UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~January~~July 31, 2018

☐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☐No

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

☒Yes ☐No☐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 an emerging growth company. See the definitions of ~~"large~~“large accelerated ~~filer," "accelerated filer"~~filer”, ~~"smaller~~“accelerated filer”, “smaller reporting ~~company"~~company” and ~~"emerging~~“emerging growth ~~company"~~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 ~~March 19,~~September 14, 2018, there were 30,606 membership units outstanding.

Table of Contents

INDEX


	Page Number
PART I. FINANCIAL INFORMATION	3

Item 1. Financial Statements	3

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3. Quantitative and Qualitative Disclosures about Market Risk	3235

Item 4. Controls and Procedures	3436

PART II. OTHER INFORMATION	3437

Item 1. Legal Proceedings	3437

Item 1A. Risk Factors	3537

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3538

Item 3. Defaults Upon Senior Securities	3538

Item 4. Mine Safety Disclosures	3538

Item 5. Other Information	3638

Item 6. Exhibits	3639

SIGNATURES	3640

Table of Contents

PART IFINANCIAL INFORMATION

Item 1. Financial Statements

GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Balance Sheets


	January 31, 2018		October 31, 2017		July 31, 2018		October 31, 2017
ASSETS	(unaudited)				(unaudited)
Current Assets
Cash	$	6,638,645	$	21,658,422	$	15,405,720	$	21,658,422
Restricted cash		547,132		75,189		132,914		75,189
Accounts receivable		7,442,899		7,622,601		2,640,142		7,622,601
Inventory		15,736,482		15,241,092		15,619,526		15,241,092
Commodity derivative instruments		36,525		244,294		554,627		244,294
Prepaid expenses and other current assets		702,650		361,340		615,569		361,340
Total current assets		31,104,333		45,202,938		34,968,498		45,202,938

Property and Equipment, net		70,414,786		72,271,013		68,241,215		72,271,013

Goodwill		1,372,473		1,372,473		1,372,473		1,372,473

Investment		7,500,000		7,500,000
Investments						9,500,000		7,500,000

Other Assets		733,569		743,106		714,495		743,106

Total Assets	$	111,125,161	$	127,089,530	$	114,796,681	$	127,089,530

LIABILITIES AND MEMBERS' EQUITY
Current Liabilities
Current maturities of long-term debt	$	333,015	$	432,183	$	322,048	$	432,183
Checks drawn in excess of bank balance		1,151,278		—
Accounts payable		4,833,477		7,535,468		5,880,156		7,535,468
Commodity derivative instruments		76,264		40,379		70,392		40,379
Accrued expenses		1,198,817		972,043		859,686		972,043
Total current liabilities		7,592,851		8,980,073		7,132,282		8,980,073

Long-Term Debt, less current portion		8,453,826		8,465,502		8,295,555		8,465,502

Commitments and Contingencies

Members' Equity
Members' equity attributable to Granite Falls Energy, LLC consists of 30,606 units authorized, issued, and outstanding at both January 31, 2018 and October 31, 2017		73,271,176		83,998,672
Members' equity attributable to Granite Falls Energy, LLC consists of 30,606 units authorized, issued, and outstanding at both July 31, 2018 and October 31, 2017						76,771,028		83,998,672
Non-controlling interest		21,807,308		25,645,283		22,597,816		25,645,283
Total members' equity		95,078,484		109,643,955		99,368,844		109,643,955

Total Liabilities and Members' Equity	$	111,125,161	$	127,089,530	$	114,796,681	$	127,089,530

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 January 31,				Three Months Ended July 31,				Nine Months Ended July 31,
	2018		2017		2018		2017		2018		2017
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)

Revenues	$	52,993,499	$	54,576,064	$	53,220,620	$	54,250,994	$	161,764,393	$	161,629,116

Cost of Goods Sold		49,988,507		47,731,157		49,527,078		50,047,853		151,250,420		146,624,568

Gross Profit		3,004,992		6,844,907		3,693,542		4,203,141		10,513,973		15,004,548

Operating Expenses		1,680,143		1,607,221		1,458,554		1,463,014		4,786,700		4,654,769

Operating Income		1,324,849		5,237,686		2,234,988		2,740,127		5,727,273		10,349,779

Other Income (Expense):
Other income, net		259,256		392,265		2,284		51,660		333,664		462,533
Interest income		46,473		454		44,621		16,730		114,474		23,614
Interest expense		(105,755)		(41,609)		(151,742)		(86,688)		(360,228)		(162,295)
Total other income, net		199,974		351,110
Total other income (expense), net						(104,837)		(18,298)		87,910		323,852

Net Income	$	1,524,823	$	5,588,796	$	2,130,151	$	2,721,829	$	5,815,183	$	10,673,631

Less: Net Income Attributable to Non-controlling Interest		(473,217)		(1,429,005)		(127,900)		(672,208)		(1,263,725)		(2,616,744)

Net Income Attributable to Granite Falls Energy, LLC	$	1,051,606	$	4,159,791	$	2,002,251	$	2,049,621	$	4,551,458	$	8,056,887

