Granite Falls Energy, LLC - Quarter Report: 2019 April (Form 10-Q)

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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 April 30, 2019

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

For the transition period from to .

COMMISSION FILE NUMBER 000-51277

GRANITE FALLS ENERGY, LLC

(Exact name of registrant as specified in its charter)


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

15045 Highway 23 SE, Granite Falls, MN 56241-0216
(Address of principal executive offices)

(320) 564-3100
(Registrant's telephone number, including area code)

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

☒Yes ☐No

Indicate by checkmark whether the registrant has submitted electronically 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 and post such files).

☒Yes ☐No

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


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

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

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

☐Yes ☒No

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

As of June 14, 2019, there were 30,606 membership units outstanding.

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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	19

Item 3. Quantitative and Qualitative Disclosures about Market Risk	38

Item 4. Controls and Procedures	39

PART II. OTHER INFORMATION	41

Item 1. Legal Proceedings	41

Item 1A. Risk Factors	41

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 3. Defaults Upon Senior Securities	42

Item 4. Mine Safety Disclosures	42

Item 5. Other Information	42

Item 6. Exhibits	42

SIGNATURES	43

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PART IFINANCIAL INFORMATION

Item 1. Financial Statements

GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Balance Sheets


	April 30, 2019		October 31, 2018
ASSETS	(unaudited)
Current Assets
Cash	$	8,260,821	$	14,901,091
Restricted cash		399,875		—
Accounts receivable		7,343,885		7,325,203
Inventory		12,327,731		14,916,809
Commodity derivative instruments		69,951		957,938
Prepaid expenses and other current assets		1,068,068		506,926
Total current assets		29,470,331		38,607,967

Property and Equipment, net		62,340,485		66,675,671

Goodwill		1,372,473		1,372,473

Investments		9,500,000		9,500,000

Other Assets		685,884		704,958

Total Assets	$	103,369,173	$	116,861,069

LIABILITIES AND MEMBERS' EQUITY
Current Liabilities
Current maturities of long-term debt	$	1,113,488	$	659,791
Accounts payable		4,692,006		10,033,168
Commodity derivative instruments		98,776		50,360
Accrued expenses		1,401,153		1,388,293
Total current liabilities		7,305,423		12,131,612

Long-Term Debt, less current portion		7,333,812		7,799,410

Commitments and Contingencies

Members' Equity
Members' equity attributable to Granite Falls Energy, LLC consists of 30,606 units authorized, issued, and outstanding at both April 30, 2019 and October 31, 2018		68,379,405		75,083,782
Non-controlling interest		20,350,533		21,846,265
Total members' equity		88,729,938		96,930,047

Total Liabilities and Members' Equity	$	103,369,173	$	116,861,069

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

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Statements of Operations


	Three Months Ended April 30,				Six Months Ended April 30,
	2019		2018		2019		2018
	(unaudited)		(unaudited)		(unaudited)		(unaudited)

Revenues	$	49,424,390	$	55,550,274	$	98,799,487	$	108,543,773

Cost of Goods Sold		50,418,243		51,734,835		102,528,865		101,723,342

Gross Profit (Loss)		(993,853)		3,815,439		(3,729,378)		6,820,431

Operating Expenses		1,626,519		1,648,003		3,396,692		3,328,146

Operating Income (Loss)		(2,620,372)		2,167,436		(7,126,070)		3,492,285

Other Income (Expense):
Other income, net		226,206		72,124		227,665		331,380
Interest income		43,436		23,380		116,711		69,853
Interest expense		(80,526)		(102,731)		(194,189)		(208,486)
Total other income (expense), net		189,116		(7,227)		150,187		192,747

Net Income (Loss)	$	(2,431,256)	$	2,160,209	$	(6,975,883)	$	3,685,032

Less: Net (Income) Loss Attributable to Non-controlling Interest		528,607		(662,607)		1,495,732		(1,135,825)

Net Income (Loss) Attributable to Granite Falls Energy, LLC	$	(1,902,649)	$	1,497,602	$	(5,480,151)	$	2,549,207

Weighted Average Units Outstanding - Basic and Diluted		30,606		30,606		30,606		30,606

Amounts attributable to Granite Falls Energy, LLC:

Net Income (Loss) Per Unit - Basic and Diluted	$	(62.17)	$	48.93	$	(179.05)	$	83.29

Distributions Per Unit	$	—	$	—	$	40.00	$	385.00

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

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Members’ Equity


	Members' Equity attributable to
	Granite Falls Energy, LLC	Non-controlling Interest	Total Members' Equity

Balance - October 31, 2018	$ 75,083,782	$ 21,846,265	$ 96,930,047

Member distribution	(1,224,226)	-	(1,224,226)
Net loss attributable to non-controlling interest	-	(967,125)	(967,125)
Net loss attributable to Granite Falls Energy, LLC	(3,577,502)	-	(3,577,502)

Balance - January 31, 2019	$ 70,282,054	$ 20,879,140	$ 91,161,194

Net loss attributable to non-controlling interest	-	(528,607)	(528,607)
Net loss attributable to Granite Falls Energy, LLC	(1,902,649)	-	(1,902,649)

Balance - April 30, 2019	$ 68,379,405	$ 20,350,533	$ 88,729,938


Balance - October 31, 2017	$ 83,998,672	$ 25,645,283	$ 109,643,955

Member distribution	(11,779,102)	(4,311,192)	(16,090,294)
Net income attributable to non-controlling interest	-	473,217	473,217
Net income attributable to Granite Falls Energy, LLC	1,051,606	-	1,051,606

Balance - January 31, 2018	$ 73,271,176	$ 21,807,308	$ 95,078,484

Net income attributable to non-controlling interest	-	662,607	662,607
Net income attributable to Granite Falls Energy, LLC	1,497,602	-	1,497,602

Balance - April 30, 2018	$ 74,768,778	$ 22,469,915	$ 97,238,693

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

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows


	Six Months Ended April 30,
	2019		2018
	(unaudited)		(unaudited)
Cash Flows from Operating Activities:
Net income (loss)	$	(6,975,883)	$	3,685,032
Adjustments to reconcile net income (loss) to net cash provided by (used in) operations:
Depreciation and amortization		4,720,009		4,606,217
Change in fair value of commodity derivative instruments		(288,819)		819,089
Gain on sale of assets		—		(24,815)
Changes in operating assets and liabilities:
Commodity derivative instruments		1,225,222		(121,006)
Accounts receivable		(18,682)		3,113,506
Inventory		2,589,078		1,091,646
Prepaid expenses and other current assets		(561,142)		(235,604)
Accounts payable		(5,314,204)		(2,961,045)
Accrued expenses		12,860		496,735
Net Cash Provided by (Used in) Operating Activities		(4,611,561)		10,469,755

Cash Flows from Investing Activities:
Payments for capital expenditures		(392,707)		(997,207)
Proceeds from disposal of assets		—		24,815
Net Cash Used in Investing Activities		(392,707)		(972,392)

Cash Flows from Financing Activities:
Payments on long-term debt		(11,901)		(121,892)
Distributions to non-controlling interests		—		(4,311,192)
Member distributions paid		(1,224,226)		(11,779,102)
Net Cash Used in Financing Activities		(1,236,127)		(16,212,186)

Net Decrease in Cash and Restricted Cash		(6,240,395)		(6,714,823)

Cash and Restricted Cash - Beginning of Period		14,901,091		21,733,611

Cash and Restricted Cash - End of Period	$	8,660,696	$	15,018,788

Reconciliation of Cash and Restricted Cash
Cash - Balance Sheet	$	8,260,821	$	13,662,916
Restricted Cash - Balance Sheet		399,875		1,355,872
Cash and Restricted Cash	$	8,660,696	$	15,018,788

Supplemental Cash Flow Information
Cash paid during the period for:
Interest expense	$	194,189	$	208,486

Supplemental Disclosure of Non-Cash Investing and Financing Activities
Capital expenditures and construction in process included in accounts payable	$	29,464	$	—

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

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2019

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

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

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

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

Basis of Presentation and Principles of Consolidation

The condensed consolidated unaudited financial statements as of April 30, 2019 consolidate the operating results and financial position of GFE, and its approximately 50.7% owned subsidiary, HLBE (through GFE's 100% ownership of Project Viking, LLC). Given the Company’s control over the operations of HLBE and its majority voting interest, the Company consolidates the condensed consolidated unaudited financial statements of HLBE with GFE's condensed consolidated unaudited financial statements. The remaining 49.3% ownership of HLBE is included in the condensed consolidated unaudited financial statements as a non-controlling interest. HLBE, through its wholly owned subsidiary, HLBE Pipeline Company, LLC, owns approximately 73% of Agrinatural. Given HLBE’s control over the operations of Agrinatural and its majority voting interest, HLBE consolidates the financial statements of Agrinatural with its consolidated unaudited financial statements, with the equity and earnings attributed to the remaining approximately 27% noncontrolling interest. All significant intercompany balances and transactions are eliminated in consolidation.

The accompanying condensed consolidated unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company’s audited consolidated financial statements for the year ended October 31, 2018, contained in the Company’s annual report on Form 10-K.

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

Reportable Operating Segments

Accounting Standards Codification (“ASC”) 280, “Segment Reporting,” establishes the standards for reporting information about segments in financial statements. Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Therefore, in applying the criteria set forth in ASC 280, the Company determined that based on the nature of the products and production process and the expected financial results,

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2019

the Company’s operations at GFE’s ethanol plant and HLBE’s plant, including the production and sale of ethanol and its co-products, are aggregated into one reporting segment.

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

Accounting Estimates

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

Revenue Recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. Our contracts primarily consist of agreements with marketing companies and other customers as described below. Our performance obligations consist of the delivery of ethanol, distillers' grains, and corn oil to our customers. Our customers primarily consist of two distinct marketing companies as described below. The consideration we receive for these products is fixed or determinable based on current observable market prices at the Chicago Mercantile Exchange, generally, and adjusted for local market differentials. Our contracts have specific delivery modes, rail or truck, and dates. Revenue is recognized when the Company delivers the products to the mode of transportation specified in the contract, at the transaction price established in the contract, net of commissions, fees, and freight. We sell each of the products via different marketing channels as described below.

Ethanol. The Company sells its ethanol via a marketing agreement with Eco-Energy, Inc. Eco-Energy sells one hundred percent of the Company's ethanol production based on agreements with end users at prices agreed upon mutually among the end user, Eco-Energy and the Company. Our performance obligations consist of our obligation to deliver ethanol to our customers. Our customer contracts consist of orders received from the customer pursuant to a marketing agreement. The marketing agreement calls for control and title to pass to Eco-Energy once a rail car is released to the railroad or a truck is released from the Company's scales. Revenue is recognized then at the price in the agreement with the end user, net of commissions, freight, and fees.

Distillers grains. The Company engages another third-party marketing company, RPMG, Inc., to sell one hundred percent of the distillers grains it produces at the plant. RPMG takes title and control once a rail car is released to the railroad or a truck is released from the Company's scales. Prices are agreed upon between RPMG and the Company. Our performance obligations consist of our obligation to deliver corn oil to our customers. Our customer contracts consist of orders received from the customer pursuant to a marketing agreement. Revenue is recognized net of commissions, freight and fees.

