10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended July 31, 2018

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 incorporation or organization)	(I.R.S. Employer Identification No.)
15045 Highway 23 SE, Granite Falls, MN 56241-0216
(Address of principal executive offices)
(320) 564-3100
(Registrant's telephone number, including area code)

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 checkmark 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer	☐	Non-Accelerated Filer	☒
Accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐Yes    ☒No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

As of September 14, 2018, there were 30,606 membership units outstanding.

INDEX

	Page Number
PART I. FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3. Quantitative and Qualitative Disclosures about Market Risk	35
Item 4. Controls and Procedures	36
PART II. OTHER INFORMATION	37
Item 1. Legal Proceedings	37
Item 1A. Risk Factors	37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3. Defaults Upon Senior Securities	38
Item 4. Mine Safety Disclosures	38
Item 5. Other Information	38
Item 6. Exhibits	39
SIGNATURES	40

2

PART IFINANCIAL INFORMATION

Item 1.    Financial Statements

GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

	July 31, 2018		October 31, 2017
ASSETS	(unaudited)
Current Assets
Cash	$	15,405,720	$	21,658,422
Restricted cash		132,914		75,189
Accounts receivable		2,640,142		7,622,601
Inventory		15,619,526		15,241,092
Commodity derivative instruments		554,627		244,294
Prepaid expenses and other current assets		615,569		361,340
Total current assets		34,968,498		45,202,938
Property and Equipment, net		68,241,215		72,271,013
Goodwill		1,372,473		1,372,473
Investments		9,500,000		7,500,000
Other Assets		714,495		743,106
Total Assets	$	114,796,681	$	127,089,530
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities
Current maturities of long-term debt	$	322,048	$	432,183
Accounts payable		5,880,156		7,535,468
Commodity derivative instruments		70,392		40,379
Accrued expenses		859,686		972,043
Total current liabilities		7,132,282		8,980,073
Long-Term Debt, less current portion		8,295,555		8,465,502
Commitments and Contingencies
Members' Equity
Members' equity attributable to Granite Falls Energy, LLC consists of 30,606 units authorized,  issued, and outstanding at both July 31, 2018 and October 31, 2017		76,771,028		83,998,672
Non-controlling interest		22,597,816		25,645,283
Total members' equity		99,368,844		109,643,955
Total Liabilities and Members' Equity	$	114,796,681	$	127,089,530

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

3

GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

	Three Months Ended July 31,				Nine Months Ended July 31,
	2018		2017		2018		2017
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenues	$	53,220,620	$	54,250,994	$	161,764,393	$	161,629,116
Cost of Goods Sold		49,527,078		50,047,853		151,250,420		146,624,568
Gross Profit		3,693,542		4,203,141		10,513,973		15,004,548
Operating Expenses		1,458,554		1,463,014		4,786,700		4,654,769
Operating Income		2,234,988		2,740,127		5,727,273		10,349,779
Other Income (Expense):
Other income, net		2,284		51,660		333,664		462,533
Interest income		44,621		16,730		114,474		23,614
Interest expense		(151,742)		(86,688)		(360,228)		(162,295)
Total other income (expense), net		(104,837)		(18,298)		87,910		323,852
Net Income	$	2,130,151	$	2,721,829	$	5,815,183	$	10,673,631
Less: Net Income Attributable to Non-controlling Interest		(127,900)		(672,208)		(1,263,725)		(2,616,744)
Net Income Attributable to Granite Falls Energy, LLC	$	2,002,251	$	2,049,621	$	4,551,458	$	8,056,887
Weighted Average Units Outstanding - Basic and Diluted		30,606		30,606		30,606		30,606
Amounts attributable to Granite Falls Energy, LLC:
Net Income Per Unit - Basic and Diluted	$	65.42	$	66.97	$	148.71	$	263.25
Distributions Per Unit	$	—	$	—	$	385.00	$	365.00

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

4

GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

	Nine Months Ended July 31,
	2018		2017
	(unaudited)		(unaudited)
Cash Flows from Operating Activities:
Net income	$	5,815,183	$	10,673,631
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		6,901,354		7,094,707
Change in fair value of commodity derivative instruments		(673,356)		(461,723)
Gain on sale of assets		(24,815)		(95,300)
Changes in operating assets and liabilities:
Restricted cash		(57,725)		(144,345)
Commodity derivative instruments		393,036		1,379,267
Accounts receivable		4,982,459		4,467,030
Inventory		(378,434)		5,442,490
Prepaid expenses and other current assets		(254,229)		(239,726)
Accounts payable		(2,689,205)		(5,299,721)
Accrued expenses		(112,357)		(452,731)
Net Cash Provided by Operating Activities		13,901,911		22,363,579
Cash Flows from Investing Activities:
Purchase of investment		(2,000,000)		(750,000)
Payments for capital expenditures		(1,809,052)		(1,721,541)
Proceeds from disposal of assets		24,815		95,300
Net Cash Used in Investing Activities		(3,784,237)		(2,376,241)
Cash Flows from Financing Activities:
Payments on long-term debt		(280,082)		(324,994)
Checks drawn in excess of bank balance		—		(1,866,683)
Purchase of subsidiary units attributable to non-controlling interest		—		(46,644)
Distributions to non-controlling interests		(4,311,192)		—
Member distributions paid		(11,779,102)		(11,171,190)
Net Cash Used in Financing Activities		(16,370,376)		(13,409,511)
Net Increase (Decrease) in Cash		(6,252,702)		6,577,827
Cash - Beginning of Period		21,658,422		13,797,857
Cash - End of Period	$	15,405,720	$	20,375,684
Supplemental Cash Flow Information
Cash paid during the period for:
Interest expense	$	360,228	$	162,295
Supplemental Disclosure of Noncash Investing and Financing Activities
Capital expenditures and construction in process included in accounts payable	$	1,249,128	$	88,534

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

5

Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2018

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 United States 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 United States. HLBE's plant has an approximate annual production capacity of 60 million gallons, but is permitted to produce approximately 72.3 million gallons of undenatured ethanol on a twelve month rolling sum basis. HLBE owns a majority interest in Agrinatural Gas, LLC (“Agrinatural”), which operates a natural gas pipeline that provides natural gas to HLBE's ethanol production facility and other customers.

All references to “we”, “us”, “our”, and the “Company” collectively refer to GFE and its wholly-owned and majority-owned subsidiaries.

Basis of Presentation and Principles of Consolidation

The condensed consolidated unaudited financial statements as of July 31, 2018 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, LLC). Given the Company’s control over the operations of HLBE and its majority voting interest, the Company consolidates the condensed consolidated unaudited financial statements of HLBE with GFE's condensed consolidated unaudited financial statements. The remaining 49.3% ownership of HLBE is included in the condensed consolidated unaudited financial statements as a non-controlling interest. HLBE, through its wholly owned subsidiary, HLBE Pipeline Company, LLC, owns approximately 73% of 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 unaudited financial statements, with the equity and earnings attributed to the remaining approximately 27% noncontrolling interest. All significant intercompany balances and transactions are eliminated in consolidation.

The accompanying condensed consolidated unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company’s audited consolidated financial statements for the year ended October 31, 2017, contained in the Company’s annual report on Form 10-K.

In the opinion of management, the condensed consolidated unaudited financial statements reflect all adjustments consisting of normal recurring accruals that we consider necessary to present fairly the Company’s results of operations, financial position and cash flows. The results reported in these condensed consolidated unaudited financial statements should not be regarded as necessarily indicative of results that may be expected for any other fiscal period or for the fiscal year.

6

Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2018

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.

Accounting Estimates

Management uses estimates and assumptions in preparing these condensed consolidated unaudited financial statements in accordance with generally accepted accounting principles in the United States 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, inventory purchase and sale commitments, evaluation of railcar 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 condensed consolidated unaudited 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. 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. 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.

7

Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2018

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 (“FIFO”).  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 spare parts.  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 on 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 sales are documented as normal and exempted from accounting and reporting requirements, and therefore, are not marked to market in our condensed consolidated unaudited 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 4.

Investments

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.  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 the Company the right to appoint one director to the board of directors of Ringneck. GFE has appointed Steve Christensen, its CEO, to serve as its appointed director.

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. On August 2, 2017, following notice from Ringneck accepting GFE’s subscription and that payment of the balance of GFE’s subscription and promissory note was due, GFE borrowed $7.5 million under its credit facility with Project Hawkeye, LLC (“Project Hawkeye”) and paid $6,750,000 to Ringneck as payment for the remaining balance of GFE’s subscription.  Project Hawkeye is an affiliate of Fagen, Inc., which is a member of GFE.  See Note 6 below for the terms of GFE’s credit facility with Project Hawkeye.

8

Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2018

On June 29, 2018, GFE executed a subscription agreement for investment in Harvestone Group, LLC (“Harvestone”), a Delaware limited liability company, and a Joinder to the Operating Agreement of Harvestone.  In connection with the execution of the subscription agreement and joinder, GFE made a capital contribution of $2.0 million in exchange for twenty (20) preferred membership units and was sufficient to secure GFE the right to appoint one advisor to the advisory committee to the managers of Harvestone.   GFE has appointed Eric Baukol, its Risk Manager, to serve as its appointed advisor. Harvestone is a start-up ethanol marketing, logistics, and trading company headquartered in Franklin, Tennessee.  Harvestone is owned by several other ethanol producers and other private investors that expects that its primary business will be marketing and trading for member and non-member ethanol producers.

The investments are 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 Condensed Consolidated Statements of Operations and added to the investment account, and distributions received from the affiliates are treated as a reduction of the investment.

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 from the sale and distribution of ethanol, distillers' grains, corn oil, and natural gas to customers primarily located in the United States. Corn for the production process is supplied to our plant 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 they sell 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, and 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 Company’s 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.

3.   INVENTORY

Inventories consist of the following:

	July 31,  2018		October 31,  2017
	(unaudited)
Raw materials	$	4,121,644	$	4,488,923
Supplies		2,961,224		2,929,385
Work in process		1,327,777		1,281,292
Finished goods		7,208,881		6,541,492
Totals	$	15,619,526	$	15,241,092

The Company performs a lower of cost or net realizable value analysis on inventory to determine if the net realizable 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, as a component of cost of goods sold, the Company recorded a loss on ethanol inventories, as a component of cost of goods sold, of approximately $420,000 and $65,000 for the nine months ended July 31, 2018 and 2017, respectively.

9

Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2018

4.   DERIVATIVE INSTRUMENTS

As of July 31, 2018, the total notional amount of GFE’s outstanding corn derivative instruments was approximately 5,725,000 bushels, comprised of long corn positions on 190,000 bushels that were entered into to hedge forecasted ethanol sales through September 2018, and short corn positions on 5,535,000 bushels that were entered into to hedge forecasted corn purchases through December 2021. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding as disclosed above.

As of July 31, 2018, the total notional amount of HLBE’s outstanding corn derivative instruments was approximately 4,125,000 bushels, comprised of short corn positions that were entered into to hedge forecasted corn purchases through December 2019. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

As of July 31, 2018, GFE had approximately $109,000 of cash collateral (restricted cash) related to derivatives held by a broker and approximately $0 due to broker related to derivatives held by a broker, recorded as a component of accounts payable.

As of July 31, 2018, HLBE had approximately $24,000 of cash collateral (restricted cash) related to derivatives held by a broker and approximately $0 due to broker related to derivatives held by a broker, recorded as a component of accounts payable.

The following tables provide details regarding the Company's derivative instruments at July 31, 2018, none of which were designated as hedging instruments:

	Consolidated Balance Sheet Location	Assets		Liabilities
Corn contracts - GFE	Commodity derivative instruments	$	268,026	$	35,196
Corn contracts - HLBE	Commodity derivative instruments		286,601		35,196
Totals		$	554,627	$	70,392

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, recorded as a component of accounts payable.

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, recorded as a component of accounts payable.

10

Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2018

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

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	Three Months Ended  July 31,				Nine Months Ended July 31,
	of Operations Location	2018		2017		2018		2017
Corn contracts	Cost of Goods Sold	$	1,778,570	$	287,865	$	566,959	$	857,218
Ethanol contracts	Revenues		(286,125)		(122,765)		107,995		(395,495)
Natural gas contracts	Cost of Goods Sold		—		—		(1,598)		—
Total gain		$	1,492,445	$	165,100	$	673,356	$	461,723

5.   FAIR VALUE

The following table sets forth, by level, the Company assets and liabilities that were accounted for at fair value on a recurring basis at July 31, 2018:

					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	$	554,627	$	554,627	$	554,627	$	—	$	—
Financial Liabilities:
Commodity Derivative Instruments - Corn	$	70,392	$	70,392	$	—	$	70,392	$	—

The following table sets forth, by level, the Company assets and liabilities that were accounted for 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	$	—

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2018

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, corn, and natural gas Level 2 instruments by model-based techniques in which all significant inputs are observable in the markets noted above.

6.    DEBT FACILITIES

Debt financing consists of the following:

	July 31, 2018		October 31, 2017
	(unaudited)
GRANITE FALLS ENERGY:
Seasonal loan, see terms below.	$	—	$	—
Term note payable to Project Hawkeye, see terms below.		7,500,000		7,500,000
HERON LAKE BIOENERGY:
Amended revolving term loan, see terms below.		—		—
Seasonal loan, see terms below.		—		—
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.		1,094,236		1,241,171
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.		23,367		56,514
Note payable to non-controlling interest member of Agrinatural.  Interest is at One Month LIBOR plus 4.0%, which was approximately 5.24% at October 31, 2017. The note was paid in full in January 2018.		—		100,000
Totals		8,617,603		8,897,685
Less: amounts due within one year		322,048		432,183
Net long-term debt	$	8,295,555	$	8,465,502

Granite Falls Energy

Seasonal Revolving Loan

GFE has a credit facility with a lender that includes a seasonal revolving loan, under which GFE may borrow, repay, and re-borrow up to the aggregate principal commitment of $6,000,000 until maturity.  The seasonal revolving loan matures on October 1, 2018 unless a later date is agreed to by the administrative agent for the facility.  There was no outstanding balance on the seasonal revolving loan at July 31, 2018 and October 31, 2017. Therefore, the aggregate principal amount available for borrowing by GFE under this seasonal revolving loan at July 31, 2018 and 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 equated to 4.83% and 3.99% at July 31, 2018 and October 31, 2017, respectively.

The credit facility also requires GFE to comply with certain financial covenants, at various times calculated monthly, quarterly, or annually, including maintenance of certain financial ratios including minimum working capital, a debt service coverage ratio as defined by the credit facility, as well as a restriction of the payment of distributions.  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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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2018

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.

Project Hawkeye Loan

On August 2, 2017, GFE entered into a credit facility with Project Hawkeye to finance its investment in Ringneck. Pursuant to this credit facility, GFE borrowed $7.5 million 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 5.13% and 4.29% at July 31, 2018 and October 31, 2017 respectively.

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.

Heron Lake BioEnergy

Revolving Term Loan

HLBE had a revolving term note payable with a lender under which HLBE could borrow, repay and re-borrow in an amount up to the original aggregate principal commitment at any time prior to maturity at March 1, 2022.  The original aggregate principal commitment was $28,000,000, which reduced by $3,500,000 annually, starting March 1, 2015 and continuing each anniversary thereafter until maturity. In December 2017, HLBE and its lender orally agreed to reduce the aggregate principal commitment of the revolving term loan to $8,000,000. On April 6, 2018, HLBE finalized loan agreements with an effective date of March 29, 2018 for an amended credit facility with its lender.

Amended Credit Facility

The amended credit facility includes an amended and restated revolving term loan with a $4,000,000 principal commitment and a revolving seasonal line of credit with a $4,000,000 principal commitment.  The loans are secured by substantially all of HLBE’s assets, including a subsidiary guarantee.  The amended 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.

As part of the amended credit facility closing, HLBE entered into an amended administrative agency agreement with CoBank, ACP (“CoBank”).  As a result, CoBank will continue act as the agent for the lender with respect to the amended credit facility.  HLBE agreed to pay CoBank an annual fee of $2,500 for its services as administrative agent.

Amended Revolving Term Loan

Under the terms of the amended revolving term loan, HLBE may borrow, repay, and reborrow up to the aggregate principal commitment amount of $4,000,000.  Final payment of amounts borrowed under amended revolving term loan is due December 1, 2021.  Interest on the amended revolving term loan accrues at a variable weekly rate equal to 3.10% above the One-Month London Interbank Offered Rate (“LIBOR”) Index rate, which was 5.18% at July 31, 2018.

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2018

HLBE also agreed to pay an unused commitment fee on the unused available portion of the amended revolving term loan commitment at the rate of 0.50% per annum, payable monthly in arrears. The loan is secured by substantially all of HLBE's assets including a subsidiary guarantee. 

At October 31, 2017, the aggregate principal amount available to HLBE for borrowing under the revolving term loan was $17,500,000.  At July 31, 2018, the aggregate principal amount available to HLBE for borrowing under the amended revolving term loan was $4,000,000.

Seasonal Revolving Loan

Under the terms of the seasonal revolving loan, HLBE may borrow, repay, and reborrow up to the aggregate principal commitment amount of $4,000,000 until its maturing on February 1, 2019.  Amounts borrowed under the seasonal revolving loan bear interest at a variable weekly rate equal to 2.850% above the One-Month LIBOR Index rate, which was 4.93% at July 31, 2018.  The aggregate principal amount available to the Company for borrowing under the seasonal revolving loan was $4,000,000 at July 31, 2018.

