included net within revenues.

At October 31, 2017, GFE had forward contracts to sell approximately $1,459,000 of distillers’ grain for deliveries through November 2017, which approximates 92% of its anticipated distillers’ grain sales during that period.

HLBE has a distillers’ grains off-take agreement with Gavilon Ingredients, LLC (“Gavilon”), an unrelated party.  Under this agreement, Gavilon purchases all of the distillers’ grains produced at HLBE’s ethanol plant in exchange for a service fee. The contract commenced on November 1, 2013 with an initial term of six months, and will continue to remain in effect until terminated by either party at its unqualified option, by providing written notice of not less than 60 days to the other party.  Distillers’ grains commissions to Gavilon totaled approximately $268,000,  $283,000 and $308,000 for the fiscal years ended October 31, 2017, 2016, and 2015, respectively, and are included net within revenues.

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Notes to Consolidated Financial Statements

At October 31, 2017, HLBE had forward contracts to sell approximately $2,006,000 of distillers’ grains for delivery in March 2018, which approximates 27% of its anticipated distillers’ grain sales during that period.

Corn Oil Marketing Agreement

GFE has a corn oil marketing agreement with RPMG, an unrelated party, for the purpose of marketing and selling all corn oil produced by GFE. The contract commenced on April 29, 2010 with an initial term of one year, and will continue to remain in effect until terminated by either party at its unqualified option, by providing written notice of not less than 90 days to the other party.

HLBE has a corn oil marketing agreement with RPMG, an unrelated party, for the purpose of marketing and selling all corn oil produced by HLBE. The contract commenced on November 1, 2013 with an initial term of one year, and will continue to remain in effect until terminated by either party at its unqualified option, by providing written notice of not less than 90 days to the other party.

Corn oil commissions totaled approximately $176,000,  $166,000 and $125,000 for the fiscal years ended October 31, 2017, 2016, and 2015, respectively, and are included net within revenues.

At October 31, 2017, GFE had forward contracts to sell approximately $423,000 of corn oil for delivery through December 2017, which approximates 48% of its anticipated corn oil sales for this that period.

At October 31, 2017, HLBE had forward contracts to sell approximately $763,000 of corn oil for delivery through December 2017, which approximates 90% of its anticipated corn oil sales for this that period.

Contract for Natural Gas Pipeline to Plant

GFE has an agreement with an unrelated company for the construction of and maintenance of 9.5 miles of natural gas pipeline that will serve the GFE plant. The agreement requires the Company to receive a minimum of 1,400,000 DT of natural gas annually through the term of the agreement. The Company is charged a fee based on the amount of natural gas delivered through the pipeline.

HLBE has a facilities agreement with Northern Border Pipeline Company which allows us access to an existing interstate natural gas pipeline located approximately 16 miles north from the HLBE plant. Agrinatural was formed to own and operate the pipeline and transports gas to the Company pursuant to a transportation agreement The Company also has a base agreement for the sale and purchase of natural gas with Constellation NewEnergy-Gas Division, LLC (“Constellation”).  This agreement runs until March 31, 2019.

Water Agreements

In October 2003, HLBE entered into an industrial water supply development and distribution agreement with the City of Heron Lake for 15 years.  HLBE has the exclusive rights to the first 6,000 gallons per minute of capacity that is available from the well, and provides for HLBE, combined with an unrelated company, to approve any other supply contracts that the City may enter into.  In consideration, HLBE will pay one half of the City’s water well bond payments of $735,000, plus a 5% administrative fee, totaling approximately $594,000, and operating costs, relative to HLBE’s water usage, plus a 10% profit.  These costs will be paid as water usage fees.  HLBE recorded an assessment of approximately $367,000 with long-term debt as described in Note 8. HLBE pays operating and administrative expenses of approximately $12,000 per year.

In May 2006, HLBE entered into a water treatment agreement with the City of Heron Lake and Jackson County for 30 years. HLBE will pay for operating and maintenance costs of the plant in exchange for receiving treated water.  In addition, HLBE agreed to an assessment for a portion of the capital costs of the water treatment plant.  HLBE recorded assessments with long-term debt of $500,000 and $3,550,000 in fiscal 2007 and 2006, respectively, as described in Note 8.  HLBE paid operating and maintenance expenses of approximately $92,000,  $24,000, and $57,000 in fiscal 2017, 2016, and 2015, respectively.

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Notes to Consolidated Financial Statements

Railcar Damages

In accordance with certain railcar lease agreements, at expiration, the Company is required to return the railcars in good condition, less normal wear and tear.  Primarily due to the ongoing maintenance and repair activities performed on its railcars, the Company has determined that no accrual for leased railcars is necessary and an estimate of the possible range of loss cannot be made.

15.  LEGAL PROCEEDINGS

From time to time in the ordinary course of business, the Company may be named as a defendant in legal proceedings related to various issues, including without limitation, workers’ compensation claims, tort claims, or contractual disputes. We are not currently a party to any material pending legal proceedings and we are not currently aware of any such proceedings contemplated by governmental authorities.

16.  QUARTERLY FINANCIAL DATA (UNAUDITED)

Summary quarterly results are as follows:

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
Fiscal year ended October 31, 2017
Revenues	$	54,576,064	$	52,802,058	$	54,250,994	$	54,153,275
Gross profit		6,844,907		3,956,500		4,203,141		6,094,930
Operating income		5,237,686		2,371,966		2,740,127		4,581,816
Net income attributable to GFE		4,159,791		1,847,477		2,049,621		3,428,444
Basic and diluted earnings per unit attributable to GFE	$	135.91	$	60.36	$	66.97	$	112.02

		First		Second		Third		Fourth
		Quarter		Quarter		Quarter		Quarter
Fiscal year ended October 31, 2016
Revenues	$	51,001,654	$	50,974,398	$	58,018,553	$	55,531,621
Gross profit		1,432,877		2,273,697		6,301,875		6,890,645
Operating income		32,031		784,201		5,017,859		5,739,434
Net income attributable to GFE		11,526		699,514		3,492,822		4,518,946
Basic and diluted earnings per unit attributable to GFE	$	0.38	$	22.86	$	114.12	$	147.65

		First		Second		Third		Fourth
		Quarter		Quarter		Quarter		Quarter
Fiscal year ended October 31, 2015
Revenues	$	58,692,502	$	59,067,109	$	58,671,723	$	54,823,174
Gross profit		5,628,105		5,545,088		8,795,890		2,631,235
Operating income		4,204,718		4,173,843		7,494,444		1,551,398
Net income attributable to GFE		3,767,092		3,179,639		5,440,763		1,199,256
Basic and diluted earnings per unit attributable to GFE	$	123.08	$	103.89	$	177.77	$	39.18

The above quarterly financial data is unaudited, but in the opinion of management, all adjustments necessary for a fair presentation of the selected data for these periods presented have been included.

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ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A.CONTROLS AND PROCEDURES

(a)  Disclosure 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 Chief Executive Officer and General Manager (the principal executive officer), Steve Christensen, along with our Chief Financial Officer (the principal financial officer), Stacie Schuler, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of October 31, 2016.  Based upon this review and evaluation, these officers have concluded that our consolidated disclosure controls and procedures are effective as of October 31, 2017.

(b)Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a15-(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that:

(i)  pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(ii)  provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and governors of the Company; and

(iii)  provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision of our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria set forth in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of October 31, 2017.

An attestation report from our accounting firm on our internal control over financial reporting is not included in this annual report because an attestation report is only required under the regulations of the Securities and Exchange Commission for accelerated filers and large accelerated filers.

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(c)Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the fourth fiscal quarter ended October 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.OTHER INFORMATION

None.

PART III

Pursuant to General Instruction G(3), we omit Part III, Items 10, 11, 12, 13 and 14 and incorporate such items by reference to an amendment to this Annual Report on Form 10-K or to a definitive proxy statement (the “2018 Proxy Statement”) to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Annual Report (October 31, 2017). 

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The Information required by this Item is incorporated by reference to the 2018 Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The Information required by this Item is incorporated by reference to the 2018 Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The Information required by this Item is incorporated by reference to the 2018 Proxy Statement.      

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The Information required by this Item is incorporated by reference to the 2018 Proxy Statement.      

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The Information required by this Item is incorporated by reference to the 2018 Proxy Statement.

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PART IV

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Exhibits Filed as Part of this Report and Exhibits Incorporated by Reference.

The following exhibits and financial statements are filed as part of, or are incorporated by reference into, this report:

(1) Financial Statements

The financial statements appear beginning at page 56 of this report.

(2) Financial Statement Schedules

All supplemental schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.

(3) Exhibits

Exhibit No.	Exhibit	Incorporated by Reference To:
3.1	Articles of Organization	Exhibit 3.1 to the registrant’s Form SB-2 filed with the Commission on August 30, 2002 (File No. 000-51277).
3.2	Amendment of Articles of Organization	Exhibit 3.1 to the registrant’s Form 10-QSB filed with the Commission on August 15, 2005 (File No. 000-51277).
3.3	Sixth Amended and Restated Operating Agreement	Exhibit 3.1 to the registrant’s Form 8-K filed with the Commission on March 29, 2017 (File No. 000-51277).
4.1	Form of Membership Unit Certificate.	Exhibit 4.1 to the registrant’s Pre-Effective Amendment No. 1 to Form SB-2 filed with the Commission on December 20, 2002 (File No. 000-51277).
10.1	Corn Storage and Delivery Agreement and Pre-Closing Memorandum dated October 6, 2003 between the Company and Farmers Cooperative Elevator Company.	Exhibit 10.2 to the registrant’s Form 10-QSB filed with the Commission on November 14, 2003 (File No. 000-51277).
10.2	Grain Procurement Agreement with Farmers Cooperative Elevator Company.	Exhibit 10.2 to the registrant’s Form 10-QSB filed with the Commission on November 15, 2004 (File No. 000-51277).
10.3	Electric Service Agreement dated August, 2004 with Minnesota Valley Cooperative Light and Power.	Exhibit 10.13 to the registrant’s Form 10-KSB filed with the Commission on March 31, 2005 (File No. 000-51277).
10.4	Trinity Rail Proposal for Rail Cars.	Exhibit 10.16 to the registrant’s Form 10-KSB filed with the Commission on March 31, 2005 (File No. 000-51277).
10.5	Ethanol Marketing Agreement with Eco-Energy, Inc. dated December 24, 2008. (+)	Exhibit 10.1 to the registrant’s Form 10-K filed with the Commission on January 27, 2009 (File No. 000-51277).
10.6	Corn Oil Marketing Agreement between the registrant and Renewable Products Marketing Group, LLC dated April 29, 2010. (+)	Exhibit 10.1 to the registrant’s Form 10-Q filed with the Commission on June 14, 2010 (File No. 000-51277).

83

10.7	Distillers’ Grains Marketing Agreement between RPMG, Inc. and Granite Falls Energy, LLC dated December 10, 2010. (+)	Exhibit 10.31 to the registrant’s Form 10-K filed with the Commission on January 26, 2011 (File No. 000-51277).
10.8	Insider Trading Policy of Granite Falls Energy, LLC dated February 17, 2011.	Exhibit 10.1 to the registrant’s Form 10-Q filed with the Commission on March 16, 2011 (File No. 000-51277).
10.9	Ethanol Marketing Agreement Amendment No. 2 between Eco-Energy, Inc. and Granite Falls Energy, LLC dated August 30, 2011. (+)	Exhibit 99.1 to the registrant’s Form 8-K filed with the Commission on September 1, 2011 (File No. 000-51277).
10.10	Master Loan Agreement between United FCS, PCA and Granite Falls Energy, LLC dated August 22, 2012.	Exhibit 10.14 to the registrant’s Form 10-K filed with the Commission on January 29, 2013 (File No. 000-51277).
10.11	Subscription Supplement Agreement dated July 31, 2013, by and among Heron Lake BioEnergy, LLC, Granite Falls Energy, LLC and Project Viking, L.L.C.	Exhibit 10.3 to the registrant’s Form 10-Q filed with the Commission on September 16, 2013 (File No. 000-51277).
10.12	Management Services Agreement effective as of July 31, 2013 between Granite Falls Energy, LLC and Heron Lake BioEnergy, LLC.	Exhibit 10.4 to the registrant’s Form 10-Q filed with the Commission on September 16, 2013 (File No. 000-51277).
10.13	Revolving Credit Supplement dated July 26, 2013 between United FCS, PCA and Granite Falls Energy, LLC.	Exhibit 10.9 to the registrant’s Form 10-Q filed with the Commission on September 16, 2013 (File No. 000-51277).
10.14	First Amended and Restated Articles of Organization of Heron Lake BioEnergy, LLC	Exhibit 3.1 to HLBE’s Form 8-K dated September 2, 2011 (File No. 000-51825).
10.15	Member Control Agreement of Heron Lake BioEnergy, LLC, as amended through August 30, 2011.	Exhibit 3.2 to HLBE’s Form 8-K dated September 2, 2011 (File No. 000-51825).
10.16	Industrial Water Supply Development and Distribution Agreement dated October 27, 2003 among Heron Lake BioEnergy, LLC (f/k/a Generation II Ethanol, LLC), City of Heron Lake, Jackson County, and Minnesota Soybean Processors.	Exhibit 10.10 to HLBE’s Registration Statement on Form 10 filed on August 22, 2008 (the “2008 Registration Statement”) (File No. 000-51825).
10.17	Industrial Water Supply Treatment Agreement dated May 23, 2006 among Heron Lake BioEnergy, LLC, City of Heron Lake and County of Jackson.	Exhibit 10.11 to HLBE’s 2008 Registration Statement (File No. 000-51825).
10.18	Secured Promissory Note issued December 28, 2007 by Heron Lake BioEnergy, LLC as borrower to Federated Rural Electric Association as lender in principal amount of $600,000.	Exhibit 10.20 to HLBE’s 2008 Registration Statement (File No. 000-51825).
10.19	Electric Service Agreement dated October 17, 2007 by and between Interstate Power and Light Company and Heron Lake BioEnergy, LLC.	Exhibit 10.22 to HLBE’s 2008 Registration Statement (File No. 000-51825).
10.20	Corn Oil Marketing Agreement dated September 4, 2013 by and among Heron Lake BioEnergy, LLC and RPMG, Inc. (+)	Exhibit 10.76 to HLBE’s Form 10-K/A for the year ended October 31, 2013 (File No. 000-51825).
10.21	Ethanol Marketing Agreement dated September 17, 2013 by and among Heron Lake BioEnergy, LLC and Eco-Energy, LLC. (+)	Exhibit 10.77 to HLBE’s Form 10-K for the year ended October 31, 2013 (File No. 000-51825).

84

10.22	Distillers’ grains Off-Take Agreement dated September 24, 2013 by and among Heron Lake BioEnergy, LLC and Gavilon Ingredients, LLC. (+)	Exhibit 10.78 to HLBE’s Form 10-K/A for the year ended October 31, 2013 (File No. 000-51825).
10.23	Amendment No. 3 Ethanol Marketing Agreement dated September 17, 2013 by and between Eco-Energy, LLC and Granite Falls Energy, LLC. (+)	Exhibit 10.40 to the registrant’s Form 10-K filed with the Commission on January 29, 2014 (File No. 000-51277).
10.24	First Amendment to the Member Control Agreement of Heron Lake BioEnergy, LLC, as amended through August 30, 2011.	Exhibit 3.1 to HLBE’s Form 8-K dated March 19, 2014 (File No. 000-51825).
10.25	Master Loan Agreement dated July 29, 2014 by and between AgStar Financial Services, FLCA and Heron Lake BioEnergy, LLC	Exhibit 10.6 to HLBE’s Form 10-Q for the quarter ended July 31, 2014 (File No. 000-51825).
10.26	$28,000,000 Revolving Term Loan Supplement dated July 29, 2014 by and between AgStar Financial Services, FLCA and Heron Lake BioEnergy, LLC	Exhibit 10.7 to HLBE’s Form 10-Q for the quarter ended July 31, 2014 (File No. 000-51825).
10.27	Security Agreement dated July 29, 2014 between Heron Lake BioEnergy, LLC and AgStar Financial Services, FLCA and CoBank, ACB	Exhibit 10.8 to HLBE’s Form 10-Q for the quarter ended July 31, 2014 (File No. 000-51825).
10.28	Real Estate Mortgage, Assignment of Rents and Profits and Fixture Financing Statement dated July 29, 2014 by and between AgStar Financial Services, FLCA, CoBank, ACB and Heron Lake BioEnergy, LLC	Exhibit 10.9 to HLBE’s Form 10-Q for the quarter ended July 31, 2014 (File No. 000-51825).
10.29	Guaranty dated July 29, 2014 by HLBE Pipeline Company, LLC in favor of AgStar Financial Services, FLCA	Exhibit 10.10 to HLBE’s Form 10-Q for the quarter ended July 31, 2014 (File No. 000-51825).
10.30	Security Agreement dated July 29, 2014 between HLBE Pipeline Company, LLC and AgStar Financial Services, FLCA and CoBank, ACB	Exhibit 10.11 to HLBE’s Form 10-Q for the quarter ended July 31, 2014 (File No. 000-51825).
10.31	Employment Contract between Stacie Schuler and Granite Falls Energy, LLC dated October 31, 2014. (*)	Exhibit 10.1 to the registrant’s Form 8-K filed with the Commission on November 6, 2014 (File No. 000-51277).
10.32	Employment Contract between Steve Christensen and Granite Falls Energy, LLC dated October 31, 2014. (*)	Exhibit 10.1 to the registrant’s Form 8-K filed with the Commission on November 26, 2014 (File No. 000-51277).
10.33	Amendment No. 1 dated July  22, 2016 to the Ethanol Marketing Agreement dated September 17, 2013 by and among Heron Lake BioEnergy, LLC and Eco-Energy, LLC. (+)	Exhibit 10.1 to HLBE’s Form 10-Q for the quarter ended July 31, 2016 (File No. 000-51825).
10.34	Amendment No. 4 dated July 22, 2016 to the Ethanol Marketing Agreement dated December 24, 2008 by and among Eco-Energy, LLC and Granite Falls Energy, LLC. (+)	Exhibit 10.2 to the registrant’s Form 10-Q for the quarter ended July 31, 2016 (File No. 000-51277).
10.35	Amendment No. 1 dated July  22, 2016 to the Ethanol Marketing Agreement dated September 17, 2013 by and among Heron Lake BioEnergy, LLC and Eco-Energy, LLC. (+)	Exhibit 10.1 to HLBE's Form 10-Q for the quarter ended July 31, 2016 (File No. 000-51825).

85

10.36	Second Amendment to the Member Control Agreement of Heron Lake BioEnergy, LLC, as amended through August 30, 2011.	Exhibit 3.1 to HLBE’s Form 8-K/A dated March 29, 2017 (File No. 000-51825).
10.37	Agreement of Termination and To Execute Substitute Promissory Note; Commercial Security Agreement and Pledge Agreement (Ringneck Investment) Dated August 2, 2017 between Granite Falls Energy, LLC, Fagen Energy, LLC and Project Hawkeye, LLC	Exhibit 10.1 to the registrant’s Form 10-Q filed with the Commission on September 14, 2017 (File No. 000-51277).
10.38	Promissory Note issued August 2, 2017 by Granite Falls Energy, LLC as borrower to Project Hawkeye, LLC as lender in principal amount of $7,500,000.	Exhibit 10.2 to the registrant’s Form 10-Q filed with the Commission on September 14, 2017 (File No. 000-51277).
10.39	Pledge Agreement Dated August 2, 2017 between Granite Falls Energy, LLC and Project Hawkeye, LLC	Exhibit 10.3 to the registrant’s Form 10-Q filed with the Commission on September 14, 2017 (File No. 000-51277).
10.40	Amendment to Master Loan Agreement between AgCounty Farm Credit Services, PCA, successor by merger to United FCS, PCA and Granite Falls Energy, LLC dated September 8, 2017. (**)	Exhibit 10.40 to the registrant’s Form 10-K filed with the Commission on January 29, 2018 (File No. 000-51277).
10.41	Revolving Credit Supplement dated September 8, 2017 between AgCounty Farm Credit Services, PCA, successor by merger to United FCS, PCA and Granite Falls Energy, LLC. (**)	Exhibit 10.41 to the registrant’s Form 10-K filed with the Commission on January 29, 2018 (File No. 000-51277).
14.1	Code of Ethics.	Exhibit 14.1 to the registrant’s Form 10-KSB filed with the Commission on March 30, 2004 (File No. 000-51277).
21.1	Subsidiaries of the registrant.	Exhibit 21.1 to the registrant’s Form 10-K filed with the Commission on January 29, 2014 (File No. 000-51277).
31.1	Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a). (**)	Exhibit 31.1 to the registrant’s Form 10-K filed with the Commission on January 29, 2018 (File No. 000-51277).
31.2	Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a). (**)	Exhibit 31.2 to the registrant’s Form 10-K filed with the Commission on January 29, 2018 (File No. 000-51277).
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. (**)	Exhibit 32.1 to the registrant’s Form 10-K filed with the Commission on January 29, 2018 (File No. 000-51277).
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. (**)	Exhibit 32.2 to the registrant’s Form 10-K filed with the Commission on January 29, 2018 (File No. 000-51277).
101	The following financial information from Granite Falls Ethanol, LLC’s Annual Report on Form 10-K for the fiscal year ended October 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of October 31, 2017 and October 31, 2016, (ii) the Consolidated Statements of Operations for the fiscal years ended October 31, 2017, 2016, and 2015, (iii) the Consolidated Statement of Changes in Members’ Equity; (iv) the Consolidated Statements of Cash Flows for the fiscal years ended October 31, 2017, 2016, and 2015, and (v) the Notes to the Consolidated Financial Statements. (**)

(*)Indicates compensatory agreement.