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

Amounts attributable to Granite Falls Energy, LLC:

Net Income Per Unit - Basic and Diluted	$	34.36	$	135.91	$	65.42	$	66.97	$	148.71	$	263.25

Distributions Per Unit	$	385.00	$	365.00	$	—	$	—	$	385.00	$	365.00

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 Cash Flows


	Three Months Ended January 31,				Nine Months Ended July 31,
	2018		2017		2018		2017
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Cash Flows from Operating Activities:
Net income	$	1,524,823	$	5,588,796	$	5,815,183	$	10,673,631
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		2,284,340		2,492,791		6,901,354		7,094,707
Change in fair value of commodity derivative instruments		113,233		(383,860)		(673,356)		(461,723)
Gain on sale of assets		(24,815)		(45,000)		(24,815)		(95,300)
Changes in operating assets and liabilities:
Restricted cash		(471,943)		—		(57,725)		(144,345)
Commodity derivative instruments		130,421		842,875		393,036		1,379,267
Accounts recievable		179,702		2,302,376
Accounts receivable						4,982,459		4,467,030
Inventory		(495,390)		(271,086)		(378,434)		5,442,490
Prepaid expenses and other current assets		(341,310)		(71,998)		(254,229)		(239,726)
Accounts payable		(2,550,585)		(7,605,717)		(2,689,205)		(5,299,721)
Accrued expenses		226,774		164,537		(112,357)		(452,731)
Net Cash Provided by Operating Activities		575,250		3,013,714		13,901,911		22,363,579

Cash Flows from Investing Activities:
Payment for investment		—		(750,000)
Purchase of investment						(2,000,000)		(750,000)
Payments for capital expenditures		(569,982)		(385,554)		(1,809,052)		(1,721,541)
Proceeds from disposal of assets		24,815		45,000		24,815		95,300
Net Cash Used in Investing Activities		(545,167)		(1,090,554)		(3,784,237)		(2,376,241)

Cash Flows from Financing Activities:
Payments on long-term debt		(110,844)		(128,887)		(280,082)		(324,994)
Checks drawn in excess of bank balance		1,151,278		(1,230,005)		—		(1,866,683)
Purchase of subsidiary units attributable to non-controlling interest						—		(46,644)
Distributions to non-controlling interests		(4,311,192)		—		(4,311,192)		—
Member distributions paid		(11,779,102)		(11,171,190)		(11,779,102)		(11,171,190)
Net Cash Used in Financing Activities		(15,049,860)		(12,530,082)		(16,370,376)		(13,409,511)

Net Decrease in Cash		(15,019,777)		(10,606,922)
Net Increase (Decrease) in Cash						(6,252,702)		6,577,827

Cash - Beginning of Period		21,658,422		13,797,857		21,658,422		13,797,857

Cash - End of Period	$	6,638,645	$	3,190,935	$	15,405,720	$	20,375,684

Supplemental Cash Flow Information
Cash paid during the period for:
Interest expense	$	105,755	$	41,609	$	360,228	$	162,295

Supplemental Disclosure of Noncash Investing and Financing Activities
Capital expenditures and construction in process included in accounts payable	$	63,829	$	175,891	$	1,249,128	$	88,534

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

~~January~~July 31, 2018

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

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

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

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

Basis of Presentation and Principles of Consolidation

The condensed consolidated unaudited financial statements as of ~~January~~July 31, 2018 consolidate the operating results and financial position of GFE, and its approximately 50.7% owned subsidiary, HLBE (through GFE's 100% ownership of Project Viking, LLC). Given the Company’s control over the operations of HLBE and its majority voting interest, the Company consolidates the condensed consolidated unaudited financial statements of HLBE with GFE's condensed consolidated unaudited financial statements. The remaining 49.3% ownership of HLBE is included in the condensed consolidated unaudited financial statements as a non-controlling interest. HLBE, through its wholly owned subsidiary, HLBE Pipeline Company, LLC, owns approximately 73% of Agrinatural. Given HLBE’s control over the operations of Agrinatural and its majority voting interest, HLBE consolidates the financial statements of Agrinatural with its consolidated unaudited financial statements, with the equity and earnings attributed to the remaining approximately 27% noncontrolling interest. All significant intercompany balances and transactions are eliminated in consolidation.

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

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

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

~~January~~July 31, 2018

Reportable Operating Segments

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

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

Accounting Estimates

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

Revenue Recognition

The Company generally sells ethanol and related products pursuant to marketing agreements. Revenues from the production of ethanol and the related products are recorded when the customer has taken title and assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured. Ethanol and related products are generally shipped free on board (FOB) shipping point. The Company believes there are no ethanol sales, during any given month, which should be considered contingent and recorded as deferred revenue.

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

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

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

~~January~~July 31, 2018

Inventory

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

Derivative Instruments

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

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

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

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

The Company has adopted authoritative guidance related to “Derivatives and Hedging,” and has included the required enhanced quantitative and qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses from derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. See further discussion in Note 4.