The Company also agreed to pay an unused commitment fee on the unused available portion of the seasonal revolving loan commitment at the rate of 0.250% per annum.

Estimated annual maturities of debt at July 31, 2018, are as follows based on the most recent debt agreements:

2019	$	322,048
2020		1,389,682
2021		1,410,526
2022		1,209,634
2023		1,071,429
Thereafter		3,214,284
Total debt	$	8,617,603

7.   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 July 31, 2018 and October 31, 2017, GFE had 30,606 membership units authorized, issued, and outstanding.

In December 2017, the Board of Governors of GFE declared a cash distribution of $385 per unit or approximately $11,783,000, for unit holders of record as of December 21, 2017.  The distribution was paid in January 2018.

In December 2016, the Board of Governors of GFE declared a cash distribution of $365 per unit or approximately $11,171,000, for unit holders of record as of December 22, 2016.  The distribution was paid in January 2017.

Heron Lake BioEnergy

In December 2017, the Board of Governors of HLBE declared a cash distribution of $0.11 per unit, or approximately $8,573,000, for unit holders of record as of December 21, 2017. The distribution was paid in January 2018.

At December 21, 2017, GFE owned 24,475,824 Class A membership units and 15,000,000 Class B units of HLBE, and received an aggregate distribution from HLBE of approximately $4,342,000.  The remaining $4,231,000 was distributed by HLBE to the non-controlling interest.

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2018

8.    COMMITMENTS AND CONTINGENCIES

Corn Purchase Commitments

At July 31, 2018, GFE had cash and basis contracts for forward corn contracts for approximately 6,384,000 bushels for various delivery periods through December 2021.

At July 31, 2018, HLBE had cash and basis contracts for forward corn purchase commitments for approximately 4,189,000 bushels for various delivery periods through June 2019.

Corn Purchases - Members

GFE purchased corn from board members of approximately $1,754,000 and $0 for the three months ended July 31, 2018 and 2017, respectively, and approximately $3,839,000 and $0 for the nine months ended July 31, 2018 and 2017.

HLBE purchased corn from board members of approximately $3,382,000 and $143,000 for the three months ended July 31, 2018 and 2017, respectively, and approximately $10,479,000 and $5,737,000 for the nine months ended July 31, 2018 and 2017, respectively. Of this total, approximately $0 and $607,000 was included in accounts payable at July 31, 2018 and October 31, 2017, respectively.

Ethanol Contracts

At July 31, 2018, GFE had fixed and basis contracts to sell approximately $11,832,000 of ethanol for various delivery periods through September 2018.

At July 31, 2018, HLBE had fixed and basis contracts to sell approximately $11,716,000 of ethanol for various delivery periods through September 2018.

Distillers' Grain Contracts

At July 31, 2018, GFE had forward contracts to sell approximately $848,000 of distillers' grain for various delivery periods through August 2018.

At July 31, 2018, HLBE had forward contracts to sell approximately $2,517,000 of distillers' grains for various delivery periods through August 2018.

Corn Oil

At July 31, 2018, GFE had forward contracts to sell approximately $829,000 of corn oil for various delivery periods through December 2018.

At July 31, 2018, HLBE had forward contracts to sell approximately $775,000 of corn oil for various delivery periods through December 2018.

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.

Leases

In February 2018, GFE entered into a sublease arrangement for 16 railcars for the transportation of GFE’s ethanol.  The sublease matures in January 2021 with minimum future lease payments of approximately $144,000 per year.

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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

We prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition, and results of operations for the three and nine months ended July 31, 2018 and 2017. This discussion should be read in conjunction with the condensed consolidated unaudited financial statements and related notes in Item 1 of this report and the information contained in the Company's annual report on Form 10-K for the fiscal year ended October 31, 2017.

Disclosure Regarding Forward-Looking Statements

The Securities and Exchange Commission (“SEC”) encourages companies to disclose forward-looking information so investors can better understand future prospects and make informed investment decisions. As such, we have historical information, as well as forward-looking statements regarding our business, financial condition, results of operations, performance and prospects in this report.  All statements that are not historical or current facts are forward-looking statements. In some cases,  you can identify forward-looking statements by terms such as “anticipates”, “believes”, “could”, “estimates”, “expects”, “intends”, “may”, “plans”, “potential”, “predicts”, “projects”, “should”, “will”, “would”, and similar expressions. 

Forward-looking statements are subject to a number of known and unknown risks, uncertainties and other factors, many of which may be beyond our control, and may cause actual results, performance or achievements to differ materially from those projected in, expressed or implied by forward-looking statements. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us are described more particularly in the “Risk Factors” section of our annual report on Form 10-K for the year ended October 31, 2017 and this report on Form 10-Q. These risks and uncertainties include, but are not limited to, the following:

· Fluctuations in the price of ethanol as a result of a number of factors, including: the price and availability of competing fuels; the overall supply and demand for ethanol and corn; the price of gasoline, crude oil and corn; and government policies;

· Fluctuations in the price of crude oil and gasoline and the impact of lower oil and gasoline prices on ethanol prices and demand;

· Fluctuations in the availability and price of corn, resulting from factors such as domestic stocks, demand from corn-consuming industries, such as the ethanol industry, prices for alternative crops, increasing input costs, changes in government policies, shifts in global markets or damaging growing conditions, such as plant disease or adverse weather, including drought;

· Fluctuations in the availability and price of natural gas, which may be affected by factors such as weather, drilling economics, overall economic conditions, and government regulations;

· Negative operating margins which may result from lower ethanol and/or high corn prices;

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

· Overcapacity and oversupply in the ethanol industry;

· Ethanol trading at a premium to gasoline at times, which may act as a disincentive for discretionary blending of ethanol beyond RFS requirements and consequently negatively impacting ethanol prices and demand;

· Changes in federal and/or state laws and environmental regulations including elimination, waiver or reduction of corn-based ethanol volume obligations under the RFS and legislative acts taken by state governments such as California related to low-carbon fuels, 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 and demand for our products resulting from actions in international markets, particularly imposition of tariffs;

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

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

· Competition from alternative fuels and alternative fuel additives;

· Changes or advances in plant production capacity or technical difficulties in operating the plant; and

· Our reliance on key management personnel.

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We believe our expectations regarding future events are based on reasonable assumptions; however, these assumptions may not be accurate or account for all risks and uncertainties. Consequently, forward-looking statements are not guaranteed. Actual results may vary materially from those expressed or implied in our forward-looking statements. In addition, we are not obligated and do not intend to update our forward-looking statements as a result of new information unless it is required by applicable securities laws. We caution investors not to place undue reliance on forward-looking statements, which represent management’s views as of the date of this report. We qualify all of our forward-looking statements by these cautionary statements.

Available Information

Our website address is www.granitefallsenergy.com.  Our annual report on Form 10-K, periodic reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available, free of charge, on our website under the link “SEC Compliance”, as soon as reasonably practicable after we electronically file such materials with, or furnish such materials to, the Securities and Exchange Commission. The contents of our website are not incorporated by reference in this report on Form 10-Q.

Industry and Market Data

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

Overview

Granite Falls Energy, LLC (“Granite Falls Energy” or “GFE”) is a Minnesota limited liability company that owns and operates a dry mill corn-based, natural gas fired ethanol plant in Granite Falls, Minnesota.  Additionally, through Project Viking, L.L.C., a wholly owned subsidiary (“Project Viking”), GFE owns an approximately 50.7% controlling interest of Heron Lake BioEnergy, LLC (“Heron Lake BioEnergy” or “HLBE”).  HLBE is a Minnesota limited liability company that owns and operates a dry mill corn-based, natural gas fired ethanol plant near Heron Lake, Minnesota.  Additionally, through its a wholly owned subsidiary, HLBE Pipeline Company, LLC (“HLBE Pipeline Company”), HLBE owns a 73% controlling interest of Agrinatural Gas, LLC (“Agrinatural”), which operates a natural gas pipeline.

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 and its wholly owned subsidiary, HLBE Pipeline Company, LLC, and its majority-owned subsidiary Agrinatural. When we use the terms “Granite Falls Energy” or “GFE” or similar words, 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 the “Company”, “we”, “us”, “our” or similar, unless the context otherwise requires, we are referring to Granite Falls Energy, LLC and our consolidated wholly- and majority owned subsidiaries.

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 ethanol plant located in Granite Falls, Minnesota and at HLBE’s ethanol plant near Heron Lake, Minnesota.    

GFE’s ethanol plant has an approximate annual production capacity of 60 million gallons of denatured ethanol, but has obtained EPA pathway approval and permits from the Minnesota Pollution Control Authority (“MPCA”) to increase its production capacity to approximately 70 million gallons of undenatured ethanol on a twelve month rolling sum basis. HLBE’s plant has an approximate annual production capacity of 60 million gallons of denatured ethanol, but has obtained EPA pathway approval and permits from the MPCA to increase its production capacity to approximately 72 million gallons of undenatured ethanol on a twelve month rolling sum basis.  We intend to continue working toward increasing production at plants to take advantage of the additional production allowed pursuant to their respective permits so long as we believe it is profitable to do so.

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We market and sell the products produced at our plants primarily using third party marketers. The markets in which our products are sold may be local, regional, national, and international and depend primarily upon the efforts of third party marketers. We have contracted with Eco-Energy, LLC to market all of the ethanol produced at our ethanol plants.  GFE also independently markets a small portion of the ethanol production at its plant as E-85 to local retailers. 

We have contracted with Renewable Products Marketing Group, LLC (“RPMG”) to market the distillers’ grains produced at the GFE plant and with Gavilon Ingredients, LLC to market distillers’ grains produced at the HLBE plant. We have contracted with RPMG to market all of corn oil produced at our ethanol plants. HLBE also occasionally independently markets and sells excess corn syrup from the distillation process at the Heron Lake plant to local livestock feeders.

We do not have any long-term, fixed price exclusive supply contracts for the purchase of corn for either the GFE or HLBE plants. Both GFE and HLBE purchase the corn necessary for operating directly from grain elevators, farmers, and local dealers within approximately 80 miles of their respective plants. Neither GFE’s nor HLBE’s members are obligated to deliver corn to our plants.

At the GFE 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 MMBTUs annually through December 31, 2025, which is the ending date of the agreement.  We also have an agreement with U.S. Energy Services, Inc. to procure contracts with various natural gas vendors on our behalf to supply the natural gas necessary to operate the Granite Falls plant.

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 of its plant.  HLBE has entered into a firm natural gas transportation agreement with its majority owned subsidiary, Agrinatural.  HLBE also has an agreement with Constellation NewEnergy—Gas Division, LLC to supply the natural gas necessary to operate the Heron Lake plant.

We have a management services agreement with HLBE pursuant to which our chief executive officer, chief financial officer, and commodity risk manager also hold those same offices with HLBE.  The management services agreement automatically renews for successive one-year terms unless either HLBE or GFE 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.

HLBE owns a controlling 73% interest in Agrinatural, a natural gas distribution and sales company located in Heron Lake, 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.

On August 2, 2017, GFE made a $7.5 million investment in Ringneck Energy & Feed, LLC (“Ringneck”). Ringneck is constructing an ethanol plant in Onida, South Dakota.  On June 29, 2018, GFE made a $2.0 million investment in Harvestone Group, LLC (“Harvestone”).  Harvestone is a start-up ethanol marketing, logistics, and trading company headquartered in Franklin, Tennessee.  Details regarding our investment in Ringneck and Harvestone are provided below in the section below titled “Investments.” 

Reportable Operating Segments

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. 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.  Therefore, 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.

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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 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 condensed consolidated unaudited 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.

Plan of Operations for the Next Twelve Months

Over the next twelve months, 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 to take full advantage of our permitted production capacities, 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 current credit facilities to fund our operations.  However, should we experience unfavorable operating conditions in the ethanol industry that prevent us from profitably operating the ethanol plants, we may need to seek additional funding.

Additionally, we expect to continue to conduct routine maintenance and repair activities at our ethanol plants to maintain current plant infrastructure, as well as small capital projects to improve operating efficiency. We anticipate using cash we generate from our operations and our revolving term loan 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 discussed below and in “PART II - Item 1A. Risk Factors”  of this report, PART II - Item 1A. Risk Factors” of our quarterly report on Form 10-Q for the three months ended January 31, 2018, the three months ended April 30, 2018, and “PART I - Item 1A. Risk Factors” of our annual report on Form 10-K for the fiscal year ended October 31, 2017.

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.

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 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 plants may not generate adequate cash flow for operations. In such cases, we may reduce or cease production at our plants to minimize our variable costs and optimize cash flow.

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Ethanol continues trading at a significant discount to gasoline which has improved export demand somewhat. However, management currently believes that our margins will remain tight during the remainder of fiscal year 2018, due to uncertainty regarding the Trump Administration’s support for the Renewable Fuels Standard (“RFS”) and increased waivers of small refiner renewable volume obligations (“RVOs”) by the US Environmental Protection Agency (“EPA”).  Typically such an ethanol trading discount would also bolster demand in the domestic market by penetration of E15 blends. However, the impact of large increases in small refiner waivers granted by the EPA and the expected reductions in both Chinese and Brazilian imports continues to have a negative impact on prices for RINs for corn-based ethanol.  As a result, RINS prices remain lower, removing a blending incentive from the ethanol marketplace.

Increases in the price for crude oil and unleaded gasoline could have a negative impact on the demand for gasoline and impact the market price of ethanol, which could adversely impact our profitability.  According to the US Energy Information Administration’s (“EIA”) June 2018 Short Term Energy Outlook, that U.S. gasoline demand was 9.3 million barrels per day in 2017 and is expected to stay at that same level in 2018. The EIA forecasts regular gasoline prices to average $2.87 per gallon compared to last summers' average $2.41 per gallon. The EIA also estimates the summer peak price will gradually decrease to $2.84 per gallon in September.  Any increase in the average gallon cost to the public could have a negative impact on the EIA’s forecast.

Continued ethanol production capacity increases also could have a negative impact on the market price of ethanol, which could be further exacerbated if domestic ethanol inventories remain high or grow, or if U.S. exports of ethanol decline. The ethanol industry is currently experiencing growth in production capacity principally through plant optimization and some new construction.  The EIA reports that domestic ethanol production averaged 1.04 million barrels per day during the second calendar quarter of 2018, maintaining the same rate of production as the previous quarter but 3.8% higher than the same quarter of last year. Year-to-date, production volumes are up 1.8% in 2018 compared with the same period in 2017. Refiner and blender input volume decreased slightly to 930 thousand barrels per day for the second quarter of 2018 compared with 934 thousand barrels per day for the same quarter last year despite a 2.0% increase in consumer gasoline demand due to seasonal demand and growing numbers of retail stations offering higher blends.

In recent years, ethanol demand growth has resulted largely from increased exports.  However, export demand for ethanol is less consistent compared to domestic demand which can lead to ethanol price volatility. Global demand for US ethanol, as reported by the EIA, continues to increase with increased exports to various foreign markets, including China, Canada, and Mexico, in response to higher blending mandates and octane demand within the foreign countries and lower domestic ethanol prices.  Despite its imposition tariffs, China resumed imports of US ethanol during late 2017 and had been one of the top importers of US ethanol during the first three months of 2018. However, in April 2018, in response to the tariffs imposed by the Trump administration, China announced an additional retaliatory tariff on ethanol imports of 15%, bringing the total tariff up to 45%.  Brazilian demand from the US ethanol has remained relatively steady, despite a tariff imposed in 2017, due to the price of corn relative to sugar cane as a feedstock and high gasoline prices within Brazil.  Any decrease in U.S. ethanol exports could adversely impact the market price of ethanol unless domestic demand increases or foreign markets are developed.

Our margins have been positively impacted during the three months ended July 31, 2018 by the higher prices received for our distillers’ grains. During our third fiscal quarter of 2018, distillers’ grains prices improved as a result of relatively firm world soybean meal prices which management believes are attributable to the Argentinian drought. Argentina is the third largest soybean producer in the world and a leading exporter of soybean meal. In addition to being an animal feed substitute for corn, distillers’ grains are increasingly considered a protein feed substitute for soybean meal. In 2018, strong protein meal prices have enabled distillers’ grains prices to rally versus corn.  Management currently believes that the impact of the current Chinese imposition of antidumping and countervailing duties on distillers’ grains produced in the U.S. has been absorbed into the market. However, recent trade disputes with China, Mexico and Canada could result in the imposition of additional tariffs on distillers’ grains produced in the US, which could lead to an oversupply of distillers’ grains domestically and negatively impact distillers’ grains prices. Additionally, domestic feeding margins in cattle and hogs in particular could have a negative impact on total domestic distillers’ grains demand.

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

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In February 2018, legislation was signed retroactively extending the $1.00-per-gallon biodiesel blender tax credit retroactively to January 1, 2017.  However, management cannot predict whether additional legislation further extending the biodiesel tax credit will be passed by Congress.  Corn oil prices may decrease if biodiesel producers reduce production and/or demand for corn oil to reduce without extension of the biodiesel blenders tax credit.

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.

Government Supports and Regulation

The Renewable Fuels Standard

The ethanol industry is dependent on several economic incentives to produce ethanol, the most significant of which is the RFS.  The RFS has been, and we expect will continue to be, a significant factor impacting ethanol usage.  Any adverse ruling on, or legislation affecting, the RFS could have an adverse impact on short-term ethanol prices and our financial performance in the future.

