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	January 31, 2023
	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
	000-53588

HIGHWATER ETHANOL, LLC

(Exact name of registrant as specified in its charter)

Minnesota	20-4798531
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

24500 US Highway 14,	Lamberton,	MN	56152
(Address of principal executive offices)			(Zip Code)

(507) 752-6160

(Registrant's telephone number, including area code)

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

Title of each class Trading Symbol(s) Name of each exchange on which registered

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes     o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

x Yes     o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-accelerated Filer	☒	Smaller Reporting Company	☐
		Emerging Growth Company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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 March 8, 2023 there were 4,755 membership units outstanding.

1

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	15
Item 3. Quantitative and Qualitative Disclosures about Market Risk	22
Item 4. Controls and Procedures	23
PART II. OTHER INFORMATION	24
Item 1. Legal Proceedings	24
Item 1A. Risk Factors	24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3. Defaults Upon Senior Securities	24
Item 4. Mine Safety Disclosures	24
Item 5. Other Information	24
Item 6. Exhibits	25
SIGNATURES	26

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HIGHWATER ETHANOL, LLC

Condensed Balance Sheets

ASSETS	January 31, 2023		October 31, 2022
	(Unaudited)
Current Assets
Cash and cash equivalents	$	13,511,515	$	29,790,258
Derivative instruments	344,570		743,514
Accounts receivable	2,932,943		3,970,064
Inventories	13,983,340		19,197,522
Prepaids and other	890,519		989,188
Total current assets	31,662,887		54,690,546
Property and Equipment
Land and land improvements	13,152,403		13,152,403
Buildings	38,848,218		38,848,218
Office equipment	1,231,526		1,223,869
Plant and process equipment	87,235,438		87,235,438
Vehicles	123,779		123,779
Construction in progress	488,974		426,294
	141,080,338		141,010,001
Less accumulated depreciation	(102,999,383)		(100,585,625)
Net property and equipment	38,080,955		40,424,376
Other Assets
Investments	4,627,362		3,823,638
Right of use asset - operating leases	229,116		267,731
Right of use asset - finance leases	926,734		961,057
Other	583,232		708,232
Deposits	493,330		312,269
Total other assets	6,859,774		6,072,927
Total Assets	$	76,603,616	$	101,187,849

3

LIABILITIES AND MEMBERS' EQUITY	January 31, 2023		October 31, 2022
	(Unaudited)
Current Liabilities
Accounts payable	$	8,891,938	$	20,068,351
Accrued expenses	1,110,221		1,521,820
Current portion of operating lease liability	159,869		157,691
Current portion of finance lease liability	126,614		124,889
Total Current Liabilities	10,288,642		21,872,751
Long-Term Liabilities
Operating lease liability	69,247		110,040
Finance lease liability	879,682		911,990
Total Long-Term Liabilities	948,929		1,022,030
Commitments and Contingencies
Members' Equity
Members' equity, 4,762 and 4,764 units outstanding	65,366,045		78,293,068
Total Liabilities and Members’ Equity	$	76,603,616	$	101,187,849

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

4

HIGHWATER ETHANOL, LLC

Condensed Unaudited Statements of Operations

	Three Months Ended
	January 31, 2023		January 31, 2022
Revenues	$	48,861,565	$	58,643,436
Cost of Goods Sold	45,512,464		41,482,340
Gross Profit	3,349,101		17,161,096
Operating Expenses	1,198,113		1,121,700
Operating Income	2,150,988		16,039,396
Other Income (Expense)
Interest income	59,669		8,567
Other income	111,720		62,312
Interest expense	(64,712)		(88,836)
Income from equity method investments	74,312		80,049
Total other income (expense), net	180,989		62,092
Net Income	$	2,331,977	$	16,101,488
Weighted Average Units Outstanding	4,763		4,771
Net Income Per Unit, Basic and Diluted	$	489.60	$	3,374.87
Distributions Declared Per Unit	$	3,200	$	9,800

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

5

HIGHWATER ETHANOL, LLC

Statements of Changes in Members' Equity (Unaudited)

	Members' Equity
Balance - October 31, 2021	$	63,215,463
Net income for the three-month period ended January 31, 2022	16,101,488
Member distribution	(18,130,900)
Member unit repurchase, 12 units	(75,500)
Balance - January 31, 2022	$	61,110,551

	Members' Equity
Balance - October 31, 2022	$	78,293,068
Net income for the three-month period ended January 31, 2023	2,331,977
Member distribution	(15,240,000)
Member unit repurchase, 2 units	(19,000)
Balance - January 31, 2023	$	65,366,045

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

6

HIGHWATER ETHANOL, LLC

Condensed Unaudited Statements of Cash Flows

	Three Months Ended
	January 31, 2023		January 31, 2022
Cash Flows from Operating Activities
Net income	$	2,331,977	$	16,101,488
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization	2,573,081		2,594,690
Earnings in excess of distributions from equity method investments	(585,020)		(100,548)
Non-cash patronage income	(218,704)		(157,260)
Changes in assets and liabilities
Accounts receivable	1,037,121		2,252,101
Inventories	5,214,182		(2,573,729)
Derivative instruments	398,944		45,933
Prepaids and other	(82,392)		80,480
Accounts payable	(11,125,173)		(6,569,745)
Accrued expenses	(411,600)		(202,241)
Net cash provided by (used in) operating activities	(867,584)		11,471,169
Cash Flows from Investing Activities
Capital expenditures	(121,576)		(139,011)
Net cash used in investing activities	(121,576)		(139,011)
Cash Flows from Financing Activities
Payments on long-term debt	—		(3,000,000)
Member unit repurchases	(19,000)		(75,500)
Payment on finance lease liability	(30,583)		(28,950)
Member distributions paid	(15,240,000)		(7,158,750)
Net cash used in financing activities	(15,289,583)		(10,263,200)
Net Increase (Decrease) in Cash and Cash Equivalents	(16,278,743)		1,068,958
Cash and Cash equivalents – Beginning of Period	29,790,258		7,549,008
Cash and Cash equivalents – End of Period	$	13,511,515	$	8,617,966
Supplemental Cash Flow Information
Cash paid for interest	$	14,117	$	29,708
Supplemental Disclosure of Noncash Financing and Investing Activities
Capital expenditures included in accounts payable	$	—	$	—
Distribution payable	$	—	$	10,972,150

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

7

HIGHWATER ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

January 31, 2023

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations.  The accompanying balance sheet and related notes as of October 31, 2022 are derived from the audited financial statements as of that date. These condensed financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company’s audited financial statements for the year ended October 31, 2022, contained in the Company’s Form 10-K.

In the opinion of management, the interim condensed financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary for fair presentation of the Company's financial position as of January 31, 2023 and the results of operations and cash flows for all periods presented.

Nature of Business

Highwater Ethanol, LLC, (a Minnesota Limited Liability Company) operates an ethanol plant near Lamberton, Minnesota. The ethanol plant was constructed as a 50 million gallon per year nameplate ethanol plant. The plant currently operates in excess of its nameplate capacity due to the approval of air permit by the Minnesota Pollution Control Agency which allows for 70.2 million gallons of denatured ethanol per 12-month rolling average. The Company produces and sells, primarily through third-party professional marketers, fuel ethanol and co-products of the fuel ethanol production process in the continental United States.

Accounting Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The Company uses estimates and assumptions in accounting for significant matters, among others, the carrying value of property and equipment and related impairment testing, inventory valuation, and derivative instruments. Actual results could differ from those estimates and such differences may be material to the 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

ASC Topic 606, Revenue from Contracts with Customers, further details the Company’s requirement to recognize revenue of transferred goods or services to customers in an amount which is expected to be received in exchange for those goods or services. Five steps are required as part of the new guidance: 1. Identify the contract 2. Identify the performance obligations 3. Determine the transaction price 4. Allocate the transaction price to the performance obligation 5. Recognize revenue when each performance obligation is satisfied.

The Company generally sells ethanol and related products pursuant to marketing agreements. The Company’s products are shipped FOB shipping point. The Company recognizes revenue when control of goods is transferred, which is consistent with the Company's previous policy where revenues were recognized when the customer has taken title and has assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured. For ethanol sales by single manifest railcars and trucks, and distillers grains sales, control transfers when loaded into the rail car. For ethanol sales by unit trains, control transfers once the last railcar of the unit train has loaded and the shipping documentation transferred to the marketer.

In accordance with the Company’s agreements for the marketing and sale of ethanol and related products, marketing fees and freight due to the marketers are deducted from the gross sales price at the time incurred. Revenue is recorded net of these marketing fees and freight as they do not provide an identifiable benefit that is sufficiently separable from the sale of ethanol and related products.

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

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HIGHWATER ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

January 31, 2023

consideration that we expect to receive in exchange for those goods or services.

•ethanol sales

•modified distillers grains sales

•dried distillers grains sales

•corn oil sales

Disaggregation of revenue:

All revenue recognized in the statement of operations is considered to be revenue from contracts with customers. The following table depicts the disaggregation of revenue according to product line for the three months ended January 31, 2023 and 2022:

	Three Months Ended January 31, 2023		Three Months Ended January 31, 2022
Revenue Sources	Amount		Amount
Ethanol Sales	$	35,041,206	$	48,357,467
Modified Distillers Grains Sales	3,360,928		1,741,199
Dried Distillers Grains Sales	6,140,728		5,386,603
Corn Oil Sales	4,318,703		3,158,167
Total Revenues	$	48,861,565	$	58,643,436

Contract assets and contract liabilities:

The Company receives payments from customers based upon contractual billing schedules; accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities include payments received in advance of performance under the contract, and are realized with the associated revenue recognized under the contract.

The Company had short term contract liabilities from contracts with customers of $293,772 at January 31, 2023 and $0 at October 31, 2022.

Shipping Costs

Shipping costs incurred by the Company in the sale of ethanol, dried distillers grains and corn oil are not specifically identifiable and as a result, revenue from the sale of those products is recorded based on the net selling price reported to the Company from the marketer.

Operating Segment

The Company uses the "management approach" for reporting information about segments in annual and interim financial statements. The management approach is based on the way the chief operating decision-maker organizes segments within a company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure and any other manner in which management disaggregates a company. Based on the "management approach" model, the Company has determined that its business is comprised of a single operating segment.

Derivative Instruments

Derivatives are recognized in the balance sheets and the measurement of these instruments are 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

9

HIGHWATER ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

January 31, 2023

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.

Contracts are evaluated to determine whether the contracts are derivatives. Certain contracts that 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 as derivatives, therefore, are not marked to market in our financial statements.

The Company enters into ethanol, corn and natural gas derivatives in order to protect cash flows from fluctuations caused by volatility in prices. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Ethanol derivative changes in fair market value are included in revenue. Corn and natural gas derivative changes in fair market value are included in costs of goods sold.

Carrying Value of Long-Lived Assets

Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset group to the carrying value of the asset group. If the carrying value of the long-lived asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

In accordance with the Company’s policy for evaluating impairment of long-lived assets described above, when a triggering event occurs management evaluates the recoverability of the facilities based on projected future cash flows from operations over the facilities’ estimated useful lives. In determining the projected future undiscounted cash flows, the Company makes significant assumptions concerning the future viability of the ethanol industry, the future price of corn in relation to the future price of ethanol and the overall demand in relation to production and supply capacity. The Company has not recorded any impairment for the three months ended January 31, 2023 and 2022.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, and accounts payable, and other working capital items approximate fair value at January 31, 2023 due to the short maturity nature of these instruments (Level 2).

Derivative instruments are carried at fair value, based on dealer quotes and live trading levels (Note 5).

Investments

The Company has a 5.26% investment interest in an unlisted company, Renewable Products Marketing Group, LLC (RPMG), who markets the Company’s ethanol. The Company also has a 7% ownership interest in Lawrenceville Tank, LLC (LT), which owns and operates a trans load/tank facility near Atlanta, Georgia. These investments are flow-through entities and are being accounted for by the equity method of accounting under which the Company’s share of net income is recognized as income in the Company’s statements of operations and added to the investment account. Distributions or dividends received from the investment are treated as a reduction of the investment account. The Company consistently follows the practice of recognizing the net income (loss) from equity method investments based on the most recent reliable data. Therefore, the net income (loss) which is reported in the Company's statement of operations for the period ended January 31, 2023 is based on the investee’s results of operations for the period ended December 31, 2022.

The Company has cost method of investments in cooperatives. The corresponding patronage income is recorded in costs of goods sold.

10

HIGHWATER ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

January 31, 2023

Grants

On February 17, 2023, the Company received an award from the Minnesota Bioincentive Program of approximately $100,000. The Minnesota State Legislature established the Bioincentive Program in 2015 to encourage commercial-scale production of advanced biofuels, renewable chemicals, and biomass thermal energy thorough production incentive payments. Eligible producers of cellulosic ethanol may receive $0.16 per gallon of cellulosic ethanol produced subject to program funding limitations. The award was recorded in the first quarter of fiscal 2023 in other income.