(+)Certain portions of this exhibit have been redacted and filed on a confidential basis with the Commission pursuant to a request for confidential treatment under Rule 24b-2 of under the Exchange Act. Spaces corresponding to the deleted portions are represented by brackets with asterisks [* * *].

(**)Filed herewith

86

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.

		GRANITE FALLS ENERGY, LLC
Date:	January 29, 2018	/s/ Steve Christensen
		Steve Christensen
		Chief Executive Officer
Date:	January 29, 2018	/s/ Stacie Schuler
		Stacie Schuler
		Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date:	January 29, 2018	/s/ Steve Christensen
		Steve Christensen, Chief Executive Officer and General Manager
		(Principal Executive Officer)
Date:	January 29, 2018	/s/ Stacie Schuler
		Stacie Schuler, Chief Financial Officer
		(Principal Financial and Accounting Officer)
Date:	January 29, 2018	/s/ Paul Enstad
		Paul Enstad, Governor and Chairman
Date:	January 29, 2018	/s/ Rodney R. Wilkison
		Rodney R. Wilkison, Governor and Vice Chairman
Date:	January 29, 2018	/s/ Dean Buesing
		Dean Buesing, Governor and Secretary
Date:	January 29, 2018	/s/ Leslie Bergquist
		Leslie Bergquist, Governor
Date:	January 29, 2018	/s/ Marten Goulet
		Marten Goulet, Governor
Date:	January 29, 2018	/s/ Kenton Johnson
		Kenton Johnson, Governor
Date:	January 29, 2018	/s/ Sherry Jean Larson
		Sherry Jean Larson, Governor
Date:	January 29, 2018	/s/ Marty Seifert
		Marty Seifert, Alternate Governor

87

EX-10.40

Amendment No. RI1080D

AMENDMENT TO MASTER LOAN AGREEMENT

THIS AMENDMENT is entered into as of SEP 08 2017 between GRANITE FALLS ENERGY, LLC, Granite Falls, Minnesota, a limited liability company (the “Company”) and AGCOUNTRY FARM CREDIT SERVICES, PCA, successor by merger to UNITED FCS, PCA, a federally-chartered instrumentality of the United States (“Lead Lender”).  Capitalized terms used and not defined herein shall have the meanings assigned to such terms in the Agreement (as defined below).

RECITALS

The Company and United FCS, PCA are parties to Master Loan Agreement Number RI1080A dated as of August 30, 2013 (such agreement, as may be amended, is hereinafter referred to as the “Agreement”).  The Company and Lead Lender now desire to amend the Agreement.  For that reason, and for valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Company and Lead Lender agree as follows:

1.The form of Compliance Certificate required by Section 9(H)(7) and attached as Exhibit A to the Agreement is hereby amended and restated by the form of Compliance Certificate attached as Exhibit A hereto.

2.Section(s) 10(A), (B), (E), and (I) of the Agreement are amended and restated to read as follows:

SECTION 10.  Negative Covenants.  Unless otherwise agreed to in writing by Agent, while this agreement is in effect the Company will not:

(A)Borrowings.  Create, incur, assume, or allow to exist, directly or indirectly, any indebtedness or liability for borrowed money (including trade or bankers’ acceptances), letters of credit, or the deferred purchase price of property or services (including capitalized leases), except for:  (1) debt to Lead Lender and/or Agent; (2) accounts payable to trade creditors incurred in the ordinary course of business; (3) current operating liabilities (other than for borrowed money) incurred in the ordinary course of business; (4) debt of the Company to Project Hawkeye, L.L.C. (“Hawkeye”), provided that such debt is or will be subordinated to all indebtedness of the Company to Lead Lender, pursuant to a subordination agreement (in form and content acceptable to Agent) between Lead Lender and Hawkeye, on terms and conditions satisfactory to Agent; and (5) debt of the Company to other lenders or finance companies in an aggregate amount not to exceed $750,000.00, with lien positions acceptable to Lead Lender and/or Agent.

(B)Liens.  Create, incur, assume, or allow to exist any mortgage, deed of trust, pledge, lien (including the lien of an attachment, judgment, or execution), security interest, or other encumbrance of any kind upon any of its property, real or personal (collectively, “Liens”).  The forgoing restrictions shall not apply to:  (1) Liens in favor of Lead Lender and/or Agent; (2) Liens for taxes, assessments, or governmental charges that are not past due; (3) Liens and deposits under workers’ compensation, unemployment insurance, and social security Laws; (4) Liens and deposits to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), and like obligations arising in the ordinary course of business as conducted on the date hereof; (5) Liens imposed by Law in favor of mechanics, materialmen, warehousemen, and like persons that secure obligations that are not past due; (6) easements, rights-of-way, restrictions, and other similar encumbrances which, in the aggregate, do not materially interfere with the occupation, use, and enjoyment of the property or assets encumbered thereby in the normal course of its business or materially impair the value of the property subject thereto; (7) Liens in favor of Farm Credit Leasing Services Corporation; (8) Liens in favor of Hawkeye on the stock or other equities of Ring-neck Energy & Feed, LLC (“Ring-neck”), to secure indebtedness permitted hereunder, provided that, such security interests are subordinate to Lead Lender’s lien pursuant to a subordination agreement (in form and content acceptable to Agent) between Lead

1

GRANITE FALLS ENERGY, LLC

Granite Falls, Minnesota

Amendment No. RI1080D to Master Loan Agreement No. RI1080A

Lender and such party on terms and conditions satisfactory to Agent; and (9) Liens, acceptable to Lead Lender and/or Agent in favor of other lenders or finance companies to secure indebtedness permitted hereunder.

(E)Loans and Investments.  Make any loan or advance to any person or entity, or purchase any capital stock, obligations or other securities of, make any capital contribution to, or otherwise invest in any person or entity, or form or create any partnerships or joint ventures except:  (1) trade credit extended in the ordinary course of business; (2) investments by the Company existing as of the date hereof in the stock or other equities of Heron Lake BioEnergy, LLC, plus future retained earnings; and (3) investments by the Company in the stock or other equities of Ring-neck, provided that the aggregate amount of all such investments may not exceed $7,500,000.00, plus future retained earnings.

(I)Operating/Capitalized Leases.  Create, incur, assume, or permit to exist any obligation as lessee under operating leases for the rental or hire of any real or personal property or under any leases that should be capitalized in accordance with GAAP, except (a) leases with Farm Credit Leasing Services Corporation; (b) leases existing as of the date hereof; (c) railcar leases, provided, however, such leases are not to exceed an initial or extended term of 120 months; and (d) other leases which do not in the aggregate require the Company to make scheduled payments to the lessors in any fiscal year of the Company in excess of $100,000.00.

3.Section(s) 11(A) of the Agreement is amended and restated to read as follows:

SECTION 11.  Financial Covenants.  Unless otherwise agreed to in writing, while this agreement is in effect:

(A)Working Capital.  The Company will have at the end of each period for which financial statements are required to be furnished pursuant to Section 9(H) hereof an excess of unconsolidated current assets over unconsolidated current liabilities (both as determined in accordance with GAAP consistently applied) of not less than $10,000,000.00.

4.Except as expressly amended hereby, all of the representations, warranties, terms, covenants and conditions contained in the Agreement and each other Loan Document shall remain unamended and otherwise unmodified and in full force and effect.

5.This Amendment, each Supplement and any other Loan Document may be executed in counterparts, each of which will constitute an original, but all of which when taken together will constitute a single contract.  Delivery of an executed counterpart of a signature page of this Amendment by facsimile or other electronic means will be as effective as delivery of a manually executed counterpart of this Amendment.

SIGNATURE PAGE FOLLOWS

2

GRANITE FALLS ENERGY, LLC

Granite Falls, Minnesota

Amendment No. RI1080D to Master Loan Agreement No. RI1080A

SIGNATURE PAGE TO AMENDMENT TO MASTER LOAN AGREEMENT

IN WITNESS WHEREOF, the parties hereto, by their duly authorized officer(s), have executed this agreement.

GRANITE FALLS ENERGY, LLC

Name:/s/ Stacie Schuler

By:Stacie Schuler

Title:CFO

3

GRANITE FALLS ENERGY, LLC

Granite Falls, Minnesota

Amendment No. RI1080D to Master Loan Agreement No. RI1080A

SIGNATURE PAGE TO AMENDMENT TO MASTER LOAN AGREEMENT

IN WITNESS WHEREOF, the parties hereto, by their duly authorized officers, have executed this agreement.

AGCOUNTRY FARM CREDIT SERVICES, PCA, successor by merger to UNITED FCS, PCA

By:/s/ Nicole Schwartz

Name:Nicole Schwartz

Title:Vice President

4

EX-10.41

Loan No. RI1080S02

REVOLVING CREDIT SUPPLEMENT

THIS REVOLVING CREDIT SUPPLEMENT (“Supplement”) to the Master Loan Agreement (as amended) dated August 30, 2013 (“MLA”), is entered into as of SEP 08 2017 between AGCOUNTRY FARM CREDIT SERVICES, PCA, successor by merger to UNITED FCS, PCA, a federally-chartered instrumentality of the United States (“Lead Lender”) and GRANITE FALLS ENERGY, LLC, Granite Falls, Minnesota, a limited liability company (together with its permitted successors and assigns, the “Company”).  Capitalized terms not otherwise defined in this Supplement will have the meanings set forth in the MLA.

SECTION 1.  REVOLVING CREDIT COMMITMENT.  On the terms and conditions set forth in the MLA and this Supplement Lead Lender agrees to make loans to the Company during the period set forth below in an aggregate principal amount not to exceed $6,000,000.00, at any one time outstanding (the “Commitment”).  Within the limits of the Commitment, the Company may borrow, repay and re-borrow.

SECTION 2.  PURPOSE.  The purpose of the Commitment is to finance the operating needs of the Company and to combine $6,000,000.00 of the loans made by United FCS, PCA to the Company under Revolving Term Loan Supplement numbered RI1080T01B, dated as of July 22, 2014, with and into this Supplement for a total Commitment amount stated in Section 1 hereto.  The combination of these loans with and into this Supplement shall not be considered a refinance or new debt for the purposes of Minnesota Mortgage Registration Tax.

SECTION 3.  TERM.  The term of the Commitment will be from the date hereof, up to and including October 1, 2018, or such later date as Agent may, in its sole discretion, authorize in writing (the “Term Expiration Date”).

SECTION 4.  LIMITS ON ADVANCES, AVAILABILITY, ETC.  The loans will be made available as provided in Section 3 of the MLA.

SECTION 5. INTEREST.  The Company agrees to pay interest on the unpaid balance of the loan(s) in accordance with the following interest rate option(s):

(A)  One-Month LIBOR Index Rate.  At a rate (rounded upward to the nearest 1/100th and adjusted for reserves required on Eurocurrency Liabilities (as hereinafter defined) for banks subject to FRB Regulation D (as hereinafter defined) or required by any other federal law or regulation) per annum equal at all times to 2.750% above the higher of:  (1) zero percent (0.000%); or (2) the rate reported at 11:00 a.m. London time for the offering of one (1)-month U.S. dollars deposits, by Bloomberg Information Services (or any successor or substitute service providing rate quotations comparable to those currently provided by such service, as determined by Agent from time to time, for the purpose of providing quotations of interest rates applicable to dollar deposits in the London interbank market) on the first U.S. Banking Day (as hereinafter defined) in each week, with such rate to change weekly on such day.  The rate will be reset automatically, without the necessity of notice being provided to Agent, the Company, or any other party, on the first U.S. Banking Day of each succeeding week, and each change in the rate will be applicable to all balances subject to this option.  Information about the then-current rate will be made available upon telephonic request.  For purposes hereof:  (a) “U.S. Banking Day” means a day on which Agent is open for business and banks are open for business in New York, New York; (b) “Eurocurrency Liabilities” will have the meaning as set forth in “FRB Regulation ID”; and (c) “FRB Regulation D” means Regulation D as promulgated by the Board of Governors of the Federal Reserve System, 12 CFR Part 20, as amended.

1

00079054

GRANITE FALLS ENERGY, LLC

Granite Falls, Minnesota

Supplement No. RI1080502

Interest will be calculated on the actual number of days each loan is outstanding on the basis of a year consisting of 360 days and will be payable monthly in arrears by the 20th day of the following month or on such other day as Agent will require in a written notice to the Company (“Interest Payment Date”).

SECTION 6.  PROMISSORY NOTE.  The Company promises to repay the unpaid principal balance of the loans on the Term Expiration Date.

In addition to the above, the Company promises to pay interest on the unpaid principal balance of the loans at the times and in accordance with the provisions set forth herein.

SECTION 7.  SECURITY.  The Company’s obligations hereunder and, to the extent related hereto, under the MLA, will be secured as provided in Section 6 of the MLA or in a closing instruction letter signed by the parties (an “Instruction Letter”).

SECTION 8.  FEES.

(A)  Commitment Fee.  In consideration of the Commitment, the Company agrees to pay to Agent a commitment fee on the average daily unused available portion of the Commitment at the rate of 0.250% per annum (calculated on a 360-day basis), payable monthly in arrears by the 20th day following each month.  Such fee will be payable for each month (or portion thereof) occurring during the original or any extended term of the Commitment.

SECTION 9.  LETTERS OF CREDIT.  If agreeable to Agent in its sole discretion in each instance, in addition to loans, the Company may utilize the Commitment to open irrevocable letters of credit for its account.  Each letter of credit will be issued within a reasonable period of time after Agent’s receipt of a duly completed and executed copy of Agent’s then current form of Application and Reimbursement Agreement or, if applicable, in accordance with the terms of any CoTrade Agreement between the parties, and will reduce the amount available under the Commitment by the maximum amount capable of being drawn under such letter of credit.  Any draw under any letter of credit issued hereunder will be deemed a loan under the Commitment and will be repaid in accordance with this Supplement.  Each letter of credit must be in form and content acceptable to Agent and must expire no later than the maturity date of the Commitment.

SIGNATURE PAGE FOLLOWS

2

GRANITE FALLS ENERGY, LLC

Granite Falls, Minnesota

Supplement No. RI1080502

SIGNATURE PAGE TO SUPPLEMENT

IN WITNESS WHEREOF, the parties have caused this Supplement to the MLA to be executed by their duly authorized officer(s).

GRANITE FALLS ENERGY, LLC

Name:/s/ Stacie Schuler

By:Stacie Schuler

Title:CFO

3

GRANITE FALLS ENERGY, LLC

Granite Falls, Minnesota

Supplement No. RI1080502

SIGNATURE PAGE TO SUPPLEMENT

IN WITNESS WHEREOF, the parties have caused this Supplement to the MLA to be executed by their duly authorized officer(s).

AGCOUNTRY FARM CREDIT SERVICES, PCA, successor by merger to UNITED FCS, PCA

By:/s/ Nicole Schwartz

Name:Nicole Schwartz

Title:Vice President

4

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Steve Christensen, certify that:

1.I have reviewed this annual report on Form 10-K of Granite Falls Energy, LLC;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/
Date:	January 29, 2018	/s/ Steve A. Christensen
		Steve A. Christensen
		Chief Executive Officer
		(principal executive officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Stacie Schuler, certify that:

1.I have reviewed this annual report on Form 10-K of Granite Falls Energy, LLC;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	January 29, 2018	/s/ Stacie Schuler
		Stacie Schuler
		Chief Financial Officer
		(principal financial officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report on Form 10-K of Granite Falls Energy, LLC (the “Company”) for the fiscal year ended October 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steve Christensen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	January 29, 2018	/s/ Steve A. Christensen
		Steve A. Christensen
		Chief Executive Officer
		(principal executive officer)

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report on Form 10-K of Granite Falls Energy, LLC (the “Company”) for the fiscal year ended October 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stacie Schuler, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	January 29, 2018	/s/ Stacie Schuler
		Stacie Schuler
		Chief Financial Officer
		(principal financial officer)

XML

Document and Entity Information Document - USD ($)	12 Months Ended
	Oct. 31, 2017	Jan. 29, 2018	Apr. 30, 2017
Document and Entity Information [Abstract]
Entity Registrant Name	Granite Falls Energy, LLC
Entity Central Index Key	0001181749
Current Fiscal Year End Date	--10-31
Entity Filer Category	Non-accelerated Filer
Document Type	10-K
Document Period End Date	Oct. 31, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	FY
Amendment Flag	false
Entity Common Stock, Shares Outstanding		30,606
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Public Float			$ 20,094,000

XML

Consolidated Balance Sheets - USD ($)	Oct. 31, 2017	Oct. 31, 2016
Current Assets
Cash	$ 21,658,422	$ 13,797,857
Restricted cash	75,189
Accounts receivable	7,622,601	6,654,994
Inventory	15,241,092	18,341,413
Commodity derivative instruments	244,294	1,228,926
Prepaid expenses and other current assets	361,340	325,989
Total current assets	45,202,938	40,349,179
Property, Plant and Equipment
Property and Equipment, net	72,271,013	78,968,016
Goodwill	1,372,473	1,372,473
Investment	7,500,000
Other Assets	743,106	781,254
Total Assets	127,089,530	121,470,922
Current Liabilities
Current maturities of long-term debt	432,183	490,057
Checks drawn in excess of bank balance		1,866,683
Accounts payable	7,535,468	5,624,840
Corn payable to FCE		5,358,111
Commodity derivative instruments	40,379
Accrued expenses	972,043	997,319
Total current liabilities	8,980,073	14,337,010
Long-Term Debt, less current portion	8,465,502	1,393,669
Commitments and Contingencies
Members' equity attributable to Granite Falls Energy, LLC consists of 30,606 units authorized, issued, and outstanding at both October 31, 2017 and 2016	83,998,672	83,684,529
Non-controlling interest	25,645,283	22,055,714
Total members' equity	109,643,955	105,740,243
Total Liabilities and Members’ Equity	$ 127,089,530	$ 121,470,922

XML

Consolidated Balance Sheets (Parenthetical) - shares	Oct. 31, 2017	Oct. 31, 2016
Consolidated Balance Sheets
Common Units Authorized	30,606	30,606
Common Units Issued	30,606	30,606
Common Units Outstanding	30,606	30,606

XML

Consolidated Statements of Operations - USD ($)	12 Months Ended
	Oct. 31, 2017	Oct. 31, 2016	Oct. 31, 2015
Consolidated Statements of Operations
Revenues	$ 215,782,391	$ 215,526,226	$ 231,254,508
Cost of Goods Sold	194,682,913	198,627,132	208,654,190
Gross Profit	21,099,478	16,899,094	22,600,318
Operating Expenses	6,167,883	5,325,569	5,175,915
Operating Income	14,931,595	11,573,525	17,424,403
Other Income (Expense):
Other income, net	457,275	99,735	38,169
Interest income	56,384	8,400	9,369
Interest expense	(323,708)	(453,398)	(525,108)
Total other income (expense), net	189,951	(345,263)	(477,570)
Net Income	15,121,546	11,228,262	16,946,833
Less: Net Income Attributable to Non-controlling Interest	(3,636,213)	(2,505,454)	(3,360,083)
Net Income Attributable to Granite Falls Energy, LLC	$ 11,485,333	$ 8,722,808	$ 13,586,750
Weighted Average Units Outstanding - Basic and Diluted (in units)	30,606	30,606	30,606
Net Income Per Unit - Basic and Diluted (in dollars per unit)	$ 375.26	$ 285.00	$ 443.92
Distributions Per Unit (in dollars per unit)	$ 365.00	$ 315.00	$ 1,050.00