Under the provisions of the RFS, the EPA must publish an annual rule that establishes the number of gallons of different types of renewable fuels, including corn-based ethanol, that must be blended with gasoline in the U.S. by refineries, blenders, distributors, and importers, which affects the domestic market for ethanol.  In November 2017, the EPA announced it would maintain the 15.0 billion gallon mandate for conventional ethanol in 2018, excluding any waivers granted by the EPA to small refiners for “hardship”.

On June 26, 2018, the EPA released a preliminary rule proposal for 2019 setting the blending requirements at 19.88 billion gallons, a slight increase from 2018 mandates. Conventional corn-based ethanol levels were left at 15.0 billion gallons, excluding any “hardship” waivers granted by the EPA to small refiners.

Under 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 volume requirements 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 the final 2019 volume requirements are also more than 20% below statutory levels, the reset will be triggered under the 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 volume requirements post-2022. The proposed 2019 Rule is more than 20% below the original 2019 statutory level of 28.0 billion gallons, and if finalized as proposed will fulfill the two consecutive year requirements and require a reset of the RFS.

The EPA assigns individual refiners, blenders, and importers the RVOs they are obligated to use based on their percentage of total fuel sales.  Obligated parties use renewable identification numbers (“RINs”) to show compliance with RVOs.  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. 

 The EPA has recently granted a number of small refiner exemptions, whereby such refiners were alleviated of their responsibility to supply RINS for their obligated volumes based upon the grounds of economic hardship.  In early July 2018, the EPA reported that hardship waivers for almost 2.25 billion gallons had been granted to small refiners for 2016 and 2017 RVOs.

Legal challenges are underway to the RFS, including the EPA's recent reductions in the RFS volume requirements, the Final 2018 Rule, and the denial of petitions to change the RFS point of obligation. If the EPA's decision to reduce the volume requirements under the RFS is allowed to stand, if the volume requirements are further reduced, or if the RFS point of obligation were changed, it could have an adverse effect on the market price and demand for ethanol which would negatively impact our financial performance.

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On May 1, 2018, the Advanced Biofuel Association submitted a petition with the U.S. Court of Appeals for the D.C. Circuit challenging EPA’s process for granting exemptions from compliance under the RFS to small refineries. The Advanced Biofuel Association petition asks the court to review the EPA’s decision to modify criteria to lower the threshold by which the agency determines whether to grant small refineries an exemption for the RFS for reasons of disproportionate economic hardship.

 

Additionally, on May 29, 2018, the National Corn Growers Association, National Farmers Union, and the Renewable Fuels Association (“RFA”) filed a petition with the U.S. Court of Appeals for the 10th Circuit challenging the EPA’s grant of waivers to three specific refineries.  The petitioners are asking the U.S. Court of Appeals for the 10th Circuit to reject the waivers granted to three refineries located in Wynnewood, Oklahoma, Cheyenne, Wyoming, and Woods Cross, Utah as an abuse of EPA authority.  These waived gallons are not redistributed to obligated parties, and in effect, reduce the aggregate RVOs under the RFS. If the specific waivers granted by the EPA and/or its lower criteria for granting small refinery waivers under the RFS are 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.

Related to the recent lawsuits, the Renewable Fuels Association, American Coalition for Ethanol, Growth Energy, National Biodiesel Board, National Corn Growers Association, Biotechnology Industry Organization, and National Farmers Union petitioned the EPA on June 4, 2018 to change its regulations to account for lost volumes of renewable fuel resulting from the retroactive small refinery exemptions. This petition to EPA seeks a broader, forward-looking remedy to account for the collective lost volumes caused by the recent increase in retroactive small refinery RVO exemptions. It is unclear what regulatory changes, if any, will emerge from the petition to the EPA. 

Further, on August 30, 2018, the RFA and Growth Energy filed a lawsuit in federal district court, alleging that the EPA and U.S. Department of Energy have improperly denied agency records requested by RFA, Growth Energy, and others under the Freedom of Information Act. The requested documents relate to exemptions from Renewable Fuel Standard compliance obligations granted by EPA.

Although the maintenance of the 15.0 billion gallon threshold for volume requirements that may be met with corn-based ethanol in the final 2018 Rule and the proposed 2019 rule signal support from the EPA and the Trump administration for domestic ethanol production, the Trump administration could still elect to materially modify, repeal, or otherwise invalidate the RFS.  Any such reform could adversely affect the demand and price for ethanol and the Company's profitability.

Tax Cuts and Job Act

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law.  The Tax Reform Act includes significant changes to the taxation of partnership entities.  The Company continues to evaluate the impact of the Tax Reform Act with its professional advisors.  The full impact of the Tax Reform Act on the Company in future periods cannot be predicted at this time. On March 23, 2018, Congress rescinded an unintended consequence of the Tax Reform Act under section 199A, which provided certain tax benefits to producers selling grain to cooperative associations and enabled a potential marketplace advantage over other agribusiness companies.

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Results of Operations for the Three Months Ended July 31, 2018 and 2017 

The following table shows summary information from the results of our operations and the approximate percentage of revenues, costs of goods sold, operating expenses and other items to total revenues in our unaudited condensed consolidated statements of operations for the three months ended July 31, 2018 and 2017 (amounts in thousands).

	Three Months Ended  July 31,
	2018				2017
	(unaudited)				(unaudited)
Statement of Operations Data	Amount		%		Amount		%
Revenues	$	53,221	100.0	%	$	54,251	100.0	%
Cost of Goods Sold		49,527	93.1	%		50,048	92.3	%
Gross Profit		3,694	6.9	%		4,203	7.7	%
Operating Expenses		1,459	2.7	%		1,463	2.7	%
Operating Income		2,235	4.2	%		2,740	5.0	%
Other Expense, net		(105)	(0.2)	%		(18)	(0.0)	%
Net Income		2,130	4.0	%		2,722	5.0	%
Less: Net Income Attributable to Non-controlling Interest		(128)	(0.2)	%		(672)	(1.2)	%
Net Income Attributable to Granite Falls Energy, LLC	$	2,002	3.8	%	$	2,050	3.8	%

Revenues

Our consolidated revenue is derived principally from sales of our three primary products: ethanol, distillers’ grains and corn oil. Revenues from these products represented approximately 99.6% of our total revenues for the three months ended July 31, 2018 and 2017. The remaining approximately 0.4% is attributable to miscellaneous other revenue for the three months ended July 31, 2018 and 2017 and is made up of 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.

The following table shows the sources of our consolidated revenue and the approximate percentage of revenues from those sources to total revenues in our unaudited condensed consolidated statements of operations for the three months ended July 31, 2018:

	Three Months Ended  July 31, 2018
	Sales Revenue		% of Total Revenues
Revenue Sources	(in thousands)
Ethanol sales	$	40,419	75.9	%
Distillers' grains sales		10,514	19.8	%
Corn oil sales		2,078	3.9	%
Miscellaneous other		210	0.4	%
Total Revenues	$	53,221	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 condensed consolidated unaudited statements of operations for the three months ended July 31, 2017:

	Three Months Ended  July 31, 2017
	Sales Revenue		% of Total Revenues
Revenue Sources	(in thousands)
Ethanol sales	$	44,146	81.4	%
Distillers' grains sales		7,213	13.3	%
Corn oil sales		2,676	4.9	%
Miscellaneous other		216	0.4	%
Total Revenues	$	54,251	100.0	%

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Our total consolidated revenues decreased by approximately 1.9% for the three months ended July 31, 2018, as compared to the three months ended July 31, 2017.  This decrease was due to the decrease in the average price received for our ethanol and corn oil, as well as decreased production and sales at the HLBE plant, which was partially mitigated by the increase in the average price received for our distillers’ grains. The following table reflects quantities of our three primary products sold and the average net prices received for the three months ended July 31, 2018 and 2017:

	Three Months Ended  July 31, 2018			Three Months Ended  July 31, 2017
	Quantity Sold	Avg. Net Price		Quantity Sold	Avg. Net Price
Product	(in thousands)			(in thousands)
Ethanol (gallons)	31,466	$	1.28	31,998	$	1.38
Distillers' grains (tons)	80	$	131.60	78	$	92.39
Corn oil (pounds)	8,961	$	0.23	9,461	$	0.28

Ethanol

Total revenues from sales of ethanol decreased by approximately 8.4% for the three months ended July 31, 2018 compared to the same period of 2017 due to a decrease of approximately 6.9% in the average price per gallon we received for our ethanol, coupled with an approximately 1.7% decrease in aggregate volume sold. The aggregate decrease in the number of gallons sold is due to an approximately 6.2% decrease in the number of gallons sold at the HLBE plant resulting decreased ethanol production at the HLBE plant during the 2018 period, which was mitigated, in part, by an approximate 3.2% increase in the volume of ethanol sold at the GFE plant during the 2018 period.  The increase in gallons produced at the GFE plant was due to increased ethanol production during the 2018 period.  The decrease in ethanol prices is due to increased production industry-wide which resulted in higher inventories.  Additionally, ongoing concerns related to recent trade disputes and RVO waivers granted by the EPA exempting certain refiners from compliance with the RFS negatively impacted ethanol prices.

From time to time, we engage in hedging activities with respect to our ethanol sales. At July 31, 2018, GFE had fixed and basis contracts for forward ethanol sales for various delivery periods through September 2018 valued at approximately $11.8 million. At July 31, 2018, HLBE had fixed and basis contracts for forward ethanol sales for various delivery periods through September 2018 valued at approximately $11.7 million.  Separately, ethanol derivative instruments resulted in losses of approximately $286,000 and $123,000 during the three months ended July 31, 2018 and 2017, respectively.    

Distillers' Grains

Total revenues from sales of distillers’ grains increased by approximately 45.8% for the three months ended July 31, 2018 compared to the same period of 2017.  This increase was due to an approximately 42.4% increase in the average price per ton we received for our distillers’ grains, coupled with an approximately 2.3% increase in the volumes sold from period to period.  We sold more tons of distillers’ grains in the three months ended July 31, 2018 as compared to the same period in 2017 due to increased ethanol production at the GFE plant which increased its output of distillers’ grains.  The decrease in tons produced at the HLBE plant was due primarily to decreased ethanol production and increased production of wet distillers’ grains. The increase in the market price of distillers’ grains is due to a stronger domestic market as a result of increases in prices of soybean meal and increased export demand, particularly from Vietnam and Argentina.

At July 31, 2018, GFE had forward distillers’ grains sales contracts valued at approximately $848,000 for various delivery periods through August 2018 and HLBE had forward distillers’ grains sales contracts valued at approximately $2.5 million for various delivery periods through August 2018.

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Corn Oil

Total revenues from sales of corn oil decreased by approximately 22.3% for the three months ended July 31, 2018 compared to the same period of 2017 due to an approximately 18.0% decrease in the average price per pound received for our corn oil, coupled with an approximately 5.3% decrease in pounds sold from period to period.  We sold fewer pounds of corn oil during the three months ended July 31, 2018 as compared to the same period in 2017 due to due to an approximately 24.2% decrease in pounds sold at HLBE’s plant, offset by an approximately 17.7% increase in pounds sold at the GFE plant.  HLBE’s reduced corn oil sales is attributable to reduced ethanol production and decreased oil extraction rates per bushel of corn at the HLBE plant for the three months ended July 31, 2018 compared to the same period of 2017.  Comparatively, the increase in corn oil sales at the GFE plant for the 2018 period is due to increased ethanol production during the three months ended July 31, 2018.  Management expects our corn oil production will be relatively stable going forward.

Management attributes the decrease in corn oil prices to lower prices for soybean oil, which may be substitute for corn oil in certain circumstances and is frequently a competing raw material to corn oil for biodiesel production. Management expects corn oil prices will remain relatively steady in the near term.  However, we may experience lower demand for corn oil from the biodiesel industry as the 2019 RVOs for biodiesel were only up slightly from the 2018 levels, which may result in lower biodiesel production unless the biodiesel tax credit is further extended by Congress. However, lower soybean oil prices and the current oversupply of corn oil due to the substantial increase in corn oil production during the last few years will likely continue to negatively impact corn oil prices.

At July 31, 2018, GFE had forward corn oil sales contracts valued at approximately $829,00 for various delivery periods through December 2018. At July 31, 2018, HLBE had forward corn oil sales contracts valued at approximately $775,000 for various delivery periods through December 2018.

Cost of Goods Sold

Our cost of goods sold decreased by approximately 1.0% for the three months ended July 31, 2018, as compared to the three months ended July 31, 2017.  However, as a percentage of revenues, our cost of goods sold increased to approximately 93.1% for the three months ended July 31, 2018, as compared to approximately 92.3% for the same period in 2017 due primarily to the narrowing of our operating margin resulting from declines in the average price received for our ethanol and corn oil. Approximately 90% of our total costs of goods sold is attributable to our ethanol production segment. The cost of goods sold per gallon of ethanol sold for the three months ended July 31, 2018 and 2017 was approximately $1.42 and $1.41 per gallon, respectively.

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 unaudited condensed consolidated statements of operations for the three months ended July 31, 2018:

	Three Months Ended  July 31, 2018
	Cost		% of Cost of Goods Sold
	(in thousands)
Corn costs	$	36,605	73.9	%
Natural gas costs		2,627	5.3	%
All other components of costs of goods sold		10,295	20.8	%
Total Cost of Goods Sold	$	49,527	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 unaudited condensed consolidated statements of operations for the three months ended July 31, 2017:

	Three Months Ended  July 31, 2017
	Cost		% of Cost of Goods Sold
	(in thousands)
Corn costs	$	36,602	73.1	%
Natural gas costs		2,817	5.6	%
All other components of costs of goods sold		10,629	21.3	%
Total Cost of Goods Sold	$	50,048	100.0	%

Corn

Our aggregate cost of corn was approximately 0.2% more for the three months ended July 31, 2018 compared to the same period of 2017, due to an approximately 0.5% increase in the number of bushels of corn processed, offset by a 0.3% decrease in the average price per bushel paid for corn from period to period. 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 the three months ended July 31, 2018 was approximately $0.09 lower than the corn-ethanol price spread we experienced for same period of 2017.  Management anticipates corn prices to increase slightly due to increased global demand and corn stocks to usage ratio. Decreased corn supply and slightly higher demand has resulted in recent increases in corn prices. We may continue to experience some short term corn price volatility.

From time to time we enter into forward purchase contracts for our commodity purchases and sales. At July 31, 2018, GFE had approximately 6.4 million bushels of cash and basis contracts for forward corn purchase commitments for delivery periods through December 2021. At July 31, 2018, HLBE had approximately 4.2 million bushels of cash and basis contracts for forward corn purchase commitments for various delivery periods through June 2019.

Our corn derivative positions resulted in gains of approximately $1.8 million and $288,000 for the three months ended July 31, 2018 and 2017, 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 is 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

Our cost of goods sold related to natural gas costs decreased approximately 6.7% for the three months ended July 31, 2018, as compared to the three months ended July 31, 2017.  Management attributes this decrease in cost of natural gas from period to period to decreased natural gas consumption, partially offset by higher natural gas prices during the three months ended July 31, 2018.

From time to time we enter into forward purchase contracts for our natural gas purchases. We had no gain or loss on natural gas derivative instruments for the three months ended July 31, 2018 and 2017. 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.

Operating Expenses

Operating expenses include wages, salaries and benefits of administrative employees at the plant, insurance, professional fees, property taxes, and similar costs. Our operating expenses decreased by approximately 0.3% for the three months ended July 31, 2018 compared to the same period ended 2017.  However, as a percentage of total revenues, operating expenses remained consistent from period to period.

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Operating Income

Our income from operations for the three months ended July 31, 2018 decreased by approximately 18.4% compared to the same period of 2017.  This decrease resulted largely from decreased prices received for our ethanol and corn oil at our plants and the narrowing of our net operating margin.

Other Expense, Net

We had approximately $65,000 additional interest expense for the 2018 period, and less other income and interest income, resulting in net other expense of approximately $105,000 and $18,000 during the three months ended July 31, 2018 and 2017, respectively.

Results of Operations for the Nine months ended July 31, 2018 and 2017

The following table shows summary information from the results of our operations and the approximate percentage of revenues, costs of goods sold, operating expenses and other items to total revenues in our unaudited condensed consolidated statements of operations for the nine months ended July 31, 2018 and 2017 (amounts in thousands).

	Nine Months Ended July 31,
	2018				2017
	(unaudited)				(unaudited)
Statement of Operations Data	Amount		%		Amount		%
Revenue	$	161,764	100.0	%	$	161,629	100.0	%
Cost of Goods Sold		151,250	93.5	%		146,625	90.7	%
Gross Profit		10,514	6.5	%		15,004	9.3	%
Operating Expenses		4,787	3.0	%		4,655	2.9	%
Operating Income		5,727	3.5	%		10,349	6.4	%
Other Income, net		88	0.1	%		324	0.2	%
Net Income		5,815	3.6	%		10,673	6.6	%
Less: Net Income Attributable to Non-controlling Interest		(1,264)	(0.8)	%		(2,616)	(1.6)	%
Net Income Attributable to Granite Falls Energy, LLC	$	4,551	2.8	%	$	8,057	5.0	%

Revenues

Revenues from our three primary products: ethanol, distillers’ grains and corn oil, represented approximately 99.0% and 99.2% of our total consolidated revenues for the nine months ended July 31, 2018 and 2017, respectively.  Miscellaneous other revenues attributable to incidental sales of corn syrup and Agrinatural revenues (net of eliminations) represented 1.0% and 0.8% of our consolidated revenues for the nine months ended July 31, 2018 and 2017, respectively.