2. UNCERTAINTIES

The Company derives substantially all of its revenues from the sale of ethanol, distillers grains and corn oil. These products are commodities and the market prices for these products display substantial volatility and are subject to a number of factors which are beyond the control of the Company. The Company’s most significant manufacturing inputs are corn and natural gas. The price of these commodities is also subject to substantial volatility and uncontrollable market factors. In addition, these input costs do not necessarily fluctuate with the market prices for ethanol and distillers grains. As a result, the Company is subject to significant risk that its operating margins can be reduced or eliminated due to the relative movements in the market prices of its products and major manufacturing inputs. As a result, market fluctuations in the price of or demand for these commodities can have a significant adverse effect on the Company’s operations, profitability, and availability of cash flows to make loan payments and maintain compliance with the loan agreement.

3. INVENTORIES

Inventories consisted of the following at:

	January 31, 2023		October 31, 2022
Raw materials	$	4,200,949	$	11,103,311
Spare parts and supplies	5,089,753		4,800,511
Work in process	1,328,216		1,342,412
Finished goods	3,364,422		1,951,288
Total	$	13,983,340	$	19,197,522

The Company recorded a lower of cost or net realizable value write-down on finished goods inventory of approximately $66,000 and $0 at January 31, 2023 and October 31, 2022, respectively.

4. DERIVATIVE INSTRUMENTS

As of January 31, 2023, the Company had entered into corn, natural gas and ethanol derivative instruments, which are required to be recorded as either assets or liabilities at fair value in the balance sheet. The Company uses these instruments to manage risks from changes in market rates and prices. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the derivative instrument and the related change in value of the underlying hedged item. The Company may designate the hedging instruments based upon the exposure being hedged as a fair value hedge or a cash flow hedge. The derivative instruments outstanding at January 31, 2023 are not designated as hedges for accounting purposes.

11

HIGHWATER ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

January 31, 2023

Commodity Contracts

The following tables provide details regarding the Company's derivative instruments at January 31, 2023 and October 31, 2022:

Instrument	Balance Sheet location	January 31, 2023		October 31, 2022
Corn, natural gas and ethanol contracts
In gain position		$	—	$	—
In loss position		(596,874)		(1,101,594)
Deposits with broker		941,444		1,845,108
	Current assets	$	344,570	$	743,514

The Company has 468,000 bushels of corn inventory delivered under delayed-pricing contracts. The contracts have various pricing deadlines through August 31, 2023. The Company is subject to risk of changes in the corn market until they are priced.

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

	Statement of	Three Months Ended January 31,
	Operations location	2023		2022
Ethanol contracts	Revenues	$	60,465	$	4,388
Corn contracts	Cost of goods sold	313,674		569,872
Natural gas contracts	Cost of goods sold	83,875		(125,867)

5. FAIR VALUE MEASUREMENTS

The following table provides information on those assets (liabilities) measured at fair value on a recurring basis.

	Fair Value as of	Fair Value Measurement Using
	January 31, 2023	Level 1	Level 2	Level 3
Derivative instruments - commodities
In loss position	(596,874)	(19,680)	(577,194)

	Fair Value as of		Fair Value Measurement Using
	October 31, 2022		Level 1		Level 2		Level 3
Derivative instruments - commodities
In loss position	$	(1,101,594)	$	(45,075)	$	(1,056,519)	$	—

The Company determines the fair values of commodities by obtaining the fair value measurements from an independent pricing service based on dealer quotes and live trading levels from the Chicago Board of Trade.

12

HIGHWATER ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

January 31, 2023

6. DEBT FINANCING

The Company had no long-term debt at January 31, 2023 or October 31, 2022, respectively.

Bank Financing

The Company has a loan facility with Compeer Financial f/k/a AgStar Financial Services, PCA ("Compeer") that includes a $20,000,000 Term Revolving Loan and a Revolving Line of Credit Loan. The loan facility with Compeer is secured by substantially all business assets and also subjects the Company to various financial and non-financial covenants.

Term Revolving Loan

The Term Revolving Loan is for $20,000,000, and has a variable interest rate based on the Wall Street Journal's Prime Rate plus 10 basis points with a minimum interest rate of 2.10%. The applicable interest rate at January 31, 2023 was 7.10%. The Term Revolving Loan may be advanced, repaid and re-borrowed during the term. Monthly interest payments are due on the Term Revolving Loan. Payment of all amounts outstanding are due on November 1, 2027. The outstanding balance on this note was $0 at January 31, 2023. The Company pays interest at a rate of 1.50% on amounts outstanding for letters of credit which also reduce the amount available under the Term Revolving Loan. The Company has no letters of credit outstanding at January 31, 2023. The Company is also required to pay unused commitment fees for the Term Revolving Loan.

Revolving Line of Credit Loan

The Revolving Line of Credit Loan is for an amount equal to the borrowing base, with a maximum limit of $10,000,000, and has a variable interest rate based on the Wall Street Journal's Prime Rate plus 10 basis points with a minimum interest rate of 2.10%. The amount available to borrow per the borrowing base calculations at January 31, 2023 was approximately $531,000. The applicable interest rate at January 31, 2023 was 7.10%. The Revolving Line of Credit Loan may be advanced, repaid and re-borrowed during the term. Monthly interest payments are due on the Revolving Line of Credit Loan with payment of all amounts outstanding due on November 1, 2023. The maturity date may be extended for up to four additional one year terms upon written request of the Company which will be deemed automatically granted by Compeer upon written certification that there is no event of default. The outstanding balance on this note was $0 at January 31, 2023. The Company is also required to pay unused commitment fees for the Revolving Line of Credit Loan.

Covenants and other Miscellaneous Terms

The loan facility with Compeer is secured by substantially all business assets. The Company executed a mortgage creating a first lien on its real estate and plant and a security interest in all personal property located on the premises and assigned all rents and leases to property, marketing contracts, risk management services contract, and natural gas, electricity, water service and grain procurement agreements.

The Company is also subject to various financial and non-financial covenants that limit distributions and debt and require minimum debt service coverage and working capital requirements. The Company is limited to annual capital expenditures of $5,000,000 without prior approval, incurring additional debt over certain amounts without prior approval, and making additional investments as described in the Second Amended and Restated Credit Agreement without prior approval. The minimum working capital is $9,000,000, which is calculated as current assets plus the amount available for drawing under our Term Revolving Loan, and undrawn amounts on outstanding letters of credit less current liabilities, and is measured quarterly. The Company is allowed to make distributions to members as frequently as monthly in an amount equal to 75% of net income if working capital is greater than or equal to $9,000,000, or or an unlimited amount of net income if working capital is greater than or equal to $12,000,000. The requirement to maintain a minimum debt service coverage ratio has been eliminated.

13

HIGHWATER ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

January 31, 2023

7.  LEASES

The Company leases rail cars for its facility to transport dried distillers grains to its end customers. We classified these identified assets as operating leases after assessing the terms under lease classification guidance.

The Company has a contract for use of a natural gas pipeline which transports natural gas from the Northern Natural Gas pipeline to the Company’s facility. This natural gas line has no alternate use and is specifically for the benefit of the Company. The contract has minimum volume requirements as well as a fixed monthly fee. This contract meets the definition of a lease and is classified as a finance lease. Right of use assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

The discount rate used in determining the lease liability for each individual lease is the Company's estimated incremental borrowing rate at the time the lease is entered into. An incremental borrowing rate of 5.5% was utilized for each of the Company's leases.

The Company determines if an arrangement is a lease or contains a lease at inception. The Company’s operating and finance leases have remaining lease terms of approximately 3 years and 9 years, respectively. These leases include options to extend the lease. When it is reasonably certain the Company will exercise those options, the Company will update the remaining terms of the leases. The Company does not have lease arrangements with residual value guarantees, sale leaseback terms or material restrictive covenants.

The following table summarizes the remaining maturities of the Company’s operating and finance lease liabilities as of January 31, 2023:

For the Period Ending January 31,	Operating Leases		Finance Leases
2024	$	168,480	$	178,800
2025	70,200		178,800
2026	—		178,800
2027	—		178,800
2028	—		178,800
Thereafter	—		312,900
Totals	238,680		1,206,900
Amount representing interest	(9,566)		(200,603)
Lease liability	$	229,114	$	1,006,297

Lease Cost	Three Months ended January 31, 2023
Operating lease cost	$	42,120
Short term lease cost	10,194
Finance lease cost
Amortization of leased assets	34,323
Interest on lease liabilities	14,117
Net lease cost	$	100,754

8. COMMITMENTS AND CONTINGENCIES

Marketing Agreements

The Company has an ethanol marketing agreement with a marketer (RPMG) to purchase, market, and distribute the ethanol produced by the Company. The Company also entered into a member control agreement with the marketer whereby the Company made capital contributions and became a minority owner of the marketer. The member control agreement became effective on February 1, 2011 and provides the Company a membership interest with voting rights. The marketing agreement will terminate if the Company ceases to be a member. The Company will assume certain of the member’s rail car leases if the agreement is terminated. The Company can sell its ethanol either through an index arrangement or at an agreed upon fixed price. The marketing agreement is perpetual until terminated according to the agreement.  The Company may be obligated to continue to market its ethanol through the marketer for a period of time. The amended agreement requires minimum capital amounts invested as required under the agreement. RPMG will also purchase, market, and distribute the Company's high purity alcohol.

The Company has a distillers grains marketing agreement with a marketer to market all the dried distillers grains produced at the plant. Under the agreement the marketer charges a maximum of $2.00 per ton and a minimum of $1.50 per ton using 2% of the FOB plant price actually received by them for all dried distillers grains removed. The agreement will remain in effect unless otherwise terminated by either party with 120 days notice. Under the agreement, the marketer is responsible for all transportation arrangements for the distribution of the dried distillers grains. The Company markets and sells its modified and wet distillers grains. On August 26, 2022, the Company gave written notice of its election to terminate its distillers grain marketing agreement with its current marketer. The termination became effective on January 1, 2023.

On August 26, 2022, the Company entered into a distillers grains marketing agreement with a marketer (RPMG) pursuant to which RPMG began purchasing and marketing all of the distillers grains produced at the plant beginning January 1, 2023. The Company pays RPMG a fee to market distillers grains to third party end purchasers and reimburse RPMG for certain charges paid to third parties. RPMG agrees to market the distillers grains using commercially reasonable efforts and endeavor to maximize price and minimize freight and other costs but does not guarantee the price that will be obtained from the sale. Following an initial term, the agreement will be automatically extended for additional terms unless either party gives proper notice of non-extension. The Company may immediately terminate the agreement upon written notice if RPMG fails on 3 separate occasions within any 12-month period to purchase or market distillers grains under circumstances where such breach or failure is not excused or upon RPMG's insolvency. RPMG may immediately terminate the agreement upon written notice if the variance of the Company's actual distillers grains inventory when compared to monthly production and inventory estimates exceeds certain threshold amounts.

The Company has a crude corn oil marketing agreement with a marketer (RPMG) to market all corn oil to be produced at the plant for an initial term. Under the agreement, the Company must provide estimates of production and inventory of corn oil. The marketer may execute sales contracts with buyers for future delivery of corn oil. The Company receives a percentage of the F.O.B. sale price less a marketing fee, actual freight and transportation costs and certain taxes and other charges related to the purchase, delivery or sale. The Company is required to provide corn oil meeting certain specifications as provided in the agreement and the agreement provides for a process for rejection of nonconforming corn oil. The agreement automatically renews for successive terms unless terminated in accordance with the agreement.

Regulatory Agencies

The Company is subject to oversight from regulatory agencies regarding environmental concerns which arise in the ordinary course of its business.

Forward Contracts

In the ordinary course of business, we enter into forward contracts for our commodity purchases and sales. Forward contracts outstanding are as follows at January 31, 2023:

	Quantity	Average Price		Date Delivery Through
Purchase of corn (in bushels):
Basis Contracts	3,766,250			12/31/25
Priced Contracts	2,115,715	$	6.79	12/31/23
Total	5,881,965
Purchase of natural gas (in dekatherms):
Priced contracts	3,639,050	$	3.42	10/31/26
Total	3,639,050
Purchase of denaturant (in gallons):
Priced contracts	573,500	$	1.74	5/31/23
Total	573,500
Sales of dry distillers grains (in tons):
Priced contracts	21,325	$	260.26	9/30/23
Total	21,325
Sales of modified distillers grains (in tons)
Priced contracts	14,200	$	124.11	8/31/23
Total	14,200
Sales of corn oil (in pounds)
Priced contracts	905,000	$	0.70	3/31/23
Total	905,000

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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 month period ended January 31, 2023, compared to the same periods of the prior fiscal year. This discussion should be read in conjunction with the condensed financial statements and notes and the information contained in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2022.