Distillers corn oil (corn oil). The Company sells one hundred percent of its corn oil production to RPMG, Inc. The process for selling corn oil is the same as our distillers’ grains. RPMG takes title and control once a rail car

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2019

is released to the railroad or a truck is released from the Company's scales. Prices are agreed upon between RPMG and the Company. Our performance obligations consist of our obligation to deliver corn oil to our customers. Our customer contracts consist of orders received from the customer pursuant to a marketing agreement. Revenue is recognized net of commissions, freight and fees.

Inventory

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

Derivative Instruments

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

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

Additionally, the Company is required to evaluate its contracts to determine whether the contracts are derivatives. Certain contracts that literally meet the definition of a derivative may be exempted as “normal purchases or normal sales”. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that meet the requirements of normal purchases or sales are documented as normal and exempted from accounting and reporting requirements, and therefore, are not marked to market in our condensed consolidated unaudited financial statements.

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

The Company has adopted authoritative guidance related to “Derivatives and Hedging,” and has included the required enhanced quantitative and qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses from derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. See further discussion in Note 5.

Investments

On November 1, 2016, GFE subscribed to purchase 1,500 capital units of Ringneck Energy & Feed, LLC (“Ringneck”) at a price of $5,000 per unit for a total of $7,500,000. Ringneck is a South Dakota limited liability company which is constructing an 80 million gallon per year ethanol manufacturing plant outside of Onida, South Dakota in Sully County. Construction has reached substantial completion and the plant is commencing operations. GFE’s investment is sufficient to secure the Company the right to appoint one director to the board of directors of Ringneck. GFE has appointed Steve Christensen, its CEO, to serve as its appointed director.

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2019

GFE paid a down payment of $750,000 in connection with the subscription, and signed a promissory note for $6,750,000 for the remaining balance of the subscription. On August 2, 2017, following notice from Ringneck accepting GFE’s subscription and that payment of the balance of GFE’s subscription and promissory note was due, GFE borrowed $7.5 million under its credit facility with Project Hawkeye, LLC (“Project Hawkeye”) and paid $6,750,000 to Ringneck as payment for the remaining balance of GFE’s subscription. Project Hawkeye is an affiliate of Fagen, Inc., which is a member of GFE. See Note 7 below for the terms of GFE’s credit facility with Project Hawkeye.

On June 29, 2018, GFE executed a subscription agreement for investment in Harvestone Group, LLC (“Harvestone”), a Delaware limited liability company, and a Joinder to the Operating Agreement of Harvestone. In connection with the execution of the subscription agreement and joinder, GFE made a capital contribution of $2.0 million in exchange for twenty (20) preferred membership units and was sufficient to secure GFE the right to appoint one advisor to the advisory committee to the managers of Harvestone. GFE has appointed Eric Baukol, its Risk Manager, to serve as its appointed advisor. Harvestone is a start-up ethanol marketing, logistics, and trading company headquartered in Franklin, Tennessee. Harvestone is owned by several other ethanol producers and other private investors that expects that its primary business will be marketing and trading for member and non-member ethanol producers. The marketing and trading commenced in January 2019.

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

Recently Adopted Accounting Pronouncements

Effective November 1, 2018, the Company adopted the amended guidance ASC Topic 606, Revenue from Contracts with Customers. Refer to Note 1 – Summary of Significant Accounting Policies and Note 3 – Revenue for further details.

In November 2016 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-18, Restricted Cash, which amended Statement of Cash Flows (Topic 230) of the Accounting Standards Codification. The new guidance requires an entity to reconcile and explain the period-over-period change in total cash, cash equivalents, restricted cash and restricted cash equivalents within its statement of cash flows. Effective November 1, 2018, the Company adopted the new standard and has applied it retrospectively. Accordingly, the condensed consolidated statements of cash flows for the periods ended April 30, 2019 and 2018 have been adjusted from amounts previously reported.

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, "Disclosure Update and Simplification," amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis must present a reconciliation of the beginning balance to the ending balance for each period for which a statement of comprehensive income is required to be filed. Accordingly, the condensed consolidated statements of changes in members’ equity for the periods ended April 30, 2019 and 2018 have been presented.

2. RISKS AND UNCERTAINTIES

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

The Company's operating and financial performance is largely driven by the prices at which they sell ethanol and the net expense of corn. The price of ethanol is influenced by factors such as supply and demand, the weather, government policies and programs, and unleaded gasoline prices and the petroleum markets as a whole. Excess ethanol supply in the

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2019

market, in particular, puts downward pressure on the price of ethanol. The Company’s largest cost of production is corn. The cost of corn is generally impacted by factors such as supply and demand, the weather, government policies and programs, and a risk management program used to protect against the price volatility of these commodities. Market fluctuations in the price of and demand for these products may have a significant adverse effect on the Company’s operations, profitability and the availability and adequacy of cash flow to meet the Company’s working capital requirements.

The Company, and the ethanol industry as a whole, experienced significant adverse conditions throughout most of 2018 and into 2019 as a result of industry-wide record low ethanol prices due to reduced demand and high industry inventory levels. These factors resulted in prolonged negative operating margins, significantly lower cash flow from operations and substantial net losses. Margins improved for the second fiscal quarter of 2019. The Company believes its cash on hand and available debt from its lender will provide sufficient liquidity to meet its anticipated working capital, debt service and other liquidity needs through the next twelve months.

3. REVENUE

Adoption of ASC Topic 606

On November 1, 2018, the Company adopted the amended guidance in ASC Topic 606, Revenue from Contracts with Customers, and all related amendments (“new revenue standard”) and applied it to all contracts using the modified retrospective transition method. The adoption of the new revenue standard did not result in any changes to the timing or amount of revenue recognized prior to November 1, 2018, but did result in expanded disclosures to our consolidated financial statements.

Revenue by Source

All revenues from contracts with customers under ASC Topic 606 are recognized at a point in time. The following table disaggregates revenue by major source for the three and six months ended April 30, 2019:


	Three Months Ended April 30, 2019
		Ethanol Production		Natural Gas Pipeline		Total
Ethanol	$	38,521,636	$	—	$	38,521,636
Distillers’ Grains		8,651,733		—		8,651,733
Corn Oil		1,600,398		—		1,600,398
Other		260,264		—		260,264
Natural Gas		—		390,359		390,359
Total Revenues	$	49,034,031	$	390,359	$	49,424,390

	Six Months Ended April 30, 2019
		Ethanol Production		Natural Gas Pipeline		Total
Ethanol	$	74,486,921	$	—	$	74,486,921
Distillers’ Grains		19,221,992		—		19,221,992
Corn Oil		3,593,734		—		3,593,734
Other		524,567		—		524,567
Natural Gas		—		972,273		972,273
Total Revenues	$	97,827,214	$	972,273	$	98,799,487

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2019

Payment Terms

The Company has contractual payment terms with each respective marketer that sells ethanol, distillers’ grains and corn oil. These terms are 10 calendar days after the transfer of control date.

Shipping and Handling Costs

Shipping and handling costs related to contracts with customers for sale of goods are accounted for as a fulfillment activity and are included in cost of goods sold. Accordingly, amounts billed to customers for such costs are included as a component of revenue.

4. INVENTORY

Inventories consist of the following:


	April 30, 2019		October 31, 2018
	(unaudited)
Raw materials	$	3,386,550	$	4,508,297
Supplies		3,062,407		2,957,452
Work in process		1,503,116		1,222,251
Finished goods		4,375,658		6,228,809
Totals	$	12,327,731	$	14,916,809

The Company performs a lower of cost or net realizable value analysis on inventory to determine if the net realizable values of certain inventories are less than their carrying value, which is attributable primarily to decreases in market prices of corn and ethanol. Based on the lower of cost or net realizable value analysis, as a component of cost of goods sold, the Company recorded a loss on ethanol inventories of approximately $765,000 and $82,000 for the six months ended April 30, 2019 and 2018, respectively. Based on the lower of cost or net realizable value analysis, as a component of cost of goods sold, the Company recorded a loss on corn inventories of approximately $95,000 for the six months ended April 30, 2019.

5. DERIVATIVE INSTRUMENTS

As of April 30, 2019, the total notional amount of GFE’s outstanding corn derivative instruments was approximately 8,055,000 bushels, comprised of long corn futures positions on 1,235,000 bushels that were entered into to hedge forecasted ethanol sales through December 2019, and short corn futures positions on 2,070,000 bushels that were entered into to hedge forecasted corn purchases through December 2021. Additionally, there are corn options positions of 4,750,000 bushels through July 2019. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

As of April 30, 2019, the total notional amount of HLBE’s outstanding corn derivative instruments was approximately 5,360,000 bushels, comprised of short corn futures positions on 610,000 bushels that were entered into to hedge forecasted corn purchases through December 2020. Additionally, there are corn options positions of 4,750,000 bushels through July 2019. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

As of April 30, 2019, GFE had approximately $140,000 of cash collateral (restricted cash) related to derivatives held by a broker.

As of April 30, 2019, HLBE had approximately $260,000 of cash collateral (restricted cash) related to derivatives held by a broker.

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2019

The following tables provide details regarding the Company's derivative instruments at April 30, 2019, none of which were designated as hedging instruments:


	Consolidated Balance Sheet Location	Assets		Liabilities
Corn contracts - GFE	Commodity derivative instruments	$	69,951	$	—
Corn contracts - HLBE	Commodity derivative instruments		—		67,063
Ethanol contracts - GFE	Commodity derivative instruments		—		31,713
Totals		$	69,951	$	98,776

As of October 31, 2018, the total notional amount of GFE’s outstanding corn derivative instruments was approximately 3,105,000 bushels, comprised of long corn positions on 575,000 bushels that were entered into to hedge forecasted ethanol sales through July 2019, and short corn positions on 2,530,000 bushels that were entered into to hedge forecasted corn purchases through December 2021. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

As of October 31, 2018, GFE did not have any cash collateral (restricted cash) related to derivatives held by a broker.

As of October 31, 2018, the total notional amount of HLBE’s outstanding corn derivative instruments was approximately 2,685,000 bushels, comprised of long corn positions on 510,000 bushels that were entered into to hedge forecasted ethanol sales through July 2019, and short corn positions on 2,175,000 bushels that were entered into to hedge forecasted corn purchases through March 2020. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

As of October 31, 2018, HLBE did not have any cash collateral (restricted cash) related to derivatives held by a broker.