The following table shows the sources of our consolidated revenue and the approximate percentage of revenues from those sources to total revenues in our unaudited condensed consolidated statements of operations for the nine months ended July 31, 2018:

	Nine Months Ended  July 31, 2018
Revenue Sources	Sales Revenue		% of Total Revenues
Ethanol sales	$	122,887	76.0	%
Distillers' grains sales		30,936	19.1	%
Corn oil sales		6,318	3.9	%
Miscellaneous other		1,623	1.0	%
Total Revenues	$	161,764	100.0	%

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The following table shows the sources of our consolidated revenue and the approximate percentage of revenues from those sources to total revenues in our unaudited condensed consolidated statements of operations for the nine months ended July 31, 2017:

	Nine Months Ended  July 31, 2017
Revenue Sources	Sales Revenue		% of Total Revenues
Ethanol sales	$	131,378	81.3	%
Distillers' grains sales		21,860	13.5	%
Corn oil sales		7,158	4.5	%
Miscellaneous other		1,233	0.7	%
Total Revenues	$	161,629	100.0	%

Our total consolidated revenues increased by approximately 0.1% for the nine months ended July 31, 2018, as compared to same period of 2017, primarily due to an increase the average price received for our distillers’ grains, which was partially offset by decreases in the average price received for our ethanol and corn oil.  The following table reflects quantities of our three primary products sold and the average net prices received for the nine months ended July 31, 2018 and 2017:

	Nine Months Ended  July 31, 2018			Nine Months Ended  July 31, 2017
Product	Quantity Sold	Avg. Net Price		Quantity Sold	Avg. Net Price
Ethanol (gallons)	97,983	$	1.25	94,567	$	1.39
Distillers' grains (tons)	235	$	131.64	234	$	93.41
Corn oil (pounds)	26,649	$	0.24	26,119	$	0.27

Ethanol

Total revenues from sales of ethanol decreased by approximately 6.5% for the nine months ended July 31, 2018 compared to the same period of 2017 due primarily to an approximately 9.7% decrease in the average price per gallon we received, which was partially mitigated by an approximately 3.6%  increase in the volume of ethanol sold.  The increase in gallons of ethanol sold from period to period was primarily due to an approximately 6.9% increase in the volume sold at the HLBE plant resulting from an increase in production at its plant during the 2018 period.  The decrease in ethanol prices resulted principally from increased production industry-wide, which exceeded demand, resulting in higher inventories that pushed ethanol prices downward.

Our ethanol derivative instruments resulted in a gain of approximately $108,000 during the nine months ended July 31, 2018.  Comparatively, our derivative positions resulted in a loss of approximately $395,000 during the nine months ended July 31, 2017.

Distillers' Grains

Total revenues from sales of distillers’ grains increased by approximately 41.5% for the nine months ended July 31, 2018 compared to the same period of 2017.  This increase is due to an approximately 40.9% higher average price per ton received for our distillers’ grains from period to period, coupled with an approximately 0.4%  increase in aggregate tons sold.  We produced more total tons of distillers’ grains during the nine months ended July 31, 2018 compared to the nine months ended July 31, 2017 due to increased ethanol production in the 2018 period.  The increase in the market price of distillers’ grains is due to a stronger domestic market as a result of increases in prices of soybean meal and increased export demand.  

Corn Oil

Total revenues from sales of corn oil decreased by approximately 11.7% for the nine months ended July 31, 2018 compared to the nine months ended July 31, 2017 due to an approximately 13.5%  decrease in the average price per pound we received for our corn oil which was partially mitigated by an approximately 2.0%  increase in pounds sold from period to period. The increase in volume sold for the nine months ended July 31, 2018 compared to the same period of 2017 is attributable to increased ethanol production during the nine months ended July 31, 2018.

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Cost of Goods Sold

Our cost of goods sold increased by approximately 3.2% for the nine months ended July 31, 2018, as compared to the nine months ended July 31, 2017.  As a percentage of revenues, our cost of goods sold also increased to approximately 93.5% for the nine months ended July 31, 2018, as compared to approximately 90.7% for the same period in 2017 due to the narrower margin between the price of ethanol and the price of corn from period to period.  The cost of goods sold per gallon of ethanol sold for the nine months ended July 31, 2018 and 2017 was approximately $1.40.

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 unaudited condensed consolidated statements of operations for the nine months ended July 31, 2018:

	Nine Months Ended  July 31, 2018
	Cost		% of Cost of Goods Sold
	(in thousands)
Corn costs	$	109,700	72.5	%
Natural gas costs		9,252	6.1	%
All other components of costs of goods sold		32,298	21.4	%
Total Cost of Goods Sold	$	151,250	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 unaudited condensed consolidated statements of operations for the nine months ended July 31, 2017:

	Nine Months Ended  July 31, 2017
	Cost		% of Cost of Goods Sold
	(in thousands)
Corn costs	$	106,621	72.7	%
Natural gas costs		9,297	6.4	%
All other components of costs of goods sold		30,707	20.9	%
Total Cost of Goods Sold	$	146,625	100.0	%

Corn

Our cost of goods sold related to corn was approximately 3.0% more for the nine months ended July 31, 2018 compared to the same period of 2017, due primarily to an approximately 2.1% increase in the number of bushels of corn processed, coupled with a 0.9% increase in the average price per bushel paid for corn from period to period.  For the nine months ended July 31, 2018 and 2017, we processed approximately 33.6 million and 32.9 million bushels of corn, respectively.  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 the nine months ended July 31, 2018, was approximately $0.15 lower than the corn-ethanol price spread we experienced for same period of 2017.

We had gains related to corn derivative instruments of approximately $567,000 and $857,000 for the nine months ended July 31, 2018 and 2017, respectively, which decreased our costs of goods sold.    

Natural Gas

Natural gas costs decreased 0.5% for the nine months ended July 31, 2018 as compared to the nine months ended July 31, 2017. The decrease in natural gas costs was primarily due to lower natural gas costs during the 2018 period.  

Our natural gas derivative positions resulted in a loss of approximately $2,000 during the nine months ended July 31, 2018, which increased our cost of goods sold. Comparatively, we had no gain or loss on natural gas derivative instruments during the nine months ended July 31, 2017.

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Operating Expenses

Operating expenses for the nine months ended July 31, 2018 increased 2.8% compared to the nine months ended July 31, 2017.  However, as a percentage of total revenues, operating expenses only slightly increased to 3.0% for the nine months ended July 31, 2018, as compared to 2.9% for the nine months ended July 31, 2017. 

Operating Income

Our income from operations for the nine months ended July 31, 2018 was approximately $4.6 million less compared to the same period of 2017.  This decrease resulted largely from increased prices for corn relative to the price of ethanol, which narrowed our operating margin.

Other Income, Net

We had net other income of approximately $88,000 and $324,000 during the nine months ended July 31, 2018 and 2017, respectively.  We had less other income due to less patronage income and increased interest expense during the 2018 period.

Investments

On August 2, 2017, GFE completed a $7.5 million investment in Ringneck, acquiring 1,500 capital units of Ringneck.  GFE financed its investment by borrowing $7.5 million under its credit facility with Project Hawkeye.  Details of the Project Hawkeye credit facility are provided below in the section below entitled “Indebtedness - GFE’s Other Credit Arrangement”. GFE’s investment is sufficient to the right to appoint one director to the board of directors of Ringneck and has appointed Steve Christensen, its CEO, to fill this seat. 

Ringneck is a South Dakota limited liability company that is constructing an 80 million gallon per year ethanol manufacturing plant in outside of Onida, South Dakota in Sully County. The units GFE 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.

On June 29, 2018, GFE completed a $2.0 million investment in in Harvestone Group, LLC (“Harvestone”), acquiring 20 preferred membership units of Harvestone.  GFE’s capital contribution was sufficient to secure GFE the right to appoint one advisor to the advisory committee to the managers of Harvestone and has appointed Eric Baukol, its Risk Manager, to serve as its appointed advisor.

Harvestone is a start-up ethanol marketing, logistics, and trading company headquartered in Franklin, Tennessee.  Harvestone is owned by several other ethanol producers and other private investors that expects that its primary business will be marketing and trading for member and non-member ethanol producers.

Neither Ringneck nor Harvestone conducted federally-registered offerings and neither company is a registered reporting company with SEC.  Therefore, we do not expect that information about Ringneck or Harvestone will be available via the SEC’s EDGAR filing system. As a result, it may be difficult for our investors to obtain information about Ringneck and Harvestone. 

GFE’s investments in Ringneck and Harvestone are subject to significant restrictions on transfer under the respective operating agreements of Ringneck and Harvestone.  As a result, GFE’s investments in these companies are not liquid and it may take a significant amount of time before GFE realizes a return on either investment, if at all.

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Changes in Financial Condition at July 31, 2018 and October 31, 2017

The following table highlights our financial condition at July 31, 2018 and October 31, 2017 (amounts in thousands):

	July 31, 2018		October 31, 2017
	(unaudited)
Current Assets	$	34,968	$	45,203
Total Assets	$	114,797	$	127,090
Current Liabilities	$	7,132	$	8,980
Long-Term Debt, less current portion	$	8,296	$	8,466
Members' Equity attributable to Granite Falls Energy, LLC	$	76,771	$	83,999
Non-controlling Interest	$	22,598	$	25,645

The decrease in total current assets is attributable to a decrease in cash on hand of approximately $6.3 million at July 31, 2018 compared to October 31, 2017.  The decrease in cash was due primarily to payment of distributions to members in January 2018 and deferred payments to producers.  Additionally, we had a decrease in accounts receivable of approximately $5.0 million at July 31, 2018 compared to October 31, 2017.  Offsetting these decreases were increases in inventory of approximately $378,000, restricted cash of approximately $58,000, the value of our commodity derivative instruments of approximately $310,000, and prepaid expenses and other current assets of approximately $254,000 at July 31, 2018 compared to October 31, 2017.  Contributing to the decrease in total assets was an approximately $4.0 million decrease in property and equipment primarily due to depreciation expense during the 2018 period.

Our current liabilities decreased approximately $1.8 million at July 31, 2018 compared to October 31, 2017, due to decreases of approximately $1.7 million in accounts payable, approximately $110,000 in the current portion of our long-term debt payable, and accrued expenses of approximately $112,000 as of July 31, 2018.  These decreases were partially offset by an increase of approximately $30,000 in commodity derivative instruments of July 31, 2018. Our accounts payable were less at July 31, 2018 compared to October 31, 2017 due to the timing of payments to vendors during the nine months ended July 31, 2018.

Our long-term debt decreased approximately $170,000 at July 31, 2018 compared to October 31, 2017. The decrease is primarily due to assessments paid under HLBE’s industrial water supply treatment agreement with the City of Heron Lake and Jackson County.

Members’ equity attributable to Granite Falls Energy, LLC at July 31, 2018 compared to October 31, 2017 decreased by approximately $7.2 million. The decrease was related to the distribution to our members of approximately $11.8 million during January 2018, offset by our approximately $4.6 million of net income attributable to GFE during the nine months ended July 31, 2018. 

Non-controlling interest totaled approximately $22.6 million and $25.6 million at July 31, 2018 and October 31, 2017, respectively.  This is directly related to recognition of the 49.3% noncontrolling interest in HLBE.

Liquidity and Capital Resources

Our principal sources of liquidity consist of cash provided by operations, cash and equivalents on hand, and available borrowings under our credit facilities. Based on management’s financial forecasts, we expect to have sufficient cash generated by continuing operations and revolving term loan to fund our operations for the next twelve months.  However, should we experience unfavorable operating conditions in the future, we may have to secure additional debt or equity sources for working capital or other purposes.

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Cash Flows

The following table shows our cash flows for the nine months ended July 31, 2018 and 2017 (amounts in thousands):    

	2018		2017
	(unaudited)		(unaudited)
Net cash provided by operating activities	$	13,902	$	22,364
Net cash used in investing activities	$	(3,784)	$	(2,376)
Net cash used in financing activities	$	(16,370)	$	(13,410)
Net increase (decrease) in cash	$	(6,252)	$	6,578

Operating Cash Flows

During the nine months ended July 31, 2018, operations provided less cash compared to the same period of 2017 primarily due to lower net income in the 2018 period. Additionally, changes in various working capital components, including inventory and commodity derivative instruments, contributed to the decrease in cash provided during the 2018 period.

Investing Cash Flows

Cash used in investing activities was approximately $1.4 million more for the nine months ended July 31, 2018, compared to the same period of 2017. During the nine months ended July 31, 2018, we used $1.8 million of cash for capital expenditures and general plant improvements and $2.0 million for GFE’s investment in Harvestone.  Comparatively, during the nine months ended July 31, 2017, we used approximately $1.7 million of cash for capital expenditures and GFE used $750,000 for its initial payment towards its subscription for its Ringneck investment.

Financing Cash Flows

During the nine months ended July 31, 2018, we used cash to make payments of approximately $280,000 on our long-term debt and make payments of approximately $11.8 million in distributions to our unit holders and approximately $4.3 million to non-controlling interests. Comparatively, during the same period of 2017, we made payments of approximately $11.2 million in distributions to our unit holders, approximately $1.9 million payments on in checks drawn in excess of bank balance, principal payments of approximately $325,000 on HLBE’s long-term debt and purchased approximately $47,000 of units in HLBE.

Indebtedness

GFE’sSeasonal Revolving Loan

GFE has a credit facility with AgCountry Farm Credit Services, PCA, formerly known as United FCS (“AgCountry”), for which CoBank serves as the administrative agent.  The credit facility consists of a seasonal revolving loan.  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, unless a later date is agreed to by CoBank.  The outstanding balance on the seasonal revolving loan totaled $0 at July 31, 2018 and October 31, 2017.  Therefore, the aggregate principal amount available to GFE for additional borrowing was $6.0 million at July 31, 2018 and 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 the One Month LIBOR Index Rate plus 2.75% per annum, which was 4.83% and 3.99% at July 31, 2018 and October 31, 2017, respectively.  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 AgCountry is secured by substantially all of GFE’s assets.

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Under the AgCountry credit facility, GFE is subject to certain financial and non-financial covenants that limit GFE distributions and debt and require minimum working capital, and debt service coverage ratio.  GFE agreed to a debt service coverage ratio of 1.5 to 1.0 and to maintain minimum working capital of $10.0 million.  GFE is permitted to pay distributions to its members up to 75% of its net income for the year in which the distributions are paid provided that immediately prior to the distribution and after giving effect to the distribution, no default exists and GFE is in compliance with all of its loan covenants including compliance with the financial covenants.  Further, GFE agreed not create or incur any indebtedness except for debt to AgCountry, accounts payable to trade creditors, subordinated debt owed to Project Hawkeye, or debt to other lenders in an aggregate amount not exceed $750,000 or make loans or advances or invest in any entity, other than its investments in HLBE and Ringneck, without the consent of CoBank or AgCountry.  CoBank consented to our investment in Harvestone.

As of July 31, 2018, GFE was in compliance with these financial covenants. However, if market conditions deteriorate in the future, circumstances may develop which could result in GFE violating the financial covenants or other terms of its credit facility. If GFE fails to comply with the terms of its credit agreement with AgCountry, and AgCountry refuses to waive the non-compliance, AgCountry could terminate the credit facility and any commitment to loan funds to GFE.

GFE’s Other Credit Arrangement

GFE has a credit facility with Project Hawkeye for a $7.5 million loan to finance the balance of its subscription in Ringneck.  Interest on Project Hawkeye loan accrues at a variable rate 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 was 5.13% and 4.29% at July 31, 2018 and October 31, 2017, respectively.

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.  As of July 31, 2018 and October 31, 2017, there was $7.5 million outstanding under the Project Hawkeye credit facility.

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.  As a result, 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.

HLBE’s Compeer Credit Facility

HLBE has a comprehensive credit facility with Compeer Financial, FLCA and Compeer Financial, PCA, collectively formerly known as AgStar Financial Services, FLCA (“Compeer”) for which CoBank, ACP (“CoBank”) serves as the administrative agent.   This credit facility includes an amended and restated revolving term loan with a $4.0 million principal commitment and a revolving seasonal line of credit with a $4.0 million principal commitment.   In exchange for the loans, HLBE granted liens on all property (real and personal, tangible, and intangible) which include, among other things, a mortgage on the property, a security interest on commodity trading accounts, and assignment of material contracts.  Please refer to Item 1 - Financial Statements, Note 6 - Debt Financing for additional details. As of July 31, 2018, there were no amounts outstanding under HLBE’s credit facility with Compeer and the aggregate principal amount available to HLBE for borrowing under each of the amended revolving term loan and seasonal revolving loan was $4.0 million.

Under the Compeer credit facility, HLBE is subject to certain financial and non-financial covenants that limit the HLBE’s distributions and debt and require minimum working capital, minimum local net worth, and debt service coverage ratio.  HLBE agreed to a debt service coverage ratio of 1.15 to 1.0, to maintain minimum working capital $8.0 million through September 30, 2018 and $10.0 million thereafter, and to maintain net worth of $32.0 million.  HLBE is permitted to pay distributions to its members up to 75% of its net income for the year in which the distributions are paid, provided that immediately prior to the distribution and after giving effect to the distribution, no default exists and HLBE is in compliance with all of its loan covenants.  Further, HLBE agreed not to make loans or advances to Agrinatural that exceed an aggregate principal amount of approximately $6.6 million without the consent of Compeer.