Forward-Looking Statements

    This report contains forward-looking statements that involve future events, our future performance and our expected future operations and actions.  In some cases you can identify forward-looking statements by the use of words such as “will,” “may,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties. Many factors could cause actual results to differ materially from those projected in 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 include, but are not limited to:

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

Reduction or elimination of the Renewable Fuel Standard;

Volatile commodity and financial markets;

Changes in legislation benefiting renewable fuels;

Our ability to comply with the financial covenants contained in our credit agreements with our lenders;

Our ability to profitably operate the ethanol plant and maintain a positive spread between the selling price of our products and our raw material costs;

Results of our hedging activities and other risk management strategies;

Ethanol and distillers grains supply exceeding demand and corresponding price reductions;

Our ability to generate cash flow to invest in our business and service our debt;

Changes in the environmental regulations that apply to our plant operations and changes in our ability to comply with such regulations;

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

Changes in plant production capacity or technical difficulties in operating the plant;

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

Lack of transportation, storage and blending infrastructure preventing ethanol from reaching high demand markets;

Changes in federal and/or state laws or policies impacting the ethanol industry;

Changes and advances in ethanol production technology and the development of alternative fuels and energy sources and advanced biofuels;

Competition from alternative fuel additives;

Changes in interest rates and lending conditions;

Decreases in the price we receive for our ethanol and distillers grains;

Our inability to secure credit or obtain additional equity financing we may require in the future;

Our ability to retain key employees and maintain labor relations;

Changes in the price of oil and gasoline;

Competition from clean power systems using fuel cells and plug-in hybrids;

International trade disputes and the imposition of tariffs by foreign governments on our products;

Use by the EPA of small refinery exemptions;

A slowdown in global and regional economic activity, reduced demand for our products and the potential for labor shortages and shipping disruptions resulting from the COVID-19 pandemic;

Global economic uncertainty, rising inflation, market disruptions and increased volatility in commodity prices caused in part by the Russian invasion of Ukraine and resulting sanctions by the United States and other countries; and

Competition from the increased use of electric vehicles.

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The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We are not under any duty to update the forward-looking statements contained in this report. Furthermore, we cannot guarantee future results, levels of activity, performance or achievements. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.

Available Information

Our website address is www.highwaterethanol.com. Our annual report on Form 10-K, quarterly 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 (the “Exchange Act”), are available, free of charge, on our website at www.highwaterethanol.com 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 Quarterly Report on Form 10-Q.

Overview

Highwater Ethanol, LLC (“we,” “our,” “Highwater Ethanol” or the “Company”) was formed as a Minnesota limited liability company organized on May 2, 2006, for the purpose of constructing, owning, and operating an ethanol plant near Lamberton, Minnesota. Since August 2009, we have been engaged in the production of ethanol and distillers grains at the plant. In October 2019, our air permit application to the Minnesota Pollution Control Agency to allow for 70.2 million gallons of denatured ethanol per 12-month rolling average was approved.

    On December 21, 2022, our board of governors declared a cash distribution of $3,200 per membership unit to unit holders of record at the close of business on December 21, 2022, for a total distribution of $15,240,000. The distribution was paid on December 22, 2022.

We expect to fund our operations during the next 12 months using cash flow from our continuing operations and our current credit facilities. However, should we experience unfavorable operating conditions in the ethanol industry that prevent us

from profitably operating the ethanol plant, we may need to seek additional funding.

Results of Operations for the Three Months Ended January 31, 2023 and 2022

    The following table shows the results of our operations and the approximate percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our unaudited statements of operations for the three months ended January 31, 2023 and 2022:

	2023				2022
Statements of Operations Data	Amount (unaudited)		%		Amount (unaudited)		%
Revenues	$	48,861,565	100.00	%	$	58,643,436	100.00	%
Cost of Goods Sold	45,512,464		93.15	%	41,482,340		70.74	%
Gross Profit	3,349,101		6.85	%	17,161,096		29.26	%
Operating Expenses	1,198,113		2.45	%	1,121,700		1.91	%
Operating Income	2,150,988		4.40	%	16,039,396		27.35	%
Other Income (Expense), net	180,989		0.37	%	62,092		0.11	%
Net Income	$	2,331,977	4.77	%	$	16,101,488	27.46	%

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The following table shows the sources of our revenue for the three months ended January 31, 2023 and 2022:

	2023				2022
Revenue Sources	Amount (Unaudited)		%		Amount (Unaudited)		%
Ethanol Sales	$	35,041,206	71.71	%	$	48,357,467	82.46	%
Modified Distillers Grains Sales	3,360,928		6.88	%	1,741,199		2.97	%
Dried Distillers Grains Sales	6,140,728		12.57	%	5,386,603		9.18	%
Corn Oil Sales	4,318,703		8.84	%	3,158,167		5.39	%
Total Revenues	$	48,861,565	100.00	%	$	58,643,436	100.00	%

Revenue

    Ethanol

    Our ethanol revenues were lower for the three months ended January 31, 2023, as compared to the three months ended January 31, 2022. Revenue from ethanol sales decreased by approximately 27.5% during the three months ended January 31, 2023, as compared to the three months ended January 31, 2022, due primarily to a decrease in the average price per gallon and the number of gallons of ethanol produced and sold during the three months ended January 31, 2023.

The average price per gallon of ethanol sold for the three months ended January 31, 2023 was approximately 24.9% lower than the average price we received for the three months ended January 31, 2022. Ethanol prices for the three months ended January 31, 2022 were lower due to lower oil and gas prices.

Factors likely to affect ethanol prices in the future include changes in domestic corn prices and corn supply, changes in energy prices, trade disputes with foreign governments, changes in domestic and foreign ethanol demand and our ability to receive a premium on ethanol shipped to California pursuant to the Low Carbon Fuel Standard (the "LCFS"). In addition, global economic uncertainty, rising inflation, market disruptions and increased volatility in commodity prices resulting in part from the Russian invasion of Ukraine and the lingering effects of the global response to the COVID-19 pandemic could continue to impact the market price of ethanol. Any actions by the Environmental Protection Agency or Congress which result in reduction of the renewable volume obligations under the Renewable Fuels Standard or the granting of exemptions from those obligations could also have a negative effect on ethanol prices.

    The number of gallons of ethanol sold during the three months ended January 31, 2023 decreased by approximately 3.5%, as compared to the three months ended January 31, 2022, due to timing of shipments. Our ethanol production levels for the three months ended January 31, 2023 were at an annual rate of approximately 70 million gallons. Management anticipates that the amount of ethanol sold could decrease in the future if operating conditions worsen and we reduce ethanol production levels. Ethanol production could also decrease if delayed rail car shipments affect our ability to get sufficient rail cars to transport our ethanol.

We had gains related to ethanol based derivative instruments of $60,465 and $4,388 for the three months ended January 31, 2023 and 2022, respectively. These gains increased our ethanol revenue during these periods.

Distillers Grains

    Revenue from distillers grains sales increased by approximately 33.3% during the three months ended January 31, 2023, as compared to the three months ended January 31, 2022. The tons of dried distillers grains sold during the three months ended January 31, 2023, decreased by approximately 14.4%, as compared to the three months ended January 31, 2022. However, the tons of modified distillers grains sold during the three months ended January 31, 2023, increased by approximately 46.3%, as compared to the three months ended January 31, 2022. Management anticipates that the amount of distillers grains produced may decrease in the future if operating conditions worsen and there is a reduction in ethanol production levels which would then have a corresponding effect on distillers grains. In addition, an increase in ethanol or corn oil yields could have a negative effect of distillers grains production levels.

    For the three months ended January 31, 2023, the average price per ton of dried distillers grains sold was approximately 33.2% higher than the average price we received during the three months ended January 31, 2022, due to increases in the domestic prices of corn and soybeans for the period. For the three months ended January 31, 2023, the average

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price per ton of modified distillers grains sold was approximately 31.9% higher than during the three months ended January 31, 2022, due to increased demand in our local area.

    Distillers grains prices typically change in proportion to domestic corn and soybean prices. Domestic demand for distillers grains could decrease if corn or soybean prices decline and end-users switch to lower priced alternatives or if cattle numbers decrease due to droughts in the western and southern United States. Other factors likely to affect distillers grains prices include prices and availability of other commodities, the continued imposition by China of anti-dumping and anti-subsidy duties on distillers grains produced in the United States and other trade actions by the United States and foreign governments.

Corn Oil

Revenue from corn oil sales increased by approximately 36.7% during the three months ended January 31, 2023, as compared to the three months ended January 31, 2022. This is primarily the result of an increase in the price of corn oil sold during the three months ended January 31, 2023. The average price per pound of corn oil sold was approximately 28.1% higher during the three months ended January 31, 2023, as compared to the three months ended January 31, 2022 due to an increase in the domestic prices of corn and soybeans and increased biodiesel production for the period. Factors likely to affect corn oil prices include biodiesel demand, prices of corn and soybeans, the status of the biodiesel blenders' tax credit and new crop corn oil content.

The pounds of corn oil sold during the three months ended January 31, 2023, increased by approximately 8.2% compared to the three months ended January 31, 2022. Management anticipates that the amount of corn oil produced may decrease in the future if there is a reduction in ethanol production levels which would then have a corresponding effect on corn oil. However, an increase in corn oil yields due to improved efficiencies or a corn crop with higher oil content could contribute to higher corn oil production levels.

At January 31, 2023, we had 905,000 pounds of forward corn oil sales contracts valued at approximately $630,000 for various delivery periods through March 31, 2023.

Cost of Goods Sold

    Our two largest costs of production are corn (84.0% of cost of goods sold for the three months ended January 31, 2023) and natural gas (4.3% of cost of goods sold for the three months ended January 31, 2023). Our total cost of goods sold was approximately 9.7% more during the three months ended January 31, 2023, as compared to the three months ended January 31, 2022.

Corn

    Our average price per bushel of corn for the three months ended January 31, 2023 increased by approximately 16.8% per bushel, as compared to the three months ended January 31, 2022, primarily due to higher market value for corn as a result of increased demand which outpaced supply and volatility in commodity prices.

    Management expects there to be an adequate corn supply available in our area to operate the ethanol plant. However, corn prices are dependent on weather conditions, supply and demand, stocks and other factors which could contribute to price volatility and significantly impact our costs of production. In addition, corn prices could continue to be impacted in the future by the Russian invasion of Ukraine which has contributed to global economic uncertainty, rising inflation, market disruptions and increased volatility in commodity prices.

    We used approximately the same number of bushels of corn in the three months ended January 31, 2023, as compared to the three months ended January 31, 2022.

    At January 31, 2023, we had 3,766,250 bushels of forward fixed basis corn purchase contracts and 2,115,715 bushels of forward fixed price corn contracts valued at approximately $14,360,000. These purchase contracts are for various delivery periods through December 31, 2025.

We had gains related to corn derivative instruments of $313,674 and $569,872 for the three months ended January 31, 2023 and 2022, respectively. These gains reduced our cost of goods sold during these periods.

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Natural Gas

    The average market price per MMBTU of natural gas was approximately 5.5% higher for the three months ended January 31, 2023, as compared to the three months ended January 31, 2022, due primarily to the Russian invasion of Ukraine. However, because we have sufficient forward natural gas purchase contracts in place for our current needs, we paid below market prices for our natural gas. Management anticipates that natural gas prices will continue at current levels as long as the Russian war in Ukraine continues. Other factors such as industry production problems or large increases in natural gas demand could have a negative effect on natural gas prices.

    For the three months ended January 31, 2023, we used approximately 2.4% less natural gas as compared to the three months ended January 31, 2022. This decrease in natural gas usage is primarily due to a decrease in tons of dried distillers grains sold for the period.

    At January 31, 2023, we had 3,639,050 MMBTUs of forward natural gas purchase contracts valued at approximately $12,463,000 for various delivery periods through October 31, 2026.

For the three months ended January 31, 2023 and 2022, we recorded gains (losses) due to the change in fair value of our outstanding natural gas derivative positions of approximately $83,875 and $(125,867), respectively which reduced (increased) our cost of goods sold during these periods.

Operating Expense

    We had operating expenses for the three months ended January 31, 2023 of $1,198,113, as compared to operating expenses of $1,121,700 for the three months ended January 31, 2022. Management attributes this increase in operating expenses primarily to an increase in professional and IT fees for the three months ended January 31, 2023, as compared to the three months ended January 31, 2022. Management continues to pursue strategies to optimize efficiencies and maximize production. These efforts may result in a decrease in our operating expenses on a per gallon basis. However, because these expenses do not vary with the level of production at the plant, we expect our operating expenses to remain relatively steady.

Other Income

    We had total other income for the three months ended January 31, 2023 of $180,989, as compared to total other income of $62,092 for the three months ended January 31, 2022. Our other income for the three months ended January 31, 2023, was higher due primarily to an increase in interest income.

Changes in Financial Condition for the Three Months Ended January 31, 2023

    The following table highlights the changes in our financial condition as of January 31, 2023 from our previous fiscal year ended October 31, 2022:

	January 31, 2023		October 31, 2022
Current Assets	$	31,662,887	$	54,690,546
Current Liabilities	10,288,642		21,872,751
Long-Term Liabilities	948,929		1,022,030

Current Assets

    The decrease in current assets is primarily the result of decreases in cash and cash equivalents, accounts receivable and inventories at January 31, 2023, as compared to October 31, 2022.

Current Liabilities

    The decrease in current liabilities is due primarily to decreases in accounts payable at January 31, 2023, as compared to October 31, 2022.

Long-Term Liabilities

    Long-term liabilities decreased at January 31, 2023, as compared to October 31, 2022, primarily due to the decrease in our lease liability.

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Liquidity and Capital Resources

Based on financial forecasts prepared by our management, we anticipate that we will have sufficient cash on hand, cash from our current credit facilities, and cash from our operations to continue to operate the ethanol plant for the next 12 months. We do not currently anticipate seeking additional equity or debt financing in the near term in order to fund operations. However, if market conditions worsen, we could have difficulty maintaining our liquidity and may need to rely on our revolving lines of credit or seek increases.