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


	Consolidated Balance Sheet Location	Assets		Liabilities
Corn contracts - GFE	Commodity derivative instruments	$	532,300	$	—
Corn contracts - HLBE	Commodity derivative instruments		425,638		—
Corn contracts - GFE	Commodity derivative instruments		—		25,180
Corn contracts - HLBE	Commodity derivative instruments		—		25,180
Totals		$	957,938	$	50,360

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


	Consolidated Statement	Three Months Ended April 30,				Fiscal Six Months Ended April 30,
	of Operations Location	2019		2018		2019		2018
Corn contracts	Cost of Goods Sold	$	281,424	$	(946,543)	$	325,652	$	(1,211,611)
Ethanol contracts	Revenues		(36,833)		254,623		(36,833)		394,120
Natural gas contracts	Cost of Goods Sold		—		(13,936)		—		(1,598)
Total gain (loss)		$	244,591	$	(705,856)	$	288,819	$	(819,089)

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2019

6. FAIR VALUE

The following table sets forth, by level, the Company assets that were accounted for at fair value on a recurring basis at April 30, 2019:


					Fair Value Measurement Using
					Quoted Prices		Significant Other		Significant
	Carrying Amount in				in Active Markets		Observable Inputs		Unobservable Inputs
Financial Asset:	Consolidated Balance Sheet		Fair Value		(Level 1)		(Level 2)		(Level 3)
Commodity Derivative Instruments - Corn	$	69,951	$	69,951	$	69,951	$	—	$	—

Financial Liabilities:
Commodity Derivative Instruments - Ethanol	$	31,713	$	31,713	$	31,713	$	—	$	—
Commodity Derivative Instruments - Corn	$	67,063	$	67,063	$	67,063	$	—	$	—

The following table provides information on those derivative assets and liabilities measured at fair value on a recurring basis at October 31, 2018:


					Fair Value Measurement Using
					Quoted Prices		Significant Other		Significant
	Carrying Amount in				in Active Markets		Observable Inputs		Unobservable Inputs
Financial Asset:	Consolidated Balance Sheet		Fair Value		(Level 1)		(Level 2)		(Level 3)
Commodity Derivative Instruments - Corn	$	957,938	$	957,938	$	957,938	$	—	$	—

Financial Liabilities:
Commodity Derivative Instruments - Corn	$	50,360	$	50,360	$	—	$	50,360	$

The Company determines the fair value of commodity derivative instruments by obtaining fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the Chicago Board of Trade market and New York Mercantile Exchange. We determine the fair value of ethanol, corn, and natural gas Level 2 instruments by model-based techniques in which all significant inputs are observable in the markets noted above.

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2019

7. DEBT FACILITIES

Debt financing consists of the following:


	April 30, 2019		October 31, 2018
	(unaudited)
GRANITE FALLS ENERGY:
Seasonal revolving loan, see terms below.	$	—	$	—
Term note payable to Project Hawkeye, see terms below.		7,500,000		7,500,000

HERON LAKE BIOENERGY:
Amended revolving term note payable to lending institution, see terms below.		—		—
Seasonal line of credit payable to lending institution, see terms below.		—		—
Assessment payable as part of water treatment agreement, due in semi-annual installments of $189,393 with interest at 6.55%, enforceable by statutory lien, with the final payment due in 2021. HLBE made deposits for one years' worth of debt service payments of approximately $364,000, which is included with other assets that are held on deposit to be applied with the final payments of the assessment.		947,300		947,300
Assessment payable as part of water supply agreement, due in monthly installments of $3,942 with interest at 8.73%, enforceable by statutory lien, with the final payment made in February 2019.		—		11,901
Totals		8,447,300		8,459,201
Less: amounts due within one year		1,113,488		659,791
Net long-term debt	$	7,333,812	$	7,799,410

Granite Falls Energy

Seasonal Revolving Loan

GFE has a credit facility with a lender. This credit facility was originally a revolving term loan facility with an aggregate principal commitment amount of $18,000,000 that reduced by $2,000,000 semi-annually beginning September 1, 2014, until final payment at maturity on March 1, 2018. On September 8, 2017, the revolving term loan was converted to a seasonal revolving loan in the amount of $6,000,000, which matures on October 1, 2019. GFE renews this seasonal revolving loan annually, prior to September 1. GFE had no outstanding balance on the revolving term loan at the time of conversion. There was no outstanding balance on the seasonal revolving loan at April 30, 2019. Therefore, the aggregate principal amount available for borrowing by GFE under this seasonal revolving loan at April 30, 2019 was $6,000,000.

The interest rate on the seasonal revolving loan is based on the bank’s One Month London Interbank Offered Rate (“LIBOR”) Index Rate, plus 2.75%, which was 5.23% and 5.06% at April 30, 2019 and October 31, 2018, respectively.

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

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

Project Hawkeye Loan

On August 2, 2017, GFE entered into a credit facility with Project Hawkeye to finance its investment in Ringneck. Pursuant to this credit facility, GFE borrowed $7.5 million from Project Hawkeye using the Ringneck investment as collateral. The Project Hawkeye loan bears interest from the date funds are first advanced on the loan through maturity,

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2019

at a rate per annum equal to the sum of the One Month LIBOR Index Rate plus 3.05% per annum, with an interest rate floor of 3.55%, which equated to 5.53% and 5.36% at April 30, 2019 and October 31, 2018 respectively.

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

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

As of April 30, 2019, GFE had an outstanding balance of $7.5 million under the Project Hawkeye credit facility to finance the balance of its investment in Ringneck.

Heron Lake BioEnergy

Amended Credit Facility

The amended credit facility represents the credit arrangement HLBE entered into as of April 6, 2018, with an effective date of March 29, 2018, which replaced a prior revolving term note. The amended credit facility includes an amended and restated revolving term loan with a $4,000,000 principal commitment and a revolving seasonal line of credit with a $4,000,000 principal commitment. The loans are secured by substantially all of HLBE’s assets, including a subsidiary guarantee. The amended credit facility contains customary covenants, including restrictions on the payment of dividends and loans and advances to Agrinatural, and maintenance of certain financial ratios including minimum working capital, minimum net worth and a debt service coverage ratio as defined by the credit facility. Failure to comply with the protective loan covenants or maintain the required financial ratios may cause acceleration of the outstanding principal balances on the revolving term loan and/or the imposition of fees, charges, or penalties. In October 2018, The Company had an event of non-compliance related to the debt service coverage ratio as defined in the amended credit facility. In December 2018, The Company received a waiver from its lender waiving this event of noncompliance.

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

Amended Revolving Term Note

Under the terms of the amended revolving term loan, HLBE may borrow, repay, and reborrow up to the aggregate principal commitment amount of $4,000,000. Final payment of amounts borrowed under amended revolving term loan is due December 1, 2021. Interest on the amended revolving term loan accrues at a variable weekly rate equal to 3.10% above the One-Month London Interbank Offered Rate (“LIBOR”) Index rate, which was 5.58% at April 30, 2019.

HLBE also agreed to pay an unused commitment fee on the unused available portion of the amended revolving term loan commitment at the rate of 0.50% per annum, payable monthly in arrears.

The aggregate principal amount available to HLBE for borrowing under the amended revolving term loan at April 30, 2019 and October 31, 2018 was $4,000,000.

Seasonal Revolving Loan

Under the terms of the seasonal revolving loan, HLBE may borrow, repay, and reborrow up to the aggregate principal commitment amount of $4,000,000 until its maturing on May 1, 2020. Amounts borrowed under the seasonal revolving loan bear interest at a variable weekly rate equal to 2.85% above the rate quoted by LIBOR Index rate, which

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2019

was 5.33% at April 30, 2019. The aggregate principal amount available under the seasonal revolving loan was $4,000,000 at April 30, 2019 and $4,000,000 at October 31, 2018.

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

Estimated annual maturities of debt at April 30, 2019, are as follows based on the most recent debt agreements:


2020	$	1,113,488
2021		1,405,406
2022		1,374,835
2023		1,071,429
2024		1,071,429
Thereafter		2,410,713
Total debt	$	8,447,300

8. MEMBERS' EQUITY

Granite Falls Energy

GFE has one class of membership units. The units have no par value and have identical rights, obligations and privileges. Income and losses are allocated to all members based upon their respective percentage of units held. As of April 30, 2019 and October 31, 2018, GFE had 30,606 membership units authorized, issued, and outstanding.

In December 2018, GFE’s Board of Governors declared a cash distribution of $40 per unit or approximately $1,224,000 for GFE unit holders of record as of December 20, 2018 and was paid by GFE in January 2019.

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

Heron Lake BioEnergy

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

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

9. COMMITMENTS AND CONTINGENCIES

Corn Purchases - Members

GFE purchased corn from board members of approximately $605,000 and $1,648,000 for the three months ended April 30, 2019 and 2018, respectively, and approximately $1,954,000 and $2,085,000 for the six months ended April 30, 2019 and 2018, respectively.

HLBE purchased corn from board members of approximately $2,636,000 and $2,642,000 for the three months ended April 30, 2019 and 2018, respectively, and approximately $4,585,000 and $7,097,000 for the six months ended April 30, 2019 and 2018, respectively.

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2019

Corn Purchase Commitments

At April 30, 2019, GFE had cash and basis contracts for forward corn purchase commitments for approximately 2,845,000 bushels for various delivery periods through December 2021.

At April 30, 2019, HLBE had cash and basis contracts for forward corn purchase commitments for approximately 1,435,000 bushels for various delivery periods through October 2020.

Given the uncertainty of future ethanol and corn prices, GFE or HLBE could incur a loss on the outstanding corn purchase contracts in future periods. Management has evaluated these forward contracts and its inventories using the lower of cost or net realizable value evaluation, similar to the method used on its inventory, and has determined that GFE had an impairment loss of approximately $9,000 at April 30, 2019 and HLBE had an impairment loss of approximately $179,000 at April 30, 2019. The impairment expense is recorded as a component of cost of goods sold.

Ethanol Contracts

At April 30, 2019, GFE had fixed and basis contracts to sell approximately $13,117,000 of ethanol for various delivery periods through June 2019, which approximates 99% of its anticipated ethanol sales for that period.

At April 30, 2019, HLBE had fixed and basis contracts to sell approximately $11,279,000 of ethanol for various delivery periods through June 2019, which approximates 83% of its anticipated ethanol sales for that period.

Distillers' Grain Contracts

At April 30, 2019, GFE had forward contracts to sell approximately $70,000 of distillers’ grain for delivery periods through May 2019, which approximates 3% of its anticipated distillers’ grain sales during that period.

At April 30, 2019, HLBE had forward contracts to sell approximately $505,000 of distillers’ grains for delivery through May 2019, which approximates 30% of its anticipated distillers’ grain sales during that period.

Corn Oil

At April 30, 2019, GFE had forward contracts to sell approximately $524,000 of corn oil for various delivery periods through June 2019, which approximates 70% of its anticipated corn oil sales for that period.

At April 30, 2019, HLBE had forward contracts to sell approximately $515,000 of corn oil for various delivery periods through June 2019, which approximates 75% of its anticipated corn oil sales for that period.

Railcar Damages

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

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

We prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition, and results of operations for the three and six months ended April 30, 2019 and 2018. This discussion should be read in conjunction with the condensed consolidated unaudited financial statements and related notes in Item 1 of this report and the information contained in the Company’s annual report on Form 10-K for the fiscal year ended October 31, 2018.

Disclosure Regarding Forward-Looking Statements

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

Forward-looking statements are subject to a number of known and unknown risks, uncertainties and other factors, many of which may be beyond our control, and may cause actual results, performance or achievements to differ materially from those projected in, expressed or implied by forward-looking statements. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us are described more particularly in the “Risk Factors” section of our annual report on Form 10-K for the year ended October 31, 2018. These risks and uncertainties include, but are not limited to, the following:

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

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

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

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

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

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

Overcapacity and oversupply in the ethanol industry;

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

Changes in federal and/or state laws and environmental regulations including elimination, waiver or reduction of corn-based ethanol volume obligations under the RFS and legislative acts taken by state governments such as California related to low-carbon fuels, may have an adverse effect on our business;

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

Any effect on prices and demand for our products resulting from actions in international markets, particularly imposition of tariffs;

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

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

Competition from alternative fuels and alternative fuel additives;

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

Our reliance on key management personnel.