XML

Consolidated Statement of Changes in Members’ Equity - USD ($)	Members' Equity Attributable to Granite Falls Energy, LLC	Non-controlling Interest	Total
Balance - at Oct. 31, 2014	$ 103,152,157	$ 22,818,076	$ 125,970,233
Changes in Members' Equity
Distribution	(32,136,300)	(4,621,340)	(36,757,640)
Net income attributable to non-controlling interest		3,360,083	3,360,083
Net income attributable to Granite Falls Energy, LLC	13,586,750		13,586,750
Balance - at Oct. 31, 2015	84,602,607	21,556,819	106,159,426
Changes in Members' Equity
Distribution	(9,640,886)	(2,006,559)	(11,647,445)
Net income attributable to non-controlling interest		2,505,454	2,505,454
Net income attributable to Granite Falls Energy, LLC	8,722,808		8,722,808
Balance - at Oct. 31, 2016	83,684,529	22,055,714	105,740,243
Changes in Members' Equity
Distribution	(11,171,190)		(11,171,190)
Purchase of subsidiary units attributable to non-controlling interest		(46,644)	(46,644)
Net income attributable to non-controlling interest		3,636,213	3,636,213
Net income attributable to Granite Falls Energy, LLC	11,485,333		11,485,333
Balance - at Oct. 31, 2017	$ 83,998,672	$ 25,645,283	$ 109,643,955

XML

Consolidated Statements of Cash Flows - USD ($)	12 Months Ended
	Oct. 31, 2017	Oct. 31, 2016	Oct. 31, 2015
Cash Flows from Operating Activities:
Net income	$ 15,121,546	$ 11,228,262	$ 16,946,833
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization	9,357,674	9,681,148	9,650,226
Change in fair value of commodity derivative instruments	(699,536)	(581,400)	(303,925)
Gain on sale of assets	(88,340)
Changes in operating assets and liabilities:
Restricted cash	(75,189)		492,099
Commodity derivative instruments	1,724,547	28,509	923,628
Accounts receivable	(967,607)	3,012,478	(385,771)
Inventory	3,100,321	(6,129,388)	(1,486,881)
Prepaid expenses and other current assets	(35,351)	(66,127)	138,611
Accounts payable	(3,662,718)	5,276,025	(1,017,508)
Accrued expenses	(25,276)	342,769	4,556
Net Cash Provided by Operating Activities	23,750,071	22,792,276	24,961,868
Cash Flows from Investing Activities:
Payment for investment	(7,500,000)
Payments for capital expenditures	(2,318,948)	(4,727,305)	(8,824,669)
Net Cash Used in Investing Activities	(9,818,948)	(4,727,305)	(8,824,669)
Cash Flows from Financing Activities:
Proceeds from long-term debt	7,500,000	9,820,222	13,440,989
Payments on long-term debt	(486,041)	(15,166,428)	(9,169,704)
Checks drawn in excess of bank balance	(1,866,683)	30,001	1,836,682
Purchase of subsidiary units attributable to non-controlling interest	(46,644)
Distributions to non-controlling interests		(2,006,559)	(4,621,340)
Member distributions paid	(11,171,190)	(9,640,886)	(32,136,300)
Net Cash Used in Financing Activities	(6,070,558)	(16,963,650)	(30,649,673)
Net Increase (Decrease) in Cash	7,860,565	1,101,321	(14,512,474)
Cash - Beginning of Period	13,797,857	12,696,536	27,209,010
Cash - End of Period	21,658,422	13,797,857	12,696,536
Cash paid during the period for:
Interest expense	323,708	$ 453,398	525,108
Supplemental Disclosure of Noncash Investing and Financing Activities
Purchase of equipment with trade-in value	146,845
Capital expenditures and construction in process included in accounts payable	$ 215,235		$ 422,451

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Oct. 31, 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Granite Falls Energy, LLC (“GFE”) is a Minnesota limited liability company currently producing fuel-grade ethanol, distillers’ grains, and crude corn oil near Granite Falls, Minnesota and sells these products, pursuant to marketing agreements, throughout the continental U.S. and on the international market. GFE’s plant has an approximate annual production capacity of 60 million gallons, but is currently permitted to produce up to 70 million gallons of undenatured ethanol on a twelve month rolling sum basis.

Additionally, GFE owns a majority interest in Heron Lake BioEnergy, LLC (“HLBE”).  HLBE is a Minnesota limited liability company currently producing fuel-grade ethanol, distillers’ grains, and crude corn oil near Heron Lake, Minnesota and sells these products, pursuant to marketing agreements, throughout the continental U.S. HLBE’s plant has an approximate annual production capacity of 60 million gallons, but is currently permitted to produce up to 72.3 million gallons per year of undenatured ethanol on a twelve month rolling sum basis.  Additionally, HLBE, through a majority owned subsidiary, operates a natural gas pipeline that provides natural gas to the HLBE’s ethanol production facility and other customers.

Principles of Consolidation

The accompanying consolidated financial statements consolidate the operating results and financial position of GFE, and its approximately 50.7% owned subsidiary, HLBE (through GFE’s 100% ownership of Project Viking, L.L.C.).  Given GFE’s control over the operations of HLBE and its majority voting interest, GFE consolidates the financial statements of HLBE with its consolidated financial statements. The remaining approximately 49.3% ownership of HLBE is included in the consolidated financial statements as a non-controlling interest. HLBE, through its wholly owned subsidiary, HLBE Pipeline Company, LLC, owns 73.0% of Agrinatural Gas, LLC (“Agrinatural”). Given HLBE’s control over the operations of Agrinatural and its majority voting interest, HLBE consolidates the financial statements of Agrinatural with its consolidated financial statements, with the remaining approximately 27.0% ownership of HLBE attributed to the non-controlling interest. All intercompany balances and transactions are eliminated in consolidation. All references to “we”, “us”, “our”, and the “Company” collectively refer to GFE and its wholly owned and majority owned subsidiaries.

Fiscal Reporting Period

The Company’s fiscal year end for reporting financial operations is October 31 for financial reporting purposes.

Accounting Estimates

Management uses estimates and assumptions in preparing these consolidated financial statements in accordance with generally accepted accounting principles in the U.S. of America. 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. The Company uses estimates and assumptions in accounting for the following significant matters, among others: economic lives of property and equipment, valuation of commodity derivatives, inventory, and inventory purchase and sale commitments, evaluation of rail car damages contingency, and the assumptions used in the impairment analysis of long-lived assets, which includes goodwill. Actual results may differ from previously estimated amounts, and such differences may be material to our consolidated financial statements. The Company periodically reviews estimates and assumptions, and the effects of revisions are reflected in the period in which the revision is made.

Revenue Recognition

The Company generally sells ethanol and related products pursuant to marketing agreements. Revenues from the production of ethanol and the related products are recorded when the customer has taken title and assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured. Ethanol and related products are generally shipped free on board (FOB) shipping point.

In accordance with the Company’s agreements for the marketing and sale of ethanol and related products, marketing fees and commissions due to the marketers are deducted from the gross sales price as earned. These fees and commissions are recorded net of revenues, as they do not provide an identifiable benefit that is sufficiently separable from the sale of ethanol and related products. Shipping costs paid by the Company to the marketer in the sale of ethanol are not specifically identifiable and, as a result, are recorded based on the net selling price reported to the Company from the marketer. Shipping costs incurred by the Company in the sale of distillers’ grains and corn oil are included in cost of goods sold.

Agrinatural recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee for the arrangement is fixed or determinable and collectability is reasonably assured.

Cost of Goods Sold

The primary components of cost of goods sold for the production of ethanol and related co-products are corn, energy, raw materials, overhead, depreciation, and direct labor.

Operating Expenses

The primary components of operating expenses are salaries and expenses for administrative employees, professional fees, board of governor expenses and property taxes

Cash

The Company maintains its accounts at multiple financial institutions, of which one is a member of the Company.  At times throughout the year, the Company’s cash balances may exceed amounts insured by the Federal Deposit Insurance Corporation. The Company does not believe it is exposed to any significant credit risk on its cash balances.

Restricted Cash

The Company is periodically required to maintain at its broker cash balances related to open commodity derivative instrument positions as discussed in Note 6.

Accounts Receivable

Credit terms are extended to customers in the normal course of business. The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral.

Accounts receivable are recorded at their estimated net realizable value. Accounts are considered past due if payment is not made on a timely basis in accordance with the Company’s credit terms. Accounts considered uncollectible are written off. The Company follows a policy of providing an allowance for doubtful accounts; however, based on historical experience, and its evaluation of the current status of receivables, the Company is of the belief that such accounts will be collectible in all material respects and thus an allowance was not necessary at October 31, 2017 or 2016.  It is at least possible this estimate will change in the future.

Inventory

Inventory is stated at the lower of cost or net realizable value. Cost for all inventories is determined using the first in first out method.  Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.  Inventory consists of raw materials, work in process, finished goods, and supplies. Corn is the primary raw material along with other raw materials.  Finished goods consist of ethanol, distillers’ grains, and corn oil.

Derivative Instruments

From time to time, the Company enters into derivative transactions to hedge its exposures to commodity price fluctuations. The Company is required to record these derivatives in the balance sheets at fair value.

In order for a derivative to qualify as a hedge, specific criteria must be met and appropriate documentation maintained. Gains and losses from derivatives that do not qualify as hedges, or are undesignated, must be recognized immediately in earnings.  If the derivative does qualify as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will be either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Changes in the fair value of undesignated derivatives are recorded in earnings.

Additionally, the Company is required to evaluate its contracts to determine whether the contracts are derivatives.  Certain contracts that literally meet the definition of a derivative may be exempted 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 normal sales are documented as normal and exempted from accounting and reporting requirements, and therefore, are not marked to market in our consolidated financial statements.

In order to reduce the risks caused by market fluctuations, the Company occasionally hedges its anticipated corn, natural gas, and denaturant purchases and ethanol sales by entering into options and futures contracts. These contracts are used with the intention to fix the purchase price of anticipated requirements for corn in the Company’s ethanol production activities and the related sales price of ethanol. The fair value of these contracts is based on quoted prices in active exchange-traded or over-the-counter market conditions. Although the Company believes its commodity derivative positions are economic hedges, none have been formally designated as a hedge for accounting purposes and derivative positions are recorded on the balance sheet at their fair market value, with changes in fair value recognized in current period earnings or losses. The Company does not enter into financial instruments for trading or speculative purposes.

The Company has adopted authoritative guidance related to “Derivatives and Hedging,” and has included the required enhanced quantitative and qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses from derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. See further discussion in Note 6.

Other Intangibles

Other intangibles included as a component of other assets on the consolidated balance sheet are stated at cost and include road improvements located near the HLBE plant in which the Company has a beneficial interest in but does not own the road. The Company amortizes the assets over the economic useful life of 15 years. The Company recorded amortization expense in the amount of approximately $38,000 during each of the fiscal years ended October 31, 2017, 2016, and 2015.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided over the following estimated useful lives by use of the straight-line method.

Asset Description	Years
Land improvements	5-20	years
Railroad improvements	5-20	years
Process equipment and tanks	5-40	years
Administration building	10-40	years
Office equipment	3-10	years
Rolling stock	5-10	years

Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized.  Construction in progress expenditures will be depreciated using the straight-line method over their estimated useful lives once the assets are placed into service.

Long-Lived Assets

Long-lived assets, such as property and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When determining impairment losses, a long-lived asset should be grouped with other assets or liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets or liabilities.  If circumstances require a long-lived asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including, but not limited to, discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No indicators of impairment existed during fiscal 2017, 2016, or 2015 that would have triggered impairment testing, and therefore, no impairment expense was recorded during fiscal 2017, 2016, or 2015.

Investment

On  November 1, 2016, GFE subscribed to purchase 1,500 capital units of Ringneck Energy & Feed, LLC (“Ringneck”) at a price of $5,000 per unit for a total of $7,500,000.  GFE paid a down payment of $750,000 in connection with the subscription, and signed a promissory note for $6,750,000 for the remaining balance of the subscription. By letter dated July 12, 2017, GFE was notified of Ringneck’s acceptance of GFE’s subscription and that payment of the balance of GFE’s subscription due under the promissory note was due not later than August 2, 2017.  On August 2, 2017, GFE paid $6,750,000 to Ringneck, the remaining balance of GFE’s subscription.  

Ringneck is a South Dakota limited liability company that is currently constructing an 80 million gallon per year ethanol manufacturing plant in outside of Onida, South Dakota in Sully County. GFE’s investment is sufficient to secure theCompany the right to appoint one director to the board of directors of Ringneck and GFE has appointed Steve Christensen, its CEO to serve as its appointed director.  

The investment will be accounted for by the equity method, under which the Company’s share of the net income of the investee is recognized as income in the Company’s Consolidated Statement of Operations and added to the investment account.  Any distributions received from the affiliates are treated as a reduction of the investment.

Fair Value of Financial Instruments

The Company’s accounting for fair value measurements of assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring or nonrecurring basis adhere to the Financial Accounting Standards Board (“FASB”) fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The Company has adopted guidance for fair value measurement related to nonfinancial items that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis.  The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy are as follows:

· Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

· Level 2 inputs include:

1. Quoted prices in active markets for similar assets or liabilities.

2. Quoted prices in markets that are observable for the asset or liability either directly or indirectly, for substantially the full term of the asset or liability.

3. Inputs that derived primarily from or corroborated by observable market date by correlation or other means.

· Level 3 inputs are unobservable inputs for the asset or liability.

The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

Except for those assets and liabilities which are required by authoritative accounting guidance to be recorded at fair value in our balance sheets, the Company has elected not to record any other assets or liabilities at fair value. No events occurred during the fiscal years ended October 31, 2017, 2016, or 2015 that required adjustment to the recognized balances of assets or liabilities, which are recorded at fair value on a nonrecurring basis.

The carrying value of cash, accounts receivable, accounts payable and accrued liabilities approximates fair value due to the short maturity of these instruments. The Company obtains fair value measurements from an independent pricing service for corn derivative contracts.  The fair value measurements consider observable data that may include dealer quotes and live trading levels from the Chicago Board of Trade and New York Mercantile Exchange markets.  The fair value of the long-term debt is estimated based on anticipated interest rates which management believes would currently be available to the Company for similar issues of debt, taking into account the current credit risk of the Company and other market factors.  The Company believes the carrying value of the debt instruments approximate fair value.

Income Taxes

The Company is treated as a partnership for federal and state income tax purposes, and generally does not incur income taxes. Instead its earnings and losses are included in the income tax returns of its members. Therefore, no provision or liability for federal or state income taxes has been included in these financial statements. Differences between financial statement basis of assets and tax basis of assets is related to capitalization and amortization of organization and start-up costs for tax purposes, whereas these costs are expensed for financial statement purposes. In addition, the Company uses the alternative depreciation system for tax depreciation instead of the straight-line method that is used for book depreciation, which also causes temporary differences. The Company’s tax year end is December 31.

The Company had no significant uncertain tax positions as of October 31, 2017 or 2016 that would require disclosure, primarily due to the partnership tax status. The Company recognizes and measures tax benefits when realization of the benefits is uncertain under a two-step approach. The first step is to determine whether the benefit meets the more-likely-than-not condition for recognition and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%. Primarily due to the Company’s tax status as a partnership, the adoption of this guidance had no material impact on the Company’s financial condition or results of operations.

The Company files income tax returns in the U.S. federal and Minnesota state jurisdictions. For years before 2014, the Company is no longer subject to U.S. Federal or state income tax examinations.

Net Income per Unit

Basic net income per unit is computed by dividing net income by the weighted average number of members’ units outstanding during the period. Diluted net income per unit is computed by dividing net income 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, for all periods presented, the calculations of the Company’s basic and diluted net income per unit are the same.

Environmental Liabilities

The Company’s operations are subject to environmental laws and regulations adopted by various governmental entities in the jurisdiction in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its location. Accordingly, the Company has adopted policies, practices, and procedures in the areas of pollution control, occupational health, and the production, handling, storage, and use of hazardous materials to prevent material environmental or other damage, and to limit the financial liability, which could result from such events. Environmental liabilities are recorded when the liability is probable and the costs can be reasonably estimated. No expense has been recorded for the fiscal years ended October 31, 2017, 2016, or 2015.

Goodwill

Goodwill represents the cost in excess of the fair value of net assets acquired. The Company conducts impairment assessments annually or when events indicate a triggering event has occurred. No indicators of impairment existed during fiscal 2017, 2016, or 2015 that would have triggered impairment testing, and therefore, no impairment expense was recorded during 2017, 2016, or 2015.

Reportable Operating Segments

Accounting Standards Codification (“ASC”) 280, “Segment Reporting,” establishes the standards for reporting information about segments in financial statements. Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Therefore, in applying the criteria set forth in ASC 280, the Company determined that based on the nature of the products and production process and the expected financial results, the Company’s operations at GFE’s ethanol plant and HLBE’s plant, including the production and sale of ethanol and its co-products, are aggregated into one reporting segment.

Additionally, the Company also realizes relatively immaterial revenue from natural gas pipeline operations at Agrinatural, HLBE’s majority owned subsidiary. Before and after accounting for intercompany eliminations, these revenues from Agrinatural’s represent less than less than 1% of our consolidated revenues and have little to no impact on the overall performance of the Company.  Therefore, the Company does not separately review Agrinatural’s revenues, cost of sales or other operating performance information.  Rather, the Company reviews Agrinatural’s natural gas pipeline financial data on a consolidated basis with the Company’s ethanol production operating segment. The Company believes that the presentation of separate operating performance information for Agrinatural’s natural gas pipeline operations would not provide meaningful information to a reader of the Company’s consolidated financial statements and would not achieve the basic principles and objectives of ASC 280.

Recently Issued Accounting Pronouncements

Contract Revenue Recognition (Evaluating)

In May 2014 and amended in August 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09 which amended the Revenue from Contracts with Customers (Topic 606) of the ASC. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for the Company beginning November 1, 2018. The Company is currently evaluating the guidance and its effect on its consolidated financial statements.

Leases (Evaluating)

In February 2016, the FASB adopted ASU No. 2016-02, Leases (Topic 842), which provides guidance for accounting for leases. The new guidance requires companies to recognize the assets and liabilities for the rights and obligations created by leased assets, initially measured at the present value of the lease payments. The accounting guidance for lessors is largely unchanged. The guidance will be effective for the Company beginning November 1, 2019.  The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

Restricted Cash (Evaluating)

In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which amended Statement of Cash Flows (Topic 230) of the ASC. The new guidance will require amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the consolidated statement of cash flows. The amendments will be effective for the Company beginning November 1, 2018. The Company is currently evaluating the impact that adoption of this guidance will have on its consolidated financial statements.

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RISKS AND UNCERTAINTIES

12 Months Ended

Oct. 31, 2017

RISKS AND UNCERTAINTIES

RISKS AND UNCERTAINTIES

2.  RISKS AND UNCERTAINTIES

The Company has certain risks and uncertainties that it experiences during volatile market conditions. These volatilities can have a severe impact on operations.  The Company’s revenues are derived primarily from the sale and distribution of ethanol, distillers’ grains and corn oil to customers primarily located in the U.S. Corn for the production process is supplied to our plants primarily from local agricultural producers and from purchases on the open market.  Ethanol sales typically average 75-90% of total revenues and corn costs typically average 65-85% of cost of goods sold.

The Company’s operating and financial performance is largely driven by the prices at which it sells ethanol and the net expense of corn. The price of ethanol is influenced by factors such as supply and demand, the weather, government policies and programs, unleaded gasoline prices and the petroleum markets as a whole. Excess ethanol supply in the market, in particular, puts downward pressure on the price of ethanol. The largest cost of production is corn. The cost of corn is generally impacted by factors such as supply and demand, the weather, government policies and programs, and a risk management program used to protect against the price volatility of these commodities. Market fluctuations in the price of and demand for these products may have a significant adverse effect on the Company’s operations, profitability and the availability and adequacy of cash flow to meet the Company’s working capital requirements.

The supply and demand for ethanol are impacted by federal and state legislation and regulation, most significantly the Renewable Fuels Standard (“RFS”), and any changes in legislation or regulation could cause the demand for ethanol to decline or its supply to increase, which could have a material adverse effect on our business, results of operations and financial condition, and the ability to operate at a profit.

On November 30, 2017, the EPA announced the final 2018 renewable volume requirements (“RVOs”)for conventional ethanol at 15.0 billion gallons, with the RVOs for advanced biofuels set at 4.29 billion gallons and cellulosic ethanol at 0.29 billon gallons, reducing overall RVOs to 19.29 billion gallons for 2018.  Although this final rule achieves the statutory RVO for conventional corn-based ethanol originally set by Congress when the RFS was enacted, it reduces the overall RVOs below the overall statutory level of 26 billion gallons.

According to the RFS, if mandatory renewable fuel volumes are reduced by at least 20% for two consecutive years, the EPA is required to modify, or reset, statutory volumes through 2022. Since 2018 is the first year the total proposed RVOs were more than 20% below statutory levels, in September 2017, the EPA Administrator directed his staff to initiate the required technical analysis to perform any future reset consistent with the reset rules. If 2019 RVOs are also more than 20% below statutory levels, the RVO reset will be triggered under RFS and the EPA will be required to modify statutory volumes through 2022 within one year of the trigger event, based on the same factors used to set the RVOs post-2022. If the statutory RVOs are reduced as a result of reset, it could have an adverse effect on the market price and demand for ethanol which would negatively impact our financial performance.