The following table shows cash flows for the three months ended January 31, 2023 and 2022:

	2023		2022
	(unaudited)		(unaudited)
Net cash provided by (used in) operating activities	$	(867,584)	$	11,471,169
Net cash used in investing activities	(121,576)		(139,011)
Net cash used in financing activities	(15,289,583)		(10,263,200)

Cash Flow From Operations

We had cash used in operating activities for the three months ended January 31, 2023, as compared to cash provided by operating activities the same period in 2022. This decrease in cash from operations was primarily due to a decrease in net income and accounts payable partially offset by changes in inventories for the three months ended January 31, 2023, as compared to the same period in 2022.

Cash Flow From Investing Activities

We used less cash in investing activities for the three months period ended January 31, 2023, as compared to the same period in 2022. This change was primarily due to a decrease in capital expenditures during the three months ended January 31, 2023.

Cash Flow From Financing Activities

We used more cash in financing activities during the three month ended January 31, 2023, as compared to the same period in 2022. Our cash used in financing activities increased primarily due to increased distributions to our members partially offset by decreased payments on long-term debt during the three months ended January 31, 2023.

Short-Term and Long-Term Debt Sources

    Our loan facility with Compeer Financial f/k/a AgStar Financial Services, PCA ("Compeer") includes a $20,000,000 Term Revolving Loan and a Revolving Line of Credit Loan. Our loan facility with Compeer is secured by substantially all business assets and also subjects the Company to various financial and non-financial covenants.

Term Revolving Loan

The Term Revolving Loan is for up to $20,000,000 with a variable interest rate based on the Wall Street Journal's Prime Rate plus 10 basis points with a minimum interest rate of 2.10%. The applicable interest rate at January 31, 2023 was 7.10%. The Term Revolving Loan may be advanced, repaid and re-borrowed during the term. Monthly interest payments are due on the Term Revolving Loan with payment of all amounts outstanding due on November 1, 2027. The outstanding balance on this note was $0 at January 31, 2023. We pay interest at a rate of 1.50% on amounts outstanding for letters of credit which also reduce the amount available under the Term Revolving Loan. We had no letters of credit outstanding at January 31, 2023. We are also required to pay unused commitment fees for the Term Revolving Loan.

Revolving Line of Credit Loan

The Revolving Line of Credit Loan is for an amount equal to the borrowing base, with a maximum limit of $10,000,000 with a variable interest rate based on the Wall Street Journal's Prime Rate plus 10 basis points with a minimum interest rate of 2.10%. The amount available to borrow per the borrowing base calculations at January 31, 2023 was approximately $531,000. The applicable interest rate at January 31, 2023 was 7.10%. The Revolving Line of Credit Loan may be advanced, repaid and re-borrowed during the term. Monthly interest payments are due on the Revolving Line of Credit Loan

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with payment of all amounts outstanding due on November 1, 2023. The maturity date may be extended for up to four additional one year terms upon our written request which will be deemed automatically granted by Compeer upon written certification that there is no event of default. The outstanding balance on this note was $0 at January 31, 2023. We are also required to pay unused commitment fees for the Revolving Line of Credit Loan.

Covenants and Other Miscellaneous Financing Agreement Terms

The loan facility with Compeer is secured by substantially all business assets. We executed a mortgage in favor of Compeer creating a first lien on our real estate and plant and a security interest in all personal property located on the premises and assigned in favor of Compeer, all rents and leases to our property, our marketing contracts, our risk management services contract, and our natural gas, electricity, water service and grain procurement agreements.

We are also subject to various financial and non-financial covenants that limit distributions and new debt and require minimum debt service coverage and working capital requirements. We are limited to annual capital expenditures of $5,000,000 without prior approval, incurring additional debt over certain amounts without prior approval, and making additional investments as described in the Amended and Restated Credit Agreement without prior approval of Compeer. We are required to maintain a minimum working capital requirement of $9,000,000, which is calculated as current assets plus the amount available for drawing under the Term Revolving Loan and undrawn amounts on outstanding letters of credit, less current liabilities, and is measured quarterly. We are allowed to make cash distributions to members as frequently as monthly in an amount equal to 75% of net income if working capital is greater than or equal to $9,000,000, or an unlimited amount if working capital is greater than or equal to $12,000,000. We are no longer required to maintain a minimum debt service coverage ratio.

Presently, we are meeting our liquidity needs and complying with our financial covenants and the other terms of our loan agreements. We will continue to work with Compeer to try to ensure that the terms of our loan agreements are met going forward. However, we cannot provide any assurance that our actions will result in sustained profitable operations or that we will not be in violation of our loan covenants or in default on our principal payments in the future. Should unfavorable market conditions result in our violation of the terms or covenants of our loan and we fail to obtain a waiver of any such term or covenant, Compeer could deem us in default of our loans and require us to immediately repay a significant portion or possibly the entire outstanding balance of our loans. In the event of a default, Compeer could also elect to proceed with a foreclosure action on our plant.

Grants

On February 17, 2023, we received an award from the Minnesota Bioincentive Program of approximately $100,000. The Minnesota State Legislature established the Bioincentive Program in 2015 to encourage commercial-scale production of advanced biofuels, renewable chemicals, and biomass thermal energy thorough production incentive payments. Eligible producers of cellulosic ethanol may receive $0.16 per gallon of cellulosic ethanol produced subject to program funding limitations.

Capital Expenditures    

    We expect to commence a construction project during our 2023 fiscal year to expand our lab and add additional office space. We anticipate that the project will cost approximately $1,200,000 and will be funded from operations and existing debt facilities.

Critical Accounting Estimates

Management uses various 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. Accounting estimates that are the most important to the presentation of our results of operations and financial condition, and which require the greatest use of judgment by management, are designated as our critical accounting estimates. We have the following critical accounting estimates:

Long-Lived Assets

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.  Impairment testing for assets requires various estimates and assumptions, including an allocation of cash flows to those assets and, if required, an estimate of the fair value of those assets.  Our estimates are based

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upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. These valuations require the use of management's assumptions, which do not reflect unanticipated events and circumstances that may occur.  Given the significant assumptions required and the possibility that actual conditions will differ, we consider the assessment of carrying value of property and equipment to be a critical accounting estimate.

Inventory Valuation

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

Derivatives

We are exposed to market risks from changes in interest rates, corn, natural gas, and ethanol prices. We may seek to minimize these commodity price fluctuation risks through the use of derivative instruments. In the event we utilize derivative instruments, we will attempt to link these instruments to financing plans, sales plans, market developments, and pricing activities. Such instruments in and of themselves can result in additional costs due to unexpected directional price movements.

We have entered into ethanol, corn and natural gas derivatives in order to protect cash flows from fluctuations caused by volatility in commodity prices. In practice, as markets move, we actively attempt to manage our risk and adjust hedging strategies as appropriate. We do not use hedge accounting which would match the gain or loss on our hedge positions to the specific commodity contracts being hedged. Instead, we use fair value accounting for our hedge positions, which means that as the current market price of our hedge position changes, the gains and losses are immediately recognized in our statement of operations. The immediate recognition of hedging gains and losses under fair value accounting can cause net income (loss) to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged.

    As of January 31, 2023, the fair values of our commodity-based derivative instruments are a net liability of approximately $597,000. As the prices of the hedged commodity moves in reaction to market trends and information, our statement of operations 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 protect the Company over the term of the contracts for the hedged amounts.

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 may use cash, futures and option contracts to hedge changes to the commodity prices of corn 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.

Interest Rate Risk

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from our Term Revolving Loan and Revolving Line of Credit Loan, each bearing a variable interest rate.  As of January 31, 2023, we had $0 outstanding on the Term Revolving Loan and the Revolving Line of Credit Loan. As of January 31, 2023, interest accrues on these loans at a variable interest rate based on the Wall Street Journal's Prime Rate plus 10 basis points with a minimum interest rate of 2.10% and the applicable interest rate was 7.10%. Given the balance owed on these loans as of January 31, 2023, we have determined that our exposure to market risk from changes in interest rates is not material. The specifics of each loan are discussed in greater detail in “Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”

Commodity Price Risk

We expect to be exposed to market risk from changes in commodity prices.  Exposure to commodity price risk results from our dependence on corn and natural gas in the ethanol production process and the sale of ethanol and distillers grains. We

22

may seek to minimize the risks from fluctuations in the prices of raw material inputs through the use of corn commodity-based and natural gas derivatives. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Corn and natural gas derivative changes in fair market value are included in costs of goods sold.

    In the ordinary course of business, we enter into forward contracts for our commodity purchases. At January 31, 2023, we had 3,766,250 bushels of forward fixed basis corn purchase contracts and 2,115,715 bushels of forward fixed price corn purchase contracts valued at approximately $22,079,000. These purchase contracts are for various delivery periods through December 31, 2025. At January 31, 2023, we had 3,639,050 MMBTUs of forward natural gas fixed price purchase contracts valued at approximately $9,195,000 for delivery periods through October 31, 2025. In addition, at January 31, 2023, we had 573,500 gallons of forward fixed price denaturant purchase contracts valued at approximately $478,000 for delivery periods through September 30, 2022.

    In the ordinary course of business, we enter into forward contracts for our commodity sales. At January 31, 2023, we had 21,325 tons of forward fixed price dried distillers grains sales contracts valued at approximately $2,684,000 for delivery periods through December 31, 2022. At January 31, 2023, we had 14,200 tons of forward fixed price modified distillers grains sales contracts valued at approximately $514,000 for delivery periods through April 30, 2023. At January 31, 2023, we had 905,000 pounds of forward fixed price corn oil sales contracts valued at approximately $1,224,000 for delivery periods through September 30, 2022.

    We recorded gains due to changes in the fair value of our outstanding corn derivative future positions of approximately $313,674 and $569,872 for the three months ended January 31, 2023 and 2022, respectively. We recorded gains (losses) due to changes in the fair value of our outstanding ethanol derivative future positions of approximately $60,465 and $4,388 for the three months ended January 31, 2023 and 2022, respectively. For the the three months ended January 31, 2023 and 2022, we recorded gains (losses) due to the change in fair value of our outstanding natural gas derivative future positions of approximately $83,875 and $0, respectively.

    As commodity 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, distillers grains, corn and natural gas price risk. Market risk related to these factors is estimated as the potential change in income resulting from a hypothetical 10% adverse change in the average cost of our corn and natural gas prices and average ethanol and distillers grains prices as of January 31, 2023, net of the forward and future contracts used to hedge our market risk for corn and natural gas usage requirements. The volumes are based on our expected use and sale of these commodities for a one year period from January 31, 2023. The results of this analysis, which may differ from actual results, are approximately as follows:

	Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)	Unit of Measure	Hypothetical Adverse Change in Price as of January 31, 2023		Approximate Adverse Change to Income
Natural Gas	27,000	MMBTU	10	%		$	7,200
Ethanol	69,000,000	Gallons	10	%		$	13,938,000
Corn	20,884,000	Bushels	10	%		$	14,347,000
DDGs	99,000	Tons	10	%		$	2,752,000

Item 4.  Controls and Procedures

    Disclosure Controls and Procedures

Our management is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. In addition, the disclosure controls and procedures must ensure

23

that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.

Our management, including our Chief Executive Officer (the principal executive officer), Brian Kletscher, along with our Chief Financial Officer (the principal financial officer), Lucas Schneider, have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of January 31, 2023.  Based on 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 control over financial reporting during the three months ended January 31, 2023, which were identified in connection with management’s evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act, 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

    None.

Item 1A. Risk Factors

None.

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

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Units Purchased	Average Price Paid per Unit $	Total Number of Units Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Units that May Yet Be Purchased Under the Plans or Programs
November 1, 2022 - November 30, 2022	1	9,000	—	—
December 1, 2022 - December 31, 2022	—	—	—	—
January 1, 2023 - January 31, 2023	1	10,000	—	—
Total	2	19,000	—	—

Item 3. Defaults Upon Senior Securities

    None.

Item 4. Mine Safety Disclosures

    None.

24

Item 5. Other Information

    None.

Item 6. Exhibits.

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

Exhibit No.	Exhibit
10.1	2023 Executive Bonus Plan
31.1	Certificate Pursuant to 17 CFR 240.13a-14(a)*
31.2	Certificate Pursuant to 17 CFR 240.13a-14(a)*
32.1	Certificate Pursuant to 18 U.S.C. Section 1350*
32.2	Certificate Pursuant to 18 U.S.C. Section 1350*
101.INS	Inline XBRL Instance Document – the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	Inline XBRL Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in the Interactive Data Files submitted as Exhibit 101).

(+) Confidential Treatment Requested.

* Filed herewith.

** Furnished herewith.

25

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.