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

Available Information

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

Industry and Market Data

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

Overview

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

When we use the terms “Heron Lake BioEnergy,” “Heron Lake,” or “HLBE” or similar words, unless the context otherwise requires, we are referring to Heron Lake BioEnergy and its wholly owned subsidiary, HLBE Pipeline Company, LLC, and its majority-owned subsidiary Agrinatural. When we use the terms “Granite Falls Energy” or “GFE” or similar words, unless the context otherwise requires, we are referring to Granite Falls Energy, LLC and our operations at our ethanol production facility located in Granite Falls, Minnesota. When we use the terms the “Company,” “we,” “us,” “our” or similar, unless the context otherwise requires, we are referring to Granite Falls Energy, LLC and our consolidated wholly and majority owned subsidiaries.

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

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

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

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

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

At the GFE plant, we pay Center Point Energy/Minnegasco a per unit fee to move the natural gas through the pipeline, and we have guaranteed to move a minimum of 1,500,000 MMBTUs annually through December 31, 2025, which is the ending date of the agreement. We also have an agreement with Kinetic Energy Group whereby Kinetic Energy Group, on our behalf, procures contracts with various natural gas vendors to supply the natural gas necessary to operate the Granite Falls plant.

HLBE has a facilities agreement with Northern Border Pipeline Company, which allows HLBE to access an existing interstate natural gas pipeline located approximately 16 miles north of its plant. HLBE has entered into a firm natural gas transportation agreement with its majority owned subsidiary, Agrinatural. HLBE also has an agreement with Constellation NewEnergy—Gas Division, LLC to supply the natural gas necessary to operate the Heron Lake plant.

We have a management services agreement with HLBE pursuant to which our chief executive officer, chief financial officer, and commodity risk manager also hold those same offices with HLBE. The management services agreement automatically renews for successive one-year terms unless either HLBE or GFE gives the other party written notice of termination prior to expiration of the then current term. The management services agreement may also be terminated by either party for cause under certain circumstances.

HLBE owns a controlling 73% interest in Agrinatural, a natural gas distribution and sales company located in Heron Lake, Minnesota. Agrinatural owns approximately 190 miles of natural gas pipeline and provides natural gas to HLBE’s ethanol plant and other commercial, agricultural and residential customers through a connection with the natural gas pipeline facilities of Northern Border Pipeline Company. Agrinatural’s revenues are generated through natural gas distribution fees and sales.

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

Reportable Operating Segments

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

Additionally, we also realize relatively immaterial revenue from natural gas pipeline operations at Agrinatural, HLBE’s majority owned subsidiary. The intercompany transactions between HLBE and Agrinatural resulting from the

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

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

Plan of Operations for the Next Twelve Months

Over the next twelve months, we will continue our focus on operational improvements at our plants. These operational improvements include exploring methods to improve ethanol yield per bushel and increasing production output at our plants to take full advantage of our permitted production capacities, reducing our operating costs, and optimizing our margin opportunities through prudent risk-management policies.

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

Additionally, we expect to continue to conduct routine maintenance and repair activities at our ethanol plants to maintain current plant infrastructure, as well as small capital projects to improve operating efficiency. We anticipate using cash we generate from our operations and our revolving term loan to finance these plant upgrade projects.

Trends and Uncertainties Impacting Our Operations

The principal factors affecting our results of operations and financial conditions are the market prices for corn, ethanol, distillers’ grains and natural gas, as well as governmental programs designed to create incentives for the use of corn-based ethanol. Other factors that may affect our future results of operation include those risks discussed below and in “PART II - Item 1A. Risk Factors” of this report and in “PART I - Item 1A. Risk Factors” of our quarterly report on Form 10-Q for the three months ended January 31, 2019, and “PART I - Item 1A. Risk Factors” of our annual report on Form 10-K for the fiscal year ended October 31, 2018.

Our operations are highly dependent on commodity prices, especially prices for corn, ethanol, distillers’ grains and natural gas. As a result, our operating results can fluctuate substantially due to volatility in these commodity markets. The price and availability of corn is subject to significant fluctuations depending upon a number of factors that affect commodity prices in general, including crop conditions, yields, domestic and global stocks, weather, federal policy and foreign trade. Natural gas prices are influenced by severe weather in the summer and winter and hurricanes in the spring, summer and fall. Other factors include North American exploration and production, and the amount of natural gas in underground storage during injection and withdrawal seasons.

Ethanol prices are sensitive to world crude oil supply and demand, domestic gasoline supply and demand, the price of crude oil, gasoline and corn, the price of substitute fuels and octane enhancers, refining capacity and utilization, government regulation and incentives and consumer demand for alternative fuels. Distillers’ grains prices are impacted by livestock numbers on feed, prices for feed alternatives and supply, which is associated with ethanol plant production.

Because the market price of ethanol is not always directly related to corn, at times ethanol prices may lag price movements in corn prices and corn-ethanol price spread may be tightly compressed or negative. If the corn-ethanol spread is compressed or negative for sustained period, it is possible that our operating margins will decline or become negative and our plants may not generate adequate cash flow for operations. In such cases, we may reduce or cease production at our plants to minimize our variable costs and optimize cash flow.

Management currently believes that our margins will remain negative during the remainder of fiscal year 2019. Continued large corn supplies and ethanol production capacity increases could have a negative impact on the market price of ethanol which could adversely impact our profitability. This negative impact could worsen if domestic ethanol

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inventories remain high or grow, or if U.S. exports of ethanol decline. Recent US Energy Information Administration (“EIA”) reports indicate that ethanol stocks remain high and that ethanol production remains steady since the conclusion of fiscal year 2018. In addition, management believes that increased waivers of small refiner renewable volume obligations (“RVOs”) by the US Environmental Protection Agency (“EPA”), as well as uncertainty regarding the potential Renewable Fuels Standard (“RFS”) reset, will contribute to the projected tight margins.

Additionally, while ethanol continues trading at a significant discount to gasoline, which has improved export demand somewhat, increased waivers of small refiner RVOs by the EPA has contributed to management’s expectation regarding margins. The impact of the increases in small refiner waivers granted by the EPA and the reductions in Chinese imports continues to have a negative impact on prices for renewable identification numbers (“RINs”) for corn-based ethanol. As a result, RINs prices remain lower, removing a blending incentive from the ethanol marketplace.

In recent years, ethanol demand growth has resulted largely from increased exports. However, export demand for ethanol is less consistent compared to domestic demand which can lead to ethanol price volatility. Global demand for US ethanol, as reported by the EIA, continues to increase with increased exports to various foreign markets, including Brazil, Canada, India, Peru, Philippines and Switzerland, in response to higher blending mandates and octane demand within the foreign countries and lower domestic ethanol prices. In April 2018, in response to the tariffs imposed by the Trump administration, China announced an additional retaliatory tariff on ethanol imports of 15%, bringing the total tariff to 45%. Subsequently, in July 2018, China announced an additional tariff on ethanol imports, bringing the total tariff to 70%. As a result, recent exports to China have been negligible. Brazilian demand for US ethanol has remained relatively steady, despite a tariff imposed in 2017. Any decrease in U.S. ethanol exports could adversely impact the market price of ethanol unless domestic demand increases or foreign markets are developed.

Our margins have been negatively impacted during the three months ended April 30, 2019 by the lower prices received for our distillers’ grains. During our second fiscal quarter of 2019, distillers’ grains prices fell, due to lower export demand and decreased production. In addition to being an animal feed substitute for corn, distillers’ grains are increasingly considered a protein feed substitute for soybean meal. Management currently believes that the impact of the current Chinese imposition of antidumping and countervailing duties on distillers’ grains produced in the U.S. has been absorbed into the market. However, recent trade disputes with China, Mexico and Canada could result in the imposition of additional tariffs on distillers’ grains produced in the United States, which could lead to an oversupply of distillers’ grains domestically and negatively impact distillers’ grains prices. Additionally, domestic feeding margins in cattle and hogs in particular could have a negative impact on total domestic distillers’ grains demand.

Corn oil prices have been positively impacted during the three months ended April 30, 2019 by steady demand and decreased production. However, from a historic perspective, corn oil prices over the past few years have been impacted by oversupply of soybeans and the resulting lower price of soybean oil which competes with corn oil for biodiesel production, in addition to increased corn oil production. The impact of lower soybean oil prices and the market’s increase in corn oil production during the last few years will likely continue to impact corn oil prices.

In February 2018, legislation was signed extending the $1.00-per-gallon biodiesel blender tax credit retroactively to January 1, 2017. In February 2019, the Tax Extender and Disaster Relief Act of 2019 was introduced, which would reinstate the $1.00-per-gallon biodiesel blender tax credit retroactively from January 1, 2018 through December 31, 2019. This legislation has not yet been approved, and, therefore, the tax credit has not yet been renewed. Management cannot predict whether this legislation or other legislation extending the biodiesel tax credit will be passed by Congress. Corn oil prices may decrease if biodiesel producers reduce production and/or demand for corn oil to reduce without extension of the biodiesel blenders tax credit.

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

Government Supports and Regulation

The Renewable Fuels Standard

The ethanol industry is dependent on several economic incentives to produce ethanol, the most significant of which is the RFS. The RFS has been, and we expect will continue to be, a significant factor impacting ethanol usage. Any

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adverse ruling on, or legislation affecting, the RFS could have an adverse impact on short-term ethanol prices and our financial performance in the future.

Under the provisions of the RFS, the EPA must publish an annual rule that establishes the number of gallons of different types of renewable fuels, including corn-based ethanol, that must be blended with gasoline in the U.S. by refineries, blenders, distributors, and importers, which affects the domestic market for ethanol. In November 2018, the EPA released the final renewable volume obligations (“RVOs”), which included an overall blending requirement of 19.92 billion gallons for 2019, a slight increase from 2018 mandates. Conventional corn-based ethanol levels were left at 15.0 billion gallons, excluding any waivers granted by the EPA to small refiners for “hardship.”

Current US ethanol production capacity exceeds the EPA’s 2018 and 2019 RVOs that can be satisfied by corn-based ethanol. Under the RFS, if mandatory renewable fuel volumes are reduced by at least 20% for two consecutive years, the EPA is required to modify, or reset, statutory volumes through 2022. In October 2018, the Office of Management and Budget announced that the 20% thresholds “have been met or are expected to be met in the near future.” As a result, the EPA is proposing a rulemaking that will propose modifying the applicable volumes targets for cellulosic biofuel, advanced biofuel, and total renewable fuels for the years 2020-2022. The rulemaking was scheduled to be proposed in January 2019, but was delayed, likely due to the partial government shutdown in January 2019. However, in May 2019, the EPA delivered the proposed rule to the White House Office of Management and Budget for its review. If the statutory RVOs are reduced as a result of reset, it could have an adverse effect on the market price and demand for ethanol which would negatively impact our financial performance.

There is growing availability of E85 for use in flexible fuel vehicles; however, it is limited due to lacking infrastructure. In addition, the industry has been working to introduce E15 to the retail market since the EPA approved its use in vehicles model year 2001 and newer. However, widespread adoption of E15 is hampered by regulatory and infrastructure hurdles in many states, as well as consumer acceptance. Additionally, sales of E15 may be limited because (i) it is not approved for use in all vehicles, (ii) the EPA requires a label that management believes may discourage consumers from using E15, and (iii) retailers may choose not to sell E15 due to concerns regarding liability. In addition, different gasoline blendstocks may have been required at certain times of the year in order to use E15 due to federal regulations related to fuel evaporative emissions. This may have prevented E15 from being used during certain times of the year in various states. In October 2018, President Trump directed the EPA to promulgate regulations making E15 available year-round. On March 4, 2019, the EPA sent a proposed rule to the Office of Management and Budget for its review. The proposed rule was published on March 12, 2019. On May 30, 2019, the EPA finalized the rule to allow E15 to be sold year-round. It is important to note that the oil industry is expected to challenge the final rule, and, in the event of such a challenge, there is no guarantee that the final rule will be upheld. The threat of a legal challenge itself could create uncertainty for retailers desiring to implement or expand sales of E15. Additionally, although the year-round E15 rule is now final, there is no guarantee that retailers will implement the sale of year-round E15, nor is there a guarantee that the rule will result in an increase of ethanol sales.