Additionally, opponents of ethanol such as large oil companies will likely continue their efforts to repeal or reduce the RFS through lawsuits or lobbying of Congress. Successful reduction or repeal of the blending requirements of the RFS could result in a significant decrease in ethanol demand.

Current ethanol production capacity is approximately 16.0 billion gallons according to the RFA and may increase during calendar year 2018 as several plants’ expansion projects come online. Although the release of the final 2018 RVOs maintaining the 15 billion gallon RVO for conventional corn-based ethanol together a letter issued by EPA Administrator Pruitt in October 2017 signals support from the EPA and the Trump administration for domestic ethanol production, the EPA and Trump administration could still elect to materially modify, repeal or otherwise invalidate the RFS.  It is unclear what regulatory framework and renewable volume requirements, if any, will emerge as a result of such reforms; however, any such reform could adversely affect the demand and price for ethanol and the Company's profitability.

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FAIR VALUE

12 Months Ended

Oct. 31, 2017

FAIR VALUE

FAIR VALUE

3. FAIR VALUE

The following table provides information on those derivative assets and liabilities measured at fair value on a recurring basis at October 31, 2017:

					Fair Value Measurement Using
					Quoted Prices		Significant Other		Significant
	Carrying Amount in				in Active Markets		Observable Inputs		Unobservable Inputs
Financial Asset:	Consolidated Balance Sheet		Fair Value		(Level 1)		(Level 2)		(Level 3)
Commodity Derivative Instruments - Corn	$	244,294	$	244,294	$	244,294	$	—	$	—
Financial Liabilities:
Commodity Derivative Instruments - Ethanol	$	24,998	$	24,998	$	36,500	$	(11,502)	$	—
Commodity Derivative Instruments - Natural Gas	$	15,381	$	15,381	$	—	$	15,381	$	—

The following table provides information on those derivative assets measured at fair value on a recurring basis at October 31, 2016:

					Fair Value Measurement Using
					Quoted Prices		Significant Other		Significant
	Carrying Amount in				in Active Markets		Observable Inputs		Unobservable Inputs
Financial Asset:	Consolidated Balance Sheet		Fair Value		(Level 1)		(Level 2)		(Level 3)
Commodity Derivative Instruments - Corn	$	451,575	$	451,575	$	451,575	$	—	$	—
Commodity Derivative Instruments - Ethanol	$	777,351	$	777,351	$	777,351	$	—	$	—

The Company determines the fair value of commodity derivative instruments by obtaining 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 Chicago Board of Trade market and New York Mercantile Exchange.  We determine the fair value of ethanol and natural gas Level 2 instruments by model-based techniques in which all significant inputs are observable in the markets noted above.

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CONCENTRATIONS

12 Months Ended

Oct. 31, 2017

CONCENTRATIONS

CONCENTRATIONS

4. CONCENTRATIONS

Granite Falls Energy

GFE sold all of the ethanol, distillers’ grains, and corn oil produced at its plant to two customers under marketing agreements during the fiscal years ended October 31, 2017, 2016, and 2015.  

The percentage of GFE’s total revenues attributable to each of its two major customers for the fiscal years ended October 31, 2017, 2016, and 2015 were as follows:

	October 31, 2017	October 31, 2016	October 31, 2015
Eco-Energy, Inc. - Ethanol	81.8%	80.3%	79.1%
RPMG, Inc. - Distillers' Grains & Corn Oil	17.8%	19.7%	20.7%

The percentage of GFE’s total accounts receivable attributable to each of its two major customers at October 31, 2017 and 2016 were as follows:

	October 31, 2017	October 31, 2016
Eco-Energy, Inc. - Ethanol	82.0%	70.2%
RPMG, Inc. - Distillers' Grains & Corn Oil	16.3%	26.5%

Heron Lake BioEnergy

HLBE sold all of the ethanol, distillers’ grains, and corn oil produced at its plant to three customers under marketing agreements during the fiscal years ended October 31, 2017, 2016, and 2015.  

The percentage of HLBE’s total revenues attributable to each of HLBE’s three major customers for the fiscal years ended October 31, 2017, 2016, and 2015 were as follows:

	October 31, 2017	October 31, 2016	October 31, 2015
Eco-Energy, Inc. - Ethanol	81.3%	78.5%	76.9%
Gavilon Ingredients, LLC - Distillers' Grains	13.7%	15.4%	19.2%
RPMG, Inc. - Corn Oil	4.5%	4.4%	2.4%

The percentage of HLBE’s total accounts receivable attributable to each of HLBE’s three major customers at October 31, 2017 and 2016 were as follows:

	October 31, 2017	October 31, 2016
Eco-Energy, Inc. - Ethanol	86.8%	78.6%
Gavilon Ingredients, LLC - Distillers' Grains	7.0%	11.1%
RPMG, Inc. - Corn Oil	4.3%	3.3%

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INVENTORY

12 Months Ended

Oct. 31, 2017

INVENTORY

INVENTORY

5.  INVENTORY

Inventory consists of the following at October 31:

	2017		2016
Raw materials	$	4,488,923	$	9,098,492
Supplies		2,929,385		2,755,958
Work in process		1,281,292		1,347,754
Finished goods		6,541,492		5,139,209
Totals	$	15,241,092	$	18,341,413

The Company performs a lower of cost or net realizable value analysis on inventory to determine if the market values of certain inventories are less than their carrying value, which is attributable primarily to decreases in market prices of corn and ethanol. Based on the lower of cost or net realizable value analysis, the Company recorded a loss on ethanol inventories, as a component of cost of goods sold, of approximately $128,000 and $0 for the fiscal years ended October 31, 2017 and 2016, respectively

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DERIVATIVE INSTRUMENTS

12 Months Ended

Oct. 31, 2017

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

6.  DERIVATIVE INSTRUMENTS

The Company enters into corn, ethanol, and natural gas derivatives in order to protect cash flows from fluctuations caused by volatility in commodity prices for periods up to 24 months. These derivatives are put in place 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. Although these derivative instruments serve the Company’s purpose as an economic hedge, they 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

As of October 31, 2017, the total notional amount of GFE’s outstanding corn derivative instruments was approximately 1,495,000 bushels, comprised of long corn positions on 200,000 bushels that were entered into to hedge forecasted ethanol sales through December 2017, and short corn positions on 1,295,000 bushels that were entered into to hedge forecasted corn purchases through December 2018. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

As of October 31, 2017, the total notional amount of GFE’s outstanding ethanol derivative instruments was approximately 420,000 gallons that were entered into to hedge forecasted ethanol sales through November 2017.    

As of October 31, 2017, GFE had approximately $75,000 cash collateral (restricted cash) and approximately $12,000 due to broker related to derivatives held by a broker.

As of October 31, 2017, the total notional amount of HLBE’s outstanding corn derivative instruments was approximately 1,120,000 bushels, comprised of long corn positions on 215,000 bushels that were entered into to hedge forecasted ethanol sales through December 2017, and short corn positions on 905,000 bushels that were entered into to hedge forecasted corn purchases through July 2018. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

As of October 31, 2017, HLBE had outstanding natural gas derivative instruments totaling 120,000 MMBTU entered into hedge forecasted natural gas purchases through February 2018.

As of October 31, 2017, the total notional amount of HLBE’s outstanding ethanol derivative instruments was approximately 420,000 gallons that were entered into to hedge forecasted ethanol sales through November 2017

As of October 31, 2017, HLBE did not have any cash collateral (restricted cash) and approximately $12,000 due to broker related to derivatives held by a broker.

The following tables provide details regarding the Company’s derivative instruments at October 31, 2017, none of which were designated as hedging instruments:

	Consolidated Balance Sheet location	Assets		Liabilities
Corn contracts - GFE	Commodity derivative instruments	$	102,650	$	—
Corn contracts - HLBE	Commodity derivative instruments		141,644		—
Ethanol contracts - GFE	Commodity derivative instruments		—		12,749
Ethanol contracts - HLBE	Commodity derivative instruments		—		12,249
Natural gas contracts - HLBE	Commodity derivative instruments		—		15,381
Totals		$	244,294	$	40,379

As of October 31, 2016, the total notional amount of GFE’s outstanding corn derivative instruments was approximately 5,220,000 bushels, comprised of long corn positions on 3,300,000 bushels that were entered into to hedge forecasted ethanol sales through March 2017, and short corn positions on 1,920,000 bushels that were entered into to hedge forecasted corn purchases through December 2016. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.  As of October 31, 2016, GFE did not have any cash collateral (restricted cash) related to derivatives held by a broker.

As of October 31, 2016, the total notional amount of HLBE’s outstanding corn derivative instruments was approximately 4,285,000 bushels, comprised of long corn positions on 3,100,000 bushels that were entered into to hedge forecasted ethanol sales through March 2017, and short corn positions on 1,185,000 bushels that were entered into to hedge forecasted corn purchases through August 2017. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding. As of October 31, 2016, HLBE did not have any cash collateral (restricted cash) related to derivatives held by a broker.

The following tables provide details regarding the Company’s derivative instruments at October 31, 2016, none of which were designated as hedging instruments:

	Consolidated Balance Sheet location	Assets		Liabilities
Corn contracts - GFE	Commodity derivative instruments	$	63,050	$	—
Corn contracts - HLBE	Commodity derivative instruments		388,525		—
Ethanol Contracts - GFE	Commodity derivative instruments		503,538		—
Ethanol Contracts - HLBE	Commodity derivative instruments		273,813		—
Totals		$	1,228,926	$	—

The following tables provide details regarding the gains (losses) from Company’s derivative instruments in statements of operations, none of which are designated as hedging instruments:

	Consolidated Statement	Year Ended October 31,
	of Operations Location	2017		2016		2015
Corn contracts	Cost of Goods Sold	$	1,129,746	$	708,364	$	303,925
Ethanol contracts	Revenues		(414,829)		(159,322)		—
Natural gas contracts	Cost of Goods Sold		(15,381)		32,358		—
Total gain, net		$	699,536	$	581,400	$	303,925

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PROPERTY AND EQUIPMENT

12 Months Ended

Oct. 31, 2017

PROPERTY AND EQUIPMENT

PROPERTY AND EQUIPMENT

7.  PROPERTY AND EQUIPMENT

A summary of property and equipment is as follows:

	October 31, 2017		October 31, 2016
Land and improvements	$	13,697,790	$	13,697,790
Railroad improvements		9,045,112		9,045,112
Process equipment and tanks		129,640,626		128,004,694
Administration building		569,328		569,328
Office equipment		989,690		907,652
Rolling stock		1,904,154		1,792,534
Construction in progress		777,655		315,631
		156,624,355		154,332,741
Less: accumulated depreciation		(84,353,342)		(75,364,725)
Net property and equipment	$	72,271,013	$	78,968,016

Depreciation expense totaled approximately $9,320,000,  $9,641,000, and $9,612,000 for the fiscal years ended October 31, 2017, 2016, and 2015, respectively.

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DEBT FACILITIES

12 Months Ended

Oct. 31, 2017

DEBT FACILITIES

DEBT FACILITIES

8.  DEBT FACILITIES

Granite Falls Energy

GFE has a credit facility with a lender. This credit facility was originally a revolving term loan facility with an aggregate principal commitment amount of $18,000,000 that reduced by $2,000,000 semi-annually beginning September 1, 2014, until final payment at maturity on March 1, 2018.  On September 8, 2017, the revolving term loan was converted to a seasonal revolving loan in the amount of $6,000,000.  GFE had no outstanding balance on the revolving term loan at the time of conversion.  There was no outstanding balance on the seasonal revolving loan at October 31, 2017. Therefore, the aggregate principal amount available for borrowing by GFE under this seaonal revolving loan at October 31, 2017 was $6,000,000.

The interest rate on the seasonal revolving loan is based on the bank’s One Month London Interbank Offered Rate (“LIBOR”) Index Rate, plus 2.75%, which was 3.99% at October 31, 2017.

The credit facility requires GFE to comply with certain financial covenants at various times calculated monthly, quarterly or annually, including restriction of the payment of dividends and maintenance of certain financial ratios including minimum working capital, minimum net worth and a debt service coverage ratio as defined by the credit facility. Failure to comply with the protective loan covenants or maintain the required financial ratios may cause acceleration of the outstanding principal balances on the revolving term loan and/or the imposition of fees, charges or penalties. 

The credit facility is secured by substantially all assets of GFE. There are no savings account balance collateral requirements as part of this credit facility.

On August 2, 2017, GFE entered into a replacement credit facility with Project Hawkeye. The terms of the replacement credit facility allow GFE to borrow up to $7.5 million of variable-rate, amortizing non-recourse debt from Project Hawkeye using the Ringneck investment as collateral.  The Project Hawkeye loan bears interest from date funds are first advanced on the loan through maturity, at a rate per annum equal to the sum of the One Month LIBOR Index Rate plus 3.05% per annum, with an interest rate floor of 3.55% which equated to 4.29% at October 31, 2017.

The Project Hawkeye loan requires annual interest payments only for the first two years of the loan and monthly principal and interest payments for years three through nine based on a seven-year amortization period.  The monthly amortized payments will be re-amortized following any change in interest rate. The entire outstanding principal balance of the loan, plus any accrued and unpaid interest thereon, is due and payable in full on August 2, 2026. GFE is permitted to voluntarily prepay all or any portion of the outstanding balance of this loan at any time without premium or penalty.

Pursuant to a pledge agreement entered into in connection with the Project Hawkeye loan, GFE’s obligations are secured by all of its right, title, and interest in its investment in Ringneck, including the 1,500 units subscribed for by GFE. The loan is non-recourse to all of GFE’s other assets, meaning that in the event of default, the only remedy available to Project Hawkeye will be to foreclose and seize all of GFE’s right, title and interest in its investment in Ringneck.

As of October 31, 2017, GFE has borrowed $7.5 million under the Project Hawkeye credit facility to finance the balance of its investment in Ringneck.

Heron Lake BioEnergy

HLBE has a revolving term loan with a lender under which it could borrow, repay, and re-borrow in an amount up to $28,000,000 at any time prior to the March 1, 2022 maturity.  However, the available for borrowing under the revolving term note reduces by $3,500,000 annually, starting March 1, 2015 and continuing each anniversary thereafter until maturity. The aggregate principal commitment of this facility at October 31, 2017 was $17,500,000.  HLBE had no outstanding balance on the revolving term loan at October 31, 2017 and 2016. Therefore, at October 31, 2017 and 2016, the aggregate principal amount available to the Company for borrowing was $17,500,000 and $21,000,000, respectively.

Interest on the revolving term loan accrues at a variable rate equal to 3.25% above the LIBOR Index rate. HLBE may elect to enter into a fixed interest rate on this loan at various times throughout the term of the loan as provided in the loan agreements. The interest rate on the revolving term loan was 4.49%  and 3.45%  at October 31, 2017, and October 31, 2016, respectively.

HLBE also agreed to pay an unused commitment fee on the unused portion of the revolving term loan commitment at the rate of 0.50% per annum. The loan is secured by substantially all of the Company assets including a subsidiary guarantee. 

The credit facility contains customary covenants, including restrictions on the payment of dividends and loans and advances to Agrinatural, and maintenance of certain financial ratios including minimum working capital, minimum net worth and a debt service coverage ratio as defined by the credit facility. Failure to comply with the protective loan covenants or maintain the required financial ratios may cause acceleration of the outstanding principal balances on the revolving term loan and/or the imposition of fees, charges or penalties.

Long-term debt consists of the following:

	October 31, 2017		October 31, 2016
GRANITE FALLS ENERGY:
Revolving term loan, see terms above.	$	—	$	—
Seasonal loan, see terms above.		—		—
Term note payable to Project Hawkeye, see terms above.		7,500,000		—
HERON LAKE BIOENERGY:
Revolving term loan to lending institution, see terms above.		—		—
Assessment payable as part of water treatment agreement, due in semi-annual installments of $189,393 with interest at 6.55%, enforceable by statutory lien, with the final payment due in 2021. HLBE made deposits for one years' worth of debt service payments of approximately $364,000, which is included with other assets that are held on deposit to be applied with the final payments of the assessment.		1,241,171		1,517,046
Assessment payable as part of water supply agreement, due in monthly installments of $3,942 with interest at 8.73%, enforceable by statutory lien, with the final payment due in 2019.		56,514		97,930
Note payable to electrical company with monthly payments of $6,250 with interest at 0.00% and a 1.00% maintenance fee due each October.  This note was paid in full in September 2017. The electrical company is a member of HLBE.		—		68,750
Note payable to non-controlling interest member of Agrinatural.  Interest is at One Month LIBOR plus 4.0%, which was approximately 5.24% and 4.53% at October 31, 2017 and 2016, respectively.  The note is considered due on demand with payments due at Agrinatural's Board of Managers' discretion.		100,000		200,000
Totals		8,897,685		1,883,726
Less: amounts due within one year		432,183		490,057
Net long-term debt	$	8,465,502	$	1,393,669

Based on the most recent debt agreements, estimated maturities of long-term debt at October 31, 2017 are as follows:

2018	$	432,183
2019		408,169
2020		1,398,227
2021		1,391,250
2022		1,071,429
Thereafter		4,196,427
Total debt	$	8,897,685

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MEMBERS’ EQUITY

12 Months Ended

Oct. 31, 2017

MEMBERS’ EQUITY

MEMBERS’ EQUITY

9. MEMBERS’ EQUITY

Granite Falls Energy

GFE has one class of membership units. The units have no par value and have identical rights, obligations and privileges.  Income and losses are allocated to all members based upon their respective percentage of units held.  As of October 31, 2017, 2016, and 2015, GFE had 30,606 membership units authorized,  issued, and outstanding, respectively.

Subsequent to fiscal year end, in December 2017, GFE’s Board of Governors declared a cash distribution of $385 per unit or approximately $11,783,000 for GFE unit holders of record as of December 21, 2017 was paid by GFE in January 2018.

In December 2016, GFE’s Board of Governors declared a cash distribution of $365 per unit or approximately $11,171,000 for GFE unit holders of record as of December 21, 2016 to be paid by GFE on January 26, 2017.

In December 2015, GFE’s Board of Governors declared a cash distribution of $315 per unit or approximately $9,641,000 for GFE unit holders of record as of December 17, 2015 was paid by GFE on January 25, 2016.

In December 2014, GFE’s Board of Governors declared a cash distribution of $1,050 per unit or approximately $32,136,000 for GFE unit holders of record as of December 18, 2014. This distribution was paid by GFE on January 19, 2015.

Heron Lake BioEnergy

Subsequent to year end, on December 21, 2017, HLBE’s board of governors declared a distribution of $0.11 per membership unit for a total of approximately $8,573,000 to be paid to members of record as of December 21, 2017.  The distribution was paid in January 2018.  Based on the covenants contained in HLBE’s lender’s credit facilities, the foregoing distribution was approved by its lender prior to distribution.

On December 17, 2015, HLBE’s board of governors declared a distribution of $0.05 per membership unit for a total of approximately $3,897,000 to be paid to HLBE unit holders of record as of December 18, 2015.  The distribution was paid on January 25, 2016. At December 17, 2015, GFE owned 39,420,949 Class A membership units and 15,000,000 Class B units of HLBE, and received an aggregate distribution from HLBE of $1,971,000.  The remaining $1,926,000 was distributed by HLBE to the non-controlling interest.

On December 18, 2014, HLBE’s board of governors declared a distribution of $0.12 per membership unit for a total of approximately $9,352,000 to be paid to HLBE unit holders of record as of December 18, 2014. The distribution was paid by HLBE on January 19, 2015.  At December 18, 2014, GFE owned 39,420,949 Class A membership units and 15,000,000 Class B units of HLBE, and received an aggregate distribution from HLBE of $4,731,000.  The remaining $4,621,000 was distributed by HLBE to the non-controlling interest.

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LEASES

12 Months Ended

Oct. 31, 2017

LEASES

LEASES

10. LEASES

Granite Falls Energy

GFE has lease agreements with leasing companies for 218 rail cars for the transportation of GFE’s ethanol with various maturity dates through December 2026. The rail car lease payments are due monthly in the aggregate amount of approximately $181,000.

GFE has lease agreements with leasing companies for 115 hopper cars to assist with the transport of the distillers’ grains by rail with various maturity dates through November 2025. The rail car lease payments are due monthly in the amount of approximately $76,000.

Rent expense for GFE’s leases was approximately $3,163,000,  $2,985,000 and $2,204,000 for the fiscal years ended October 31, 2017, 2016,  and 2015, respectively.