		HIGHWATER ETHANOL, LLC
Date:	March 8, 2023	/s/ Brian Kletscher
		Brian Kletscher
		Chief Executive Officer
		(Principal Executive Officer)
Date:	March 8, 2023	/s/ Lucas Schneider
		Lucas Schneider
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

26

EX-10.1

Eligible Salary Net Income Incentive EBITDA Debt Service Share Value Yield/Project Compliance Total Percent Incentive Total Incentive Brian Kletscher Yes 264,350.37$ 17% 8.00% 2.00% 3.00% 5.00% 35.00% 92,522.63$ Eligible Salary Net Income Incentive EBITDA Debt Service Share Value Financial Reports Audit/SEC Compliance Total Percent Incentive Total Incentive Lucas Schneider Yes 173,096.41$ 17% 8.00% 2.00% 2.00% 3.00% 32.00% 55,390.85$ 147,913.48$ CEO Executive Bonus CFO Executive Bonus Base Salary Percent 264,350.37$ Base Salary Percent 173,096.41$ Bonus potential 35% Bonus Potential 32% 1. EBITDA 8% 1. EBITDA 8% Budgeted 3% 7,930.51$ Budgeted 3% $5,192.89 plus 10% 3% 7,930.51$ plus 10% 3% $5,192.89 plus 15% 2% 5,287.01$ plus 15% 2% $3,461.93 2. Debt Service Removed for 2021, 2022 & 2023 2. Debt Service removed for 2021, 2022 & 2023 Budget plus 5% Budget plus 5% plus 10% plus 10% plus 15% plus 15% 3. Compliance 5% 3. Compliance 3% MPCA/DNR Permits Water 1% 2,643.50$ SEC Reporting 2% $3,461.93 MPCA Air Permits 1% 2,643.50$ Audit 1% $1,730.96 Federal Rail/State Rail/OSHA 1% 2,643.50$ SEC Reporting 2% 5,287.01$ 4. Operations/Yield 2% 4. Financial Reports 2% 2.98 1% 2,643.50$ Monthly On Time 1% $1,730.96 3.00 1% 2,643.50$ Quarterly 1% $1,730.96 5. Increase Share Value/Distribution 1% 2,643.50$ 3% 5. Increase Share Value/Distribution 1% $1,730.96 3% 1% 2,643.50$ 6% 1% $1,730.96 6% 6. New Technology Reviewed 1% 2,643.50$ 6. Income 6. Income Net Income Portion Profitability Net Income Portion Profitability Net Income {Book} Percent 17% Net Income {Book} Percent 17% $2.0 - $2.5 MM 1% 2,638.08$ $2.0 - $2.5 MM 1% $1,727.41 $2.5 - $3.0 MM 1% 2,638.08$ $2.5 - $3.0 MM 1% $1,727.41 $3.0 - $3.5 MM 1% 2,643.50$ $3.0 - $3.5 MM 1% $1,730.96 $3.5 - $4.0 MM 1% 2,643.50$ $3.5 - $4.0 MM 1% $1,730.96 $4.0- $4.5 MM 1% 2,643.50$ $4.0- $4.5 MM 1% $1,730.96 $4.5 - $5.0 MM 1% 2,643.50$ $4.5 - $5.0 MM 1% $1,730.96 $5.0 - $5.5 MM 1% 2,643.50$ $5.0 - $5.5 MM 1% $1,730.96 $5.5 - $6.0 MM 1% 2,643.50$ $5.5 - $6.0 MM 1% $1,730.96 $6.0 - $6.5 MM 1% 2,643.50$ $6.0 - $6.5 MM 1% $1,730.96 $6.5 - $7.0 MM 1% 2,643.50$ $6.5 - $7.0 MM 1% $1,730.96 $7.0 - $ 7.5 MM 1% 2,643.50$ $7.0 - $ 7.5 MM 1% $1,730.96 $7.5 - $8.0 MM 1% 2,643.50$ $7.5 - $8.0 MM 1% $1,730.96 $8.0 - $8.5 MM 1% 2,643.50$ $8.0 - $8.5 MM 1% $1,730.96 $8.5 - $9.0 MM 1% 2,643.50$ $8.5 - $9.0 MM 1% $1,730.96 $9.0 - $9.5 MM 1% 2,643.50$ $9.0 - $9.5 MM 1% $1,730.96 $9.5 - $10.0 MM 1% 2,643.50$ $9.5 - $10.0 MM 1% $1,730.96 $10.0 - $10.5 MM 1% 2,643.50$ $10.0 - $10.5 MM 1% $1,730.96 92,511.78$ $55,383.74 Highwater Ethanol Incentive Program Fiscal 2023

EX-31.1

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

(SECTION 302 CERTIFICATION)

I, Brian Kletscher, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Highwater Ethanol, 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 officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

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

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

Date:	March 8, 2023	/s/ Brian Kletscher
		Brian Kletscher, Chief Executive Officer (Principal Executive Officer)

EX-31.2

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

(SECTION 302 CERTIFICATION)

I, Lucas Schneider, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Highwater Ethanol, 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 officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

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

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

Date:	March 8, 2023	/s/ Lucas Schneider
		Lucas Schneider, Chief Financial Officer (Principal Financial and Accounting Officer)

EX-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 Highwater Ethanol, LLC (the “Company”) for the quarter ended January 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian Kletscher, 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.

/s/ Brian Kletscher
Brian Kletscher, Chief Executive Officer
Dated:	March 8, 2023

EX-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 Highwater Ethanol, LLC (the “Company”) for the quarter ended January 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lucas Schneider, 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.

/s/ Lucas Schneider
Lucas Schneider, Chief Financial Officer
Dated:	March 8, 2023

XML

Cover - shares	3 Months Ended
	Jan. 31, 2023	Mar. 08, 2023
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jan. 31, 2023
Document Transition Report	false
Entity File Number	000-53588
Entity Registrant Name	HIGHWATER ETHANOL, LLC
Entity Incorporation, State or Country Code	MN
Entity Tax Identification Number	20-4798531
Entity Address, Address Line One	24500 US Highway 14,
Entity Address, City or Town	Lamberton,
Entity Address, State or Province	MN
Entity Address, Postal Zip Code	56152
City Area Code	507
Local Phone Number	752-6160
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		4,755
Entity Central Index Key	0001371451
Current Fiscal Year End Date	--10-31
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Condensed Balance Sheets - USD ($)	Jan. 31, 2023	Oct. 31, 2022
Current Assets
Cash and cash equivalents	$ 13,511,515	$ 29,790,258
Derivative instruments	344,570	743,514
Accounts receivable	2,932,943	3,970,064
Inventories	13,983,340	19,197,522
Prepaids and other	890,519	989,188
Total current assets	31,662,887	54,690,546
Property and Equipment
Land and land improvements	13,152,403	13,152,403
Buildings	38,848,218	38,848,218
Office equipment	1,231,526	1,223,869
Plant and process equipment	87,235,438	87,235,438
Vehicles	123,779	123,779
Construction in progress	488,974	426,294
Gross property and equipment	141,080,338	141,010,001
Less accumulated depreciation	(102,999,383)	(100,585,625)
Net property and equipment	38,080,955	40,424,376
Other Assets
Investments	4,627,362	3,823,638
Right of use asset - operating leases	229,116	267,731
Right of use asset - finance leases	926,734	961,057
Other	583,232	708,232
Deposits	493,330	312,269
Total other assets	6,859,774	6,072,927
Total Assets	76,603,616	101,187,849
Current Liabilities
Accounts payable	8,891,938	20,068,351
Accrued expenses	1,110,221	1,521,820
Current portion of operating lease liability	159,869	157,691
Current portion of finance lease liability	126,614	124,889
Total Current Liabilities	10,288,642	21,872,751
Long-Term Liabilities
Operating lease liability	69,247	110,040
Finance lease liability	879,682	911,990
Total Long-Term Liabilities	948,929	1,022,030
Commitments and Contingencies
Members' Equity
Members' equity, 4,762 and 4,764 units outstanding	65,366,045	78,293,068
Total Liabilities and Members’ Equity	$ 76,603,616	$ 101,187,849

XML

Condensed Balance Sheets (Parenthetical) - shares	Jan. 31, 2023	Oct. 31, 2022
Statement of Financial Position [Abstract]
Members' equity, units outstanding (in shares)	4,762	4,764

XML

Condensed Unaudited Statements of Operations - USD ($)	3 Months Ended
	Jan. 31, 2023	Jan. 31, 2022
Income Statement [Abstract]
Revenues	$ 48,861,565	$ 58,643,436
Cost of Goods Sold	45,512,464	41,482,340
Gross Profit	3,349,101	17,161,096
Operating Expenses	1,198,113	1,121,700
Operating Income	2,150,988	16,039,396
Other Income (Expense)
Interest income	59,669	8,567
Other income	111,720	62,312
Interest expense	(64,712)	(88,836)
Income from equity method investments	74,312	80,049
Total other income (expense), net	180,989	62,092
Net Income	$ 2,331,977	$ 16,101,488
Weighted Average Units Outstanding - Basic (in shares)	4,763	4,771
Weighted Average Units Outstanding - Diluted (in shares)	4,763	4,771
Net Income Per Unit, Basic (in dollars per share)	$ 489.60	$ 3,374.87
Net Income Per Unit, Diluted (in dollars per share)	489.60	3,374.87
Distributions Declared Per Unit (in dollars per share)	$ 3,200	$ 9,800

XML

Statements of Changes in Members' Equity (Unaudited) - USD ($)	Total	Members' Equity
Members' Equity, beginning balance at Oct. 31, 2021		$ 63,215,463
Members' Equity [Roll Forward]
Net income	$ 16,101,488	16,101,488
Member distribution		(18,130,900)
Member unit repurchase		(75,500)
Members' Equity, ending balance at Jan. 31, 2022		61,110,551
Members' Equity, beginning balance at Oct. 31, 2022	78,293,068	78,293,068
Members' Equity [Roll Forward]
Net income	2,331,977	2,331,977
Member distribution		(15,240,000)
Member unit repurchase		(19,000)
Members' Equity, ending balance at Jan. 31, 2023	$ 65,366,045	$ 65,366,045

XML

Statements of Changes in Members' Equity (Unaudited) (Parenthetical) - shares	3 Months Ended
	Jan. 31, 2023	Jan. 31, 2022
Members' Equity [Abstract]
Member unit repurchase (in units)	2	12

XML

Condensed Unaudited Statements of Cash Flows - USD ($)	3 Months Ended
	Jan. 31, 2023	Jan. 31, 2022
Cash Flows from Operating Activities
Net income	$ 2,331,977	$ 16,101,488
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization	2,573,081	2,594,690
Earnings in excess of distributions from equity method investments	(585,020)	(100,548)
Non-cash patronage income	(218,704)	(157,260)
Changes in assets and liabilities
Accounts receivable	1,037,121	2,252,101
Inventories	5,214,182	(2,573,729)
Derivative instruments	398,944	45,933
Prepaids and other	(82,392)	80,480
Accounts payable	(11,125,173)	(6,569,745)
Accrued expenses	(411,600)	(202,241)
Net cash provided by (used in) operating activities	(867,584)	11,471,169
Cash Flows from Investing Activities
Capital expenditures	(121,576)	(139,011)
Net cash used in investing activities	(121,576)	(139,011)
Cash Flows from Financing Activities
Payments on long-term debt	0	(3,000,000)
Member unit repurchases	(19,000)	(75,500)
Payment on finance lease liability	(30,583)	(28,950)
Member distributions paid	(15,240,000)	(7,158,750)
Net cash used in financing activities	(15,289,583)	(10,263,200)
Net Increase (Decrease) in Cash and Cash Equivalents	(16,278,743)	1,068,958
Cash and Cash equivalents – Beginning of Period	29,790,258	7,549,008
Cash and Cash equivalents – End of Period	13,511,515	8,617,966
Supplemental Cash Flow Information
Cash paid for interest	14,117	29,708
Supplemental Disclosure of Noncash Financing and Investing Activities
Capital expenditures included in accounts payable	0	0
Distribution payable	$ 0	$ 10,972,150

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Jan. 31, 2023

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations.  The accompanying balance sheet and related notes as of October 31, 2022 are derived from the audited financial statements as of that date. These condensed financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company’s audited financial statements for the year ended October 31, 2022, contained in the Company’s Form 10-K.

In the opinion of management, the interim condensed financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary for fair presentation of the Company's financial position as of January 31, 2023 and the results of operations and cash flows for all periods presented.

Nature of Business

Highwater Ethanol, LLC, (a Minnesota Limited Liability Company) operates an ethanol plant near Lamberton, Minnesota. The ethanol plant was constructed as a 50 million gallon per year nameplate ethanol plant. The plant currently operates in excess of its nameplate capacity due to the approval of air permit by the Minnesota Pollution Control Agency which allows for 70.2 million gallons of denatured ethanol per 12-month rolling average. The Company produces and sells, primarily through third-party professional marketers, fuel ethanol and co-products of the fuel ethanol production process in the continental United States.

Accounting Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The Company uses estimates and assumptions in accounting for significant matters, among others, the carrying value of property and equipment and related impairment testing, inventory valuation, and derivative instruments. Actual results could differ from those estimates and such differences may be material to the 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

ASC Topic 606, Revenue from Contracts with Customers, further details the Company’s requirement to recognize revenue of transferred goods or services to customers in an amount which is expected to be received in exchange for those goods or services. Five steps are required as part of the new guidance: 1. Identify the contract 2. Identify the performance obligations 3. Determine the transaction price 4. Allocate the transaction price to the performance obligation 5. Recognize revenue when each performance obligation is satisfied.