The EPA assigns individual refiners, blenders, and importers the RVOs they are obligated to use based on their percentage of total fuel sales. Obligated parties use RINs to show compliance with RVOs. RINs are attached to renewable fuels by producers and detached when the renewable fuel is blended with transportation fuel or traded in the open market. The market price of detached RINs affects the price of ethanol in certain markets and influences the purchasing decisions by obligated parties. Under the RFS, small refineries may petition for and be granted temporary exemptions from the RVOs if they can demonstrate that compliance with the RVOs would cause disproportionate economic hardship. The EPA has recently granted a number of these exemptions, whereby such refiners were alleviated of their responsibility to supply RINS for their obligated volumes based upon the grounds of economic hardship. As of May 2019, the EPA reported that it had received 37 petitions for hardship waivers for the 2017 compliance year. Thirty-five of such petitions have been approved, exempting approximately 1.82 billion RINs, which is approximately 17.05 billion gallons of gasoline and diesel, from meeting the RFS blending targets for the 2017 compliance year. Additionally, there are two petitions pending for the 2017 compliance year. As of May 2019, 40 petitions for waivers have been received by the EPA for compliance year 2018. Thirty-nine of such petitions are currently pending.

Legal challenges are underway to the RFS, including the EPA’s recent reductions in the RFS volume requirements, the final 2018 Rule, and the denial of petitions to change the RFS point of obligation. If the EPA’s decision to reduce the volume requirements under the RFS is allowed to stand, if the volume requirements are further reduced, or

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if the RFS point of obligation were changed, it could have an adverse effect on the market price and demand for ethanol which would negatively impact our financial performance.

On May 1, 2018, the Advanced Biofuel Association submitted a petition with the U.S. Court of Appeals for the D.C. Circuit challenging EPA’s process for granting exemptions from compliance under the RFS to small refineries. The Advanced Biofuel Association petition asks the court to review the EPA’s decision to modify criteria to lower the threshold by which the agency determines whether to grant small refineries an exemption for the RFS for reasons of disproportionate economic hardship. In May 2019, the U.S. Court of Appeals for the D.C. Circuit denied a motion by the Advanced Biofuels Association seeking a preliminary injunction to prevent the EPA from granting any additional small refinery exemptions under the RFS until its pending lawsuit with the agency is resolved.

Additionally, on May 29, 2018, the National Corn Growers Association, National Farmers Union, and the Renewable Fuels Association (“RFA”) filed a petition with the U.S. Court of Appeals for the 10th Circuit challenging the EPA’s grant of waivers to three specific refineries. The petitioners are asking the U.S. Court of Appeals for the 10th Circuit to reject the waivers granted to three refineries located in Wynnewood, Oklahoma, Cheyenne, Wyoming, and Woods Cross, Utah as an abuse of EPA authority. These waived gallons are not redistributed to obligated parties, and in effect, reduce the aggregate RVOs under the RFS. If the specific waivers granted by the EPA and/or its lower criteria for granting small refinery waivers under the RFS are allowed to stand, or if the volume requirements are further reduced, it could have an adverse effect on the market price and demand for ethanol which would negatively impact our financial performance.

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

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

Additionally, on February 4, 2019, Growth Energy filed a lawsuit in the Court of Appeals for the District of Columbia against the EPA, challenging the EPA’s “failure” to address small refinery exemptions in its 2019 RVO rulemaking.

Although the maintenance of the 15.0 billion gallon threshold for volume requirements that may be met with corn-based ethanol in the 2019 final rule, in addition to the year-round E15 rule, signals support from the EPA and the Trump administration for domestic ethanol production, the Trump administration could still elect to materially modify, repeal, or otherwise invalidate the RFS. Any such reform could adversely affect the demand and price for ethanol and the Company's profitability.

Tax Cuts and Jobs Act

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

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Results of Operations for the Three Months Ended April 30, 2019 and 2018

The following table shows summary information from the results of our operations and the approximate percentage of revenues, costs of goods sold, operating expenses and other items to total revenues in our unaudited condensed consolidated statements of operations for the three months ended April 30, 2019 and 2018 (amounts in thousands).


	Three Months Ended April 30,
	2019				2018
	(unaudited)				(unaudited)
Statement of Operations Data	Amount		%		Amount		%
Revenues	$	49,424	100.0	%	$	55,550	100.0	%
Cost of Goods Sold		50,418	102.0	%		51,735	93.1	%
Gross Profit (Loss)		(994)	(2.0)	%		3,815	6.9	%
Operating Expenses		1,626	3.3	%		1,648	3.0	%
Operating Income (Loss)		(2,620)	(5.3)	%		2,167	3.9	%
Other (Income) Expense, net		189	0.4	%		(7)	(0.0)	%
Net Income (Loss)		(2,431)	(4.9)	%		2,160	3.9	%
Less: Net (Income) Loss Attributable to Non-controlling Interest		529	1.1	%		(663)	(1.2)	%
Net Income (Loss) Attributable to Granite Falls Energy, LLC	$	(1,902)	(3.8)	%	$	1,497	2.7	%

Revenues

Our consolidated revenue is derived principally from sales of our three primary products: ethanol, distillers’ grains and corn oil. Revenues from these products represented approximately 98.6% and 99.0% of our total revenues for the three months ended April 30, 2019 and 2018, respectively. The remaining approximately 1.4% and 1.0% is attributable to miscellaneous other revenue for the three months ended April 30, 2019 and 2018, respectively, and is made up of incidental sales of corn syrup at HLBE’s plant and revenues from natural gas pipeline operations at Agrinatural, net of intercompany eliminations for distribution fees paid by HLBE to Agrinatural for natural gas transportation services.

The following table shows the sources of our consolidated revenue and the approximate percentage of revenues from those sources to total revenues in our unaudited condensed consolidated statements of operations for the three months ended April 30, 2019:


	Three Months Ended April 30, 2019
	Sales Revenue		% of Total Revenues
Revenue Sources	(in thousands)
Ethanol sales	$	38,522	77.9	%
Distillers' grains sales		8,652	17.5	%
Corn oil sales		1,600	3.2	%
Miscellaneous other		650	1.4	%
Total Revenues	$	49,424	100.0	%

The following table shows the sources of our consolidated revenue and the approximate percentage of revenues from those sources to total revenues in our condensed consolidated unaudited statements of operations for the three months ended April 30, 2018:


	Three Months Ended April 30, 2018
	Sales Revenue		% of Total Revenues
Revenue Sources	(in thousands)
Ethanol sales	$	42,605	76.7	%
Distillers' grains sales		10,495	18.9	%
Corn oil sales		1,893	3.4	%
Miscellaneous other		557	1.0	%
Total Revenues	$	55,550	100.0	%

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Our total consolidated revenues decreased by approximately 11.0% for the three months ended April 30, 2019, as compared to the three months ended April 30, 2018. This decrease was due to the decrease in the average price received for our ethanol and distillers’ grains, as well as decreased volumes sold of our ethanol, distillers’ grains and corn oil at both the GFE and the HLBE plants, which was partially mitigated by the increase in the average price received for our corn oil. The following table reflects quantities of our three primary products sold and the average net prices received for the three months ended April 30, 2019 and 2018:


	Three Months Ended April 30, 2019			Three Months Ended April 30, 2018
	Quantity Sold	Avg. Net Price		Quantity Sold	Avg. Net Price
Product	(in thousands)			(in thousands)
Ethanol (gallons)	31,606	$	1.22	33,325	$	1.28
Distillers' grains (tons)	65	$	133.77	73	$	143.33
Corn oil (pounds)	6,538	$	0.24	8,484	$	0.22

Ethanol

Total revenues from sales of ethanol decreased by approximately 9.6% for the three months ended April 30, 2019 compared to the same period of 2018 due to a decrease of approximately 4.7% in the average price per gallon we received for our ethanol, coupled with an approximately 5.2% decrease in aggregate volume sold. The aggregate decrease in the number of gallons sold is due to an approximately 8.7% decrease in the number of gallons sold at the HLBE plant resulting from decreased ethanol production at the HLBE plant during the 2019 period, which was coupled with an approximate 1.0% decrease in the volume of ethanol sold at the GFE plant during the 2019 period. The decrease in gallons sold at the GFE plant was due to decreased ethanol production during the 2019 period. The decrease in ethanol prices is due to increased production industry-wide which has resulted in higher inventories. Additionally, concerns related to ongoing trade disputes and RVO waivers granted by the EPA exempting certain refiners from compliance with the RFS negatively impacted ethanol prices.

From time to time, we engage in hedging activities with respect to our ethanol sales. At April 30, 2019, GFE had fixed and basis contracts for forward ethanol sales for various delivery periods through June 2019 valued at approximately $13.1 million. At April 30, 2019, HLBE had fixed and basis contracts for forward ethanol sales for various delivery periods through June 2019 valued at approximately $11.3 million. Separately, ethanol derivative instruments resulted in a loss of approximately $37,000 for the three months ended April 30, 2019; in comparison, they resulted in a gain of approximately $255,000 for the three months ended April 30, 2018.

Distillers' Grains

Total revenues from sales of distillers’ grains decreased by approximately 17.6% for the three months ended April 30, 2019 compared to the same period of 2018. This decrease was due to an approximately 6.7% decrease in the average price per ton we received for our distillers’ grains, coupled with an approximately 11.7% decrease in the volumes sold from period to period. We sold fewer tons of distillers’ grains in the three months ended April 30, 2019 as compared to the same period in 2018 due to decreased ethanol production at both the HLBE and the GFE plants, which decreased the output of distillers’ grains. The decrease in the market price of distillers’ grains is due lessened export demand.

At April 30, 2019, GFE had forward distillers’ grains sales contracts valued at approximately $70,000 for delivery periods through May 2019 and HLBE had forward distillers’ grains sales contracts valued at approximately $505,000 for delivery through May 2019.

Corn Oil

Total revenues from sales of corn oil decreased by approximately 15.4% for the three months ended April 30, 2019 compared to the same period of 2018 due to an approximately 22.9% decrease in pounds sold from period to period, which was partially offset by an approximately 9.7% increase in the average price per pound received for our corn oil from period to period. We sold fewer pounds of corn oil during the three months ended April 30, 2019 as compared to the same period in 2018 due to an approximately 31.6% decrease in pounds sold at HLBE’s plant, coupled with an approximately 14.0% decrease in pounds sold at the GFE plant. The reduced corn oil sales is attributable to reduced ethanol production

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and decreased oil extraction rates per bushel of corn for the three months ended April, 2019 compared to the same period of 2018. Management expects our corn oil production will be relatively stable going forward.

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

At April 30, 2019, GFE had forward corn oil sales contracts valued at approximately $524,00 for various delivery periods through June 2019. At April 30, 2019, HLBE had forward corn oil sales contracts valued at approximately $515,000 for various delivery periods through June 2019.