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As of July 31, 2018, HLBE was in compliance with these loan covenants. However, if market conditions deteriorate in the future, circumstances may develop which could result in HLBE violating the financial covenants or other terms of its amended credit facility.  If HLBE fails to comply with the terms of its credit facility with Compeer, and Compeer refuses to waive the non-compliance, Compeer could terminate the credit facility and any commitment to loan funds to HLBE.

HLBE’s Other Credit Arrangements

In addition to HLBE's 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. 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. There was a total of approximately $1.1 million in outstanding water revenue bonds at July 31, 2018 and October 31, 2017. HLBE classifies its obligations under these bonds as assessments payable. The interest rates on the bonds range from 6.55% to 8.73%.

Agrinatural Credit Facilities

In July 2014, HLBE extended a five-year term loan to Agrinatural in an aggregate principal amount of approximately $3.06 million (the “Original Agrinatural Credit Facility”).  The Original Agrinatural Credit Facility requires monthly principal payments of $36,000, plus accrued interest.  Interest on the Original Agrinatural Credit Facility 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.   Final payment of amounts borrowed under Original Agrinatural Credit Facility is due and payable in full on May 1, 2019.

The Original Agrinatural Credit Facility contains customary financial and non-financial affirmative covenants and negative covenants for loans of this type and size.  The Original Agrinatural Credit Facility is secured by all of Agrinatural's equipment and assets and a collateral assignment assigning the Company all of Agrinatural's interests in its contracts, leases, easements, and other agreements.  In addition, Rural Energy Solutions, LLC, the minority owner of Agrinatural (“RES”), 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 $1.6 million at July 31, 2018 and $2.0 million at October 31, 2017.

In March 2015, HLBE extended an additional four-year term loan in the original principal amount of $3.5 million to Agrinatural (the “Additional Agrinatural Credit Facility”).  Under the terms of the Additional Agrinatural Credit Facility, for each of calendar years, 2017, 2018 and 2019, Agrinatural may not, without consent of HLBE, proceed with and pay for capital expenditures in an amount in excess of $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. 

Interest on the Additional Agrinatural Credit Facility 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.  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.

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The Additional Agrinatural Credit Facility contains customary financial and non-financial affirmative covenants and negative covenants for loans of this type and size, including a covenant restricting capital expenditures by Agrinatural.  The Additional Agrinatural Credit Facility is secured by 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.

The balance of this loan was approximately $2.1 million at July 31, 2018 and $2.5 million at October 31, 2017.

Critical Accounting Policies and Estimates

Management uses estimates and assumptions in preparing our financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses.  We believe that of our significant accounting policies summarized in Note 1 to our condensed consolidated unaudited financial statements included with this Form 10-Q. 

At July 31, 2018, our critical accounting estimates continue to include those described in our annual report on Form 10-K for the fiscal year ended October 31, 2017. Management has not changed the method of calculating and using estimates and assumptions in preparing our condensed consolidated unaudited financial statements in accordance with generally accepted accounting principles in the United States of America.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements.

Item 3.   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. 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 U.S. Generally Accepted Accounting Principles.

Interest Rate Risk

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from our credit facilities with AgCountry, HLBE's credit facilities with Compeer and HLBE’s note payable to the minority owner of Agrinatural. The specifics of these credit facilities are discussed in greater detail in “Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Indebtedness”.

At July 31, 2018, there were no amounts outstanding under GFE’s credit facility with AgCountry or HLBE’s credit facility with Compeer.  Therefore, at July 31, 2018, we had exposure to interest rate risk only from the amounts outstanding under GFE’s credit facility with Project Hawkeye.  Below is a sensitivity analysis we prepared regarding GFE’s 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.

Outstanding Variable
Rate Debt at		Interest Rate at		Interest Rate Following 10%		Approximate Adverse
July 31, 2018		July 31, 2018		Adverse Change		Change to Income
$	7,500,000	5.13	%	5.65	%	$	39,000

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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 period to period 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 July 31, 2018, GFE had price protection in place for approximately 14.0% and 85.0% of its anticipated corn and natural gas needs, respectively, and approximately 3.0%, 5.0%, and 20.0% of its ethanol, distillers’ grains, and corn oil sales, respectively, for the next 12 months. As of July 31, 2018, HLBE had price protection in place for approximately 14.0% of its anticipated corn needs and approximately 3.0%, 7.0%, and 20.0% of its ethanol, distillers’ grains, and corn oil sales, respectively, for the next 12 months. Through these contracts we hope to minimize risk from future market price fluctuations and basis fluctuations. 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.

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 fair value of our corn and natural gas prices and average ethanol price as of July 31, 2018, 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 both of the GFE and HLBE plants for a one year period from July 31, 2018.  The results of this sensitivity 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	July 31, 2018		Change to Income
Ethanol	98,200,000	Gallons	10	%	$	12,800,000
Corn	36,500,000	Bushels	10	%	$	12,200,000
Natural Gas	1,950,000	MMBTU	10	%	$	701,000

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.

Item 4.   Controls and Procedures

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

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Effectiveness of Disclosure Controls and Procedures

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 July 31, 2018. Based upon this review and evaluation, these officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission; and to ensure that the information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during our most recently completed reporting period that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.   Legal Proceedings

From time to time in the ordinary course of business, Granite Falls Energy, LLC and Heron Lake BioEnergy, LLC 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 1A.   Risk Factors

The risk factors below should be read in conjunction with the risk factors previously discussed in Item 1A of our Form 10-K for the fiscal year ended October 31, 2017, as supplemented by the risk factors disclosed in Item 1A of our Form 10-Q for the three months ended January 31, 2018 and April 30, 2018.  Additional risks and uncertainties, including risks and uncertainties not presently known to us, or that we currently deem immaterial, could also have an adverse effect on our business, financial condition and/or results of operations.

Failures Of Our Information Technology Infrastructure Could Have A Material Adverse Effect On Operations.

We utilize various software applications and other information technology that are critically important to our business operations. We rely on information technology networks and systems, including the internet, to process, transmit and store electronic and financial information, to manage a variety of business processes and activities, including production, manufacturing, financial, logistics, sales, marketing, and administrative functions. We depend on our information technology infrastructure to communicate internally and externally with employees, customers, suppliers, and others. We also use information technology networks and systems to comply with regulatory, legal and tax requirements. These information technology systems, some of which are managed by third parties, may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases, or components thereof, power outages, hardware failures, computer viruses, attacks by computer hackers or other cybersecurity risks, telecommunication failures, user errors, natural disasters, terrorist attacks or other catastrophic events. If any of our significant information technology systems suffer severe damage, disruption or shutdown, and our disaster recovery and business continuity plans do not effectively resolve the issues in a timely manner, our product sales, financial condition, and results of operations may be materially and adversely affected.

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A Cyber Attack Or Other Information Security Breach Could Have A Material Adverse Effect On Our Operations and Result In Financial Losses.

We are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address, and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact. If we are unable to prevent cyber attacks and other information security breaches, we may encounter significant disruptions in our operations which could adversely impact our business, financial condition and results of operations or result in the unauthorized disclosure of confidential information. Such breaches may also harm our reputation, result in financial losses, or subject us to litigation or other costs or penalties.

Government policies and regulations, particularly those affecting the agricultural sector and related industries, could adversely affect our operations and profitability. 

Agricultural commodity production and trade flows are significantly affected by government policies and regulations.  Governmental policies affecting the agricultural industry, such as taxes, trade tariffs, duties, subsidies, import and export restrictions on commodities and commodity products, can influence industry profitability, the planting of certain crops, the location and size of crop production, whether unprocessed or processed commodity products are traded, and the volume and types of imports and exports.  In addition, international trade disputes can adversely affect trade flows by limiting or disrupting trade between countries or regions. Future governmental policies, regulations or actions affecting our industry may adversely affect the supply of, demand for and prices of our products, restrict our ability to do business and cause our financial results to suffer.

We may experience negative impacts of higher ethanol tariffs and other disruptions to international agricultural trade related to current trade actions announced by the Trump administration and responsive actions announced by trading partners, including by China. On April 2, 2018, the Chinese government increased the tariff on U.S. ethanol imports into China from 30% to 45%.  We cannot estimate the exact effect this tariff increase will have on the overall domestic ethanol market.  However, the increased tariff is expected to reduce overall U.S. ethanol export demand, which could have a negative effect on U.S. domestic ethanol prices.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.   Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

None.

Item 5.Other Information

None.

38

Item 6.   Exhibits.

(a) The following exhibits are included in this report.

Exhibit No.	Exhibit
10.1	Subscription Agreement for Harvestone Group, LLC dated June 29, 2018
31.1	Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a)*
31.2	Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a)*
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350*
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350*
101	The following financial information from Granite Falls Ethanol, LLC's Quarterly Report on Form 10-Q for the three and nine months ended July 31, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at July 31, 2018 and October 31, 2017; (ii) the Condensed Consolidated Statements of Operations for the three and nine months ended July 31, 2018 and 2017; (iii) the Condensed Consolidated Statements of Cash Flows for the nine months ended July 31, 2018 and 2017; and (iv) Notes to Condensed Consolidated Unaudited Financial Statements.*

*   Filed herewith.

39

SIGNATURES

Pursuant to the requirements 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:   September 14, 2018	/s/ Steve Christensen
	Steve Christensen
	Chief Executive Officer
	/s/ Stacie Schuler
Date:   September 14, 2018	Stacie Schuler
	Chief Financial Officer

40

EX-10.1

SUBSCRIPTION AGREEMENT

FOR

HARVESTONE GROUP, LLC

This is the offer and agreement (“Subscription Agreement”) of the undersigned to purchase 20 Preferred Units of membership interest (“Preferred Units”) to be issued by Harvestone Group, LLC, a Delaware limited liability company (“Company”), for a purchase price of $100,000 per Unit, for a total purchase price of $2,000,000 (“Subscription Price”), subject to the terms, conditions, acknowledgments, representations and warranties stated herein.  Simultaneously with the execution and delivery hereof, I am transmitting a wire transfer pursuant to the wire instructions herein or a check payable to the order of “Harvestone Group, LLC” in the amount of $2,000,000, representing the Subscription Price for the Preferred Units I am purchasing.

In order to induce the Company to accept this Subscription Agreement and as further consideration for such acceptance, I hereby make the following acknowledgments, representations and warranties with the full knowledge that the Company will expressly rely thereon in making a decision to accept or reject this Subscription Agreement:

1.I hereby adopt, confirm and agree to all of the covenants, representations and warranties contained in this Subscription Agreement.

2.My primary state of residence:  MN

3.My date of birth is: n/a

4.I hereby represent and warrant that, as of the date hereof (check each box as appropriate):

☐(i)I am an individual who had an income in excess of $200,000 in each of the two most recent years (or joint income with my spouse in excess of $300,000 in each of those years) and have a reasonable expectation of reaching the same income level in the current year;

☐(ii)I, together with my spouse, have a net worth, exclusive of the fair market value of my primary residence, but inclusive of home furnishings and personal automobiles, that exceeds $1,000,000;

☐(iii)the entity subscribing for Preferred Units is an Individual Retirement Account (“IRA”) or revocable trust and the individual who established the IRA or each grantor of the trust is an accredited investor on the basis of (i) or (ii) above;

1

☐(iv)the entity subscribing for Preferred Units is a self-directed pension plan and the participant who directed that assets of his or her account be invested in the Company is an accredited investor on the basis of (i) or (ii) above and such participant is the only participant whose account is being invested in the Company;

☐(v)the entity subscribing for Preferred Units is a pension plan which is not a self-directed plan and which has total assets in excess of $5,000,000;

☐(vi)the entity subscribing for Preferred Units is an irrevocable trust which consists of a single trust (a) with total assets in excess of $5,000,000, (b) which was not formed for the specific purpose of investing in the Company and (c) whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he or she is capable or evaluating the merits and risks of the prospective investment in the Company;

☒(vii)the entity subscribing for Preferred Units is a corporation, a partnership or a Massachusetts or similar business trust, that was not formed for the specific purpose of acquiring Units in the Company, with total assets in excess of $5,000,000;

☐(viii)the entity subscribing for Preferred Units is an entity in which all of the equity owners are accredited investors; or

☐(ix)the entity subscribing for Preferred Units is none of the above apply (further information may be required to determine accredited investor status).

5.Under penalties of perjury, I certify (a) that the number shown on this Subscription Agreement is my correct taxpayer identification number and (b) that I am not subject to backup withholding, either because I have not been notified that I am subject to backup withholding as a result of a failure to report all interest or dividends or the Internal Revenue Service has notified me that I am no longer subject to backup withholding. (Please strike out the language certifying that you are not subject to backup withholding due to notified payee under-reporting if you have been notified that you are subject to backup withholding due to notified payee under-reporting, and you have not received a notice from the Internal Revenue Service advising you that backup withholding has terminated.)

6.I further represent and warrant that I have the capacity to evaluate the merits and risks of the prospective investment in Preferred Units and that such investment is not disproportionate to my income or available liquid funds and that I further have the capacity to protect my interests in connection with the purchase of the Preferred Units.

2

7.I (we) wish to own my (our) Preferred Units as follows (check one):

(a)		Separate or individual property. (In community property states, if the purchaser is married, his (her) spouse must submit written consent if community funds will be used to purchase the Preferred Units.)
(b)		Husband and Wife as community property. (Community property states only. Husband and Wife should both sign all required documents unless advised by their attorney that one signature is sufficient.)
(c)		Joint Tenants with right of survivorship. (Both parties must sign all required documents unless advised by their attorneys that one signature is sufficient.)
(d)		Tenants in Common. (Both parties must sign all required documents.)
(e)		Trust. (Attach copy of trust instrument and include name of trust, name of trustee and date trust was formed.)
(f)	X	Partnership or Limited Liability Company. (Attach copy of partnership or operating agreement and include evidence of authority for person who executes required documents.)
(g)		Other (indicate):

Subscriber’s Signature:	/s/ Steve A. Christensen	Date:	6-29	, 2018
Subscriber’s Signature		Date:		, 2018

3

REPRESENTATIONS AND WARRANTIES

1. I have had and continue to have the opportunity to personally obtain from the Company any information, to the extent possessed or obtainable without unreasonable effort and expense, necessary to evaluate the merits and risks of the proposed investment in the Company and the Preferred Units, and I have concluded, based on the information presented to me, my own understanding of investments of this nature and of this investment in particular, and the advice of such consultants as I have deemed appropriate, that I wish to subscribe for the Preferred Units indicated on the first page of this Subscription Agreement.

2. My overall commitment to investments that are not readily marketable is not disproportionate to my individual net worth, and my investment in the Preferred Units will not cause such overall commitment to become excessive. I have adequate means of providing for my financial requirements, both current and anticipated, and have no need for liquidity in this investment. I can bear and am willing to accept the economic risk of losing my entire investment in the Preferred Units.

3. I acknowledge that the sale of the Preferred Units has not been accompanied by any disclosure or information statement, the publication of any advertisement, any general solicitation or as the direct result of an investment seminar sponsored by the Company or any of its affiliates.

4. All information that I have provided to the Company herein concerning my suitability to invest in the Preferred Units is complete, accurate and correct as of the date of my signature on the last page of this Subscription Agreement. I hereby agree to notify the Company immediately of any material change in any such information occurring prior to the acceptance of this Subscription Agreement, including any information about changes concerning my net worth and financial position.

5. I have had the opportunity to ask questions of, and receive answers from, the Company and its managers, officers, and employees concerning the Company, the formation or operation of the Company or terms and conditions of the offering of the Preferred Units. I have been provided with all materials and information requested by either me or others representing me, including any information requested to verify any information furnished to me.

6. I am purchasing the Preferred Units for my own account and for investment purposes only and have no present intention, understanding or arrangement for the distribution, transfer, assignment, resale or subdivision of the Preferred Units. I understand that, due to the restrictions referred to in Paragraph 7 below, and the lack of any market existing or to exist for the Preferred Units, my investment in the Company will be highly illiquid and may have to be held indefinitely.

7. I am not relying on any communication (written or oral) of the Company or any of its affiliates, as investment or tax advice or as a recommendation to purchase the Preferred Units. I do not consider information and explanations related to the terms and conditions of the Preferred Units provided in the LLC Agreement or otherwise by the Company or any of its affiliates to be investment or tax advice or a recommendation to purchase the Preferred Units, and I understand that neither the Company nor any of its affiliates is acting or has acted as an advisor to me in deciding to invest in the Preferred Units. I acknowledge that neither the Company nor any of its affiliates has made any representation regarding the proper characterization of the Preferred Units for purposes of determining my authority to invest in the Preferred Units.

4

Initial Here:/s/ SAC

8. I understand that legends will be placed on certificates, if any, evidencing the Preferred Units with respect to restrictions on distribution, transfer, resale, assignment or subdivision of the Preferred Units imposed by applicable federal and state securities laws. I am fully aware that the Preferred Units subscribed for hereunder have not been registered with the Securities and Exchange Commission in reliance on an exemption specified in Regulation D, which reliance is based in part upon my representations set forth herein. I understand that the Preferred Units subscribed for herein have not been registered under applicable state securities laws and are being offered and sold pursuant to the exemptions specified in said laws, and unless they are registered, they may not be re-offered for sale or resold except in a transaction or as a security exempt under those laws.