The Company generally sells ethanol and related products pursuant to marketing agreements. The Company’s products are shipped FOB shipping point. The Company recognizes revenue when control of goods is transferred, which is consistent with the Company's previous policy where revenues were recognized when the customer has taken title and has assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured. For ethanol sales by single manifest railcars and trucks, and distillers grains sales, control transfers when loaded into the rail car. For ethanol sales by unit trains, control transfers once the last railcar of the unit train has loaded and the shipping documentation transferred to the marketer.

In accordance with the Company’s agreements for the marketing and sale of ethanol and related products, marketing fees and freight due to the marketers are deducted from the gross sales price at the time incurred. Revenue is recorded net of these marketing fees and freight as they do not provide an identifiable benefit that is sufficiently separable from the sale of ethanol and related products.

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

consideration that we expect to receive in exchange for those goods or services.

•ethanol sales

•modified distillers grains sales

•dried distillers grains sales

•corn oil sales

Disaggregation of revenue:

All revenue recognized in the statement of operations is considered to be revenue from contracts with customers. The following table depicts the disaggregation of revenue according to product line for the three months ended January 31, 2023 and 2022:

	Three Months Ended January 31, 2023		Three Months Ended January 31, 2022
Revenue Sources	Amount		Amount
Ethanol Sales	$	35,041,206	$	48,357,467
Modified Distillers Grains Sales	3,360,928		1,741,199
Dried Distillers Grains Sales	6,140,728		5,386,603
Corn Oil Sales	4,318,703		3,158,167
Total Revenues	$	48,861,565	$	58,643,436

Contract assets and contract liabilities:

The Company receives payments from customers based upon contractual billing schedules; accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities include payments received in advance of performance under the contract, and are realized with the associated revenue recognized under the contract.

The Company had short term contract liabilities from contracts with customers of $293,772 at January 31, 2023 and $0 at October 31, 2022.

Shipping Costs

Shipping costs incurred by the Company in the sale of ethanol, dried distillers grains and corn oil are not specifically identifiable and as a result, revenue from the sale of those products is recorded based on the net selling price reported to the Company from the marketer.

Operating Segment

The Company uses the "management approach" for reporting information about segments in annual and interim financial statements. The management approach is based on the way the chief operating decision-maker organizes segments within a company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure and any other manner in which management disaggregates a company. Based on the "management approach" model, the Company has determined that its business is comprised of a single operating segment.

Derivative Instruments

Derivatives are recognized in the balance sheets and the measurement of these instruments are 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.

Contracts are evaluated to determine whether the contracts are derivatives. Certain contracts that 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 as derivatives, therefore, are not marked to market in our financial statements.

The Company enters into ethanol, corn and natural gas derivatives in order to protect cash flows from fluctuations caused by volatility in prices. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Ethanol derivative changes in fair market value are included in revenue. Corn and natural gas derivative changes in fair market value are included in costs of goods sold.

Carrying Value of Long-Lived Assets

Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset group to the carrying value of the asset group. If the carrying value of the long-lived asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

In accordance with the Company’s policy for evaluating impairment of long-lived assets described above, when a triggering event occurs management evaluates the recoverability of the facilities based on projected future cash flows from operations over the facilities’ estimated useful lives. In determining the projected future undiscounted cash flows, the Company makes significant assumptions concerning the future viability of the ethanol industry, the future price of corn in relation to the future price of ethanol and the overall demand in relation to production and supply capacity. The Company has not recorded any impairment for the three months ended January 31, 2023 and 2022.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, and accounts payable, and other working capital items approximate fair value at January 31, 2023 due to the short maturity nature of these instruments (Level 2).

Derivative instruments are carried at fair value, based on dealer quotes and live trading levels (Note 5).

Investments

The Company has a 5.26% investment interest in an unlisted company, Renewable Products Marketing Group, LLC (RPMG), who markets the Company’s ethanol. The Company also has a 7% ownership interest in Lawrenceville Tank, LLC (LT), which owns and operates a trans load/tank facility near Atlanta, Georgia. These investments are flow-through entities and are being accounted for by the equity method of accounting under which the Company’s share of net income is recognized as income in the Company’s statements of operations and added to the investment account. Distributions or dividends received from the investment are treated as a reduction of the investment account. The Company consistently follows the practice of recognizing the net income (loss) from equity method investments based on the most recent reliable data. Therefore, the net income (loss) which is reported in the Company's statement of operations for the period ended January 31, 2023 is based on the investee’s results of operations for the period ended December 31, 2022.

The Company has cost method of investments in cooperatives. The corresponding patronage income is recorded in costs of goods sold.

Grants

On February 17, 2023, the Company received an award from the Minnesota Bioincentive Program of approximately $100,000. The Minnesota State Legislature established the Bioincentive Program in 2015 to encourage commercial-scale production of advanced biofuels, renewable chemicals, and biomass thermal energy thorough production incentive payments. Eligible producers of cellulosic ethanol may receive $0.16 per gallon of cellulosic ethanol produced subject to program funding limitations. The award was recorded in the first quarter of fiscal 2023 in other income.

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UNCERTAINTIES	3 Months Ended
	Jan. 31, 2023
Risks and Uncertainties [Abstract]
UNCERTAINTIES	UNCERTAINTIESThe Company derives substantially all of its revenues from the sale of ethanol, distillers grains and corn oil. These products are commodities and the market prices for these products display substantial volatility and are subject to a number of factors which are beyond the control of the Company. The Company’s most significant manufacturing inputs are corn and natural gas. The price of these commodities is also subject to substantial volatility and uncontrollable market factors. In addition, these input costs do not necessarily fluctuate with the market prices for ethanol and distillers grains. As a result, the Company is subject to significant risk that its operating margins can be reduced or eliminated due to the relative movements in the market prices of its products and major manufacturing inputs. As a result, market fluctuations in the price of or demand for these commodities can have a significant adverse effect on the Company’s operations, profitability, and availability of cash flows to make loan payments and maintain compliance with the loan agreement.

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INVENTORIES

3 Months Ended

Jan. 31, 2023

Inventory Disclosure [Abstract]

INVENTORIES

INVENTORIES

Inventories consisted of the following at:

	January 31, 2023		October 31, 2022
Raw materials	$	4,200,949	$	11,103,311
Spare parts and supplies	5,089,753		4,800,511
Work in process	1,328,216		1,342,412
Finished goods	3,364,422		1,951,288
Total	$	13,983,340	$	19,197,522

The Company recorded a lower of cost or net realizable value write-down on finished goods inventory of approximately $66,000 and $0 at January 31, 2023 and October 31, 2022, respectively.

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DERIVATIVE INSTRUMENTS

3 Months Ended

Jan. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS As of January 31, 2023, the Company had entered into corn, natural gas and ethanol derivative instruments, which are required to be recorded as either assets or liabilities at fair value in the balance sheet. The Company uses these instruments to manage risks from changes in market rates and prices. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the derivative instrument and the related change in value of the underlying hedged item. The Company may designate the hedging instruments based upon the exposure being hedged as a fair value hedge or a cash flow hedge. The derivative instruments outstanding at January 31, 2023 are not designated as hedges for accounting purposes.

Commodity Contracts

The following tables provide details regarding the Company's derivative instruments at January 31, 2023 and October 31, 2022:

Instrument	Balance Sheet location	January 31, 2023		October 31, 2022
Corn, natural gas and ethanol contracts
In gain position		$	—	$	—
In loss position		(596,874)		(1,101,594)
Deposits with broker		941,444		1,845,108
	Current assets	$	344,570	$	743,514

The Company has 468,000 bushels of corn inventory delivered under delayed-pricing contracts. The contracts have various pricing deadlines through August 31, 2023. The Company is subject to risk of changes in the corn market until they are priced.

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

	Statement of	Three Months Ended January 31,
	Operations location	2023		2022
Ethanol contracts	Revenues	$	60,465	$	4,388
Corn contracts	Cost of goods sold	313,674		569,872
Natural gas contracts	Cost of goods sold	83,875		(125,867)

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FAIR VALUE MEASUREMENTS

3 Months Ended

Jan. 31, 2023

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

The following table provides information on those assets (liabilities) measured at fair value on a recurring basis.

	Fair Value as of	Fair Value Measurement Using
	January 31, 2023	Level 1	Level 2	Level 3
Derivative instruments - commodities
In loss position	(596,874)	(19,680)	(577,194)

	Fair Value as of		Fair Value Measurement Using
	October 31, 2022		Level 1		Level 2		Level 3
Derivative instruments - commodities
In loss position	$	(1,101,594)	$	(45,075)	$	(1,056,519)	$	—

The Company determines the fair values of commodities by obtaining the fair value measurements from an independent pricing service based on dealer quotes and live trading levels from the Chicago Board of Trade.

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DEBT FINANCING

3 Months Ended

Jan. 31, 2023

Debt Disclosure [Abstract]

DEBT FINANCING

DEBT FINANCING

The Company had no long-term debt at January 31, 2023 or October 31, 2022, respectively.

Bank Financing

The Company has a loan facility with Compeer Financial f/k/a AgStar Financial Services, PCA ("Compeer") that includes a $20,000,000 Term Revolving Loan and a Revolving Line of Credit Loan. The loan facility with Compeer is secured by substantially all business assets and also subjects the Company to various financial and non-financial covenants.

Term Revolving Loan

The Term Revolving Loan is for $20,000,000, and has a variable interest rate based on the Wall Street Journal's Prime Rate plus 10 basis points with a minimum interest rate of 2.10%. The applicable interest rate at January 31, 2023 was 7.10%. The Term Revolving Loan may be advanced, repaid and re-borrowed during the term. Monthly interest payments are due on the Term Revolving Loan. Payment of all amounts outstanding are due on November 1, 2027. The outstanding balance on this note was $0 at January 31, 2023. The Company pays interest at a rate of 1.50% on amounts outstanding for letters of credit which also reduce the amount available under the Term Revolving Loan. The Company has no letters of credit outstanding at January 31, 2023. The Company is also required to pay unused commitment fees for the Term Revolving Loan.

Revolving Line of Credit Loan

The Revolving Line of Credit Loan is for an amount equal to the borrowing base, with a maximum limit of $10,000,000, and has a variable interest rate based on the Wall Street Journal's Prime Rate plus 10 basis points with a minimum interest rate of 2.10%. The amount available to borrow per the borrowing base calculations at January 31, 2023 was approximately $531,000. The applicable interest rate at January 31, 2023 was 7.10%. The Revolving Line of Credit Loan may be advanced, repaid and re-borrowed during the term. Monthly interest payments are due on the Revolving Line of Credit Loan with payment of all amounts outstanding due on November 1, 2023. The maturity date may be extended for up to four additional one year terms upon written request of the Company which will be deemed automatically granted by Compeer upon written certification that there is no event of default. The outstanding balance on this note was $0 at January 31, 2023. The Company is also required to pay unused commitment fees for the Revolving Line of Credit Loan.

Covenants and other Miscellaneous Terms

The loan facility with Compeer is secured by substantially all business assets. The Company executed a mortgage creating a first lien on its real estate and plant and a security interest in all personal property located on the premises and assigned all rents and leases to property, marketing contracts, risk management services contract, and natural gas, electricity, water service and grain procurement agreements.

The Company is also subject to various financial and non-financial covenants that limit distributions and debt and require minimum debt service coverage and working capital requirements. The Company is limited to annual capital expenditures of $5,000,000 without prior approval, incurring additional debt over certain amounts without prior approval, and making additional investments as described in the Second Amended and Restated Credit Agreement without prior approval. The minimum working capital is $9,000,000, which is calculated as current assets plus the amount available for drawing under our Term Revolving Loan, and undrawn amounts on outstanding letters of credit less current liabilities, and is measured quarterly. The Company is allowed to make distributions to members as frequently as monthly in an amount equal to 75% of net income if working capital is greater than or equal to $9,000,000, or or an unlimited amount of net income if working capital is greater than or equal to $12,000,000. The requirement to maintain a minimum debt service coverage ratio has been eliminated.

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LEASES

3 Months Ended

Jan. 31, 2023

Leases [Abstract]

LEASES

LEASES

The Company leases rail cars for its facility to transport dried distillers grains to its end customers. We classified these identified assets as operating leases after assessing the terms under lease classification guidance.

The Company has a contract for use of a natural gas pipeline which transports natural gas from the Northern Natural Gas pipeline to the Company’s facility. This natural gas line has no alternate use and is specifically for the benefit of the Company. The contract has minimum volume requirements as well as a fixed monthly fee. This contract meets the definition of a lease and is classified as a finance lease. Right of use assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

The discount rate used in determining the lease liability for each individual lease is the Company's estimated incremental borrowing rate at the time the lease is entered into. An incremental borrowing rate of 5.5% was utilized for each of the Company's leases.

The Company determines if an arrangement is a lease or contains a lease at inception. The Company’s operating and finance leases have remaining lease terms of approximately 3 years and 9 years, respectively. These leases include options to extend the lease. When it is reasonably certain the Company will exercise those options, the Company will update the remaining terms of the leases. The Company does not have lease arrangements with residual value guarantees, sale leaseback terms or material restrictive covenants.