Cost of Goods Sold

Our cost of goods sold decreased by approximately 2.5% for the three months ended April 30, 2019, as compared to the three months ended April 30, 2018. However, as a percentage of revenues, our cost of goods sold increased to approximately 102.0% for the three months ended April 30, 2019, as compared to approximately 93.1% for the same period in 2018 due primarily to the narrowing of our operating margin resulting from declines in the average price received for our ethanol and distillers’ grains. Approximately 90% of our total costs of goods sold is attributable to our ethanol production segment. The cost of goods sold per gallon of ethanol sold for the three months ended April 30, 2019 and 2018 was approximately $1.44 and $1.40 per gallon, respectively.

The following table shows the costs of corn and natural gas (our two largest single components of costs of goods sold), as well as all other components of cost of goods sold, which includes processing ingredients, electricity, and wages, salaries and benefits of production personnel, and the approximate percentage of costs of those components to total costs of goods sold in our unaudited condensed consolidated statements of operations for the three months ended April 30, 2019:


	Three Months Ended April 30, 2019
	Cost		% of Cost of Goods Sold
	(in thousands)
Corn costs	$	33,783	67.0	%
Natural gas costs		3,071	6.1	%
All other components of costs of goods sold		13,564	26.9	%
Total Cost of Goods Sold	$	50,418	100.0	%

The following table shows the costs of corn, natural gas and all other components of cost of goods sold and the approximate percentage of costs of those components to total costs of goods sold in our unaudited condensed consolidated statements of operations for the three months ended April 30, 2018:


	Three Months Ended April 30, 2018
	Cost		% of Cost of Goods Sold
	(in thousands)
Corn costs	$	37,096	71.7	%
Natural gas costs		3,133	6.1	%
All other components of costs of goods sold		11,506	22.2	%
Total Cost of Goods Sold	$	51,735	100.0	%

Corn

Our aggregate cost of corn was approximately 8.9% less for the three months ended April 30, 2019 compared to the same period of 2018, due to an approximately 11.1% decrease in the number of bushels of corn processed from period to period, offset by an approximately 2.4% increase in the average price per bushel paid for corn. The corn-ethanol price spread (the difference between the price per gallon of ethanol and the price per bushel of grain divided by 2.8) for the three months ended April 30, 2019 was approximately $0.09 lower than the corn-ethanol price spread we experienced for same

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period of 2018. Management attributes the increase in corn prices primarily to weather conditions. Management anticipates that corn prices will remain higher and are likely to continue to increase depending on the actual number of bushels of corn harvested in the fall of 2019.

From time to time we enter into forward purchase contracts for our commodity purchases and sales. At April 30, 2019, GFE had approximately 2.8 million bushels of cash and basis contracts for forward corn purchase commitments for various delivery periods through December 2021. At April 30, 2019, HLBE had approximately 1.4 million bushels of cash and basis contracts for forward corn purchase commitments for various delivery periods through October 2020.

Our corn derivative positions resulted in a gain of approximately $281,000 and a loss of approximately $947,000 for the three months ended April 30, 2019 and 2018, respectively. We recognize the gains or losses that result from the changes in the value of our derivative instruments from corn in cost of goods sold as the changes occur. As corn prices fluctuate, the value of our derivative instruments is impacted, which affects our financial performance. We anticipate continued volatility in our cost of goods sold due to the timing of the changes in value of the derivative instruments relative to the cost and use of the commodity being hedged.

Natural Gas

Our cost of goods sold related to natural gas costs decreased approximately 2.0% for the three months ended April 30, 2019, as compared to the three months ended April 30, 2018. Management attributes this decrease in cost of natural gas from period to period to decreased production.

From time to time we enter into forward purchase contracts for our natural gas purchases. We had no gain or loss on natural gas derivative instruments for the three months ended April 30, 2019. In comparison, we had a loss on natural gas derivative instruments of approximately $14,000 for the three months ended April 30, 2018. We recognize the gains or losses that result from the changes in the value of our derivative instruments from natural gas in cost of goods sold as the changes occur.

Operating Expenses

Operating expenses include wages, salaries and benefits of administrative employees at the plant, insurance, professional fees, property taxes, and similar costs. Our operating expenses decreased by approximately 1.3% for the three months ended April 30, 2019 compared to the same period ended 2018.

Operating Income (Loss)

Our income (loss) from operations for the three months ended April 30, 2019 decreased by approximately $4.6 million compared to the same period of 2018. This decrease resulted largely from decreased prices received for our ethanol and distillers’ grains at our plants, the narrowing of our net operating margin and reduced production during the 2019 period.

Other Income (Expense), Net

We had approximately $154,000 more other income and approximately $20,000 more interest income for the 2019 period, and less interest expense, resulting in net other income of approximately $189,000 during the three months ended April 30, 2019, and net other expense of approximately $7,000 during the three months ended April 30, 2018. We had more other income the three months ended April 30, 2019 compared to the same period of 2018 due primarily to the timing of patronage and dividend amounts received in the 2019 period.

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Results of Operations for the Six Months Ended April 30, 2019 and 2018

The following table shows summary information from the results of our operations and the approximate percentage of revenues, costs of goods sold, operating expenses and other items to total revenues in our unaudited condensed consolidated statements of operations for the six months ended April 30, 2019 and 2018 (amounts in thousands).


	Fiscal Six Months Ended April 30,
	2019				2018
	(unaudited)				(unaudited)
Statement of Operations Data	Amount		%		Amount		%
Revenue	$	98,800	100.0	%	$	108,544	100.0	%
Cost of Goods Sold		102,529	103.8	%		101,723	93.7	%
Gross Profit (Loss)		(3,729)	(3.8)	%		6,821	6.3	%
Operating Expenses		3,397	3.4	%		3,328	3.1	%
Operating Income (Loss)		(7,126)	(7.2)	%		3,493	3.2	%
Other Income, net		150	0.2	%		193	0.2	%
Net Income (Loss)		(6,976)	7.0	%		3,686	3.4	%
Less: Net (Income) Loss Attributable to Non-controlling Interest		1,496	1.5	%		(1,136)	(1.0)	%
Net Income (Loss) Attributable to Granite Falls Energy, LLC	$	(5,480)	(5.5)	%	$	2,550	2.4	%

Revenues

Revenues from our three primary products: ethanol, distillers’ grains and corn oil, represented approximately 98.5% and 98.7% of our total consolidated revenues for the six months ended April 30, 2019 and 2018, respectively. Miscellaneous other revenues attributable to incidental sales of corn syrup and Agrinatural revenues (net of eliminations) represented 1.5% and 1.3% of our consolidated revenues for the six months ended April 30, 2019 and 2018, respectively.


	Six Months Ended April 30, 2019
Revenue Sources	Sales Revenue		% of Total Revenues
Ethanol sales	$	74,487	75.4	%
Distillers' grains sales		19,222	19.5	%
Corn oil sales		3,594	3.6	%
Miscellaneous other		1,497	1.5	%
Total Revenues	$	98,800	100.0	%


	Six Months Ended April 30, 2018
Revenue Sources	Sales Revenue		% of Total Revenues
Ethanol sales	$	82,468	76.0	%
Distillers' grains sales		20,422	18.8	%
Corn oil sales		4,239	3.9	%
Miscellaneous other		1,415	1.3	%
Total Revenues	$	108,544	100.0	%

Our total consolidated revenues decreased by approximately 9.0% for the six months ended April 30, 2019, as compared to same period of 2018, due to a decrease in the average price received for our ethanol, as well as decreased production and sales of ethanol, distillers’ grains and corn oil, which was partially offset by increases in the average price

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received for our distillers’ grains and corn oil. The following table reflects quantities of our three primary products sold and the average net prices received for the six months ended April 30, 2019 and 2018:


	Six Months Ended April 30, 2019			Six Months Ended April 30, 2018
Product	Quantity Sold	Avg. Net Price		Quantity Sold	Avg. Net Price
Ethanol (gallons)	64,072	$	1.16	66,518	$	1.24
Distillers' grains (tons)	140	$	137.06	155	$	131.90
Corn oil (pounds)	14,577	$	0.25	17,688	$	0.24

Ethanol

Total revenues from sales of ethanol decreased by approximately 9.7% for the six months ended April 30, 2019 compared to the same period of 2018 due to an approximately 6.2% decrease in the average price per gallon we received, coupled with an approximately 3.7% decrease in the volume of ethanol sold. The decrease in gallons of ethanol sold from period to period was primarily due to an approximately 6.4% decrease in the volume sold at the HLBE plant, coupled with an approximately 0.7% decrease in the volume of ethanol sold at the GFE plant, both attributable to lower production during the 2019 period. The decrease in ethanol prices resulted principally from increased production industry-wide, which exceeded demand, resulting in higher inventories that pushed ethanol prices downward.

Our ethanol derivative instruments resulted in a loss of approximately $37,000 during the six months ended April 30, 2019. Comparatively, our derivative positions resulted in a gain of approximately $394,000 during the six months ended April 30, 2018. Based on the lower of cost or net realizable value analysis, as a component of cost of goods sold, we recorded a loss on ethanol inventories of approximately $765,000 and $82,000 for the six months ended April 30, 2019 and 2018, respectively. Based on the lower of cost or net realizable value analysis, as a component of cost of goods sold, we recorded a loss on corn inventories of approximately $95,000 for the six months ended April 30, 2019.

Distillers' Grains

Total revenues from sales of distillers’ grains decreased by approximately 5.9% for the six months ended April 30, 2019 compared to the same period of 2018. This decrease is due to an approximately 9.6% decrease in aggregate tons sold from period to period, which was partially offset by an approximately 4.1% increase in the average price per ton we received. We sold fewer total tons of distillers grains during the six months ended April 30, 2019 compared to the six months ended April 30, 2018 due to decreased ethanol production in the 2019 period. The increase in the market price of distillers’ grains is due to a stronger domestic market due to increases in prices of soybean meal and increased export demand.

Corn Oil

Total revenues from sales of corn oil decreased by approximately 15.2% for the six months ended April 30, 2019 compared to the six months ended April 30, 2018 due to an approximately 17.6% decrease in pounds sold from period to period, which was slightly mitigated by an approximately 2.9% increase in the average price per pound we received. The decrease in volume sold for the six months ended April 30, 2019 compared to the same period of 2018 is attributable to decreased ethanol production during the six months ended April 30, 2019.

Cost of Goods Sold

Our cost of goods sold increased by approximately 0.8% for the six months ended April 30, 2019, as compared to the six months ended April 30, 2018. As a percentage of revenues, our cost of goods sold also increased to approximately 103.8% for the six months ended April 30, 2019, as compared to approximately 93.7% for the same period in 2018 due to the narrower margin between the price of ethanol and the price of corn from period to period. The cost of goods sold per gallon of ethanol sold for the six months ended April 30, 2019 and 2018 was approximately $1.44 and $1.38 per gallon, respectively.