9. I hereby acknowledge receipt of the Limited Liability Company Agreement of Harvestone Group, LLC, dated May 31, 2018 (the “LLC Agreement”), and have reviewed the terms of the LLC Agreement.  I hereby adopt the LLC Agreement as a member of the Company and hereby grant a power of attorney to any officer of the Company to execute the LLC Agreement on my behalf, as evidenced by my signature hereto.

10. This Subscription Agreement shall be construed in accordance with and governed by the laws of the State of Delaware without regard to its choice of law provisions, except as to the type of registration of ownership of Preferred Units, which shall be construed in accordance with the state of principal residence of the subscribing investor.

11. THE Preferred UNITS OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATES OR ANY OTHER JURISDICTION AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS, THE Preferred UNITS ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE Preferred UNITS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

5

Initial Here:/s/ SAC

12. I hereby covenant and agree that any dispute, controversy or other claim arising under, out of or relating to this Agreement or any of the transactions contemplated hereby, or any amendment thereof, or the breach or interpretation hereof or thereof, shall be determined and settled in binding arbitration in the County of Davidson, State of Tennessee, in accordance with the rules and procedures of The American Arbitration Association. The prevailing party shall be entitled to an award of its reasonable costs and expenses, including but not limited to, attorneys’ fees, in addition to any other available remedies. Any award rendered therein shall be final and binding on each and all of the parties thereto and their personal representatives, and judgment may be entered thereon in any court of competent jurisdiction.

13. I hereby agree to indemnify, defend and hold harmless the Company and all of its managers, officers, employees, affiliates and advisors, from any and all damages, losses, liabilities, costs and expenses (including reasonable attorneys’ fees and costs) that they may incur by reason of my failure to fulfill all of the terms and conditions of this Subscription Agreement or by reason of the untruth or inaccuracy of any of the representations, warranties or agreements contained herein or in any other documents I have furnished to any of the foregoing in connection with this transaction.  This indemnification includes, but is not limited to, any damages, losses, liabilities, costs and expenses (including attorneys’ fees and costs) incurred by the Company, its directors, managers, officers, employees, affiliates and advisors, defending against any alleged violation of federal or state securities laws which is based upon or related to any untruth or inaccuracy of any of the representations, warranties or agreements contained herein or in any other documents I have furnished in connection with this transaction.

14. I hereby acknowledge and agree that: (a) I may not transfer or assign this Subscription Agreement, or any interest herein, and any purported transfer shall be void; (b) I am not entitled to cancel, terminate or revoke this Subscription Agreement once I execute and deliver to the Company this Subscription Agreement and this Subscription Agreement will be binding on my heirs, successors and personal representatives; provided, however, that if the Company rejects this Subscription Agreement, this Subscription Agreement shall be automatically canceled, terminated and revoked; (c) notwithstanding subsection (b) above, I hereby acknowledge that the Company shall not accept this Subscription Agreement until the closing date of the offering of the Preferred Units; (d) this Subscription Agreement constitutes the entire agreement among the parties hereto with respect to the sale of the Preferred Units and may be amended, modified or terminated only by a writing executed by all parties (except as provided herein with respect to rejection of this Subscription Agreement by the Company); (e) within five days after receipt of a written request from the Company, the undersigned agrees to provide such information and to execute and deliver such documents as may be necessary to comply with any and all laws and regulations to which the Company is subject; and (f) the representations and warranties of the undersigned set forth herein shall survive the sale of the Preferred Units pursuant to this Subscription Agreement.

6

Initial Here:/s/ SAC

(SPECIAL INSTRUCTIONS: In all cases, the person/entity making the investment decision to purchase the Preferred Units must complete and sign the Subscription Agreement. For example, if the form of ownership designated above is a retirement plan for which investments are directed or made by a third party trustee, then that third party trustee must complete this Subscription Agreement rather than the beneficiaries under the retirement plan. Investors must list their principal place of residence rather than their office or other address on the signature page so that the Company can confirm compliance with appropriate securities laws. If you wish correspondence sent to some address other than your principal residence, please provide a mailing address in the blank provided below.)

IN WITNESS WHEREOF, I (we) have executed this Subscription Agreement this 29 day of June, 2018.

A.	REGISTRATION INFORMATION	Please print the exact name (registration) investor desires on account:
		Granite Falls Energy, LLC
		Mailing address:		15045 Hwy 23 SE
				Granite Falls, MN 56241
		E-mail address:		schristensen@granitefallsenergy.com
B.	DISTRIBUTION ADDRESS	Please indicate to whom distributions should be sent, if not to the address set forth in A. above.
		Name:
		Address:
		Account Number:
C.	INVESTOR INFORMATION	Please send all investor correspondence to the following:
		Name:		Stacie Schuler, CFO
		Address:		- same -
		Investor Phone:
		Business:	(320) 564-3100			Home:	(    )
		Primary State of Residence:			MN
		Social Security or Federal Tax ID Number:

7

D.	SIGNATURES	THE UNDERSIGNED HAS THE AUTHORITY TO ENTER INTO THIS SUBSCRIPTION AGREEMENT ON BEHALF OF THE PERSON(S) OR ENTITY REGISTERED IN A. ABOVE.
		Executed this 29th day of June, 2018
		/s/ Steve A. Christensen
		Signature (Investor, or authorized signatory)
E.	SUBMIT SUBSCRIPTION	Make check payable to “Harvestone Group, LLC”or wire the Subscription Price to: Account Name:  Harvestone Group, LLC Account Number: Bank Name: First Tennessee Bank Bank ABA Routing Number: Mail the executed Subscription Agreement and check (if applicable) to: Harvestone Group, LLC 840 Crescent Center Drive, Suite 540 Franklin, Tennessee 37067 Attn:  Chad Martin, Manager

Accepted by the Company as of this 29th day

of June, 2018.

HARVESTONE GROUP, LLC

/s/ Chad Martin
By:	Chad Martin
Its:	Manager

8

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO 17 CFR 240.15d-14(a)

(SECTION 302 CERTIFICATION)

I, Steve Christensen, certify that:

1.I have reviewed this quarterly report on Form 10-Q 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 officers 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; and

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 officers 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:	September 14, 2018	/s/ Steve Christensen
		Steve Christensen, Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO 17 CFR 240.15d-14(a)

(SECTION 302 CERTIFICATION)

I, Stacie Schuler, certify that:

1.I have reviewed this quarterly report on Form 10-Q 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 officers 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; and

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 officers 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:	September 14, 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 quarterly report on Form 10-Q of Granite Falls Energy, LLC (the “Company”) for the quarter ended July 31, 2018, 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:	September 14, 2018	/s/ Steve Christensen
		Steve 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 quarterly report on Form 10-Q of Granite Falls Energy, LLC (the “Company”) for the quarter ended July 31, 2018, 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:	September 14, 2018	/s/ Stacie Schuler
		Stacie Schuler, Chief Financial Officer
		(Principal Financial Officer)

XML

Document and Entity Information - shares	9 Months Ended
	Jul. 31, 2018	Sep. 14, 2018
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-Q
Document Period End Date	Jul. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		30,606
Entity Current Reporting Status	Yes

XML

Condensed Consolidated Balance Sheets - USD ($)	Jul. 31, 2018	Oct. 31, 2017
Current Assets
Cash	$ 15,405,720	$ 21,658,422
Restricted cash	132,914	75,189
Accounts receivable	2,640,142	7,622,601
Inventory	15,619,526	15,241,092
Commodity derivative instruments	554,627	244,294
Prepaid expenses and other current assets	615,569	361,340
Total current assets	34,968,498	45,202,938
Property, Plant and Equipment
Property and Equipment, net	68,241,215	72,271,013
Goodwill	1,372,473	1,372,473
Investments	9,500,000	7,500,000
Other Assets	714,495	743,106
Total Assets	114,796,681	127,089,530
Current Liabilities
Current maturities of long-term debt	322,048	432,183
Accounts payable	5,880,156	7,535,468
Commodity derivative instruments	70,392	40,379
Accrued expenses	859,686	972,043
Total current liabilities	7,132,282	8,980,073
Long-Term Debt, less current portion	8,295,555	8,465,502
Commitments and Contingencies
Members' equity attributable to Granite Falls Energy, LLC consists of 30,606 units authorized, issued, and outstanding at both July 31, 2018 and October 31, 2017	76,771,028	83,998,672
Non-controlling interest	22,597,816	25,645,283
Total members' equity	99,368,844	109,643,955
Total Liabilities and Members’ Equity	$ 114,796,681	$ 127,089,530

XML

Condensed Consolidated Balance Sheets (Parenthetical) - shares	Jul. 31, 2018	Oct. 31, 2017
Condensed 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

Condensed Consolidated Statements of Operations - USD ($)	3 Months Ended		9 Months Ended
	Jul. 31, 2018	Jul. 31, 2017	Jul. 31, 2018	Jul. 31, 2017
Condensed Consolidated Statements of Operations
Revenues	$ 53,220,620	$ 54,250,994	$ 161,764,393	$ 161,629,116
Cost of Goods Sold	49,527,078	50,047,853	151,250,420	146,624,568
Gross Profit	3,693,542	4,203,141	10,513,973	15,004,548
Operating Expenses	1,458,554	1,463,014	4,786,700	4,654,769
Operating Income	2,234,988	2,740,127	5,727,273	10,349,779
Other Income (Expense):
Other income, net	2,284	51,660	333,664	462,533
Interest income	44,621	16,730	114,474	23,614
Interest expense	(151,742)	(86,688)	(360,228)	(162,295)
Total other income (expense), net	(104,837)	(18,298)	87,910	323,852
Net Income	2,130,151	2,721,829	5,815,183	10,673,631
Less: Net Income Attributable to Non-controlling Interest	(127,900)	(672,208)	(1,263,725)	(2,616,744)
Net Income Attributable to Granite Falls Energy, LLC	$ 2,002,251	$ 2,049,621	$ 4,551,458	$ 8,056,887
Weighted Average Units Outstanding - Basic and Diluted (in units)	30,606	30,606	30,606	30,606
Net Income Per Unit - Basic and Diluted (in dollars per unit)	$ 65.42	$ 66.97	$ 148.71	$ 263.25
Distributions Per Unit (in dollars per unit)			$ 385.00	$ 365.00

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Condensed Consolidated Statements of Cash Flows - USD ($)	9 Months Ended
	Jul. 31, 2018	Jul. 31, 2017
Cash Flows from Operating Activities:
Net income	$ 5,815,183	$ 10,673,631
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization	6,901,354	7,094,707
Change in fair value of commodity derivative instruments	(673,356)	(461,723)
Gain on sale of assets	(24,815)	(95,300)
Changes in operating assets and liabilities:
Restricted cash	(57,725)	(144,345)
Commodity derivative instruments	393,036	1,379,267
Accounts receivable	4,982,459	4,467,030
Inventory	(378,434)	5,442,490
Prepaid expenses and other current assets	(254,229)	(239,726)
Accounts payable	(2,689,205)	(5,299,721)
Accrued expenses	(112,357)	(452,731)
Net Cash Provided by Operating Activities	13,901,911	22,363,579
Cash Flows from Investing Activities:
Purchase of investment	(2,000,000)	(750,000)
Payments for capital expenditures	(1,809,052)	(1,721,541)
Proceeds from disposal of assets	24,815	95,300
Net Cash Used in Investing Activities	(3,784,237)	(2,376,241)
Cash Flows from Financing Activities:
Payments on long-term debt	(280,082)	(324,994)
Checks drawn in excess of bank balance		(1,866,683)
Purchase of subsidiary units attributable to non-controlling interest		(46,644)
Distributions to non-controlling interests	(4,311,192)
Member distributions paid	(11,779,102)	(11,171,190)
Net Cash Used in Financing Activities	(16,370,376)	(13,409,511)
Net Increase (Decrease) in Cash	(6,252,702)	6,577,827
Cash - Beginning of Period	21,658,422	13,797,857
Cash - End of Period	15,405,720	20,375,684
Cash paid during the period for:
Interest expense	360,228	162,295
Supplemental Disclosure of Noncash Investing and Financing Activities
Capital expenditures and construction in process included in accounts payable	$ 1,249,128	$ 88,534

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Jul. 31, 2018

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 United States 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 United States. HLBE's plant has an approximate annual production capacity of 60 million gallons, but is permitted to produce approximately 72.3 million gallons of undenatured ethanol on a twelve month rolling sum basis. HLBE owns a majority interest in Agrinatural Gas, LLC (“Agrinatural”), which operates a natural gas pipeline that provides natural gas to HLBE's ethanol production facility and other customers.

All references to “we”, “us”, “our”, and the “Company” collectively refer to GFE and its wholly-owned and majority-owned subsidiaries.

Basis of Presentation and Principles of Consolidation

The condensed consolidated unaudited financial statements as of July 31, 2018 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, LLC). Given the Company’s control over the operations of HLBE and its majority voting interest, the Company consolidates the condensed consolidated unaudited financial statements of HLBE with GFE's condensed consolidated unaudited financial statements. The remaining 49.3% ownership of HLBE is included in the condensed consolidated unaudited financial statements as a non-controlling interest. HLBE, through its wholly owned subsidiary, HLBE Pipeline Company, LLC, owns approximately 73% of 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 unaudited financial statements, with the equity and earnings attributed to the remaining approximately 27% noncontrolling interest. All significant intercompany balances and transactions are eliminated in consolidation.

The accompanying condensed consolidated unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company’s audited consolidated financial statements for the year ended October 31, 2017, contained in the Company’s annual report on Form 10-K.

In the opinion of management, the condensed consolidated unaudited financial statements reflect all adjustments consisting of normal recurring accruals that we consider necessary to present fairly the Company’s results of operations, financial position and cash flows. The results reported in these condensed consolidated unaudited financial statements should not be regarded as necessarily indicative of results that may be expected for any other fiscal period or for the fiscal year.

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.

Accounting Estimates

Management uses estimates and assumptions in preparing these condensed consolidated unaudited financial statements in accordance with generally accepted accounting principles in the United States 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, inventory purchase and sale commitments, evaluation of railcar 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 condensed consolidated unaudited 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. 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. 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.

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 (“FIFO”).  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 spare parts.  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 on 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 sales are documented as normal and exempted from accounting and reporting requirements, and therefore, are not marked to market in our condensed consolidated unaudited 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 4.

Investments

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.  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 the Company the right to appoint one director to the board of directors of Ringneck. GFE has appointed Steve Christensen, its CEO, to serve as its appointed director.

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. On August 2, 2017, following notice from Ringneck accepting GFE’s subscription and that payment of the balance of GFE’s subscription and promissory note was due, GFE borrowed $7.5 million under its credit facility with Project Hawkeye, LLC (“Project Hawkeye”) and paid $6,750,000 to Ringneck as payment for the remaining balance of GFE’s subscription.  Project Hawkeye is an affiliate of Fagen, Inc., which is a member of GFE.  See Note 6 below for the terms of GFE’s credit facility with Project Hawkeye.

On June 29, 2018, GFE executed a subscription agreement for investment in Harvestone Group, LLC (“Harvestone”), a Delaware limited liability company, and a Joinder to the Operating Agreement of Harvestone.  In connection with the execution of the subscription agreement and joinder, GFE made a capital contribution of $2.0 million in exchange for twenty (20) preferred membership units and was sufficient to secure GFE the right to appoint one advisor to the advisory committee to the managers of Harvestone.   GFE has appointed Eric Baukol, its Risk Manager, to serve as its appointed advisor. Harvestone is a start-up ethanol marketing, logistics, and trading company headquartered in Franklin, Tennessee.  Harvestone is owned by several other ethanol producers and other private investors that expects that its primary business will be marketing and trading for member and non-member ethanol producers.

The investments are 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 Condensed Consolidated Statements of Operations and added to the investment account, and distributions received from the affiliates are treated as a reduction of the investment.

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RISKS AND UNCERTAINTIES

9 Months Ended

Jul. 31, 2018

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 from the sale and distribution of ethanol, distillers' grains, corn oil, and natural gas to customers primarily located in the United States. Corn for the production process is supplied to our plant 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 they sell 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, and 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 Company’s 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.

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INVENTORY

9 Months Ended

Jul. 31, 2018

INVENTORY

INVENTORY

3.   INVENTORY

Inventories consist of the following:

	July 31,  2018		October 31,  2017
	(unaudited)
Raw materials	$	4,121,644	$	4,488,923
Supplies		2,961,224		2,929,385
Work in process		1,327,777		1,281,292
Finished goods		7,208,881		6,541,492
Totals	$	15,619,526	$	15,241,092

The Company performs a lower of cost or net realizable value analysis on inventory to determine if the net realizable 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, as a component of cost of goods sold, the Company recorded a loss on ethanol inventories, as a component of cost of goods sold, of approximately $420,000 and $65,000 for the nine months ended July 31, 2018 and 2017, respectively.

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DERIVATIVE INSTRUMENTS

9 Months Ended

Jul. 31, 2018

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

4.   DERIVATIVE INSTRUMENTS

As of July 31, 2018, the total notional amount of GFE’s outstanding corn derivative instruments was approximately 5,725,000 bushels, comprised of long corn positions on 190,000 bushels that were entered into to hedge forecasted ethanol sales through September 2018, and short corn positions on 5,535,000 bushels that were entered into to hedge forecasted corn purchases through December 2021. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding as disclosed above.