The following table summarizes the remaining maturities of the Company’s operating and finance lease liabilities as of January 31, 2023:

For the Period Ending January 31,	Operating Leases		Finance Leases
2024	$	168,480	$	178,800
2025	70,200		178,800
2026	—		178,800
2027	—		178,800
2028	—		178,800
Thereafter	—		312,900
Totals	238,680		1,206,900
Amount representing interest	(9,566)		(200,603)
Lease liability	$	229,114	$	1,006,297

Lease Cost	Three Months ended January 31, 2023
Operating lease cost	$	42,120
Short term lease cost	10,194
Finance lease cost
Amortization of leased assets	34,323
Interest on lease liabilities	14,117
Net lease cost	$	100,754

LEASES

LEASES

The Company leases rail cars for its facility to transport dried distillers grains to its end customers. We classified these identified assets as operating leases after assessing the terms under lease classification guidance.

The Company has a contract for use of a natural gas pipeline which transports natural gas from the Northern Natural Gas pipeline to the Company’s facility. This natural gas line has no alternate use and is specifically for the benefit of the Company. The contract has minimum volume requirements as well as a fixed monthly fee. This contract meets the definition of a lease and is classified as a finance lease. Right of use assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

The discount rate used in determining the lease liability for each individual lease is the Company's estimated incremental borrowing rate at the time the lease is entered into. An incremental borrowing rate of 5.5% was utilized for each of the Company's leases.

The Company determines if an arrangement is a lease or contains a lease at inception. The Company’s operating and finance leases have remaining lease terms of approximately 3 years and 9 years, respectively. These leases include options to extend the lease. When it is reasonably certain the Company will exercise those options, the Company will update the remaining terms of the leases. The Company does not have lease arrangements with residual value guarantees, sale leaseback terms or material restrictive covenants.

The following table summarizes the remaining maturities of the Company’s operating and finance lease liabilities as of January 31, 2023:

For the Period Ending January 31,	Operating Leases		Finance Leases
2024	$	168,480	$	178,800
2025	70,200		178,800
2026	—		178,800
2027	—		178,800
2028	—		178,800
Thereafter	—		312,900
Totals	238,680		1,206,900
Amount representing interest	(9,566)		(200,603)
Lease liability	$	229,114	$	1,006,297

Lease Cost	Three Months ended January 31, 2023
Operating lease cost	$	42,120
Short term lease cost	10,194
Finance lease cost
Amortization of leased assets	34,323
Interest on lease liabilities	14,117
Net lease cost	$	100,754

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COMMITMENTS AND CONTINGENCIES

3 Months Ended

Jan. 31, 2023

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

Marketing Agreements

The Company has an ethanol marketing agreement with a marketer (RPMG) to purchase, market, and distribute the ethanol produced by the Company. The Company also entered into a member control agreement with the marketer whereby the Company made capital contributions and became a minority owner of the marketer. The member control agreement became effective on February 1, 2011 and provides the Company a membership interest with voting rights. The marketing agreement will terminate if the Company ceases to be a member. The Company will assume certain of the member’s rail car leases if the agreement is terminated. The Company can sell its ethanol either through an index arrangement or at an agreed upon fixed price. The marketing agreement is perpetual until terminated according to the agreement.  The Company may be obligated to continue to market its ethanol through the marketer for a period of time. The amended agreement requires minimum capital amounts invested as required under the agreement. RPMG will also purchase, market, and distribute the Company's high purity alcohol.

The Company has a distillers grains marketing agreement with a marketer to market all the dried distillers grains produced at the plant. Under the agreement the marketer charges a maximum of $2.00 per ton and a minimum of $1.50 per ton using 2% of the FOB plant price actually received by them for all dried distillers grains removed. The agreement will remain in effect unless otherwise terminated by either party with 120 days notice. Under the agreement, the marketer is responsible for all transportation arrangements for the distribution of the dried distillers grains. The Company markets and sells its modified and wet distillers grains. On August 26, 2022, the Company gave written notice of its election to terminate its distillers grain marketing agreement with its current marketer. The termination became effective on January 1, 2023.

On August 26, 2022, the Company entered into a distillers grains marketing agreement with a marketer (RPMG) pursuant to which RPMG began purchasing and marketing all of the distillers grains produced at the plant beginning January 1, 2023. The Company pays RPMG a fee to market distillers grains to third party end purchasers and reimburse RPMG for certain charges paid to third parties. RPMG agrees to market the distillers grains using commercially reasonable efforts and endeavor to maximize price and minimize freight and other costs but does not guarantee the price that will be obtained from the sale. Following an initial term, the agreement will be automatically extended for additional terms unless either party gives proper notice of non-extension. The Company may immediately terminate the agreement upon written notice if RPMG fails on 3 separate occasions within any 12-month period to purchase or market distillers grains under circumstances where such breach or failure is not excused or upon RPMG's insolvency. RPMG may immediately terminate the agreement upon written notice if the variance of the Company's actual distillers grains inventory when compared to monthly production and inventory estimates exceeds certain threshold amounts.

The Company has a crude corn oil marketing agreement with a marketer (RPMG) to market all corn oil to be produced at the plant for an initial term. Under the agreement, the Company must provide estimates of production and inventory of corn oil. The marketer may execute sales contracts with buyers for future delivery of corn oil. The Company receives a percentage of the F.O.B. sale price less a marketing fee, actual freight and transportation costs and certain taxes and other charges related to the purchase, delivery or sale. The Company is required to provide corn oil meeting certain specifications as provided in the agreement and the agreement provides for a process for rejection of nonconforming corn oil. The agreement automatically renews for successive terms unless terminated in accordance with the agreement.

Regulatory Agencies

The Company is subject to oversight from regulatory agencies regarding environmental concerns which arise in the ordinary course of its business.

Forward Contracts

In the ordinary course of business, we enter into forward contracts for our commodity purchases and sales. Forward contracts outstanding are as follows at January 31, 2023:

	Quantity	Average Price		Date Delivery Through
Purchase of corn (in bushels):
Basis Contracts	3,766,250			12/31/25
Priced Contracts	2,115,715	$	6.79	12/31/23
Total	5,881,965
Purchase of natural gas (in dekatherms):
Priced contracts	3,639,050	$	3.42	10/31/26
Total	3,639,050
Purchase of denaturant (in gallons):
Priced contracts	573,500	$	1.74	5/31/23
Total	573,500
Sales of dry distillers grains (in tons):
Priced contracts	21,325	$	260.26	9/30/23
Total	21,325
Sales of modified distillers grains (in tons)
Priced contracts	14,200	$	124.11	8/31/23
Total	14,200
Sales of corn oil (in pounds)
Priced contracts	905,000	$	0.70	3/31/23
Total	905,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Jan. 31, 2023

Accounting Policies [Abstract]

Accounting Estimates

Accounting Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The Company uses estimates and assumptions in accounting for significant matters, among others, the carrying value of property and equipment and related impairment testing, inventory valuation, and derivative instruments. Actual results could differ from those estimates and such differences may be material to the 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

ASC Topic 606, Revenue from Contracts with Customers, further details the Company’s requirement to recognize revenue of transferred goods or services to customers in an amount which is expected to be received in exchange for those goods or services. Five steps are required as part of the new guidance: 1. Identify the contract 2. Identify the performance obligations 3. Determine the transaction price 4. Allocate the transaction price to the performance obligation 5. Recognize revenue when each performance obligation is satisfied.

The Company generally sells ethanol and related products pursuant to marketing agreements. The Company’s products are shipped FOB shipping point. The Company recognizes revenue when control of goods is transferred, which is consistent with the Company's previous policy where revenues were recognized when the customer has taken title and has assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured. For ethanol sales by single manifest railcars and trucks, and distillers grains sales, control transfers when loaded into the rail car. For ethanol sales by unit trains, control transfers once the last railcar of the unit train has loaded and the shipping documentation transferred to the marketer.

In accordance with the Company’s agreements for the marketing and sale of ethanol and related products, marketing fees and freight due to the marketers are deducted from the gross sales price at the time incurred. Revenue is recorded net of these marketing fees and freight as they do not provide an identifiable benefit that is sufficiently separable from the sale of ethanol and related products.

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

consideration that we expect to receive in exchange for those goods or services.

•ethanol sales

•modified distillers grains sales

•dried distillers grains sales

•corn oil sales

Disaggregation of revenue:

All revenue recognized in the statement of operations is considered to be revenue from contracts with customers. The following table depicts the disaggregation of revenue according to product line for the three months ended January 31, 2023 and 2022:

	Three Months Ended January 31, 2023		Three Months Ended January 31, 2022
Revenue Sources	Amount		Amount
Ethanol Sales	$	35,041,206	$	48,357,467
Modified Distillers Grains Sales	3,360,928		1,741,199
Dried Distillers Grains Sales	6,140,728		5,386,603
Corn Oil Sales	4,318,703		3,158,167
Total Revenues	$	48,861,565	$	58,643,436

Contract assets and contract liabilities:

The Company receives payments from customers based upon contractual billing schedules; accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities include payments received in advance of performance under the contract, and are realized with the associated revenue recognized under the contract.

The Company had short term contract liabilities from contracts with customers of $293,772 at January 31, 2023 and $0 at October 31, 2022.

Shipping Costs

Shipping costs incurred by the Company in the sale of ethanol, dried distillers grains and corn oil are not specifically identifiable and as a result, revenue from the sale of those products is recorded based on the net selling price reported to the Company from the marketer.

Operating Segment

Operating SegmentThe Company uses the "management approach" for reporting information about segments in annual and interim financial statements. The management approach is based on the way the chief operating decision-maker organizes segments within a company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure and any other manner in which management disaggregates a company. Based on the "management approach" model, the Company has determined that its business is comprised of a single operating segment.

Derivative Instruments

Derivative Instruments

Derivatives are recognized in the balance sheets and the measurement of these instruments are 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.

Contracts are evaluated to determine whether the contracts are derivatives. Certain contracts that 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 as derivatives, therefore, are not marked to market in our financial statements.

The Company enters into ethanol, corn and natural gas derivatives in order to protect cash flows from fluctuations caused by volatility in prices. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Ethanol derivative changes in fair market value are included in revenue. Corn and natural gas derivative changes in fair market value are included in costs of goods sold.

Carrying Value of Long-Lived Assets

Carrying Value of Long-Lived Assets

Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset group to the carrying value of the asset group. If the carrying value of the long-lived asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

In accordance with the Company’s policy for evaluating impairment of long-lived assets described above, when a triggering event occurs management evaluates the recoverability of the facilities based on projected future cash flows from operations over the facilities’ estimated useful lives. In determining the projected future undiscounted cash flows, the Company makes significant assumptions concerning the future viability of the ethanol industry, the future price of corn in relation to the future price of ethanol and the overall demand in relation to production and supply capacity. The Company has not recorded any impairment for the three months ended January 31, 2023 and 2022.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, and accounts payable, and other working capital items approximate fair value at January 31, 2023 due to the short maturity nature of these instruments (Level 2).

Derivative instruments are carried at fair value, based on dealer quotes and live trading levels (Note 5).

Investments

Investments

The Company has a 5.26% investment interest in an unlisted company, Renewable Products Marketing Group, LLC (RPMG), who markets the Company’s ethanol. The Company also has a 7% ownership interest in Lawrenceville Tank, LLC (LT), which owns and operates a trans load/tank facility near Atlanta, Georgia. These investments are flow-through entities and are being accounted for by the equity method of accounting under which the Company’s share of net income is recognized as income in the Company’s statements of operations and added to the investment account. Distributions or dividends received from the investment are treated as a reduction of the investment account. The Company consistently follows the practice of recognizing the net income (loss) from equity method investments based on the most recent reliable data. Therefore, the net income (loss) which is reported in the Company's statement of operations for the period ended January 31, 2023 is based on the investee’s results of operations for the period ended December 31, 2022.

The Company has cost method of investments in cooperatives. The corresponding patronage income is recorded in costs of goods sold.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Jan. 31, 2023

Accounting Policies [Abstract]

Schedule of Disaggregation of Revenue

The following table depicts the disaggregation of revenue according to product line for the three months ended January 31, 2023 and 2022:

	Three Months Ended January 31, 2023		Three Months Ended January 31, 2022
Revenue Sources	Amount		Amount
Ethanol Sales	$	35,041,206	$	48,357,467
Modified Distillers Grains Sales	3,360,928		1,741,199
Dried Distillers Grains Sales	6,140,728		5,386,603
Corn Oil Sales	4,318,703		3,158,167
Total Revenues	$	48,861,565	$	58,643,436

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INVENTORIES (Tables)

3 Months Ended

Jan. 31, 2023

Inventory Disclosure [Abstract]

Schedule of Inventory

Inventories consisted of the following at:

	January 31, 2023		October 31, 2022
Raw materials	$	4,200,949	$	11,103,311
Spare parts and supplies	5,089,753		4,800,511
Work in process	1,328,216		1,342,412
Finished goods	3,364,422		1,951,288
Total	$	13,983,340	$	19,197,522

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DERIVATIVE INSTRUMENTS (Tables)

3 Months Ended

Jan. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivatives Instruments

The following tables provide details regarding the Company's derivative instruments at January 31, 2023 and October 31, 2022:

Instrument	Balance Sheet location	January 31, 2023		October 31, 2022
Corn, natural gas and ethanol contracts
In gain position		$	—	$	—
In loss position		(596,874)		(1,101,594)
Deposits with broker		941,444		1,845,108
	Current assets	$	344,570	$	743,514

Schedule of Gains (Losses) From Derivative Instruments

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

	Statement of	Three Months Ended January 31,
	Operations location	2023		2022
Ethanol contracts	Revenues	$	60,465	$	4,388
Corn contracts	Cost of goods sold	313,674		569,872
Natural gas contracts	Cost of goods sold	83,875		(125,867)

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FAIR VALUE MEASUREMENTS (Tables)

3 Months Ended

Jan. 31, 2023

Fair Value Disclosures [Abstract]

Schedule of Assets and Liabilities Measured at Fair Value

The following table provides information on those assets (liabilities) measured at fair value on a recurring basis.