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salaries and benefits of production personnel, and the approximate percentage of costs of those components to total costs of goods sold in our unaudited condensed consolidated statements of operations for the six months ended April 30, 2019:


	Six Months Ended April 30, 2019
	Cost		% of Cost of Goods Sold
	(in thousands)
Corn costs	$	72,314	70.5	%
Natural gas costs		7,034	6.9	%
All other components of costs of goods sold		23,181	22.6	%
Total Cost of Goods Sold	$	102,529	100.0	%

The following table shows the costs of corn, natural gas, and all other components of cost of goods sold and the approximate percentage of costs of those components to total costs of goods sold in our unaudited condensed consolidated statements of operations for the six months ended April 30, 2018:


	Six Months Ended April 30, 2018
	Cost		% of Cost of Goods Sold
	(in thousands)
Corn costs	$	73,095	71.9	%
Natural gas costs		6,625	6.5	%
All other components of costs of goods sold		22,003	21.6	%
Total Cost of Goods Sold	$	101,723	100.0	%

Corn

Our cost of goods sold related to corn was approximately 0.8% less for the six months ended April 30, 2019 compared to the same period of 2018, due primarily to an approximately 6.4% decrease in the number of bushels of corn processed, which was partially offset by an approximately 5.7% increase in the average price per bushel paid for corn from period to period. For the six months ended April 30, 2019 and 2018, we processed approximately 21.0 million and 22.4 million bushels of corn, respectively. The corn-ethanol price spread (the difference between the price per gallon of ethanol and the price per bushel of grain divided by 2.8) for the six months ended April 30, 2019, was approximately $0.14 lower than the corn-ethanol price spread we experienced for same period of 2018.

We had a gain related to corn derivative instruments of approximately $326,000 for the six months ended April 30, 2019, which decreased our costs of goods sold. Comparatively, we had a loss related to corn derivative instruments of approximately $1.2 million for the six months ended April 30, 2018, which increased our cost of goods sold. Based on the lower of cost or net realizable value analysis, as a component of cost of goods sold, the Company recorded a loss on corn inventories of approximately $95,000 for the six months ended April 30, 2019. Management has evaluated the outstanding corn forward purchase contracts and its inventories using the lower of cost or net realizable value evaluation, similar to the method used on its inventory, and has determined that GFE had an impairment loss of approximately $9,000 at April 30, 2019 and HLBE had an impairment loss of approximately $179,000 at April 30, 2019. The impairment expense is recorded as a component of cost of goods sold.

Natural Gas

Natural gas costs increased approximately 6.2% for the six months ended April 30, 2019 as compared to the six months ended April 30, 2018. The increase in natural gas costs was primarily due to colder weather during the 2019 period.

Our natural gas derivative positions resulted in no gain or loss for the six months ended April 30, 2018. Comparatively, our natural gas derivative instruments resulted in a loss of approximately $2,000 during the six months ended April 30, 2018, which increased our cost of goods sold.

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Operating Expenses

Operating expenses for the six months ended April 30, 2019 increased 2.1% compared to the six months ended April 30, 2018. As a percentage of total revenues, operating expenses slightly increased to 3.4% for the six months ended April 30, 2019, as compared to 3.1% for the six months ended April 30, 2018.

Operating Income (Loss)

Our income from operations for the six months ended April 30, 2019 was approximately $10.7 million less compared to the same period of 2018. This decrease resulted largely from increased prices for corn relative to the price of ethanol, which narrowed our operating margin.

Other Income, Net

We had net other income of approximately $150,000 and $193,000 during the six months ended April 30, 2019 and 2018, respectively. We had less other income due to less patronage income during the 2019 period.

Investments

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

Ringneck is a South Dakota limited liability company which is constructing an 80 million gallon per year ethanol manufacturing plant outside of Onida, South Dakota in Sully County. Construction has reached substantial completion and the plant is commencing operations. The units GFE acquired in Ringneck are subject to restrictions on transfer, therefore, this should not be considered a liquid investment.

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

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

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

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

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Changes in Financial Condition at April 30, 2019 and October 31, 2018

The following table highlights our financial condition at April 30, 2019 and October 31, 2018 (amounts in thousands):


	April 30, 2019		October 31, 2018
	(unaudited)
Current Assets	$	29,470	$	38,608
Total Assets	$	103,369	$	116,861
Current Liabilities	$	7,305	$	12,132
Long-Term Debt, less current portion	$	7,334	$	7,799
Members' Equity attributable to Granite Falls Energy, LLC	$	68,379	$	75,084
Non-controlling Interest	$	20,351	$	21,846

The decrease in total current assets is attributable to a decrease in cash on hand of approximately $6.6 million at April 30, 2019 compared to October 31, 2018. The decrease in cash was due primarily to payment of distributions to members in January 2019 and net cash used in operations of approximately $4.6 million. Additionally, we had a decrease in inventory of approximately $2.6 million and the value of commodity derivative instruments of approximately $888,000. Offsetting these decreases were increases in restricted cash of approximately $400,000, accounts receivable of approximately $19,000, and prepaid expenses of approximately $561,000 at April 30, 2019 compared to October 31, 2018. Contributing to the decrease in total assets was an approximately $4.3 million decrease in property and equipment primarily due to depreciation expense during the 2019 period.

Our current liabilities decreased approximately $4.8 million at April 30, 2019 compared to October 31, 2018, due to primarily to a decrease of approximately $5.3 million in accounts payable. Our accounts payable were less at April 30, 2019 compared to October 31, 2018 due to the timing of payments to vendors during the six months ended April 30, 2019.

Members’ equity attributable to Granite Falls Energy, LLC at April 30, 2019 compared to October 31, 2018 decreased by approximately $6.7 million. The decrease was related to the distribution to our members of approximately $1.2 million during January 2019, coupled with our approximately $5.5 million of net loss attributable to GFE during the six months ended April 30, 2019.

Non-controlling interest totaled approximately $20.4 million and $21.8 million at April 30, 2019 and October 31, 2018, respectively. This is directly related to recognition of the 49.3% noncontrolling interest in HLBE.

Liquidity and Capital Resources

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

Cash Flows

The following table shows our cash flows for the six months ended April 30, 2019 and 2018 (amounts in thousands):


	2019		2018
	(unaudited)		(unaudited)
Net cash provided by (used in) operating activities	$	(4,611)	$	10,470
Net cash used in investing activities	$	(393)	$	(972)
Net cash used in financing activities	$	(1,236)	$	(16,212)
Net decrease in cash and restricted cash	$	(6,240)	$	(6,714)

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Operating Cash Flows

During the six months ended April 30, 2019, operations provided less cash compared to the same period of 2018 primarily due to net loss in the 2019 period. Additionally, changes in various working capital components, including prepaid expenses and accounts payable, contributed to the cash used during the 2019 period.

Investing Cash Flows

Cash used in investing activities was approximately $580,000 less for the six months ended April 30, 2019, compared to the same period of 2018, due to a decrease in capital expenditures during the 2019 period. This was partially offset by proceeds from disposals of assets received in the 2018 period.

Financing Cash Flows

During the six months ended April 30, 2019, we used cash to make payments of approximately $12,000 on our long-term debt and make payments of approximately $1.2 million in distributions to our unit holders. Comparatively, during the same period of 2018, we made payments of approximately $11.8 million in distributions to our unit holders, approximately $4.3 million in distributions to non-controlling interests, and principal payments of approximately $122,000 on HLBE’s long-term debt.

Indebtedness

GFE’s Credit Arrangements with AgCountry

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

Under the seasonal revolving loan, GFE may borrow, repay, and re-borrow up to the aggregate principal commitment of $6.0 million until its maturity. GFE had no outstanding balance on the seasonal revolving loan at April 30, 2019. The aggregate principal amount available to GFE for additional borrowing was $6.0 million at April 30, 2019.

The seasonal revolving loan bears interest from the date funds are first advanced on the loan through maturity, at a rate per annum equal to the sum of (x) the One Month LIBOR Index Rate plus (y) 2.75% per annum. The interest rate was 5.23% and 5.06% at April 30, 2019 and October 31, 2018, respectively.

GFE pays an unused commitment fee on the unused portion of the seasonal revolving loan commitment at the rate of 0.250% per annum. The credit facility with AgCountry is secured by substantially all of GFE’s assets. There are no savings account balance collateral requirements as part of this credit facility.

The credit facility requires GFE to comply with certain financial covenants at various times calculated monthly, quarterly or annually, including restriction of the payment of dividends and maintenance of certain financial ratios including minimum working capital, minimum net worth and a debt service coverage ratio as defined by the credit facility. GFE is permitted to pay distributions to its members up to 75% of its net income for the year in which the distributions are paid provided that immediately prior to the distribution and after giving effect to the distribution, no default exists and GFE is in compliance with all of its loan covenants including compliance with the financial covenants. Further, GFE agreed not create or incur any indebtedness except for debt to AgCountry, accounts payable to trade creditors, subordinated debt owed to Project Hawkeye, or debt to other lenders in an aggregate amount not exceed $750,000 or make loans or advances or invest in any entity, other than its investments in HLBE and Ringneck, without the consent of CoBank or AgCountry. CoBank consented to our investment in Harvestone. Failure to comply with the protective loan covenants or maintain the required financial ratios may cause acceleration of the outstanding principal balances on the revolving term loan and/or the imposition of fees, charges or penalties.

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As of April 30, 2019, we were in compliance with these financial covenants. However, if market conditions deteriorate in the future, circumstances may develop which could result in us violating the financial covenants or other terms of GFE’s credit facility. If we fail to comply with the terms of our credit agreement with AgCountry, and AgCountry refuses to waive the non-compliance, AgCountry could terminate the credit facility and any commitment to loan funds to GFE.

GFE’s Other Credit Arrangement

GFE has a credit facility with Project Hawkeye for a $7.5 million loan to finance the balance of its subscription in Ringneck. Interest on the Project Hawkeye loan accrues at a variable rate equal to the sum of the One Month LIBOR Index Rate plus 3.05% per annum, with an interest rate floor of 3.55%, which was 5.53% and 5.36% at April 30, 2019 and October 31, 2018, respectively.

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

HLBE’s Compeer Credit Facility

HLBE has a comprehensive credit facility with Compeer Financial, FLCA and Compeer Financial, PCA, collectively formerly known as AgStar Financial Services, FLCA (“Compeer”) for which CoBank, ACP (“CoBank”) serves as the administrative agent. This credit facility includes an amended and restated revolving term loan with a $4.0 million principal commitment and a revolving seasonal line of credit with a $4.0 million principal commitment. In exchange for the loans, HLBE granted liens on all property (real and personal, tangible, and intangible) which include, among other things, a mortgage on the property, a security interest on commodity trading accounts, and assignment of material contracts. Please refer to Item 1 - Financial Statements, Note 7 - Debt Financing for additional details. As of April 30, 2019 and October 31, 2018, there were no amounts outstanding under HLBE’s credit facility with Compeer and the aggregate principal amount available to HLBE for borrowing under each of the amended revolving term loan and seasonal revolving loan was $4.0 million.

The Compeer credit facility contains customary covenants, including restrictions on the payment of dividends and loans and advances to Agrinatural, and maintenance of certain financial ratios including minimum working capital, minimum net worth and a debt service coverage ratio as defined by the credit facility. Failure to comply with the protective loan covenants or maintain the required financial ratios may cause acceleration of the outstanding principal balances on the revolving term loan and/or the imposition of fees, charges, or penalties. In October 2018, The Company had an event of non-compliance related to the debt service coverage ratio as defined in the amended credit facility. In December 2018, The Company received a waiver from its lender waiving this event of noncompliance.

As of April 30, 2019, HLBE was in compliance with these loan covenants. However, if market conditions deteriorate in the future, circumstances may develop which could result in HLBE violating the financial covenants or other terms of its amended credit facility. If HLBE fails to comply with the terms of its credit facility with Compeer, and Compeer refuses to waive the non-compliance, Compeer could terminate the credit facility and any commitment to loan funds to HLBE.