Heron Lake BioEnergy

HLBE has lease agreements with leasing companies for 148 rail cars for the transportation of HLBE’s ethanol with various maturity dates through January 2027. The rail car lease payments are due monthly in the aggregate amount of approximately $127,000.

HLBE has lease agreement with leasing companies for 110 hopper cars to assist with the transport of the distillers’ grains by rail with various maturity dates through May 2027. During the fiscal year ended October 31, 2017, HLBE renewed a lease agreement for 50 hopper cars for an additional ten years with monthly lease payments of of approximately $25,000.  The rail car lease payments are due monthly in the amount of approximately $64,000.

Rent expense for HLBE’s leases was approximately $2,170,000,  $2,571,000 and $1,969,000 for the fiscal years ended October 31, 2017, 2016, and 2015, respectively.

At October 31, 2017, the Company had the following minimum future lease for payments, which at inception had a non-cancelable term of more than one year:

November 1, 2017 to October 31, 2018	$	4,916,616
November 1, 2018 to October 31, 2019		4,532,800
November 1, 2019 to October 31, 2020		4,395,550
November 1, 2020 to October 31, 2021		4,393,800
November 1, 2021 to October 31, 2022		4,315,800
Thereafter		13,341,850
Total minimum lease commitments	$	35,896,416

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EMPLOYEE BENEFIT PLANS

12 Months Ended

Oct. 31, 2017

EMPLOYEE BENEFIT PLANS

EMPLOYEE BENEFIT PLANS

11.  EMPLOYEE BENEFIT PLANS

GFE has a defined contribution plan available to all of its qualified employees. GFE contributes a match of 50% of the participant’s salary deferral up to a maximum of 3% of the employee’s salary.  GFE contributions totaled approximately $73,000,  $63,000, and $57,000 for the fiscal years ended October 31, 2017, 2016, and 2015, respectively.

HLBE has a defined contribution plan available to all of its qualified employees. HLBE contributes a match of 50% of the participant’s salary deferral up to a maximum of 4% of the employee’s salary.  HLBE contributions totaled approximately $90,000,  $85,000, and $81,000 for the fiscal years ended October 31, 2017, 2016, and 2015, respectively.

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INCOME TAXES

12 Months Ended

Oct. 31, 2017

INCOME TAXES

INCOME TAXES

12. INCOME TAXES

The differences between the consolidated financial statement basis and tax basis of assets are estimated as follows:

	October 31, 2017		October 31, 2016
Consolidated financial statement basis of assets	$	127,089,530	$	121,470,922
Organization & start-up costs capitalized for tax purposes, net		268,166		357,554
Tax depreciation greater than book depreciation		(14,219,188)		(17,884,622)
Unrealized derivatives gains of commodity derivative instruments		(102,650)		(566,588)
Capitalized inventory		81,119		41,467
Net effect of consolidation of acquired subsidiary		(32,239,669)		(36,496,913)
Income tax basis of assets	$	80,877,308	$	66,921,820

There were no significant differences between the consolidated financial statement basis of liabilities and the income tax basis of liabilities at October 31, 2017 and 2016.

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RELATED PARTY TRANSACTIONS

12 Months Ended

Oct. 31, 2017

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

13. RELATED PARTY TRANSACTIONS

GFE Corn Storage and Grain Handling Agreement

GFE had a corn storage and grain handling agreement with Farmers Cooperative Elevator (“FCE”), a member of GFE. Under the agreement, GFE had agreed to purchase all of the corn needed for the operation of the plant from FCE. The price of the corn purchased was the bid price FCE establishes for the plant plus a set fee of per bushel.

On February 27, 2017, GFE and FCE executed an amendment to the corn storage and grain handling agreement with an effective date of February 21, 2017. Pursuant to the terms of the amendment, the parties agreed to amend the corn storage and grain handling agreement to accelerate the termination date of the agreement to midnight August 31, 2017.  Additionally, GFE began posting bids for the purchase of corn beginning June 1, 2017 and thereafter, but could not accept delivery of corn at its Granite Falls, Minnesota plant until September 1, 2017.  In August 2017, in exchange for the early termination, GFE paid an early termination fee to FCE of approximately $255,000. Prior to the amendment, the termination date of the corn storage and grain handling agreement was set to expire on November 2017.

GFE purchased approximately $51,861,000 of corn from FCE during fiscal 2017, of which approximately $0 is included in corn payable at October 31, 2017.  GFE purchased approximately $75,865,000 of corn from FCE during fiscal 2016, of which approximately $5,358,000 is included in corn payable to FCE at October 31, 2016.  GFE purchased approximately $75,018,000 of corn from FCE during fiscal 2015, of which approximately $1,486,000 is included in corn payable to FCE at October 31, 2015.

GFE purchased corn from board members of approximately $945,000 for the fiscal year ended October 31, 2017, of which approximately $8,000 is included in accounts payable at October 31, 2017.

HLBE Corn Purchases - Members

HLBE purchased corn from its board members of approximately $9,811,000,  $15,008,000, and $11,032,000 during the fiscal years ended October 31, 2017, 2016, and 2015.

Agrinatural

During 2013, HLBE borrowed $300,000 from the non-controlling interest member of Agrinatural.  Total interest paid in relation to this note payable amounted to approximately $6,000, $20,000, and $16,000 for each of the years ended October 31, 2017, 2016, and 2015.

Swan Engineering

Agrinatural has management and operating agreement with Swan Engineering, Inc. (“SEI”). SEI, together with an unrelated third party owns Rural Energy Solutions, LLC (“RES”), the 27% minority owner of Agrinatural. Under the management and operating agreement, SEI provides  Agrinatural with day-to-day management and operation of Agrinatural’s pipeline distribution business. In exchange for these services, Agrinatural pays SEI an aggregate management fee equal to the fixed monthly base fee plus the variable customer management fee based on the number of customers served on the pipeline less the agreed monthly fee reduction of $4,500. For the year ended October 31, 2017, Agrinatural paid approximately $36,000 and $157,000 for the monthly base fee and variable customer management fee, respectively. For the year ended October 31, 2016, Agrinatural paid approximately $32,000 and $149,000 for the monthly base fee and variable customer management fee, respectively.  For the year ended October 31, 2015, the Company paid approximately $18,000 and $83,000 for the monthly base fee and variable customer management fee, respectively. The management and operating agreement with SEI expires July 1, 2019 unless earlier terminated for cause as defined in the agreement.

Agrinatural also has project management agreement with SEI. Pursuant to the project management agreement, SEI supervises all of Agrinatural’s pipeline construction projects. These projects are constructed by unrelated third-party pipeline construction companies. Under the project management agreement, Agrinatural pays SEI a total of 10% of the actual capital expenditures for construction projects approved by Agrinatural’s board of managers, excluding capitalized marketing costs. For the year ended October 31, 2017,  Agrinatural incurred approximately $44,000 for project management and capital work fees. For the year ended October 31, 2016,  Agrinatural paid approximately $68,000 for project management and capital work fees. For the year ended October 31, 2015, the Company paid approximately $19,000 for project management and capital work fees. The project management with SEI expires June 30, 2019 unless earlier terminated for cause as defined in the agreement.

Amounts due to SEI from Agrinatural included in accounts payable on the consolidated balance sheets totaled approximately $16,000 and $131,000 at October 31, 2017 and 2016, respectively

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COMMITMENTS AND CONTINGENCIES

12 Months Ended

Oct. 31, 2017

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

14. COMMITMENTS AND CONTINGENCIES

Corn Purchase Commitments

At October 31, 2017, GFE had cash and basis contracts for forward corn purchase commitments for approximately 3,041,000 bushels for deliveries through December 2018.

At October 31, 2017, HLBE had cash and basis contracts for forward corn purchase commitments for approximately 1,769,000 bushels for deliveries through October 2018.

Ethanol Marketing Agreement

GFE currently has an ethanol marketing agreement with Eco-Energy, Inc., an unrelated party (“Eco-Energy”). Pursuant to this marketing agreement, Eco-Energy purchases the entire ethanol output of GFE’s ethanol plant and arranges for the transportation of ethanol; however, GFE is responsible for securing all of the rail cars necessary for the transport of ethanol by rail except for 43 rail cars leased to GFE by Eco-Energy under the marketing agreement. GFE pays Eco-Energy a marketing fee per gallon of ethanol sold in consideration of Eco-Energy’s services, as well as a fixed lease fee for rail cars leased from Eco-Energy to GFE. During the third quarter of 2016, GFE amended its marketing agreement extending the term of the marketing agreement to December 31, 2019, with automatic renewals for additional three terms of three-year periods unless terminated by either party by providing written notice to the other party at least 90 days prior to the end of the then current term. Additionally, the amendment provides for certain negotiated changes to the marketing fees payable to Eco-Energy by GFE and  the timing of payments by Eco-Energy to GFE for the ethanol Eco-Energy purchases from GFE. The changes to the marketing fee and timing of payments by Eco-Energy were negotiated based on prevailing market-rate conditions for comparable ethanol marketing services. 

HLBE has an ethanol marketing agreement with Eco-Energy, an unrelated party, for the sale of ethanol. Under this marketing agreement, Eco-Energy purchases, markets and resells 100% of the ethanol produced at HLBE’s ethanol production facility and arranges for the transportation of HLBE’s ethanol. HLBE pays Eco-Energy a marketing fee per gallon of ethanol sold in consideration of Eco-Energy’s services, as well as a fixed lease fee for rail cars leased from Eco-Energy to the HLBE. During the third quarter of 2016, HLBE entered into an amendment with Eco-Energy extending the term of the marketing agreement to  December 31, 2019, with automatic renewals for additional three terms of three-year periods unless terminated by either party by providing written notice to the other party at least 90 days prior to the end of the then current term. Additionally, the amendment provides for certain negotiated changes to the marketing fees payable to Eco-Energy by HLBE and  the timing of payments by Eco-Energy to GFE for the ethanol Eco-Energy purchases from GFE.  The changes to the marketing fee and timing of payments by Eco-Energy were negotiated based on prevailing market-rate conditions for comparable ethanol marketing services. 

Ethanol marketing fees and commissions totaled approximately $1,159,000,  $1,256,000 and $1,234,000 for the fiscal years ended October 31, 2017, 2016, and 2015, respectively, and are included net within revenues.

Ethanol Contracts

At October 31, 2017, GFE had fixed and basis contracts to sell approximately $18,889,000 of ethanol for various delivery periods through March 2018, which approximates 56% of its anticipated ethanol sales for this that period.

At October 31, 2017, HLBE had fixed and basis contracts to sell approximately $18,414,000 of ethanol for various delivery periods through March 2018, which approximates 52% of its anticipated ethanol sales for this that period.

Distillers Grain Marketing Agreement

GFE has a distillers’ grains marketing agreement with RPMG, Inc. (“RPMG”), an unrelated party, for the purpose of marketing and selling all distillers’ grains produced by GFE. The contract commenced on February 1, 2011 with an initial term of one year, and will continue to remain in effect until terminated by either party at its unqualified option, by providing written notice of not less than 90 days to the other party. Distillers’ grains commissions to RPMG totaled approximately $276,000,  $335,000 and $421,000 for the fiscal years ended October 31, 2017, 2016, and 2015, respectively, and are included net within revenues.

At October 31, 2017, GFE had forward contracts to sell approximately $1,459,000 of distillers’ grain for deliveries through November 2017, which approximates 92% of its anticipated distillers’ grain sales during that period.

HLBE has a distillers’ grains off-take agreement with Gavilon Ingredients, LLC (“Gavilon”), an unrelated party.  Under this agreement, Gavilon purchases all of the distillers’ grains produced at HLBE’s ethanol plant in exchange for a service fee. The contract commenced on November 1, 2013 with an initial term of six months, and will continue to remain in effect until terminated by either party at its unqualified option, by providing written notice of not less than 60 days to the other party.  Distillers’ grains commissions to Gavilon totaled approximately $268,000,  $283,000 and $308,000 for the fiscal years ended October 31, 2017, 2016, and 2015, respectively, and are included net within revenues.

At October 31, 2017, HLBE had forward contracts to sell approximately $2,006,000 of distillers’ grains for delivery in March 2018, which approximates 27% of its anticipated distillers’ grain sales during that period.

Corn Oil Marketing Agreement

GFE has a corn oil marketing agreement with RPMG, an unrelated party, for the purpose of marketing and selling all corn oil produced by GFE. The contract commenced on April 29, 2010 with an initial term of one year, and will continue to remain in effect until terminated by either party at its unqualified option, by providing written notice of not less than 90 days to the other party.

HLBE has a corn oil marketing agreement with RPMG, an unrelated party, for the purpose of marketing and selling all corn oil produced by HLBE. The contract commenced on November 1, 2013 with an initial term of one year, and will continue to remain in effect until terminated by either party at its unqualified option, by providing written notice of not less than 90 days to the other party.

Corn oil commissions totaled approximately $176,000,  $166,000 and $125,000 for the fiscal years ended October 31, 2017, 2016, and 2015, respectively, and are included net within revenues.

At October 31, 2017, GFE had forward contracts to sell approximately $423,000 of corn oil for delivery through December 2017, which approximates 48% of its anticipated corn oil sales for this that period.

At October 31, 2017, HLBE had forward contracts to sell approximately $763,000 of corn oil for delivery through December 2017, which approximates 90% of its anticipated corn oil sales for this that period.

Contract for Natural Gas Pipeline to Plant

GFE has an agreement with an unrelated company for the construction of and maintenance of 9.5 miles of natural gas pipeline that will serve the GFE plant. The agreement requires the Company to receive a minimum of 1,400,000 DT of natural gas annually through the term of the agreement. The Company is charged a fee based on the amount of natural gas delivered through the pipeline.

HLBE has a facilities agreement with Northern Border Pipeline Company which allows us access to an existing interstate natural gas pipeline located approximately 16 miles north from the HLBE plant. Agrinatural was formed to own and operate the pipeline and transports gas to the Company pursuant to a transportation agreement The Company also has a base agreement for the sale and purchase of natural gas with Constellation NewEnergy-Gas Division, LLC (“Constellation”).  This agreement runs until March 31, 2019.

Water Agreements

In October 2003, HLBE entered into an industrial water supply development and distribution agreement with the City of Heron Lake for 15 years.  HLBE has the exclusive rights to the first 6,000 gallons per minute of capacity that is available from the well, and provides for HLBE, combined with an unrelated company, to approve any other supply contracts that the City may enter into.  In consideration, HLBE will pay one half of the City’s water well bond payments of $735,000, plus a 5% administrative fee, totaling approximately $594,000, and operating costs, relative to HLBE’s water usage, plus a 10% profit.  These costs will be paid as water usage fees.  HLBE recorded an assessment of approximately $367,000 with long-term debt as described in Note 8. HLBE pays operating and administrative expenses of approximately $12,000 per year.

In May 2006, HLBE entered into a water treatment agreement with the City of Heron Lake and Jackson County for 30 years. HLBE will pay for operating and maintenance costs of the plant in exchange for receiving treated water.  In addition, HLBE agreed to an assessment for a portion of the capital costs of the water treatment plant.  HLBE recorded assessments with long-term debt of $500,000 and $3,550,000 in fiscal 2007 and 2006, respectively, as described in Note 8.  HLBE paid operating and maintenance expenses of approximately $92,000,  $24,000, and $57,000 in fiscal 2017, 2016, and 2015, respectively.

Railcar Damages

In accordance with certain railcar lease agreements, at expiration, the Company is required to return the railcars in good condition, less normal wear and tear.  Primarily due to the ongoing maintenance and repair activities performed on its railcars, the Company has determined that no accrual for leased railcars is necessary and an estimate of the possible range of loss cannot be made.

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LEGAL PROCEEDINGS

12 Months Ended

Oct. 31, 2017

LEGAL PROCEEDINGS

LEGAL PROCEEDINGS

15.  LEGAL PROCEEDINGS

From time to time in the ordinary course of business, the Company may be named as a defendant in legal proceedings related to various issues, including without limitation, workers’ compensation claims, tort claims, or contractual disputes. We are not currently a party to any material pending legal proceedings and we are not currently aware of any such proceedings contemplated by governmental authorities.

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QUARTERLY FINANCIAL DATA (UNAUDITED)

12 Months Ended

Oct. 31, 2017

QUARTERLY FINANCIAL DATA (UNAUDITED)

QUARTERLY FINANCIAL DATA (UNAUDITED)

16.  QUARTERLY FINANCIAL DATA (UNAUDITED)

Summary quarterly results are as follows:

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
Fiscal year ended October 31, 2017
Revenues	$	54,576,064	$	52,802,058	$	54,250,994	$	54,153,275
Gross profit		6,844,907		3,956,500		4,203,141		6,094,930
Operating income		5,237,686		2,371,966		2,740,127		4,581,816
Net income attributable to GFE		4,159,791		1,847,477		2,049,621		3,428,444
Basic and diluted earnings per unit attributable to GFE	$	135.91	$	60.36	$	66.97	$	112.02

		First		Second		Third		Fourth
		Quarter		Quarter		Quarter		Quarter
Fiscal year ended October 31, 2016
Revenues	$	51,001,654	$	50,974,398	$	58,018,553	$	55,531,621
Gross profit		1,432,877		2,273,697		6,301,875		6,890,645
Operating income		32,031		784,201		5,017,859		5,739,434
Net income attributable to GFE		11,526		699,514		3,492,822		4,518,946
Basic and diluted earnings per unit attributable to GFE	$	0.38	$	22.86	$	114.12	$	147.65

		First		Second		Third		Fourth
		Quarter		Quarter		Quarter		Quarter
Fiscal year ended October 31, 2015
Revenues	$	58,692,502	$	59,067,109	$	58,671,723	$	54,823,174
Gross profit		5,628,105		5,545,088		8,795,890		2,631,235
Operating income		4,204,718		4,173,843		7,494,444		1,551,398
Net income attributable to GFE		3,767,092		3,179,639		5,440,763		1,199,256
Basic and diluted earnings per unit attributable to GFE	$	123.08	$	103.89	$	177.77	$	39.18

The above quarterly financial data is unaudited, but in the opinion of management, all adjustments necessary for a fair presentation of the selected data for these periods presented have been included.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Oct. 31, 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Nature of Business

Granite Falls Energy, LLC (“GFE”) is a Minnesota limited liability company currently producing fuel-grade ethanol, distillers’ grains, and crude corn oil near Granite Falls, Minnesota and sells these products, pursuant to marketing agreements, throughout the continental U.S. and on the international market. GFE’s plant has an approximate annual production capacity of 60 million gallons, but is currently permitted to produce up to 70 million gallons of undenatured ethanol on a twelve month rolling sum basis.

Additionally, GFE owns a majority interest in Heron Lake BioEnergy, LLC (“HLBE”).  HLBE is a Minnesota limited liability company currently producing fuel-grade ethanol, distillers’ grains, and crude corn oil near Heron Lake, Minnesota and sells these products, pursuant to marketing agreements, throughout the continental U.S. HLBE’s plant has an approximate annual production capacity of 60 million gallons, but is currently permitted to produce up to 72.3 million gallons per year of undenatured ethanol on a twelve month rolling sum basis.  Additionally, HLBE, through a majority owned subsidiary, operates a natural gas pipeline that provides natural gas to the HLBE’s ethanol production facility and other customers.

Principles of Consolidation

Principles of Consolidation

The accompanying consolidated financial statements consolidate the operating results and financial position of GFE, and its approximately 50.7% owned subsidiary, HLBE (through GFE’s 100% ownership of Project Viking, L.L.C.).  Given GFE’s control over the operations of HLBE and its majority voting interest, GFE consolidates the financial statements of HLBE with its consolidated financial statements. The remaining approximately 49.3% ownership of HLBE is included in the consolidated financial statements as a non-controlling interest. HLBE, through its wholly owned subsidiary, HLBE Pipeline Company, LLC, owns 73.0% of Agrinatural Gas, LLC (“Agrinatural”). Given HLBE’s control over the operations of Agrinatural and its majority voting interest, HLBE consolidates the financial statements of Agrinatural with its consolidated financial statements, with the remaining approximately 27.0% ownership of HLBE attributed to the non-controlling interest. All intercompany balances and transactions are eliminated in consolidation. All references to “we”, “us”, “our”, and the “Company” collectively refer to GFE and its wholly owned and majority owned subsidiaries.

Fiscal Reporting Period

Fiscal Reporting Period

The Company’s fiscal year end for reporting financial operations is October 31 for financial reporting purposes.

Accounting Estimates

Accounting Estimates

Management uses estimates and assumptions in preparing these consolidated financial statements in accordance with generally accepted accounting principles in the U.S. of America. 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. The Company uses estimates and assumptions in accounting for the following significant matters, among others: economic lives of property and equipment, valuation of commodity derivatives, inventory, and inventory purchase and sale commitments, evaluation of rail car damages contingency, and the assumptions used in the impairment analysis of long-lived assets, which includes goodwill. Actual results may differ from previously estimated amounts, and such differences may be material to our consolidated financial statements. The Company periodically reviews estimates and assumptions, and the effects of revisions are reflected in the period in which the revision is made.