As of July 31, 2018, the total notional amount of HLBE’s outstanding corn derivative instruments was approximately 4,125,000 bushels, comprised of short corn positions that were entered into to hedge forecasted corn purchases through December 2019. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

As of July 31, 2018, GFE had approximately $109,000 of cash collateral (restricted cash) related to derivatives held by a broker and approximately $0 due to broker related to derivatives held by a broker, recorded as a component of accounts payable.

As of July 31, 2018, HLBE had approximately $24,000 of cash collateral (restricted cash) related to derivatives held by a broker and approximately $0 due to broker related to derivatives held by a broker, recorded as a component of accounts payable.

The following tables provide details regarding the Company's derivative instruments at July 31, 2018,  none of which were designated as hedging instruments:

	Consolidated Balance Sheet Location	Assets		Liabilities
Corn contracts - GFE	Commodity derivative instruments	$	268,026	$	35,196
Corn contracts - HLBE	Commodity derivative instruments		286,601		35,196
Totals		$	554,627	$	70,392

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, recorded as a component of accounts payable.

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, recorded as a component of accounts payable.

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

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	Three Months Ended  July 31,				Nine Months Ended July 31,
	of Operations Location	2018		2017		2018		2017
Corn contracts	Cost of Goods Sold	$	1,778,570	$	287,865	$	566,959	$	857,218
Ethanol contracts	Revenues		(286,125)		(122,765)		107,995		(395,495)
Natural gas contracts	Cost of Goods Sold		—		—		(1,598)		—
Total gain		$	1,492,445	$	165,100	$	673,356	$	461,723

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FAIR VALUE

9 Months Ended

Jul. 31, 2018

FAIR VALUE

FAIR VALUE

5.   FAIR VALUE

The following table sets forth, by level, the Company assets and liabilities that were accounted for at fair value on a recurring basis at July 31, 2018:

					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	$	554,627	$	554,627	$	554,627	$	—	$	—
Financial Liabilities:
Commodity Derivative Instruments - Corn	$	70,392	$	70,392	$	—	$	70,392	$	—

The following table sets forth, by level, the Company assets and liabilities that were accounted for 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 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, corn, 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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DEBT FACILITIES

9 Months Ended

Jul. 31, 2018

DEBT FACILITIES

DEBT FACILITIES

6.    DEBT FACILITIES

Debt financing consists of the following:

	July 31, 2018		October 31, 2017
	(unaudited)
GRANITE FALLS ENERGY:
Seasonal loan, see terms below.	$	—	$	—
Term note payable to Project Hawkeye, see terms below.		7,500,000		7,500,000
HERON LAKE BIOENERGY:
Amended revolving term loan, see terms below.		—		—
Seasonal loan, see terms below.		—		—
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.		1,094,236		1,241,171
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.		23,367		56,514
Note payable to non-controlling interest member of Agrinatural.  Interest is at One Month LIBOR plus 4.0%, which was approximately 5.24% at October 31, 2017. The note was paid in full in January 2018.		—		100,000
Totals		8,617,603		8,897,685
Less: amounts due within one year		322,048		432,183
Net long-term debt	$	8,295,555	$	8,465,502

Granite Falls Energy

Seasonal Revolving Loan

GFE has a credit facility with a lender that includes a seasonal revolving loan, under which GFE may borrow, repay, and re-borrow up to the aggregate principal commitment of $6,000,000 until maturity.  The seasonal revolving loan matures on October 1, 2018 unless a later date is agreed to by the administrative agent for the facility.  There was no outstanding balance on the seasonal revolving loan at July 31, 2018 and October 31, 2017. Therefore, the aggregate principal amount available for borrowing by GFE under this seasonal revolving loan at July 31, 2018 and 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 equated to 4.83% and 3.99% at July 31, 2018 and October 31, 2017, respectively.

The credit facility also requires GFE to comply with certain financial covenants, at various times calculated monthly, quarterly, or annually, including maintenance of certain financial ratios including minimum working capital, a debt service coverage ratio as defined by the credit facility, as well as a restriction of the payment of distributions.  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.

Project Hawkeye Loan

On August 2, 2017, GFE entered into a credit facility with Project Hawkeye to finance its investment in Ringneck. Pursuant to this credit facility, GFE borrowed $7.5 million 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 5.13% and 4.29% at July 31, 2018 and October 31, 2017 respectively.

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.

Heron Lake BioEnergy

Revolving Term Loan

HLBE had a revolving term note payable with a lender under which HLBE could borrow, repay and re-borrow in an amount up to the original aggregate principal commitment at any time prior to maturity at March 1, 2022.  The original aggregate principal commitment was $28,000,000, which reduced by $3,500,000 annually, starting March 1, 2015 and continuing each anniversary thereafter until maturity. In December 2017, HLBE and its lender orally agreed to reduce the aggregate principal commitment of the revolving term loan to $8,000,000. On April 6, 2018, HLBE finalized loan agreements with an effective date of March 29, 2018 for an amended credit facility with its lender.

Amended Credit Facility

The amended credit facility includes an amended and restated revolving term loan with a $4,000,000 principal commitment and a revolving seasonal line of credit with a $4,000,000 principal commitment.  The loans are secured by substantially all of HLBE’s assets, including a subsidiary guarantee.  The amended 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.

As part of the amended credit facility closing, HLBE entered into an amended administrative agency agreement with CoBank, ACP (“CoBank”).  As a result, CoBank will continue act as the agent for the lender with respect to the amended credit facility.  HLBE agreed to pay CoBank an annual fee of $2,500 for its services as administrative agent.

Amended Revolving Term Loan

Under the terms of the amended revolving term loan, HLBE may borrow, repay, and reborrow up to the aggregate principal commitment amount of $4,000,000.  Final payment of amounts borrowed under amended revolving term loan is due December 1, 2021.  Interest on the amended revolving term loan accrues at a variable weekly rate equal to 3.10% above the One-Month London Interbank Offered Rate (“LIBOR”) Index rate, which was 5.18% at July 31, 2018.

HLBE also agreed to pay an unused commitment fee on the unused available portion of the amended revolving term loan commitment at the rate of 0.50% per annum, payable monthly in arrears. The loan is secured by substantially all of HLBE's assets including a subsidiary guarantee. 

At October 31, 2017, the aggregate principal amount available to HLBE for borrowing under the revolving term loan was $17,500,000.  At July 31, 2018, the aggregate principal amount available to HLBE for borrowing under the amended revolving term loan was $4,000,000.

Seasonal Revolving Loan

Under the terms of the seasonal revolving loan, HLBE may borrow, repay, and reborrow up to the aggregate principal commitment amount of $4,000,000 until its maturing on February 1, 2019.  Amounts borrowed under the seasonal revolving loan bear interest at a variable weekly rate equal to 2.850% above the One-Month LIBOR Index rate, which was 4.93% at July 31, 2018.  The aggregate principal amount available to the Company for borrowing under the seasonal revolving loan was $4,000,000 at July 31, 2018.

The Company also agreed to pay an unused commitment fee on the unused available portion of the seasonal revolving loan commitment at the rate of 0.250% per annum.

Estimated annual maturities of debt at July 31, 2018, are as follows based on the most recent debt agreements:

2019	$	322,048
2020		1,389,682
2021		1,410,526
2022		1,209,634
2023		1,071,429
Thereafter		3,214,284
Total debt	$	8,617,603

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MEMBERS' EQUITY

9 Months Ended

Jul. 31, 2018

MEMBERS’ EQUITY

MEMBERS’ EQUITY

7.   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 July 31, 2018 and October 31, 2017, GFE had 30,606 membership units authorized, issued, and outstanding.

In December 2017, the Board of Governors of GFE declared a cash distribution of $385 per unit or approximately $11,783,000, for unit holders of record as of December 21, 2017.  The distribution was paid in January 2018.

In December 2016, the Board of Governors of GFE declared a cash distribution of $365 per unit or approximately $11,171,000, for unit holders of record as of December 22, 2016.  The distribution was paid in January 2017.

Heron Lake BioEnergy

In December 2017, the Board of Governors of HLBE declared a cash distribution of $0.11 per unit, or approximately $8,573,000, for unit holders of record as of December 21, 2017. The distribution was paid in January 2018.

At December 21, 2017, GFE owned 24,475,824 Class A membership units and 15,000,000 Class B units of HLBE, and received an aggregate distribution from HLBE of approximately $4,342,000.  The remaining $4,231,000 was distributed by HLBE to the non-controlling interest.

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Jul. 31, 2018

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

8.    COMMITMENTS AND CONTINGENCIES

Corn Purchase Commitments

At July 31, 2018, GFE had cash and basis contracts for forward corn contracts for approximately 6,384,000 bushels for various delivery periods through December 2021.

At July 31, 2018, HLBE had cash and basis contracts for forward corn purchase commitments for approximately 4,189,000 bushels for various delivery periods through June 2019.

Corn Purchases - Members

GFE purchased corn from board members of approximately $1,754,000 and $0 for the three months ended July 31, 2018 and 2017, respectively, and approximately $3,839,000 and $0 for the nine months ended July 31, 2018 and 2017.

HLBE purchased corn from board members of approximately $3,382,000 and $143,000 for the three months ended July 31, 2018 and 2017, respectively, and approximately $10,479,000 and $5,737,000 for the nine months ended July 31, 2018 and 2017, respectively. Of this total, approximately $0 and $607,000 was included in accounts payable at July 31, 2018 and October 31, 2017, respectively.

Ethanol Contracts

At July 31, 2018, GFE had fixed and basis contracts to sell approximately $11,832,000 of ethanol for various delivery periods through September 2018.

At July 31, 2018, HLBE had fixed and basis contracts to sell approximately $11,716,000 of ethanol for various delivery periods through September 2018.

Distillers' Grain Contracts

At July 31, 2018, GFE had forward contracts to sell approximately $848,000 of distillers' grain for various delivery periods through August 2018.

At July 31, 2018, HLBE had forward contracts to sell approximately $2,517,000 of distillers' grains for various delivery periods through August 2018.

Corn Oil

At July 31, 2018, GFE had forward contracts to sell approximately $829,000 of corn oil for various delivery periods through December 2018.

At July 31, 2018, HLBE had forward contracts to sell approximately $775,000 of corn oil for various delivery periods through December 2018.

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.

Leases

In February 2018, GFE entered into a sublease arrangement for 16 railcars for the transportation of GFE’s ethanol.  The sublease matures in January 2021 with minimum future lease payments of approximately $144,000 per year.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Jul. 31, 2018

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 United States 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 United States. HLBE's plant has an approximate annual production capacity of 60 million gallons, but is permitted to produce approximately 72.3 million gallons of undenatured ethanol on a twelve month rolling sum basis. HLBE owns a majority interest in Agrinatural Gas, LLC (“Agrinatural”), which operates a natural gas pipeline that provides natural gas to HLBE's ethanol production facility and other customers.

All references to “we”, “us”, “our”, and the “Company” collectively refer to GFE and its wholly-owned and majority-owned subsidiaries.

Basis of Presentation and Principles of Consolidation

Basis of Presentation and Principles of Consolidation

The condensed consolidated unaudited financial statements as of July 31, 2018 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, LLC). Given the Company’s control over the operations of HLBE and its majority voting interest, the Company consolidates the condensed consolidated unaudited financial statements of HLBE with GFE's condensed consolidated unaudited financial statements. The remaining 49.3% ownership of HLBE is included in the condensed consolidated unaudited financial statements as a non-controlling interest. HLBE, through its wholly owned subsidiary, HLBE Pipeline Company, LLC, owns approximately 73% of 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 unaudited financial statements, with the equity and earnings attributed to the remaining approximately 27% noncontrolling interest. All significant intercompany balances and transactions are eliminated in consolidation.

The accompanying condensed consolidated unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company’s audited consolidated financial statements for the year ended October 31, 2017, contained in the Company’s annual report on Form 10-K.

In the opinion of management, the condensed consolidated unaudited financial statements reflect all adjustments consisting of normal recurring accruals that we consider necessary to present fairly the Company’s results of operations, financial position and cash flows. The results reported in these condensed consolidated unaudited financial statements should not be regarded as necessarily indicative of results that may be expected for any other fiscal period or for the fiscal year.

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.

Accounting Estimates

Accounting Estimates

Management uses estimates and assumptions in preparing these condensed consolidated unaudited financial statements in accordance with generally accepted accounting principles in the United States 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, inventory purchase and sale commitments, evaluation of railcar 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 condensed consolidated unaudited 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. 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. 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.

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 (“FIFO”).  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 spare parts.  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 on 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 sales are documented as normal and exempted from accounting and reporting requirements, and therefore, are not marked to market in our condensed consolidated unaudited 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 4.

Investments

Investments

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.  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 the Company the right to appoint one director to the board of directors of Ringneck. GFE has appointed Steve Christensen, its CEO, to serve as its appointed director.

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. On August 2, 2017, following notice from Ringneck accepting GFE’s subscription and that payment of the balance of GFE’s subscription and promissory note was due, GFE borrowed $7.5 million under its credit facility with Project Hawkeye, LLC (“Project Hawkeye”) and paid $6,750,000 to Ringneck as payment for the remaining balance of GFE’s subscription.  Project Hawkeye is an affiliate of Fagen, Inc., which is a member of GFE.  See Note 6 below for the terms of GFE’s credit facility with Project Hawkeye.

On June 29, 2018, GFE executed a subscription agreement for investment in Harvestone Group, LLC (“Harvestone”), a Delaware limited liability company, and a Joinder to the Operating Agreement of Harvestone.  In connection with the execution of the subscription agreement and joinder, GFE made a capital contribution of $2.0 million in exchange for twenty (20) preferred membership units and was sufficient to secure GFE the right to appoint one advisor to the advisory committee to the managers of Harvestone.   GFE has appointed Eric Baukol, its Risk Manager, to serve as its appointed advisor. Harvestone is a start-up ethanol marketing, logistics, and trading company headquartered in Franklin, Tennessee.  Harvestone is owned by several other ethanol producers and other private investors that expects that its primary business will be marketing and trading for member and non-member ethanol producers.

The investments are 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 Condensed Consolidated Statements of Operations and added to the investment account, and distributions received from the affiliates are treated as a reduction of the investment.

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INVENTORY (Tables)

9 Months Ended

Jul. 31, 2018

INVENTORY

Schedule of Inventory

	July 31,  2018		October 31,  2017
	(unaudited)
Raw materials	$	4,121,644	$	4,488,923
Supplies		2,961,224		2,929,385
Work in process		1,327,777		1,281,292
Finished goods		7,208,881		6,541,492
Totals	$	15,619,526	$	15,241,092

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DERIVATIVE INSTRUMENTS (Tables)

9 Months Ended

Jul. 31, 2018

DERIVATIVE INSTRUMENTS

Schedule of derivative instruments in Statements of Financial Position

The following tables provide details regarding the Company's derivative instruments at July 31, 2018, none of which were designated as hedging instruments:

	Consolidated Balance Sheet Location	Assets		Liabilities
Corn contracts - GFE	Commodity derivative instruments	$	268,026	$	35,196
Corn contracts - HLBE	Commodity derivative instruments		286,601		35,196
Totals		$	554,627	$	70,392

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

Schedule of gains (losses) from derivative instruments

	Consolidated Statement	Three Months Ended  July 31,				Nine Months Ended July 31,
	of Operations Location	2018		2017		2018		2017
Corn contracts	Cost of Goods Sold	$	1,778,570	$	287,865	$	566,959	$	857,218
Ethanol contracts	Revenues		(286,125)		(122,765)		107,995		(395,495)
Natural gas contracts	Cost of Goods Sold		—		—		(1,598)		—
Total gain		$	1,492,445	$	165,100	$	673,356	$	461,723

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FAIR VALUE (Tables)

9 Months Ended

Jul. 31, 2018

FAIR VALUE

Schedule of derivative assets and liabilities measured at fair value

The following table sets forth, by level, the Company assets and liabilities that were accounted for at fair value on a recurring basis at July 31, 2018:

					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	$	554,627	$	554,627	$	554,627	$	—	$	—
Financial Liabilities:
Commodity Derivative Instruments - Corn	$	70,392	$	70,392	$	—	$	70,392	$	—

The following table sets forth, by level, the Company assets and liabilities that were accounted for 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	$	—

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DEBT FACILITIES (Tables)

9 Months Ended

Jul. 31, 2018

DEBT FACILITIES

Schedule of debt financing

	July 31, 2018		October 31, 2017
	(unaudited)
GRANITE FALLS ENERGY:
Seasonal loan, see terms below.	$	—	$	—
Term note payable to Project Hawkeye, see terms below.		7,500,000		7,500,000
HERON LAKE BIOENERGY:
Amended revolving term loan, see terms below.		—		—
Seasonal loan, see terms below.		—		—
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.		1,094,236		1,241,171
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.		23,367		56,514
Note payable to non-controlling interest member of Agrinatural.  Interest is at One Month LIBOR plus 4.0%, which was approximately 5.24% at October 31, 2017. The note was paid in full in January 2018.		—		100,000
Totals		8,617,603		8,897,685
Less: amounts due within one year		322,048		432,183
Net long-term debt	$	8,295,555	$	8,465,502

Schedule of annual maturities of debt

2019	$	322,048
2020		1,389,682
2021		1,410,526
2022		1,209,634
2023		1,071,429
Thereafter		3,214,284
Total debt	$	8,617,603