HLBE’s Other Credit Arrangements

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

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In October 2003, HLBE entered into an industrial water supply development and distribution agreement with the City of Heron Lake, Jackson County, and Minnesota Soybean Processors. In consideration of this agreement, HLBE and Minnesota Soybean Processors are allocated equally the debt service on $735,000 in water revenue bonds that were issued by the City to support this project that were to mature in February 2019. The parties have agreed that, prior to the scheduled expiration of the agreement, they will negotiate in good faith to replace the agreement with a further agreement regarding the wells and related facilities. The agreement has been extended by mutual agreement of the parties. HLBE is currently in discussions with the City of Heron Lake to facilitate HLBE’s purchase of such wells and related facilities, provided that HLBE will, pursuant to a successful purchase, provide water service to at least one identified industrial customer. In the event that the purchase is not consummated, the City of Heron Lake and HLBE will continue to extend the current agreement in substantially the form as currently operating.

In May 2006, HLBE entered into an industrial water supply treatment agreement with the City of Heron Lake and Jackson County. Under this agreement, HLBE pays monthly installments over 24 months starting January 1, 2007 equal to one years’ debt service on approximately $3.6 million in water revenue bonds, which will be returned to HLBE if any funds remain after final payment in full on the bonds and assuming HLBE complies with all payment obligations under the agreement. There was a total of approximately $947,000 and $959,000 in outstanding water revenue bonds at April 30, 2019 and October 31, 2018, respectively. HLBE classifies its obligations under these bonds as assessments payable. The interest rates on the bonds range from 6.55% to 8.73%.

Agrinatural Credit Facilities

In July 2014, HLBE extended a five-year term loan to Agrinatural in an aggregate principal amount of approximately $3.05 million (the “Original Agrinatural Credit Facility”). The Original Agrinatural Credit Facility requires monthly principal payments of $36,000, plus accrued interest. Interest on the Original Agrinatural Credit Facility accrues at a variable rate equal to the One-Month LIBOR rate plus 4.0%, with the interest rate capped and not to exceed 6.0% per annum. Final payment of amounts borrowed under Original Agrinatural Credit Facility is due and payable in full on May 1, 2019.

The Original Agrinatural Credit Facility contains customary financial and non-financial affirmative covenants and negative covenants for loans of this type and size. The Original Agrinatural Credit Facility is secured by all of Agrinatural’s equipment and assets and a collateral assignment assigning the Company all of Agrinatural’s interests in its contracts, leases, easements, and other agreements. In addition, Rural Energy Solutions, LLC, the minority owner of Agrinatural (“RES”), executed a guarantee under which RES guaranteed full payment and performance of 27% of Agrinatural’s obligations to HLBE.

Upon the passage of the May 1, 2019 maturity date, Agrinatural went into default on the Original Agrinatural Credit Facility. As noted, HLBE has a security interest in all of Agrinatural’s assets. HLBE expects to be fully paid with regard to the Original Agrinatural Credit Facility. HLBE expects no interruption in the service of natural gas to its ethanol production facility. The balance of this loan was approximately $1.4 million at April 30, 2019 and $1.5 million at October 31, 2018.

In March 2015, HLBE extended an additional four-year term loan in the original principal amount of $3.5 million to Agrinatural (the “Additional Agrinatural Credit Facility”). In May 2016, HLBE and Agrinatural amended the Additional Agrinatural Credit Facility (the “Amendment”). Under the terms of the Additional Agrinatural Credit Facility and the Amendment, for each of calendar years, 2018, 2018 and 2019, Agrinatural may not, without the consent of HLBE, proceed with and pay for capital expenditures in an amount in excess of $100,000 plus the amount of contributions in aid of construction received by Agrinatural from customers for capital improvements (“CIAC”), less a reserve for distribution to the Agrinatural members to cover the income or other taxes imposed as a result of receipt of CIAC in an amount equal to 40% of CIAC. Prior to the Amendment, Agrinatural’s capital expenditures were restricted to $100,000 per year.

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

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The Additional Agrinatural Credit Facility contains customary financial and non-financial affirmative covenants and negative covenants for loans of this type and size, including a covenant restricting capital expenditures by Agrinatural. The Additional Agrinatural Credit Facility is secured by all of Agrinatural’s equipment and assets and a collateral assignment assigning HLBE all of Agrinatural’s interests in its contracts, leases, easements, and other agreements. In addition, RES executed a guarantee under which RES guaranteed full payment and performance of 27% of Agrinatural’s obligations to HLBE.

Upon the passage of the May 1, 2019 maturity date, Agrinatural went into default on the Additional Agrinatural Credit Facility. As noted, HLBE has a security interest in all of Agrinatural’s assets. HLBE expects to be fully paid with regard to the Additional Agrinatural Credit Facility. HLBE expects no interruption in the service of natural gas to its ethanol production facility. The balance of this loan was approximately $1.9 million at April 30, 2019 and $2.0 million at October 31, 2018.

Critical Accounting Policies and Estimates

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

At April 30, 2019, our critical accounting estimates continue to include those described in our annual report on Form 10-K for the fiscal year ended October 31, 2018. Management has not changed the method of calculating and using estimates and assumptions in preparing our condensed consolidated unaudited financial statements in accordance with generally accepted accounting principles in the United States of America.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Interest Rate Risk

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

At April 30, 2019, there were no amounts outstanding under GFE’s credit facility with AgCountry or HLBE’s credit facility with Compeer. Therefore, at April 30, 2019, we had exposure to interest rate risk only from the amounts outstanding under GFE’s credit facility with Project Hawkeye. Below is a sensitivity analysis we prepared regarding GFE’s income exposure to changes in interest rates.

The sensitivity analysis below shows the anticipated effect on our income from a 10% adverse change in interest rates for a one-year period.


Outstanding Variable
Rate Debt at		Interest Rate at		Interest Rate Following 10%		Approximate Adverse
April 30, 2019		April 30, 2019		Adverse Change		Change to Income
$	7,500,000	5.53	%	6.08	%	$	41,000

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Commodity Price Risk

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

As of April 30, 2019, GFE had price protection in place for approximately 27.0% and 67.0% of its anticipated corn and natural gas needs, respectively, and approximately 17.0%, 1.0%, and 12.0% of its ethanol, distillers’ grains, and corn oil sales, respectively, for the next 12 months. As of April 30, 2019, HLBE had price protection in place for approximately 21.0% of its anticipated corn and natural gas needs, and approximately 14.0%, 5.0%, and 12.5% of its ethanol, distillers’ grains, and corn oil sales, respectively, for the next 12 months. Through these contracts we hope to minimize risk from future market price fluctuations and basis fluctuations. As input prices move in reaction to market trends and information, our income statement will be affected depending on the impact such market movements have on the value of our derivative instruments. Depending on market movements, crop prospects and weather, these price protection positions may cause immediate adverse effects, but are expected to produce long-term positive growth for us.

A sensitivity analysis has been prepared to estimate our exposure to ethanol, corn and natural gas price risk. Market risk related to these factors is estimated as the potential change in income resulting from a hypothetical 10% adverse change in the fair value of our corn and natural gas prices and average ethanol price as of April 30, 2019, net of the forward and future contracts used to hedge our market risk for corn and natural gas usage requirements. The volumes are based on our expected use and sale of these commodities for both of the GFE and HLBE plants for a one year period from April 30, 2019. The results of this sensitivity analysis, which may differ from actual results, are as follows:


	Estimated Volume Requirements		Hypothetical Adverse
	for the next 12 months	Unit of	Change in Price as of		Approximate Adverse
	(net of forward and futures contracts)	Measure	April 30, 2019		Change to Income
Ethanol	111,683,000	Gallons	10	%	$	13,402,000
Corn	43,350,000	Bushels	10	%	$	14,662,000
Natural Gas	1,853,000	MMBTU	10	%	$	599,000

Participation in Captive Reinsurance Company

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

Item 4. Controls and Procedures

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

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Effectiveness of Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and General Manager (the principal executive officer), Steve Christensen, along with our Chief Financial Officer (the principal financial officer), Stacie Schuler, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of April 30, 2019. Based upon this review and evaluation, these officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission; and to ensure that the information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

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

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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

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

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

We may experience negative impacts of higher ethanol tariffs and other disruptions to international agricultural trade related to current trade actions announced by the Trump administration and responsive actions announced by trading partners, including by China. For example, in April 2018, the Chinese government increased the tariff on U.S. ethanol imports into China from 30% to 45%, and increased such tariff again in July 2018 from 45% to 70%. We cannot estimate the exact effect this tariff increase will have on the overall domestic ethanol market, as exports continued to China through March 2018. Since March 2018, however, exports to China have been negligible. The increased tariff is expected to reduce overall U.S. ethanol export demand, which could have a negative effect on U.S. domestic ethanol prices.

Hardship waivers granted to “small refineries” negatively impact domestic demand, which could adversely affect our operations and profitability.

Domestic demand for ethanol is driven largely by the RFS, which requires the EPA to annually establish renewable volume obligations, or RVOs, which set forth the number of gallons of different types of renewable fuels that must be used in the U.S. by refineries, blenders, distributors and importers. RVOs for both 2018 and 2019 have been set at 15.0 billion gallons for conventional ethanol. To comply with the RVOs, obligated parties use RINs, which are attached to renewable fuels by producers and detached when the renewable fuel is blended with transportation fuel or traded in the open market. Under the RFS, small refineries may petition for and be granted temporary exemptions from the RVOs if they can demonstrate disproportionate economic hardship. As of May 2019, the EPA reported that approximately 1.82 billion RINs, which is approximately 17.05 billion gallons of gasoline and diesel, have been exempted from meeting the RVOs for the 2017 compliance year. Petitions for waivers for the 2018 compliance year, as well as a remaining petition for the 2017 compliance year, are currently pending. If similar waivers continue to be approved, then domestic demand for our ethanol could decrease, which negatively impacts ethanol prices and our profitability.

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

An increasing amount of our industry’s products are being exported, and U.S. production has grown to supply the foreign marketplace. However, the volume of ethanol and distillers’ grains exports may decline. If producers and exporters of ethanol and distillers’ grains are subjected to increased trade barriers when selling products to foreign customers, like the various tariffs currently in effect, then the supply of the products to the domestic market may increase,

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and there may be a reduction in the value of these products to producers like us in the United States. Declines in the price we receive for our products will lead to decreased revenues and may result in our inability to operate the ethanol plant profitably.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits.

(a)

The following exhibits are included in this report.


Exhibit No.			Exhibit

31.1			Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a)*

31.2			Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a)*

32.1			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350*

32.2			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350*

101			The following financial information from Granite Falls Ethanol, LLC's Quarterly Report on Form 10-Q for the three and six months ended April 30, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at April 30, 2019 and October 31, 2018; (ii) the Condensed Consolidated Statements of Operations for the three and six months ended April 30, 2019 and 2018; (iii) the Condensed Consolidated Statements of Changes in Members’ Equity for the three and six months ended April 30, 2019 and 2018; (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended April 30, 2019 and 2018; and (iv) Notes to Condensed Consolidated Unaudited Financial Statements.*

* Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		GRANITE FALLS ENERGY, LLC

Date: June 14, 2019		/s/ Steve Christensen
		Steve Christensen
		Chief Executive Officer

		/s/ Stacie Schuler
Date: June 14, 2019		Stacie Schuler
		Chief Financial Officer