Revenue Recognition

Revenue Recognition

The Company generally sells ethanol and related products pursuant to marketing agreements. Revenues from the production of ethanol and the related products are recorded when the customer has taken title and assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured. Ethanol and related products are generally shipped free on board (FOB) shipping point.

In accordance with the Company’s agreements for the marketing and sale of ethanol and related products, marketing fees and commissions due to the marketers are deducted from the gross sales price as earned. These fees and commissions are recorded net of revenues, as they do not provide an identifiable benefit that is sufficiently separable from the sale of ethanol and related products. Shipping costs paid by the Company to the marketer in the sale of ethanol are not specifically identifiable and, as a result, are recorded based on the net selling price reported to the Company from the marketer. Shipping costs incurred by the Company in the sale of distillers’ grains and corn oil are included in cost of goods sold.

Agrinatural recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee for the arrangement is fixed or determinable and collectability is reasonably assured.

Cost of Goods Sold

Cost of Goods Sold

The primary components of cost of goods sold for the production of ethanol and related co-products are corn, energy, raw materials, overhead, depreciation, and direct labor.

Operating Expenses

Operating Expenses

The primary components of operating expenses are salaries and expenses for administrative employees, professional fees, board of governor expenses and property taxes

Cash

Cash

The Company maintains its accounts at multiple financial institutions, of which one is a member of the Company.  At times throughout the year, the Company’s cash balances may exceed amounts insured by the Federal Deposit Insurance Corporation. The Company does not believe it is exposed to any significant credit risk on its cash balances.

Restricted Cash

Restricted Cash

The Company is periodically required to maintain at its broker cash balances related to open commodity derivative instrument positions as discussed in Note 6.

Account Receivable

Accounts Receivable

Credit terms are extended to customers in the normal course of business. The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral.

Accounts receivable are recorded at their estimated net realizable value. Accounts are considered past due if payment is not made on a timely basis in accordance with the Company’s credit terms. Accounts considered uncollectible are written off. The Company follows a policy of providing an allowance for doubtful accounts; however, based on historical experience, and its evaluation of the current status of receivables, the Company is of the belief that such accounts will be collectible in all material respects and thus an allowance was not necessary at October 31, 2017 or 2016.  It is at least possible this estimate will change in the future.

Inventory

Inventory

Inventory is stated at the lower of cost or net realizable value. Cost for all inventories is determined using the first in first out method.  Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.  Inventory consists of raw materials, work in process, finished goods, and supplies. Corn is the primary raw material along with other raw materials.  Finished goods consist of ethanol, distillers’ grains, and corn oil.

Derivative Instruments

Derivative Instruments

From time to time, the Company enters into derivative transactions to hedge its exposures to commodity price fluctuations. The Company is required to record these derivatives in the balance sheets at fair value.

In order for a derivative to qualify as a hedge, specific criteria must be met and appropriate documentation maintained. Gains and losses from derivatives that do not qualify as hedges, or are undesignated, must be recognized immediately in earnings.  If the derivative does qualify as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will be either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Changes in the fair value of undesignated derivatives are recorded in earnings.

Additionally, the Company is required to evaluate its contracts to determine whether the contracts are derivatives.  Certain contracts that literally meet the definition of a derivative may be exempted 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 normal sales are documented as normal and exempted from accounting and reporting requirements, and therefore, are not marked to market in our consolidated financial statements.

In order to reduce the risks caused by market fluctuations, the Company occasionally hedges its anticipated corn, natural gas, and denaturant purchases and ethanol sales by entering into options and futures contracts. These contracts are used with the intention to fix the purchase price of anticipated requirements for corn in the Company’s ethanol production activities and the related sales price of ethanol. The fair value of these contracts is based on quoted prices in active exchange-traded or over-the-counter market conditions. Although the Company believes its commodity derivative positions are economic hedges, none have been formally designated as a hedge for accounting purposes and derivative positions are recorded on the balance sheet at their fair market value, with changes in fair value recognized in current period earnings or losses. The Company does not enter into financial instruments for trading or speculative purposes.

The Company has adopted authoritative guidance related to “Derivatives and Hedging,” and has included the required enhanced quantitative and qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses from derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. See further discussion in Note 6.

Other Intangibles

Other Intangibles

Other intangibles included as a component of other assets on the consolidated balance sheet are stated at cost and include road improvements located near the HLBE plant in which the Company has a beneficial interest in but does not own the road. The Company amortizes the assets over the economic useful life of 15 years. The Company recorded amortization expense in the amount of approximately $38,000 during each of the fiscal years ended October 31, 2017, 2016, and 2015.

Property and Equipment

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided over the following estimated useful lives by use of the straight-line method.

Asset Description	Years
Land improvements	5-20	years
Railroad improvements	5-20	years
Process equipment and tanks	5-40	years
Administration building	10-40	years
Office equipment	3-10	years
Rolling stock	5-10	years

Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized.  Construction in progress expenditures will be depreciated using the straight-line method over their estimated useful lives once the assets are placed into service.

Long-Lived Assets

Long-Lived Assets

Long-lived assets, such as property and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When determining impairment losses, a long-lived asset should be grouped with other assets or liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets or liabilities.  If circumstances require a long-lived asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including, but not limited to, discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No indicators of impairment existed during fiscal 2017, 2016, or 2015 that would have triggered impairment testing, and therefore, no impairment expense was recorded during fiscal 2017, 2016, or 2015.

Investment

Investment

On  November 1, 2016, GFE subscribed to purchase 1,500 capital units of Ringneck Energy & Feed, LLC (“Ringneck”) at a price of $5,000 per unit for a total of $7,500,000.  GFE paid a down payment of $750,000 in connection with the subscription, and signed a promissory note for $6,750,000 for the remaining balance of the subscription. By letter dated July 12, 2017, GFE was notified of Ringneck’s acceptance of GFE’s subscription and that payment of the balance of GFE’s subscription due under the promissory note was due not later than August 2, 2017.  On August 2, 2017, GFE paid $6,750,000 to Ringneck, the remaining balance of GFE’s subscription.  

Ringneck is a South Dakota limited liability company that is currently constructing an 80 million gallon per year ethanol manufacturing plant in outside of Onida, South Dakota in Sully County. GFE’s investment is sufficient to secure theCompany the right to appoint one director to the board of directors of Ringneck and GFE has appointed Steve Christensen, its CEO to serve as its appointed director.  

The investment will be accounted for by the equity method, under which the Company’s share of the net income of the investee is recognized as income in the Company’s Consolidated Statement of Operations and added to the investment account.  Any distributions received from the affiliates are treated as a reduction of the investment.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Company’s accounting for fair value measurements of assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring or nonrecurring basis adhere to the Financial Accounting Standards Board (“FASB”) fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The Company has adopted guidance for fair value measurement related to nonfinancial items that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis.  The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy are as follows:

· Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

· Level 2 inputs include:

1. Quoted prices in active markets for similar assets or liabilities.

2. Quoted prices in markets that are observable for the asset or liability either directly or indirectly, for substantially the full term of the asset or liability.

3. Inputs that derived primarily from or corroborated by observable market date by correlation or other means.

· Level 3 inputs are unobservable inputs for the asset or liability.

The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

Except for those assets and liabilities which are required by authoritative accounting guidance to be recorded at fair value in our balance sheets, the Company has elected not to record any other assets or liabilities at fair value. No events occurred during the fiscal years ended October 31, 2017, 2016, or 2015 that required adjustment to the recognized balances of assets or liabilities, which are recorded at fair value on a nonrecurring basis.

The carrying value of cash, accounts receivable, accounts payable and accrued liabilities approximates fair value due to the short maturity of these instruments. The Company obtains fair value measurements from an independent pricing service for corn derivative contracts.  The fair value measurements consider observable data that may include dealer quotes and live trading levels from the Chicago Board of Trade and New York Mercantile Exchange markets.  The fair value of the long-term debt is estimated based on anticipated interest rates which management believes would currently be available to the Company for similar issues of debt, taking into account the current credit risk of the Company and other market factors.  The Company believes the carrying value of the debt instruments approximate fair value.

Income Taxes

Income Taxes

The Company is treated as a partnership for federal and state income tax purposes, and generally does not incur income taxes. Instead its earnings and losses are included in the income tax returns of its members. Therefore, no provision or liability for federal or state income taxes has been included in these financial statements. Differences between financial statement basis of assets and tax basis of assets is related to capitalization and amortization of organization and start-up costs for tax purposes, whereas these costs are expensed for financial statement purposes. In addition, the Company uses the alternative depreciation system for tax depreciation instead of the straight-line method that is used for book depreciation, which also causes temporary differences. The Company’s tax year end is December 31.

The Company had no significant uncertain tax positions as of October 31, 2017 or 2016 that would require disclosure, primarily due to the partnership tax status. The Company recognizes and measures tax benefits when realization of the benefits is uncertain under a two-step approach. The first step is to determine whether the benefit meets the more-likely-than-not condition for recognition and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%. Primarily due to the Company’s tax status as a partnership, the adoption of this guidance had no material impact on the Company’s financial condition or results of operations.

The Company files income tax returns in the U.S. federal and Minnesota state jurisdictions. For years before 2014, the Company is no longer subject to U.S. Federal or state income tax examinations.

Net Income Per Unit

Net Income per Unit

Basic net income per unit is computed by dividing net income by the weighted average number of members’ units outstanding during the period. Diluted net income per unit is computed by dividing net income 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, for all periods presented, the calculations of the Company’s basic and diluted net income per unit are the same.

Environmental Liabilities

Environmental Liabilities

The Company’s operations are subject to environmental laws and regulations adopted by various governmental entities in the jurisdiction in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its location. Accordingly, the Company has adopted policies, practices, and procedures in the areas of pollution control, occupational health, and the production, handling, storage, and use of hazardous materials to prevent material environmental or other damage, and to limit the financial liability, which could result from such events. Environmental liabilities are recorded when the liability is probable and the costs can be reasonably estimated. No expense has been recorded for the fiscal years ended October 31, 2017, 2016, or 2015.

Goodwill

Goodwill

Goodwill represents the cost in excess of the fair value of net assets acquired. The Company conducts impairment assessments annually or when events indicate a triggering event has occurred. No indicators of impairment existed during fiscal 2017, 2016, or 2015 that would have triggered impairment testing, and therefore, no impairment expense was recorded during 2017, 2016, or 2015.

Reportable Operating Segments

Reportable Operating Segments

Accounting Standards Codification (“ASC”) 280, “Segment Reporting,” establishes the standards for reporting information about segments in financial statements. Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Therefore, in applying the criteria set forth in ASC 280, the Company determined that based on the nature of the products and production process and the expected financial results, the Company’s operations at GFE’s ethanol plant and HLBE’s plant, including the production and sale of ethanol and its co-products, are aggregated into one reporting segment.

Additionally, the Company also realizes relatively immaterial revenue from natural gas pipeline operations at Agrinatural, HLBE’s majority owned subsidiary. Before and after accounting for intercompany eliminations, these revenues from Agrinatural’s represent less than less than 1% of our consolidated revenues and have little to no impact on the overall performance of the Company.  Therefore, the Company does not separately review Agrinatural’s revenues, cost of sales or other operating performance information.  Rather, the Company reviews Agrinatural’s natural gas pipeline financial data on a consolidated basis with the Company’s ethanol production operating segment. The Company believes that the presentation of separate operating performance information for Agrinatural’s natural gas pipeline operations would not provide meaningful information to a reader of the Company’s consolidated financial statements and would not achieve the basic principles and objectives of ASC 280.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

Contract Revenue Recognition (Evaluating)

In May 2014 and amended in August 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09 which amended the Revenue from Contracts with Customers (Topic 606) of the ASC. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for the Company beginning November 1, 2018. The Company is currently evaluating the guidance and its effect on its consolidated financial statements.

Leases (Evaluating)

In February 2016, the FASB adopted ASU No. 2016-02, Leases (Topic 842), which provides guidance for accounting for leases. The new guidance requires companies to recognize the assets and liabilities for the rights and obligations created by leased assets, initially measured at the present value of the lease payments. The accounting guidance for lessors is largely unchanged. The guidance will be effective for the Company beginning November 1, 2019.  The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

Restricted Cash (Evaluating)

In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which amended Statement of Cash Flows (Topic 230) of the ASC. The new guidance will require amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the consolidated statement of cash flows. The amendments will be effective for the Company beginning November 1, 2018. The Company is currently evaluating the impact that adoption of this guidance will have on its consolidated financial statements.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

12 Months Ended

Oct. 31, 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Schedule of property and equipment estimated useful lives

Asset Description	Years
Land improvements	5-20	years
Railroad improvements	5-20	years
Process equipment and tanks	5-40	years
Administration building	10-40	years
Office equipment	3-10	years
Rolling stock	5-10	years

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FAIR VALUE (Tables)

12 Months Ended

Oct. 31, 2017

FAIR VALUE

Schedule of derivative assets and liabilities measured at fair value

The following table provides information on those derivative assets and liabilities measured at fair value on a recurring basis at October 31, 2017:

					Fair Value Measurement Using
					Quoted Prices		Significant Other		Significant
	Carrying Amount in				in Active Markets		Observable Inputs		Unobservable Inputs
Financial Asset:	Consolidated Balance Sheet		Fair Value		(Level 1)		(Level 2)		(Level 3)
Commodity Derivative Instruments - Corn	$	244,294	$	244,294	$	244,294	$	—	$	—
Financial Liabilities:
Commodity Derivative Instruments - Ethanol	$	24,998	$	24,998	$	36,500	$	(11,502)	$	—
Commodity Derivative Instruments - Natural Gas	$	15,381	$	15,381	$	—	$	15,381	$	—

The following table provides information on those derivative assets measured at fair value on a recurring basis at October 31, 2016:

					Fair Value Measurement Using
					Quoted Prices		Significant Other		Significant
	Carrying Amount in				in Active Markets		Observable Inputs		Unobservable Inputs
Financial Asset:	Consolidated Balance Sheet		Fair Value		(Level 1)		(Level 2)		(Level 3)
Commodity Derivative Instruments - Corn	$	451,575	$	451,575	$	451,575	$	—	$	—
Commodity Derivative Instruments - Ethanol	$	777,351	$	777,351	$	777,351	$	—	$	—

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CONCENTRATIONS (Tables)

12 Months Ended

Oct. 31, 2017

Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Revenues.

Schedule of concentration risk

	October 31, 2017	October 31, 2016	October 31, 2015
Eco-Energy, Inc. - Ethanol	81.8%	80.3%	79.1%
RPMG, Inc. - Distillers' Grains & Corn Oil	17.8%	19.7%	20.7%

Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Accounts receivable

Schedule of concentration risk

	October 31, 2017	October 31, 2016
Eco-Energy, Inc. - Ethanol	82.0%	70.2%
RPMG, Inc. - Distillers' Grains & Corn Oil	16.3%	26.5%

Heron Lake BioEnergy, LLC | Revenues.

Schedule of concentration risk

	October 31, 2017	October 31, 2016	October 31, 2015
Eco-Energy, Inc. - Ethanol	81.3%	78.5%	76.9%
Gavilon Ingredients, LLC - Distillers' Grains	13.7%	15.4%	19.2%
RPMG, Inc. - Corn Oil	4.5%	4.4%	2.4%

Heron Lake BioEnergy, LLC | Accounts receivable

Schedule of concentration risk

	October 31, 2017	October 31, 2016
Eco-Energy, Inc. - Ethanol	86.8%	78.6%
Gavilon Ingredients, LLC - Distillers' Grains	7.0%	11.1%
RPMG, Inc. - Corn Oil	4.3%	3.3%

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INVENTORY (Tables)

12 Months Ended

Oct. 31, 2017

INVENTORY

Schedule of Inventory

	2017		2016
Raw materials	$	4,488,923	$	9,098,492
Supplies		2,929,385		2,755,958
Work in process		1,281,292		1,347,754
Finished goods		6,541,492		5,139,209
Totals	$	15,241,092	$	18,341,413

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DERIVATIVE INSTRUMENTS (Tables)

12 Months Ended

Oct. 31, 2017

DERIVATIVE INSTRUMENTS

Schedule of derivative instruments in Statements of Financial Position

The following tables provide details regarding the Company’s derivative instruments at October 31, 2017, none of which were designated as hedging instruments:

	Consolidated Balance Sheet location	Assets		Liabilities
Corn contracts - GFE	Commodity derivative instruments	$	102,650	$	—
Corn contracts - HLBE	Commodity derivative instruments		141,644		—
Ethanol contracts - GFE	Commodity derivative instruments		—		12,749
Ethanol contracts - HLBE	Commodity derivative instruments		—		12,249
Natural gas contracts - HLBE	Commodity derivative instruments		—		15,381
Totals		$	244,294	$	40,379

As of October 31, 2016, the total notional amount of GFE’s outstanding corn derivative instruments was approximately 5,220,000 bushels, comprised of long corn positions on 3,300,000 bushels that were entered into to hedge forecasted ethanol sales through March 2017, and short corn positions on 1,920,000 bushels that were entered into to hedge forecasted corn purchases through December 2016. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.  As of October 31, 2016, GFE did not have any cash collateral (restricted cash) related to derivatives held by a broker.

As of October 31, 2016, the total notional amount of HLBE’s outstanding corn derivative instruments was approximately 4,285,000 bushels, comprised of long corn positions on 3,100,000 bushels that were entered into to hedge forecasted ethanol sales through March 2017, and short corn positions on 1,185,000 bushels that were entered into to hedge forecasted corn purchases through August 2017. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding. As of October 31, 2016, HLBE did not have any cash collateral (restricted cash) related to derivatives held by a broker.