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) gal in Millions	9 Months Ended
	Jul. 31, 2018 gal
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, Other (Details)	9 Months Ended
	Jul. 31, 2018 segment
Reportable Operating Segments
Number of reportable segments	1
Agrinatural, LLC | Maximum
Reportable Operating Segments
Revenues of subsidiary, percentage	1.00%

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Investments (Details) $ / shares in Units, gal in Millions				9 Months Ended
	Jun. 29, 2018 USD ($) advisor shares	Aug. 02, 2017 USD ($)	Nov. 01, 2016 USD ($) director $ / shares shares gal	Jul. 31, 2018 USD ($)	Jul. 31, 2017 USD ($)
Investment
Payment for equity method investment				$ 2,000,000	$ 750,000
Ringneck Energy and; Feed, LLC
Investment
Expected ethanol production capacity | gal			80
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
Number of directors Company has the right to appoint | director			1
Payment for equity method investment		$ 6,750,000	$ 750,000
Note payable			$ 6,750,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Harvestone Group, LLC
Investment
Units purchased | shares	20
Payment for equity method investment	$ 2,000,000
Number of advisors GFE has the right to appoint | advisor	1
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Project Hawkeye Loan
Investment
Proceeds from long-term debt		7,500,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Project Hawkeye Loan | Ringneck Energy and; Feed, LLC
Investment
Proceeds from long-term debt		$ 7,500,000

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RISKS AND UNCERTAINTIES Narrative (Details) - Product	9 Months Ended
	Jul. 31, 2018
Minimum | Total revenues | Ethanol
Concentration Risk
Concentration percentage	75.00%
Minimum | Cost of goods sold | Corn
Concentration Risk
Concentration percentage	65.00%
Maximum | Total revenues | Ethanol
Concentration Risk
Concentration percentage	90.00%
Maximum | Cost of goods sold | Corn
Concentration Risk
Concentration percentage	85.00%

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INVENTORY (Details) - USD ($)	9 Months Ended
	Jul. 31, 2018	Jul. 31, 2017	Oct. 31, 2017
Inventory
Raw materials	$ 4,121,644		$ 4,488,923
Supplies	2,961,224		2,929,385
Work in process	1,327,777		1,281,292
Finished goods	7,208,881		6,541,492
Totals	15,619,526		$ 15,241,092
Ethanol
Inventory
Loss on inventories	$ 420,000	$ 65,000

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DERIVATIVE INSTRUMENTS - Assets And Liabilities (Details)	9 Months Ended	12 Months Ended
	Jul. 31, 2018 USD ($) bu	Oct. 31, 2017 USD ($) MMBTU bu gal
Derivatives, Fair Value
Cash collateral (restricted cash)	$ 132,914	$ 75,189
Financial Assets	554,627	244,294
Derivative liabilities	$ 70,392	$ 40,379
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Corn Contracts
Derivatives, Fair Value
Total nonmonetary notional amount outstanding | bu	5,725,000	1,495,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Ethanol Contracts
Derivatives, Fair Value
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
Cash collateral (restricted cash)	$ 109,000	$ 75,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Derivatives held by a broker | Accounts Payable
Derivatives, Fair Value
Derivative liabilities	$ 0	$ 12,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Long/Purchase position | Corn Contracts
Derivatives, Fair Value
Total nonmonetary notional amount outstanding | bu	190,000	200,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Short/Sale position | Corn Contracts
Derivatives, Fair Value
Total nonmonetary notional amount outstanding | bu	5,535,000	1,295,000
Heron Lake BioEnergy, LLC | Corn Contracts
Derivatives, Fair Value
Total nonmonetary notional amount outstanding | bu	4,125,000	1,120,000
Heron Lake BioEnergy, LLC | Ethanol Contracts
Derivatives, Fair Value
Total nonmonetary notional amount outstanding | gal		420,000
Heron Lake BioEnergy, LLC | Natural Gas Contracts
Derivatives, Fair Value
Total gas derivative nonmonetary notional amount outstanding | MMBTU		120,000
Heron Lake BioEnergy, LLC | Derivatives held by a broker
Derivatives, Fair Value
Cash collateral (restricted cash)	$ 24,000
Heron Lake BioEnergy, LLC | Derivatives held by a broker | Accounts Payable
Derivatives, Fair Value
Derivative liabilities	0	$ 12,000
Heron Lake BioEnergy, LLC | Long/Purchase position | Corn Contracts
Derivatives, Fair Value
Total nonmonetary notional amount outstanding | bu		215,000
Heron Lake BioEnergy, LLC | Short/Sale position | Corn Contracts
Derivatives, Fair Value
Total nonmonetary notional amount outstanding | bu		905,000
Not Designated as Hedging Instruments
Derivatives, Fair Value
Financial Assets	554,627	$ 244,294
Derivative liabilities	70,392	40,379
Not Designated as Hedging Instruments | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Corn Contracts
Derivatives, Fair Value
Financial Assets	268,026	102,650
Derivative liabilities	35,196
Not Designated as Hedging Instruments | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Ethanol Contracts
Derivatives, Fair Value
Derivative liabilities		12,749
Not Designated as Hedging Instruments | Heron Lake BioEnergy, LLC | Corn Contracts
Derivatives, Fair Value
Financial Assets	286,601	141,644
Derivative liabilities	$ 35,196
Not Designated as Hedging Instruments | Heron Lake BioEnergy, LLC | Ethanol Contracts
Derivatives, Fair Value
Derivative liabilities		12,249
Not Designated as Hedging Instruments | Heron Lake BioEnergy, LLC | Natural Gas Contracts
Derivatives, Fair Value
Derivative liabilities		$ 15,381

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DERIVATIVE INSTRUMENTS - Income Statement (Details) - Not Designated as Hedging Instruments - USD ($)	3 Months Ended		9 Months Ended
	Jul. 31, 2018	Jul. 31, 2017	Jul. 31, 2018	Jul. 31, 2017
Derivative Instruments, Gain (Loss)
Gains (losses) on derivative instruments	$ 1,492,445	$ 165,100	$ 673,356	$ 461,723
Cost of Goods Sold. | Corn Contracts
Derivative Instruments, Gain (Loss)
Gains (losses) on derivative instruments	1,778,570	287,865	566,959	857,218
Cost of Goods Sold. | Natural Gas Contracts
Derivative Instruments, Gain (Loss)
Gains (losses) on derivative instruments			(1,598)
Revenues | Ethanol Contracts
Derivative Instruments, Gain (Loss)
Gains (losses) on derivative instruments	$ (286,125)	$ (122,765)	$ 107,995	$ (395,495)

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FAIR VALUE (Details) - USD ($)	Jul. 31, 2018	Oct. 31, 2017
Fair value
Financial Assets	$ 554,627	$ 244,294
Financial Liabilities	70,392	40,379
Corn Contracts | Fair Value, Measurements, Recurring | Carrying Amount
Fair value
Financial Assets	554,627	244,294
Financial Liabilities	70,392
Corn Contracts | Fair Value, Measurements, Recurring | Estimate of Fair Value Measurement
Fair value
Financial Assets	554,627	244,294
Financial Liabilities	70,392
Corn Contracts | Fair Value, Inputs, Level 1 | Fair Value, Measurements, Recurring | Estimate of Fair Value Measurement
Fair value
Financial Assets	554,627	244,294
Corn Contracts | Fair Value, Inputs, Level 2 | Fair Value, Measurements, Recurring | Estimate of Fair Value Measurement
Fair value
Financial Liabilities	$ 70,392
Ethanol Contracts | Fair Value, Measurements, Recurring | Carrying Amount
Fair value
Financial Liabilities		24,998
Ethanol Contracts | Fair Value, Measurements, Recurring | Estimate of Fair Value Measurement
Fair value
Financial Liabilities		24,998
Ethanol Contracts | Fair Value, Inputs, Level 1 | Fair Value, Measurements, Recurring | Estimate of Fair Value Measurement
Fair value
Financial Liabilities		36,500
Ethanol Contracts | Fair Value, Inputs, Level 2 | Fair Value, Measurements, Recurring | Estimate of Fair Value Measurement
Fair value
Financial Liabilities		(11,502)
Natural Gas Contracts | Fair Value, Measurements, Recurring | Carrying Amount
Fair value
Financial Liabilities		15,381
Natural Gas Contracts | Fair Value, Measurements, Recurring | Estimate of Fair Value Measurement
Fair value
Financial Liabilities		15,381
Natural Gas Contracts | Fair Value, Inputs, Level 2 | Fair Value, Measurements, Recurring | Estimate of Fair Value Measurement
Fair value
Financial Liabilities		$ 15,381

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DEBT FACILITIES (Details) - USD ($)			9 Months Ended	12 Months Ended
	Mar. 29, 2018	Aug. 02, 2017	Jul. 31, 2018	Oct. 31, 2017
Line of Credit Facility
Long-term Debt			$ 8,617,603	$ 8,897,685
Less: amounts due within one year			322,048	432,183
Net long term debt			$ 8,295,555	$ 8,465,502
Seasonal Revolving Loan | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC
Line of Credit Facility
Interest rate (as a percent)			4.83%	3.99%
Seasonal Revolving Loan | Heron Lake BioEnergy, LLC
Line of Credit Facility
Interest rate (as a percent)			4.93%
Project Hawkeye Loan | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC
Line of Credit Facility
Long-term Debt			$ 7,500,000	$ 7,500,000
Interest rate (as a percent)			5.13%	4.29%
Revolving Term Loan | Heron Lake BioEnergy, LLC
Line of Credit Facility
Interest rate (as a percent)			5.18%
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			$ 1,094,236	$ 1,241,171
Payment			$ 189,393	$ 189,393
Interest rate (as a percent)			6.55%	6.55%
Period of worth of debt			1 year	1 year
Deposit on debt service payments			$ 364,000	$ 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			23,367	56,514
Payment			$ 3,942	$ 3,942
Interest rate (as a percent)			8.73%	8.73%
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
Interest rate (as a percent)				5.24%
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 | Seasonal Revolving Loan | Heron Lake BioEnergy, LLC
Line of Credit Facility
Spread above variable interest rate	2.85%
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%
One Month LIBOR | Revolving Term Loan | Heron Lake BioEnergy, LLC
Line of Credit Facility
Spread above variable interest rate	3.10%
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%

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DEBT FACILITIES - Granite Falls Energy (Details) - USD ($)			9 Months Ended
	Aug. 02, 2017	Nov. 01, 2016	Jul. 31, 2018	Oct. 31, 2017
Line of Credit Facility
Savings collateral			$ 132,914	$ 75,189
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	0
Aggregate principal amount available for borrowing			$ 6,000,000	$ 6,000,000
Interest rate (as a percent)			4.83%	3.99%
Savings collateral			$ 0
Project Hawkeye Loan | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC
Line of Credit Facility
Interest rate (as a percent)			5.13%	4.29%
Proceeds from long-term debt	$ 7,500,000
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 | 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
Proceeds from long-term debt	$ 7,500,000
Ringneck Energy and; Feed, LLC | Project Hawkeye Loan | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Equity securities
Line of Credit Facility
Units purchased	1,500

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DEBT FACILITIES - Heron Lake BioEnergy (Details) - Heron Lake BioEnergy, LLC - USD ($)	Mar. 29, 2018	Mar. 01, 2015	Jul. 31, 2018	Dec. 31, 2017	Oct. 31, 2017	Feb. 28, 2015
Revolving Term Loan
Line of Credit Facility
Credit facility maximum	$ 4,000,000			$ 8,000,000		$ 28,000,000
Line of credit future reduction amounts		$ 3,500,000
Interest rate (as a percent)			5.18%
Line of credit unused commitment fee (as a percent)	0.50%
Aggregate principal amount available for borrowing			$ 4,000,000		$ 17,500,000
CoBank
Line of Credit Facility
Annual fee	$ 2,500
Seasonal Revolving Loan
Line of Credit Facility
Credit facility maximum	$ 4,000,000
Interest rate (as a percent)			4.93%
Line of credit unused commitment fee (as a percent)	0.25%
Aggregate principal amount available for borrowing			$ 4,000,000
One Month LIBOR | Revolving Term Loan
Line of Credit Facility
Spread above variable interest rate	3.10%
One Month LIBOR | Seasonal Revolving Loan
Line of Credit Facility
Spread above variable interest rate	2.85%

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DEBT FACILITIES - Estimated Annual Maturities (Details) - USD ($)	Jul. 31, 2018	Oct. 31, 2017
DEBT FACILITIES
2019	$ 322,048
2020	1,389,682
2021	1,410,526
2022	1,209,634
2023	1,071,429
Thereafter	3,214,284
Long-term Debt	$ 8,617,603	$ 8,897,685

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MEMBERS' EQUITY (Details)		1 Months Ended		9 Months Ended
	Dec. 21, 2017 USD ($) shares	Dec. 31, 2017 USD ($) $ / shares	Dec. 31, 2016 USD ($) $ / shares	Jul. 31, 2018 USD ($) item $ / shares shares	Jul. 31, 2017 USD ($) $ / shares	Oct. 31, 2017 shares
Number of classes of membership units | item				1
Membership Units, Par value | $ / shares				$ 0
Common Units Authorized | shares				30,606		30,606
Common Units Issued | shares				30,606		30,606
Common Units Outstanding | shares				30,606		30,606
Distribution per unit declared (in dollars per unit) | $ / shares				$ 385.00	$ 365.00
Amount of distribution paid | $				$ 11,779,102	$ 11,171,190
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC
Distribution per unit declared (in dollars per unit) | $ / shares		$ 385	$ 365
Amount of distribution declared | $		$ 11,783,000	$ 11,171,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Heron Lake BioEnergy, LLC | Affiliated Entity
Distributions received | $	$ 4,342,000
Heron Lake BioEnergy, LLC
Distribution per unit declared (in dollars per unit) | $ / shares		$ 0.11
Amount of distribution declared | $		$ 8,573,000
Heron Lake BioEnergy, LLC | Non-controlling Interest
Amount of distribution paid | $	$ 4,231,000
Heron Lake BioEnergy, LLC | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Capital Unit, Class A
Common Units Outstanding | shares	24,475,824
Heron Lake BioEnergy, LLC | Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Capital Unit, Class B
Common Units Outstanding | shares	15,000,000

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COMMITMENTS AND CONTINGENCIES (Details)	3 Months Ended		9 Months Ended		12 Months Ended
	Jul. 31, 2018 USD ($)	Jul. 31, 2017 USD ($)	Jul. 31, 2018 USD ($) bu	Jul. 31, 2017 USD ($)	Oct. 31, 2017 USD ($) bu gal
Commitments and contingencies
Accrual for leased railcar damages	$ 0		$ 0
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Corn Forward Cash and Basis Contracts Purchase Commitments [Member]
Commitments and contingencies
Quantity of commitment | bu			6,384,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Corn Contracts
Commitments and contingencies
Quantity of commitment | bu			5,725,000		1,495,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Ethanol Contracts
Commitments and contingencies
Quantity of commitment | gal					420,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Board Members | Corn Contracts
Commitments and contingencies
Amount of corn purchased	1,754,000	$ 0	$ 3,839,000	$ 0
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Short/Sale position | Corn Contracts
Commitments and contingencies
Quantity of commitment | bu			5,535,000		1,295,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Short/Sale position | Ethanol Contracts
Commitments and contingencies
Value of commitment	11,832,000		$ 11,832,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Short/Sale position | Distillers' Grains
Commitments and contingencies
Value of commitment	848,000		848,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Short/Sale position | Corn Oil
Commitments and contingencies
Value of commitment	829,000		$ 829,000
Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC | Long/Purchase position | Corn Contracts
Commitments and contingencies
Quantity of commitment | bu			190,000		200,000
Heron Lake BioEnergy, LLC | Corn Forward Cash and Basis Contracts Purchase Commitments [Member]
Commitments and contingencies
Quantity of commitment | bu			4,189,000
Heron Lake BioEnergy, LLC | Corn Contracts
Commitments and contingencies
Quantity of commitment | bu			4,125,000		1,120,000
Heron Lake BioEnergy, LLC | Ethanol Contracts
Commitments and contingencies
Quantity of commitment | gal					420,000
Heron Lake BioEnergy, LLC | Board Members | Corn Contracts
Commitments and contingencies
Amount of corn purchased	3,382,000	$ 143,000	$ 10,479,000	$ 5,737,000
Heron Lake BioEnergy, LLC | Short/Sale position | Corn Contracts
Commitments and contingencies
Quantity of commitment | bu					905,000
Heron Lake BioEnergy, LLC | Short/Sale position | Ethanol Contracts
Commitments and contingencies
Value of commitment	11,716,000		11,716,000
Heron Lake BioEnergy, LLC | Short/Sale position | Distillers' Grains
Commitments and contingencies
Value of commitment	2,517,000		2,517,000
Heron Lake BioEnergy, LLC | Short/Sale position | Corn Oil
Commitments and contingencies
Value of commitment	$ 775,000		775,000
Heron Lake BioEnergy, LLC | Long/Purchase position | Corn Contracts
Commitments and contingencies
Quantity of commitment | bu					215,000
Heron Lake BioEnergy, LLC | Accounts Payable | Board Members | Corn Contracts
Commitments and contingencies
Amount of corn purchased			$ 0		$ 607,000

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COMMITMENTS AND CONTINGENCIES - Leases (Details) - Granite Falls Energy, LLC Excluding Heron Lake BioEnergy, LLC - Rail Cars	Feb. 28, 2018 USD ($) item
Leases
Equipment lease, quantity | item	16
Minimum future lease payments per year | $	$ 144,000