	Fair Value as of	Fair Value Measurement Using
	January 31, 2023	Level 1	Level 2	Level 3
Derivative instruments - commodities
In loss position	(596,874)	(19,680)	(577,194)

	Fair Value as of		Fair Value Measurement Using
	October 31, 2022		Level 1		Level 2		Level 3
Derivative instruments - commodities
In loss position	$	(1,101,594)	$	(45,075)	$	(1,056,519)	$	—

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LEASES (Tables)

3 Months Ended

Jan. 31, 2023

Leases [Abstract]

Schedule of Maturities of Operating Lease Liabilities

The following table summarizes the remaining maturities of the Company’s operating and finance lease liabilities as of January 31, 2023:

For the Period Ending January 31,	Operating Leases		Finance Leases
2024	$	168,480	$	178,800
2025	70,200		178,800
2026	—		178,800
2027	—		178,800
2028	—		178,800
Thereafter	—		312,900
Totals	238,680		1,206,900
Amount representing interest	(9,566)		(200,603)
Lease liability	$	229,114	$	1,006,297

Schedule of Maturities of Financing Lease Liabilities

The following table summarizes the remaining maturities of the Company’s operating and finance lease liabilities as of January 31, 2023:

For the Period Ending January 31,	Operating Leases		Finance Leases
2024	$	168,480	$	178,800
2025	70,200		178,800
2026	—		178,800
2027	—		178,800
2028	—		178,800
Thereafter	—		312,900
Totals	238,680		1,206,900
Amount representing interest	(9,566)		(200,603)
Lease liability	$	229,114	$	1,006,297

Schedule of Lease Cost

Lease Cost	Three Months ended January 31, 2023
Operating lease cost	$	42,120
Short term lease cost	10,194
Finance lease cost
Amortization of leased assets	34,323
Interest on lease liabilities	14,117
Net lease cost	$	100,754

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COMMITMENTS AND CONTINGENCIES (Tables)

3 Months Ended

Jan. 31, 2023

Commitments and Contingencies Disclosure [Abstract]

Schedule of Forward Contracts

Forward contracts outstanding are as follows at January 31, 2023:

	Quantity	Average Price		Date Delivery Through
Purchase of corn (in bushels):
Basis Contracts	3,766,250			12/31/25
Priced Contracts	2,115,715	$	6.79	12/31/23
Total	5,881,965
Purchase of natural gas (in dekatherms):
Priced contracts	3,639,050	$	3.42	10/31/26
Total	3,639,050
Purchase of denaturant (in gallons):
Priced contracts	573,500	$	1.74	5/31/23
Total	573,500
Sales of dry distillers grains (in tons):
Priced contracts	21,325	$	260.26	9/30/23
Total	21,325
Sales of modified distillers grains (in tons)
Priced contracts	14,200	$	124.11	8/31/23
Total	14,200
Sales of corn oil (in pounds)
Priced contracts	905,000	$	0.70	3/31/23
Total	905,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Narrative (Details) gal in Millions		3 Months Ended
	Feb. 17, 2023 USD ($)	Jan. 31, 2023 USD ($) segment gal	Jan. 31, 2022 USD ($)	Oct. 31, 2022 USD ($)
Product Information [Line Items]
Short term contract liabilities from contracts with customers		$ 293,772		$ 0
Number of operating segments | segment		1
Impairment of long-lived assets		$ 0	$ 0
Renewable Fuels Marketing Group (RPMG)
Product Information [Line Items]
Ownership percentage		5.26%
Lawrenceville Tank, LLC
Product Information [Line Items]
Ownership percentage		7.00%
Ethanol
Product Information [Line Items]
Annual production capacity (in gallons) | gal		50.0
Denatured Ethanol
Product Information [Line Items]
Annual production capacity (in gallons) | gal		70.2
Grant | Subsequent Event
Product Information [Line Items]
Amount of award from program received	$ 100,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Disaggregation of Revenue (Details) - USD ($)	3 Months Ended
	Jan. 31, 2023	Jan. 31, 2022
Disaggregation of Revenue [Line Items]
Revenues	$ 48,861,565	$ 58,643,436
Ethanol Sales
Disaggregation of Revenue [Line Items]
Revenues	35,041,206	48,357,467
Modified Distillers Grains Sales
Disaggregation of Revenue [Line Items]
Revenues	3,360,928	1,741,199
Dried Distillers Grains Sales
Disaggregation of Revenue [Line Items]
Revenues	6,140,728	5,386,603
Corn Oil Sales
Disaggregation of Revenue [Line Items]
Revenues	$ 4,318,703	$ 3,158,167

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INVENTORIES - Schedule of Inventory (Details) - USD ($)	Jan. 31, 2023	Oct. 31, 2022
Inventory Disclosure [Abstract]
Raw materials	$ 4,200,949	$ 11,103,311
Spare parts and supplies	5,089,753	4,800,511
Work in process	1,328,216	1,342,412
Finished goods	3,364,422	1,951,288
Total	$ 13,983,340	$ 19,197,522

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INVENTORIES - Narrative (Details) - USD ($)	3 Months Ended	12 Months Ended
	Jan. 31, 2023	Oct. 31, 2022
Inventory Disclosure [Abstract]
Inventory write-down	$ 66,000	$ 0

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DERIVATIVE INSTRUMENTS - Schedule of Derivatives Instruments (Details) - USD ($)	Jan. 31, 2023	Oct. 31, 2022
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	$ 344,570	$ 743,514
Not designated as hedging instrument | Commodity Contract
Derivatives, Fair Value [Line Items]
In gain position	0	0
In loss position	(596,874)	(1,101,594)
Deposits with broker	941,444	1,845,108
Derivative asset, fair value	$ 344,570	$ 743,514

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DERIVATIVE INSTRUMENTS - Narrative (Details)	Jan. 31, 2023 bu
Corn Delayed Pricing Contract | Not designated as hedging instrument
Derivative [Line Items]
Derivative, nonmonetary notional amount	468,000

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DERIVATIVE INSTRUMENTS - Schedule of Gains (Losses) From Derivative Instruments (Details) - Not designated as hedging instrument - USD ($)	3 Months Ended
	Jan. 31, 2023	Jan. 31, 2022
Ethanol contracts
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) on derivative	$ 60,465	$ 4,388
Corn contracts
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) on derivative	313,674	569,872
Natural gas contracts
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) on derivative	$ 83,875	$ (125,867)

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FAIR VALUE MEASUREMENTS (Details) - Commodity Contract - Recurring - USD ($)	Jan. 31, 2023	Oct. 31, 2022
Derivative instruments - commodities
In loss position	$ (596,874)	$ (1,101,594)
Level 1
Derivative instruments - commodities
In loss position	(19,680)	(45,075)
Level 2
Derivative instruments - commodities
In loss position	(577,194)	(1,056,519)
Level 3
Derivative instruments - commodities
In loss position		$ 0

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DEBT FINANCING (Details)	3 Months Ended
	Jan. 31, 2023 USD ($) segment
Debt Instrument [Line Items]
Annual capital expenditure limit	$ 5,000,000
Working capital requirement	9,000,000
75 percent of net income
Debt Instrument [Line Items]
Working capital requirement	$ 9,000,000
Restrictive covenants (as a percent)	75.00%
Unlimited Amount
Debt Instrument [Line Items]
Working capital requirement	$ 12,000,000
Revolving Credit Facility
Debt Instrument [Line Items]
Effective interest rate	7.10%
Outstanding balance	$ 0
Maximum borrowing capacity	10,000,000
Current borrowing capacity	$ 531,000
Minimum | Revolving Credit Facility
Debt Instrument [Line Items]
Debt stated interest rate	2.10%
Prime Rate | Revolving Credit Facility
Debt Instrument [Line Items]
Basis spread on variable rate (as a percent)	0.10%
Notes payable to banks | Revolving Credit Facility
Debt Instrument [Line Items]
Debt instrument, number of extensions | segment	4
Additional maturity period	1 year
Notes payable to banks | Term Revolving Loan
Debt Instrument [Line Items]
Debt instrument, face amount	$ 20,000,000
Effective interest rate	7.10%
Outstanding balance	$ 0
Notes payable to banks | Term Revolving Loan | Letter of Credit
Debt Instrument [Line Items]
Letter of credit, interest rate at period end	1.50%
Letters of credit outstanding balance	$ 0
Notes payable to banks | Term Revolving Loan | Minimum
Debt Instrument [Line Items]
Debt stated interest rate	2.10%
Notes payable to banks | Term Revolving Loan | Prime Rate
Debt Instrument [Line Items]
Basis spread on variable rate (as a percent)	0.10%

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LEASES - Narrative (Details)	Jan. 31, 2023
Leases [Abstract]
Operating lease discount rate	5.50%
Operating leases remaining lease terms	3 years
Finance leases remaining lease terms	9 years

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LEASES - Maturities of Operating and Financing Lease Liabilities (Details)	Jan. 31, 2023 USD ($)
Operating Leases
2024	$ 168,480
2025	70,200
2026	0
2027	0
2028	0
Thereafter	0
Totals	238,680
Amount representing interest	(9,566)
Lease liability	229,114
Finance Leases
2024	178,800
2025	178,800
2026	178,800
2027	178,800
2028	178,800
Thereafter	312,900
Totals	1,206,900
Amount representing interest	(200,603)
Lease liability	$ 1,006,297

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LEASES - Lease Cost (Details)	3 Months Ended
	Jan. 31, 2023 USD ($)
Leases [Abstract]
Operating lease cost	$ 42,120
Short term lease cost	10,194
Amortization of leased assets	34,323
Interest on lease liabilities	14,117
Net lease cost	$ 100,754

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COMMITMENTS AND CONTINGENCIES - Marketing Agreements (Details) - Distillers Grains Marketing Group - Marketing Agreements	3 Months Ended
	Jan. 31, 2023 $ / T
Related Party Transaction [Line Items]
Related party transaction, fees, percentage of total	2.00%
Related party contract termination notice period	120 days
Maximum
Related Party Transaction [Line Items]
Related party transaction, marketing expense (in dollars per ton)	2.00
Minimum
Related Party Transaction [Line Items]
Related party transaction, marketing expense (in dollars per ton)	1.50

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COMMITMENTS AND CONTINGENCIES - Forward Contracts (Details)	Jan. 31, 2023 MMBTU lb bu T gal $ / gal $ / T $ / MMBTU $ / lb $ / bu
Distillers grains
Supply Commitment [Line Items]
Derivative, nonmonetary notional amount	21,325
Modified distillers grains
Supply Commitment [Line Items]
Derivative, nonmonetary notional amount	14,200
Corn oil
Supply Commitment [Line Items]
Derivative, nonmonetary notional amount | lb	905,000
Corn contracts
Supply Commitment [Line Items]
Derivative, nonmonetary notional amount | bu	5,881,965
Natural gas
Supply Commitment [Line Items]
Derivative, nonmonetary notional amount | MMBTU	3,639,050
Denaturant
Supply Commitment [Line Items]
Derivative, nonmonetary notional amount | gal	573,500
Basis Contracts | Corn contracts
Supply Commitment [Line Items]
Derivative, nonmonetary notional amount | bu	3,766,250
Priced contracts | Distillers grains
Supply Commitment [Line Items]
Derivative, nonmonetary notional amount	21,325
Derivative, average forward price | $ / T	260.26
Priced contracts | Modified distillers grains
Supply Commitment [Line Items]
Derivative, nonmonetary notional amount	14,200
Derivative, average forward price | $ / T	124.11
Priced contracts | Corn oil
Supply Commitment [Line Items]
Derivative, nonmonetary notional amount | lb	905,000
Derivative, average forward price | $ / lb	0.70
Priced contracts | Corn contracts
Supply Commitment [Line Items]
Derivative, nonmonetary notional amount | bu	2,115,715
Derivative, average forward price | $ / bu	6.79
Priced contracts | Natural gas
Supply Commitment [Line Items]
Derivative, nonmonetary notional amount | MMBTU	3,639,050
Derivative, average forward price | $ / MMBTU	3.42
Priced contracts | Denaturant
Supply Commitment [Line Items]
Derivative, nonmonetary notional amount | gal	573,500
Derivative, average forward price | $ / gal	1.74