The following tables provide details regarding the Company’s derivative instruments at October 31, 2016, none of which were designated as hedging instruments:

	Consolidated Balance Sheet location	Assets		Liabilities
Corn contracts - GFE	Commodity derivative instruments	$	63,050	$	—
Corn contracts - HLBE	Commodity derivative instruments		388,525		—
Ethanol Contracts - GFE	Commodity derivative instruments		503,538		—
Ethanol Contracts - HLBE	Commodity derivative instruments		273,813		—
Totals		$	1,228,926	$	—

Schedule of gains (losses) from derivative instruments

	Consolidated Statement	Year Ended October 31,
	of Operations Location	2017		2016		2015
Corn contracts	Cost of Goods Sold	$	1,129,746	$	708,364	$	303,925
Ethanol contracts	Revenues		(414,829)		(159,322)		—
Natural gas contracts	Cost of Goods Sold		(15,381)		32,358		—
Total gain, net		$	699,536	$	581,400	$	303,925

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PROPERTY AND EQUIPMENT (Tables)

12 Months Ended

Oct. 31, 2017

PROPERTY AND EQUIPMENT

Schedule of property and equipment

	October 31, 2017		October 31, 2016
Land and improvements	$	13,697,790	$	13,697,790
Railroad improvements		9,045,112		9,045,112
Process equipment and tanks		129,640,626		128,004,694
Administration building		569,328		569,328
Office equipment		989,690		907,652
Rolling stock		1,904,154		1,792,534
Construction in progress		777,655		315,631
		156,624,355		154,332,741
Less: accumulated depreciation		(84,353,342)		(75,364,725)
Net property and equipment	$	72,271,013	$	78,968,016

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DEBT FACILITIES (Tables)

12 Months Ended

Oct. 31, 2017

DEBT FACILITIES

Schedule of debt financing

	October 31, 2017		October 31, 2016
GRANITE FALLS ENERGY:
Revolving term loan, see terms above.	$	—	$	—
Seasonal loan, see terms above.		—		—
Term note payable to Project Hawkeye, see terms above.		7,500,000		—
HERON LAKE BIOENERGY:
Revolving term loan to lending institution, see terms above.		—		—
Assessment payable as part of water treatment agreement, due in semi-annual installments of $189,393 with interest at 6.55%, enforceable by statutory lien, with the final payment due in 2021. HLBE made deposits for one years' worth of debt service payments of approximately $364,000, which is included with other assets that are held on deposit to be applied with the final payments of the assessment.		1,241,171		1,517,046
Assessment payable as part of water supply agreement, due in monthly installments of $3,942 with interest at 8.73%, enforceable by statutory lien, with the final payment due in 2019.		56,514		97,930
Note payable to electrical company with monthly payments of $6,250 with interest at 0.00% and a 1.00% maintenance fee due each October.  This note was paid in full in September 2017. The electrical company is a member of HLBE.		—		68,750
Note payable to non-controlling interest member of Agrinatural.  Interest is at One Month LIBOR plus 4.0%, which was approximately 5.24% and 4.53% at October 31, 2017 and 2016, respectively.  The note is considered due on demand with payments due at Agrinatural's Board of Managers' discretion.		100,000		200,000
Totals		8,897,685		1,883,726
Less: amounts due within one year		432,183		490,057
Net long-term debt	$	8,465,502	$	1,393,669

Schedule of annual maturities of debt

2018	$	432,183
2019		408,169
2020		1,398,227
2021		1,391,250
2022		1,071,429
Thereafter		4,196,427
Total debt	$	8,897,685

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LEASES (Tables)

12 Months Ended

Oct. 31, 2017

LEASES

Schedule of minimum future lease payments

November 1, 2017 to October 31, 2018	$	4,916,616
November 1, 2018 to October 31, 2019		4,532,800
November 1, 2019 to October 31, 2020		4,395,550
November 1, 2020 to October 31, 2021		4,393,800
November 1, 2021 to October 31, 2022		4,315,800
Thereafter		13,341,850
Total minimum lease commitments	$	35,896,416

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INCOME TAXES (Tables)

12 Months Ended

Oct. 31, 2017

INCOME TAXES

Schedule of differences between financial statement basis and tax basis of assets

	October 31, 2017		October 31, 2016
Consolidated financial statement basis of assets	$	127,089,530	$	121,470,922
Organization & start-up costs capitalized for tax purposes, net		268,166		357,554
Tax depreciation greater than book depreciation		(14,219,188)		(17,884,622)
Unrealized derivatives gains of commodity derivative instruments		(102,650)		(566,588)
Capitalized inventory		81,119		41,467
Net effect of consolidation of acquired subsidiary		(32,239,669)		(36,496,913)
Income tax basis of assets	$	80,877,308	$	66,921,820

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QUARTERLY FINANCIAL DATA (UNAUDITED) (Tables)

12 Months Ended

Oct. 31, 2017

QUARTERLY FINANCIAL DATA (UNAUDITED)

Schedule of quarterly financial data

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
Fiscal year ended October 31, 2017
Revenues	$	54,576,064	$	52,802,058	$	54,250,994	$	54,153,275
Gross profit		6,844,907		3,956,500		4,203,141		6,094,930
Operating income		5,237,686		2,371,966		2,740,127		4,581,816
Net income attributable to GFE		4,159,791		1,847,477		2,049,621		3,428,444
Basic and diluted earnings per unit attributable to GFE	$	135.91	$	60.36	$	66.97	$	112.02

		First		Second		Third		Fourth
		Quarter		Quarter		Quarter		Quarter
Fiscal year ended October 31, 2016
Revenues	$	51,001,654	$	50,974,398	$	58,018,553	$	55,531,621
Gross profit		1,432,877		2,273,697		6,301,875		6,890,645
Operating income		32,031		784,201		5,017,859		5,739,434
Net income attributable to GFE		11,526		699,514		3,492,822		4,518,946
Basic and diluted earnings per unit attributable to GFE	$	0.38	$	22.86	$	114.12	$	147.65

		First		Second		Third		Fourth
		Quarter		Quarter		Quarter		Quarter
Fiscal year ended October 31, 2015
Revenues	$	58,692,502	$	59,067,109	$	58,671,723	$	54,823,174
Gross profit		5,628,105		5,545,088		8,795,890		2,631,235
Operating income		4,204,718		4,173,843		7,494,444		1,551,398
Net income attributable to GFE		3,767,092		3,179,639		5,440,763		1,199,256
Basic and diluted earnings per unit attributable to GFE	$	123.08	$	103.89	$	177.77	$	39.18

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) gal in Millions	12 Months Ended
	Oct. 31, 2017 USD ($) gal	Oct. 31, 2016 USD ($)	Oct. 31, 2015 USD ($)
Other Intangibles
Economic useful life of other intangibles	15 years
Amortization of Intangible Assets | $	$ 38,000	$ 38,000	$ 38,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]
Plant production capacity	60.0
Production volume permitted	70.0
Heron Lake BioEnergy, LLC
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]
Plant production capacity	60.0
Production volume permitted	72.3
Heron Lake BioEnergy, LLC
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners	49.30%
Heron Lake BioEnergy, LLC | Project Viking, LLC
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]
Ownership percentage	50.70%
Project Viking, LLC
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]
Ownership percentage	100.00%
Agrinatural, LLC
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners	27.00%
Agrinatural, LLC | HLBE Pipeline Company, LLC
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]
Ownership percentage	73.00%

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Useful Life (Details)	12 Months Ended
	Oct. 31, 2017
Land Improvements | Minimum
Property, Plant and Equipment
Property, Plant and Equipment, Useful Life	5 years
Land Improvements | Maximum
Property, Plant and Equipment
Property, Plant and Equipment, Useful Life	20 years
Railroad improvements | Minimum
Property, Plant and Equipment
Property, Plant and Equipment, Useful Life	5 years
Railroad improvements | Maximum
Property, Plant and Equipment
Property, Plant and Equipment, Useful Life	20 years
Process Equipment and Tanks | Minimum
Property, Plant and Equipment
Property, Plant and Equipment, Useful Life	5 years
Process Equipment and Tanks | Maximum
Property, Plant and Equipment
Property, Plant and Equipment, Useful Life	40 years
Administration building | Minimum
Property, Plant and Equipment
Property, Plant and Equipment, Useful Life	10 years
Administration building | Maximum
Property, Plant and Equipment
Property, Plant and Equipment, Useful Life	40 years
Office equipment | Minimum
Property, Plant and Equipment
Property, Plant and Equipment, Useful Life	3 years
Office equipment | Maximum
Property, Plant and Equipment
Property, Plant and Equipment, Useful Life	10 years
Rolling stock | Minimum
Property, Plant and Equipment
Property, Plant and Equipment, Useful Life	5 years
Rolling stock | Maximum
Property, Plant and Equipment
Property, Plant and Equipment, Useful Life	10 years

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Investments (Details) $ / shares in Units, gal in Millions			12 Months Ended
	Aug. 02, 2017 USD ($)	Nov. 01, 2016 USD ($) director $ / shares shares gal	Oct. 31, 2017 USD ($) shares	Oct. 31, 2016 USD ($)	Oct. 31, 2015 USD ($)
Long-Lived Assets
Impairment of long-lived assets			$ 0	$ 0	$ 0
Investment
Payment for equity method investment			7,500,000
Proceeds from long-term debt			$ 7,500,000	$ 9,820,222	$ 13,440,989
Ringneck Energy and; Feed, LLC
Investment
Expected ethanol production capacity | gal		80
Number of directors Company has the right to appoint | director		1
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Ringneck Energy and; Feed, LLC
Investment
Units purchased | shares		1,500
Price per unit (in dollars per unit) | $ / shares		$ 5,000
Total cost		$ 7,500,000
Payment for equity method investment	$ 6,750,000	750,000
Note payable		$ 6,750,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Project Hawkeye Loan | Ringneck Energy and; Feed, LLC
Investment
Units purchased | shares			1,500
Proceeds from long-term debt			$ 7,500,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Other (Details)	12 Months Ended
	Oct. 31, 2017 USD ($) segment shares	Oct. 31, 2016 USD ($) shares	Oct. 31, 2015 USD ($) shares
Net Income per Unit
Member units outstanding ( in shares) | shares	0	0	0
Environmental Liabilities
Environmental liability expense	$ 0	$ 0	$ 0
Goodwill
Impairment of goodwill	$ 0	$ 0	$ 0
Reportable Operating Segments
Number of reportable segments | segment	1
Agrinatural, LLC | Maximum
Reportable Operating Segments
Revenues of subsidiary, percentage	1.00%

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RISKS AND UNCERTAINTIES Narrative (Details) gal in Millions	12 Months Ended
	Oct. 31, 2019	Oct. 31, 2018	Oct. 31, 2017 Y gal	Nov. 30, 2017 gal
UNITED STATES
Concentration Risk [Line Items]
Ethanol production capacity			16,000
Conventional Ethanol
Concentration Risk [Line Items]
Renewable volume obligation				15,000
Advanced Biofuels
Concentration Risk [Line Items]
Renewable volume obligation				4,290
Cellulosic Ethanol
Concentration Risk [Line Items]
Renewable volume obligation				290
Renewable Fuels
Concentration Risk [Line Items]
Renewable volume obligation				26,000
Percentage below statutory levels	20.00%	20.00%
Number of consecutive years | Y			2
Period to modify volumes after trigger event	1 year
Renewable Fuels | Proposed plan
Concentration Risk [Line Items]
Renewable volume obligation				19,290
Minimum | Renewable Fuels
Concentration Risk [Line Items]
Percentage mandatory renewable fuel volumes are reduced			20.00%
Minimum | Total revenues | Product | Ethanol
Concentration Risk [Line Items]
Concentration percentage			75.00%
Minimum | Cost of goods sold | Product | Corn
Concentration Risk [Line Items]
Concentration percentage			65.00%
Maximum | Total revenues | Product | Ethanol
Concentration Risk [Line Items]
Concentration percentage			90.00%
Maximum | Cost of goods sold | Product | Corn
Concentration Risk [Line Items]
Concentration percentage			85.00%

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FAIR VALUE (Details) - Fair Value, Measurements, Recurring - USD ($)	Oct. 31, 2017	Oct. 31, 2016
Corn Contracts | Carrying Amount
Fair value
Financial Asset	$ 244,294	$ 451,575
Corn Contracts | Estimate of Fair Value Measurement
Fair value
Financial Asset	244,294	451,575
Corn Contracts | Fair Value, Inputs, Level 1 | Estimate of Fair Value Measurement
Fair value
Financial Asset	244,294	451,575
Ethanol Contracts | Carrying Amount
Fair value
Financial Asset		777,351
Financial Liabilities	24,998
Ethanol Contracts | Estimate of Fair Value Measurement
Fair value
Financial Asset		777,351
Financial Liabilities	24,998
Ethanol Contracts | Fair Value, Inputs, Level 1 | Estimate of Fair Value Measurement
Fair value
Financial Asset		$ 777,351
Financial Liabilities	36,500
Ethanol Contracts | Fair Value, Inputs, Level 2 | Estimate of Fair Value Measurement
Fair value
Financial Liabilities	(11,502)
Natural Gas Contracts | Carrying Amount
Fair value
Financial Liabilities	15,381
Natural Gas Contracts | Estimate of Fair Value Measurement
Fair value
Financial Liabilities	15,381
Natural Gas Contracts | Fair Value, Inputs, Level 2 | Estimate of Fair Value Measurement
Fair value
Financial Liabilities	$ 15,381

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CONCENTRATIONS (Details) - customer	12 Months Ended
	Oct. 31, 2017	Oct. 31, 2016	Oct. 31, 2015
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC
Concentration Risk [Line Items]
Number of Major Customers	2	2	2
Heron Lake BioEnergy, LLC
Concentration Risk [Line Items]
Number of Major Customers	3	3	3
Total revenues | Customer Concentration Risk | Eco-Energy, Inc. | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Ethanol
Concentration Risk [Line Items]
Concentration Risk, Percentage	81.80%	80.30%	79.10%
Total revenues | Customer Concentration Risk | Eco-Energy, Inc. | Heron Lake BioEnergy, LLC | Ethanol
Concentration Risk [Line Items]
Concentration Risk, Percentage	81.30%	78.50%	76.90%
Total revenues | Customer Concentration Risk | Gavilon Ingredients, LLC | Heron Lake BioEnergy, LLC | Distillers' Grains
Concentration Risk [Line Items]
Concentration Risk, Percentage	13.70%	15.40%	19.20%
Total revenues | Customer Concentration Risk | RPMG, Inc. | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Distillers' Grains and Corn Oil
Concentration Risk [Line Items]
Concentration Risk, Percentage	17.80%	19.70%	20.70%
Total revenues | Customer Concentration Risk | RPMG, Inc. | Heron Lake BioEnergy, LLC | Corn Oil
Concentration Risk [Line Items]
Concentration Risk, Percentage	4.50%	4.40%	2.40%
Accounts receivable | Credit Concentration Risk | Eco-Energy, Inc. | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Ethanol
Concentration Risk [Line Items]
Concentration Risk, Percentage	82.00%	70.20%
Accounts receivable | Credit Concentration Risk | Eco-Energy, Inc. | Heron Lake BioEnergy, LLC | Ethanol
Concentration Risk [Line Items]
Concentration Risk, Percentage	86.80%	78.60%
Accounts receivable | Credit Concentration Risk | Gavilon Ingredients, LLC | Heron Lake BioEnergy, LLC | Distillers' Grains
Concentration Risk [Line Items]
Concentration Risk, Percentage	7.00%	11.10%
Accounts receivable | Credit Concentration Risk | RPMG, Inc. | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Distillers' Grains and Corn Oil
Concentration Risk [Line Items]
Concentration Risk, Percentage	16.30%	26.50%
Accounts receivable | Credit Concentration Risk | RPMG, Inc. | Heron Lake BioEnergy, LLC | Corn Oil
Concentration Risk [Line Items]
Concentration Risk, Percentage	4.30%	3.30%

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INVENTORY (Details) - USD ($)	12 Months Ended
	Oct. 31, 2017	Oct. 31, 2016
Inventory
Raw materials	$ 4,488,923	$ 9,098,492
Supplies	2,929,385	2,755,958
Work in process	1,281,292	1,347,754
Finished goods	6,541,492	5,139,209
Totals	15,241,092	18,341,413
Ethanol
Inventory
Loss on inventories	$ 128,000	$ 0

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DERIVATIVE INSTRUMENTS - Assets And Liabilities (Details)	12 Months Ended
	Oct. 31, 2017 USD ($) MMBTU bu gal	Oct. 31, 2016 USD ($) bu
Derivatives, Fair Value [Line Items]
Cash collateral (restricted cash)	$ 75,189
Derivative assets	244,294	$ 1,228,926
Derivative liabilities	$ 40,379
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Corn Contracts
Derivatives, Fair Value [Line Items]
Total nonmonetary notional amount outstanding | bu	1,495,000	5,220,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Ethanol Contracts
Derivatives, Fair Value [Line Items]
Total nonmonetary notional amount outstanding | gal	420,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Derivatives held by a broker
Derivatives, Fair Value [Line Items]
Cash collateral (restricted cash)	$ 75,000
Derivative liabilities	$ 12,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Long/Purchase position | Corn Contracts
Derivatives, Fair Value [Line Items]
Total nonmonetary notional amount outstanding | bu	200,000	3,300,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Short/Sale position | Corn Contracts
Derivatives, Fair Value [Line Items]
Total nonmonetary notional amount outstanding | bu	1,295,000	1,920,000
Heron Lake BioEnergy, LLC | Corn Contracts
Derivatives, Fair Value [Line Items]
Total nonmonetary notional amount outstanding | bu	1,120,000	4,285,000
Heron Lake BioEnergy, LLC | Ethanol Contracts
Derivatives, Fair Value [Line Items]
Total nonmonetary notional amount outstanding | gal	420,000
Heron Lake BioEnergy, LLC | Natural Gas Contracts
Derivatives, Fair Value [Line Items]
Total gas derivative nonmonetary notional amount outstanding | MMBTU	120,000
Heron Lake BioEnergy, LLC | Derivatives held by a broker
Derivatives, Fair Value [Line Items]
Derivative liabilities	$ 12,000
Heron Lake BioEnergy, LLC | Long/Purchase position | Corn Contracts
Derivatives, Fair Value [Line Items]
Total nonmonetary notional amount outstanding | bu	215,000	3,100,000
Heron Lake BioEnergy, LLC | Short/Sale position | Corn Contracts
Derivatives, Fair Value [Line Items]
Total nonmonetary notional amount outstanding | bu	905,000	1,185,000
Not Designated as Hedging Instruments
Derivatives, Fair Value [Line Items]
Derivative assets	$ 244,294	$ 1,228,926
Derivative liabilities	$ 40,379
Not Designated as Hedging Instruments | Commodity Contract [Member]
Derivatives, Fair Value [Line Items]
Maximum term of corn, ethanol and natural gas derivatives entered to protect cash flows (in months)	24 months
Not Designated as Hedging Instruments | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Corn Contracts
Derivatives, Fair Value [Line Items]
Derivative assets	$ 102,650	63,050
Not Designated as Hedging Instruments | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Ethanol Contracts
Derivatives, Fair Value [Line Items]
Derivative assets		503,538
Derivative liabilities	12,749
Not Designated as Hedging Instruments | Heron Lake BioEnergy, LLC | Corn Contracts
Derivatives, Fair Value [Line Items]
Derivative assets	141,644	388,525
Not Designated as Hedging Instruments | Heron Lake BioEnergy, LLC | Ethanol Contracts
Derivatives, Fair Value [Line Items]
Derivative assets		$ 273,813
Derivative liabilities	12,249
Not Designated as Hedging Instruments | Heron Lake BioEnergy, LLC | Natural Gas Contracts
Derivatives, Fair Value [Line Items]
Derivative liabilities	$ 15,381

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DERIVATIVE INSTRUMENTS - Income Statement (Details) - Not Designated as Hedging Instruments - USD ($)	12 Months Ended
	Oct. 31, 2017	Oct. 31, 2016	Oct. 31, 2015
Derivative Instruments, Gain (Loss) [Line Items]
Gains (losses) on derivative instruments	$ 699,536	$ 581,400	$ 303,925
Cost of Goods Sold. | Corn Contracts
Derivative Instruments, Gain (Loss) [Line Items]
Gains (losses) on derivative instruments	1,129,746	708,364	$ 303,925
Cost of Goods Sold. | Natural Gas Contracts
Derivative Instruments, Gain (Loss) [Line Items]
Gains (losses) on derivative instruments	(15,381)	32,358
Revenues | Ethanol Contracts
Derivative Instruments, Gain (Loss) [Line Items]
Gains (losses) on derivative instruments	$ (414,829)	$ (159,322)

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PROPERTY AND EQUIPMENT (Details) - USD ($)	12 Months Ended
	Oct. 31, 2017	Oct. 31, 2016	Oct. 31, 2015
Property, Plant and Equipment
Property and equipment, gross	$ 156,624,355	$ 154,332,741
Less: accumulated depreciation	(84,353,342)	(75,364,725)
Net property and equipment	72,271,013	78,968,016
Depreciation	9,320,000	9,641,000	$ 9,612,000
Land and improvements
Property, Plant and Equipment
Property and equipment, gross	13,697,790	13,697,790
Railroad improvements
Property, Plant and Equipment
Property and equipment, gross	9,045,112	9,045,112
Process equipment and tanks
Property, Plant and Equipment
Property and equipment, gross	129,640,626	128,004,694
Administration building
Property, Plant and Equipment
Property and equipment, gross	569,328	569,328
Office equipment
Property, Plant and Equipment
Property and equipment, gross	989,690	907,652
Rolling stock
Property, Plant and Equipment
Property and equipment, gross	1,904,154	1,792,534
Construction in progress
Property, Plant and Equipment
Property and equipment, gross	$ 777,655	$ 315,631

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DEBT FACILITIES (Details) - USD ($)				12 Months Ended
	Sep. 08, 2017	Aug. 02, 2017	Nov. 01, 2016	Oct. 31, 2017	Oct. 31, 2016	Oct. 31, 2015	Feb. 28, 2015	Aug. 31, 2014
Line of Credit Facility
Savings collateral				$ 75,189
Proceeds from long-term debt				7,500,000	$ 9,820,222	$ 13,440,989
Revolving Term Loan | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC
Line of Credit Facility
Credit facility maximum								$ 18,000,000
Line of credit future reduction amounts				2,000,000
Amounts outstanding under the credit facility	$ 0
Seasonal Revolving Loan | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC
Line of Credit Facility
Credit facility maximum	$ 6,000,000
Amounts outstanding under the credit facility				0
Unused borrowing capacity				$ 6,000,000
Interest rate (as a percent)				3.99%
Savings collateral				$ 0
Revolving term note payable to lending institution | Heron Lake BioEnergy, LLC
Line of Credit Facility
Credit facility maximum							$ 28,000,000
Line of credit future reduction amounts				3,500,000
Amounts outstanding under the credit facility				0	0
Unused borrowing capacity				$ 17,500,000	$ 21,000,000
Interest rate (as a percent)				4.49%	3.45%
Remaining borrowing capacity				$ 17,500,000
Line of credit unused commitment fee (as a percent)				0.50%
Project Hawkeye Loan | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC
Line of Credit Facility
Credit facility maximum		$ 7,500,000
Interest rate (as a percent)				4.29%
Interest rate floor (as a percent)		3.55%
Maximum period of interest payments		2 years
Debt instrument amortization period after first two years		7 years
One Month LIBOR | Seasonal Revolving Loan | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC
Line of Credit Facility
Spread above variable interest rate	2.75%
One Month LIBOR | Revolving term note payable to lending institution | Heron Lake BioEnergy, LLC
Line of Credit Facility
Spread above variable interest rate				3.25%
One Month LIBOR | Project Hawkeye Loan | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC
Line of Credit Facility
Spread above variable interest rate		3.05%
Ringneck Energy and; Feed, LLC | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC
Line of Credit Facility
Units purchased			1,500
Ringneck Energy and; Feed, LLC | Project Hawkeye Loan | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC
Line of Credit Facility
Units purchased				1,500
Proceeds from long-term debt				$ 7,500,000

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DEBT FACILITIES - Granite Falls Energy And Heron Lake BioEnergy (Details) - USD ($)			12 Months Ended
	Sep. 08, 2017	Aug. 02, 2017	Oct. 31, 2017	Oct. 31, 2016
Line of Credit Facility
Long-term Debt			$ 8,897,685	$ 1,883,726
Less: amounts due within one year			432,183	490,057
Net long term debt			$ 8,465,502	$ 1,393,669
Seasonal Revolving Loan | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC
Line of Credit Facility
Interest rate (as a percent)			3.99%
Revolving term note payable to lending institution | Heron Lake BioEnergy, LLC
Line of Credit Facility
Interest rate (as a percent)			4.49%	3.45%
Assessments payable as part of water treatment agreement, with interest at 6.55%, due in 2021 | Heron Lake BioEnergy, LLC
Line of Credit Facility
Long-term Debt			$ 1,241,171	$ 1,517,046
Payment			$ 189,393
Frequency of payment			semi-annual	semi-annual
Interest rate (as a percent)			6.55%
Period of worth of debt			1 year
Deposit on debt service payments			$ 364,000
Assessments payable as part of water supply agreement, with interest at 8.73%, due in 2019 | Heron Lake BioEnergy, LLC
Line of Credit Facility
Long-term Debt			56,514	$ 97,930
Payment			$ 3,942
Frequency of payment			monthly	monthly
Interest rate (as a percent)			8.73%
Note payable to electrical company, due September 2017 | Heron Lake BioEnergy, LLC
Line of Credit Facility
Long-term Debt				$ 68,750
Payment				$ 6,250
Frequency of payment				monthly
Interest rate (as a percent)				0.00%
Maintenance fee (as a percent)				1.00%
Note payable to noncontrolling interest member of Agrinatural, Interest One Month LIBOR plus 4.0 % | Heron Lake BioEnergy, LLC
Line of Credit Facility
Long-term Debt			$ 100,000	$ 200,000
Interest rate (as a percent)			5.24%	4.53%
Project Hawkeye Loan | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC
Line of Credit Facility
Long-term Debt			$ 7,500,000
Interest rate (as a percent)			4.29%
One Month LIBOR | Seasonal Revolving Loan | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC
Line of Credit Facility
Spread above variable interest rate	2.75%
One Month LIBOR | Revolving term note payable to lending institution | Heron Lake BioEnergy, LLC
Line of Credit Facility
Spread above variable interest rate			3.25%
One Month LIBOR | Note payable to noncontrolling interest member of Agrinatural, Interest One Month LIBOR plus 4.0 % | Heron Lake BioEnergy, LLC
Line of Credit Facility
Spread above variable interest rate			4.00%
One Month LIBOR | Project Hawkeye Loan | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC
Line of Credit Facility
Spread above variable interest rate		3.05%

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DEBT FACILITIES - Estimated Annual Maturities (Details) - USD ($)	Oct. 31, 2017	Oct. 31, 2016
DEBT FACILITIES
2018	$ 432,183
2019	408,169
2020	1,398,227
2021	1,391,250
2022	1,071,429
Thereafter	4,196,427
Long-term Debt	$ 8,897,685	$ 1,883,726

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MEMBERS’ EQUITY (Details)				1 Months Ended				12 Months Ended
	Dec. 21, 2017 USD ($) $ / shares	Dec. 17, 2015 USD ($) $ / shares shares	Dec. 18, 2014 USD ($) $ / shares shares	Dec. 31, 2017 USD ($) $ / shares	Dec. 31, 2016 USD ($) $ / shares	Dec. 31, 2015 USD ($) $ / shares	Dec. 31, 2014 USD ($) $ / shares	Oct. 31, 2017 USD ($) item $ / shares shares	Oct. 31, 2016 USD ($) $ / shares shares	Oct. 31, 2015 USD ($) $ / shares shares
Common Units Authorized								30,606	30,606
Common Units Issued								30,606	30,606
Common Units Outstanding								30,606	30,606
Distribution per unit declared (in dollars per unit) | $ / shares								$ 365.00	$ 315.00	$ 1,050.00
Amount of distribution declared | $								$ 11,171,190	$ 11,647,445	$ 36,757,640
Amount of distribution paid | $								$ 11,171,190	9,640,886	32,136,300
Non-controlling Interest
Amount of distribution declared | $									$ 2,006,559	$ 4,621,340
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC
Number of classes of membership units | item								1
Membership Units, Par value | $ / shares								$ 0
Common Units Authorized								30,606	30,606	30,606
Common Units Issued								30,606	30,606	30,606
Common Units Outstanding								30,606	30,606	30,606
Distribution per unit declared (in dollars per unit) | $ / shares				$ 385	$ 365	$ 315	$ 1,050
Amount of distribution declared | $				$ 11,783,000	$ 11,171,000	$ 9,641,000	$ 32,136,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Heron Lake BioEnergy, LLC
Distributions received | $		$ 1,971,000	$ 4,731,000
Heron Lake BioEnergy, LLC
Distribution per unit declared (in dollars per unit) | $ / shares	$ 0.11	$ 0.05	$ 0.12
Amount of distribution declared | $	$ 8,573,000	$ 3,897,000	$ 9,352,000
Heron Lake BioEnergy, LLC | Non-controlling Interest
Amount of distribution paid | $		$ 1,926,000	$ 4,621,000
Heron Lake BioEnergy, LLC | Capital Unit, Class A
Common Units Outstanding		39,420,949	39,420,949
Heron Lake BioEnergy, LLC | Capital Unit, Class B
Common Units Outstanding		15,000,000	15,000,000

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LEASES (Details)	12 Months Ended
	Oct. 31, 2017 USD ($) item	Oct. 31, 2016 USD ($)	Oct. 31, 2015 USD ($)
Operating Leased Assets [Line Items]
November 1, 2017 to October 31, 2018	$ 4,916,616
November 1, 2018 to October 31, 2019	4,532,800
November 1, 2019 to October 31, 2020	4,395,550
November 1, 2020 to October 31, 2021	4,393,800
November 1, 2021 to October 31, 2022	4,315,800
Thereafter	13,341,850
Total minimum lease commitments	$ 35,896,416
Minimum
Operating Leased Assets [Line Items]
Lease term	1 year
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC
Operating Leased Assets [Line Items]
Operating lease rent expense	$ 3,163,000	$ 2,985,000	$ 2,204,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Rail Cars
Operating Leased Assets [Line Items]
Equipment lease, quantity | item	218
Monthly lease payment	$ 181,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Hopper Cars
Operating Leased Assets [Line Items]
Equipment lease, quantity | item	115
Monthly lease payment	$ 76,000
Heron Lake BioEnergy, LLC
Operating Leased Assets [Line Items]
Operating lease rent expense	$ 2,170,000	$ 2,571,000	$ 1,969,000
Heron Lake BioEnergy, LLC | Rail Cars
Operating Leased Assets [Line Items]
Equipment lease, quantity | item	148
Monthly lease payment	$ 127,000
Heron Lake BioEnergy, LLC | Hopper Cars
Operating Leased Assets [Line Items]
Equipment lease, quantity | item	110
Monthly lease payment	$ 64,000
Heron Lake BioEnergy, LLC | Hopper Cars Renewed
Operating Leased Assets [Line Items]
Equipment lease, quantity | item	50
Lease term	10 years
Monthly lease payment	$ 25,000

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EMPLOYEE BENEFIT PLANS (Details) - USD ($)	12 Months Ended
	Oct. 31, 2017	Oct. 31, 2016	Oct. 31, 2015
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC
Defined Contribution Plan Disclosure [Line Items]
Employer match (as a percent)	50.00%
Percentage of employee's salary (as a percent)	3.00%
Employer contribution	$ 73,000	$ 63,000	$ 57,000
Heron Lake Bio-energy LLC [Member]
Defined Contribution Plan Disclosure [Line Items]
Employer match (as a percent)	50.00%
Percentage of employee's salary (as a percent)	4.00%
Employer contribution	$ 90,000	$ 85,000	$ 81,000

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INCOME TAXES (Details) - USD ($)	12 Months Ended
	Oct. 31, 2017	Oct. 31, 2016
INCOME TAXES
Consolidated financial statement basis of assets	$ 127,089,530	$ 121,470,922
Organization & start-up costs capitalized for tax purposes, net	268,166	357,554
Tax depreciation greater than book depreciation	(14,219,188)	(17,884,622)
Unrealized derivatives gains of commodity derivative instruments	(102,650)	(566,588)
Capitalized inventory	81,119	41,467
Net effect of consolidation of acquired subsidiary	(32,239,669)	(36,496,913)
Income tax basis of assets	$ 80,877,308	$ 66,921,820

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RELATED PARTY TRANSACTIONS - (Details) - USD ($)	1 Months Ended	12 Months Ended
	Aug. 31, 2017	Oct. 31, 2017	Oct. 31, 2016	Oct. 31, 2015	Oct. 31, 2013
Related Party Transaction [Line Items]
Accounts payable to related party			$ 5,358,111
Agrinatural, LLC
Related Party Transaction [Line Items]
Minority interest (as a percent)		27.00%
Swan Engineering, Inc. Project Management Agreement
Related Party Transaction [Line Items]
Project management and capital work fees		$ 44,000
Payment of project management and capital work fees			68,000	$ 19,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Farmers Cooperative Elevator
Related Party Transaction [Line Items]
Payment of early contract termination fee	$ 255,000
Purchased from related party		51,861,000	75,865,000	75,018,000
Accounts payable to related party		0	5,358,000	1,486,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Board Members
Related Party Transaction [Line Items]
Purchased from related party		945,000
Accounts payable to related party		8,000
Heron Lake BioEnergy, LLC | Agrinatural, LLC
Related Party Transaction [Line Items]
Proceeds from noncontrolling interest					$ 300,000
Interest paid		6,000	20,000	16,000
Heron Lake BioEnergy, LLC | Board Members
Related Party Transaction [Line Items]
Purchased from related party		9,811,000	15,008,000	11,032,000
Agrinatural, LLC | Swan Engineering Inc S E I
Related Party Transaction [Line Items]
Accounts payable to related party		16,000	131,000
Agrinatural, LLC | Swan Engineering, Inc. Management and Operating Agreement
Related Party Transaction [Line Items]
Monthly fee reduction		4,500
Monthly base fee paid		36,000	32,000	18,000
Monthly variable fee paid		$ 157,000	$ 149,000	$ 83,000
Agrinatural, LLC | Swan Engineering, Inc. Project Management Agreement
Related Party Transaction [Line Items]
Capital expenditure reimbursement (as a percent)		10.00%
Swan Engineering, Inc. and Unrelated Third Party | Agrinatural, LLC
Related Party Transaction [Line Items]
Minority interest (as a percent)		27.00%

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COMMITMENTS AND CONTINGENCIES (Details)	1 Months Ended		3 Months Ended	12 Months Ended
	May 31, 2006	Oct. 31, 2003 USD ($) gal	Jul. 31, 2016 item	Oct. 31, 2017 USD ($) MMBTU mi item bu gal	Oct. 31, 2016 USD ($) bu	Oct. 31, 2015 USD ($)	Oct. 31, 2007 USD ($)	Oct. 31, 2006 USD ($)
Ethanol Marketing Agreement With Eco-Energy, Inc. [Member]
Loss Contingencies [Line Items]
Fees and commissions				$ 1,159,000	$ 1,256,000	$ 1,234,000
Corn Oil | RPMG, Inc. Marketing Agreement [Member]
Loss Contingencies [Line Items]
Fees and commissions				$ 176,000	$ 166,000	125,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Corn Forward Cash and Basis Contracts Purchase Commitments [Member]
Loss Contingencies [Line Items]
Quantity of commitment | bu				3,041,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Ethanol Marketing Agreement With Eco-Energy, Inc. [Member]
Loss Contingencies [Line Items]
Equipment Lease, Quantity | item				43
Number of terms agreement automatically renews | item			3
Term of renewal periods			3 years
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Ethanol Marketing Agreement With Eco-Energy, Inc. [Member] | Minimum
Loss Contingencies [Line Items]
Written notice for termination of agreement			90 days
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Unrelated Company Construction And Maintenance Agreement [Member]
Loss Contingencies [Line Items]
Distance of natural gas pipeline | mi				9.5
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Unrelated Company Construction And Maintenance Agreement [Member] | Minimum
Loss Contingencies [Line Items]
Minimum volume of natural gas Company to receive annually | MMBTU				1,400,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Corn Contracts
Loss Contingencies [Line Items]
Quantity of commitment | bu				1,495,000	5,220,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Ethanol Contracts
Loss Contingencies [Line Items]
Quantity of commitment | gal				420,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Distillers' Grains | RPMG, Inc. Marketing Agreement [Member]
Loss Contingencies [Line Items]
Initial term				1 year
Fees and commissions				$ 276,000	$ 335,000	421,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Distillers' Grains | RPMG, Inc. Marketing Agreement [Member] | Minimum
Loss Contingencies [Line Items]
Written notice for termination of agreement				90 days
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Corn Oil | RPMG, Inc. Marketing Agreement [Member]
Loss Contingencies [Line Items]
Initial term				1 year
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Corn Oil | RPMG, Inc. Marketing Agreement [Member] | Minimum
Loss Contingencies [Line Items]
Written notice for termination of agreement				90 days
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Short/Sale position | Corn Contracts
Loss Contingencies [Line Items]
Quantity of commitment | bu				1,295,000	1,920,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Short/Sale position | Ethanol Contracts
Loss Contingencies [Line Items]
Value of commitment				$ 18,889,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Short/Sale position | Ethanol Contracts | Product
Loss Contingencies [Line Items]
Concentration percentage				56.00%
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Short/Sale position | Distillers' Grains
Loss Contingencies [Line Items]
Value of commitment				$ 1,459,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Short/Sale position | Distillers' Grains | Product
Loss Contingencies [Line Items]
Concentration percentage				92.00%
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Short/Sale position | Corn Oil
Loss Contingencies [Line Items]
Value of commitment				$ 423,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Short/Sale position | Corn Oil | Product
Loss Contingencies [Line Items]
Concentration percentage				48.00%
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Long/Purchase position | Corn Contracts
Loss Contingencies [Line Items]
Quantity of commitment | bu				200,000	3,300,000
Heron Lake BioEnergy, LLC | Corn Forward Cash and Basis Contracts Purchase Commitments [Member]
Loss Contingencies [Line Items]
Quantity of commitment | bu				1,769,000
Heron Lake BioEnergy, LLC | Ethanol Marketing Agreement With Eco-Energy, Inc. [Member]
Loss Contingencies [Line Items]
Number of terms agreement automatically renews | item			3
Term of renewal periods			3 years
Percentage of ethanol and distillers grains products produced by the entity to be purchased, marketed and resold by Gavilon				100.00%
Heron Lake BioEnergy, LLC | Ethanol Marketing Agreement With Eco-Energy, Inc. [Member] | Minimum
Loss Contingencies [Line Items]
Written notice for termination of agreement			90 days
Heron Lake BioEnergy, LLC | Northern Border Pipeline Company [Member]
Loss Contingencies [Line Items]
Distance of the natural gas pipeline from the ethanol plant | mi				16
Heron Lake BioEnergy, LLC | Water supply development and distribution agreement
Loss Contingencies [Line Items]
Term of agreement		15 years
Initial volume per minute of capacity that is available from the well for which the entity has exclusive rights (in gallons) | gal		6,000
Percentage of City's water well bond payments HLBE will pay		50.00%
City's water well bond payments		$ 735,000
Administrative fee to be paid as water usage fees (as a percent)		5.00%
Administrative fee		$ 594,000
Percentage of profit to be paid as water usage fees		10.00%
Assessment		$ 367,000
Operating and administrative/maintenance expenses paid		$ 12,000
Heron Lake BioEnergy, LLC | Water treatment agreement
Loss Contingencies [Line Items]
Term of agreement	30 years
Assessment							$ 500,000	$ 3,550,000
Operating and administrative/maintenance expenses paid				$ 92,000	$ 24,000	57,000
Heron Lake BioEnergy, LLC | Corn Contracts
Loss Contingencies [Line Items]
Quantity of commitment | bu				1,120,000	4,285,000
Heron Lake BioEnergy, LLC | Ethanol Contracts
Loss Contingencies [Line Items]
Quantity of commitment | gal				420,000
Heron Lake BioEnergy, LLC | Distillers' Grains | Gavilon Ingredients, LLC. Agreement [Member]
Loss Contingencies [Line Items]
Initial term				6 months
Fees and commissions				$ 268,000	$ 283,000	$ 308,000
Heron Lake BioEnergy, LLC | Distillers' Grains | Gavilon Ingredients, LLC. Agreement [Member] | Minimum
Loss Contingencies [Line Items]
Written notice for termination of agreement				60 days
Heron Lake BioEnergy, LLC | Corn Oil | RPMG, Inc. Marketing Agreement [Member]
Loss Contingencies [Line Items]
Initial term				1 year
Heron Lake BioEnergy, LLC | Corn Oil | RPMG, Inc. Marketing Agreement [Member] | Minimum
Loss Contingencies [Line Items]
Written notice for termination of agreement				90 days
Heron Lake BioEnergy, LLC | Short/Sale position | Corn Contracts
Loss Contingencies [Line Items]
Quantity of commitment | bu				905,000	1,185,000
Heron Lake BioEnergy, LLC | Short/Sale position | Ethanol Contracts
Loss Contingencies [Line Items]
Value of commitment				$ 18,414,000
Heron Lake BioEnergy, LLC | Short/Sale position | Ethanol Contracts | Product
Loss Contingencies [Line Items]
Concentration percentage				52.00%
Heron Lake BioEnergy, LLC | Short/Sale position | Distillers' Grains
Loss Contingencies [Line Items]
Value of commitment				$ 2,006,000
Heron Lake BioEnergy, LLC | Short/Sale position | Distillers' Grains | Product
Loss Contingencies [Line Items]
Concentration percentage				27.00%
Heron Lake BioEnergy, LLC | Short/Sale position | Corn Oil
Loss Contingencies [Line Items]
Value of commitment				$ 763,000
Heron Lake BioEnergy, LLC | Short/Sale position | Corn Oil | Product
Loss Contingencies [Line Items]
Concentration percentage				90.00%
Heron Lake BioEnergy, LLC | Long/Purchase position | Corn Contracts
Loss Contingencies [Line Items]
Quantity of commitment | bu				215,000	3,100,000

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QUARTERLY FINANCIAL DATA (UNAUDITED) (Details) - USD ($)	3 Months Ended												12 Months Ended
	Oct. 31, 2017	Jul. 31, 2017	Apr. 30, 2017	Jan. 31, 2017	Oct. 31, 2016	Jul. 31, 2016	Apr. 30, 2016	Jan. 31, 2016	Oct. 31, 2015	Jul. 31, 2015	Apr. 30, 2015	Jan. 31, 2015	Oct. 31, 2017	Oct. 31, 2016	Oct. 31, 2015
QUARTERLY FINANCIAL DATA (UNAUDITED)
Revenues	$ 54,153,275	$ 54,250,994	$ 52,802,058	$ 54,576,064	$ 55,531,621	$ 58,018,553	$ 50,974,398	$ 51,001,654	$ 54,823,174	$ 58,671,723	$ 59,067,109	$ 58,692,502	$ 215,782,391	$ 215,526,226	$ 231,254,508
Gross profit	6,094,930	4,203,141	3,956,500	6,844,907	6,890,645	6,301,875	2,273,697	1,432,877	2,631,235	8,795,890	5,545,088	5,628,105	21,099,478	16,899,094	22,600,318
Operating income	4,581,816	2,740,127	2,371,966	5,237,686	5,739,434	5,017,859	784,201	32,031	1,551,398	7,494,444	4,173,843	4,204,718	14,931,595	11,573,525	17,424,403
Net income attributable to GFE	$ 3,428,444	$ 2,049,621	$ 1,847,477	$ 4,159,791	$ 4,518,946	$ 3,492,822	$ 699,514	$ 11,526	$ 1,199,256	$ 5,440,763	$ 3,179,639	$ 3,767,092	$ 11,485,333	$ 8,722,808	$ 13,586,750
Basic and diluted earnings per unit attributable to GFE	$ 112.02	$ 66.97	$ 60.36	$ 135.91	$ 147.65	$ 114.12	$ 22.86	$ 0.38	$ 39.18	$ 177.77	$ 103.89	$ 123.08	$ 375.26	$ 285.00	$ 443.92