~~Investment~~Investments

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

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

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

~~January~~July 31, 2018

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

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

2. RISKS AND UNCERTAINTIES

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

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

3. INVENTORY

Inventories consist of the following:


	January 31, 2018		October 31, 2017		July 31, 2018		October 31, 2017
	(unaudited)				(unaudited)
Raw materials	$	4,524,471	$	4,488,923	$	4,121,644	$	4,488,923
Supplies		2,913,151		2,929,385		2,961,224		2,929,385
Work in process		1,318,638		1,281,292		1,327,777		1,281,292
Finished goods		6,980,222		6,541,492		7,208,881		6,541,492
Totals	$	15,736,482	$	15,241,092	$	15,619,526	$	15,241,092

The Company performs a lower of cost or net realizable value analysis on inventory to determine if the net realizable values of certain inventories are less than their carrying value, which is attributable primarily to decreases in market prices of corn and ethanol. Based on the lower of cost or net realizable value analysis, as a component of cost of goods sold, the Company recorded a loss on ethanol inventories, as a component of cost of goods sold, of approximately ~~$377,000~~$420,000 and ~~$207,000~~$65,000 for the ~~three~~nine months ended ~~January~~July 31, 2018 and 2017, respectively.

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2018

4. DERIVATIVE INSTRUMENTS

As of ~~January~~July 31, 2018, the total notional amount of GFE’s outstanding corn derivative instruments was approximately ~~7,090,000~~5,725,000 bushels, comprised of long corn positions on ~~2,070,000~~190,000 bushels that were entered into to hedge forecasted ethanol sales through ~~March~~September 2018, and short corn positions on ~~5,020,000~~5,535,000 bushels that were entered into to hedge forecasted corn purchases through December 2021. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding as disclosed above.

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~~Granite Falls Energy, LLC and Subsidiaries~~

~~Notes to Condensed Consolidated Unaudited Financial Statements~~

~~January 31, 2018~~

As of ~~January~~July 31, 2018,, the total notional amount of HLBE’s outstanding corn derivative instruments was approximately ~~5,635,000~~4,125,000 bushels, comprised of ~~long corn positions on 1,995,000 bushels that were entered into to hedge forecasted ethanol sales through March 2018, and~~ short corn positions ~~on 3,640,000 bushels~~ that were entered into to hedge forecasted corn purchases through December 2019. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

As of ~~January 31, 2018, HLBE had outstanding natural gas derivative instruments totaling approximately 40,000 MMBTUs entered into to hedge forecasted ethanol sales through February 2018.~~

~~As of January~~July 31, 2018, GFE had approximately ~~$386,000~~$109,000 of cash collateral (restricted cash) related to derivatives held by a broker. and approximately $0 due to broker related to derivatives held by a broker, recorded as a component of accounts payable.

As of ~~January~~July 31, 2018, HLBE had approximately ~~$161,000~~$24,000 of cash collateral (restricted cash) related to derivatives held by a broker. and approximately $0 due to broker related to derivatives held by a broker, recorded as a component of accounts payable.

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


	Consolidated Balance Sheet location	Assets		Liabilities		Consolidated Balance Sheet Location	Assets		Liabilities
Corn contracts - GFE	Commodity derivative instruments	$	—	$	70,000	Commodity derivative instruments	$	268,026	$	35,196
Corn contracts - HLBE	Commodity derivative instruments		5,025		—	Commodity derivative instruments		286,601		35,196
Ethanol contracts - HLBE	Commodity derivative instruments		31,500		—
Natural gas contracts - HLBE	Commodity derivative instruments		—		6,264
Totals		$	36,525	$	76,264		$	554,627	$	70,392

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

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

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

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

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

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

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

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

~~January~~July 31, 2018

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


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

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

									��
	Consolidated Statement	Three Months Ended January 31,				Consolidated Statement	Three Months Ended July 31,					Nine Months Ended July 31,
	of Operations Location	2018		2017		of Operations Location	2018			2017		2018		2017
Corn contracts	Cost of Goods Sold	$	(265,068)	$	(33,137)	Cost of Goods Sold	$	1,778,570		$	287,865	$	566,959	$	857,218
Ethanol contracts	Revenues		139,497		416,997	Revenues		(286,125)			(122,765)		107,995		(395,495)
Natural gas contracts	Cost of Goods Sold		12,338		—	Cost of Goods Sold		—			—		(1,598)		—
Total gain (loss)		$	(113,233)	$	383,860
Total gain							$	1,492,445		$	165,100	$	673,356	$	461,723

5. FAIR VALUE

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


					Fair Value Measurement Using										Fair Value Measurement Using
					Quoted Prices		Significant Other		Significant						Quoted Prices		Significant Other		Significant
	Carrying Amount in				in Active Markets		Observable Inputs		Unobservable Inputs		Carrying Amount in				in Active Markets		Observable Inputs		Unobservable Inputs
Financial Asset:	Consolidated Balance Sheet		Fair Value		(Level 1)		(Level 2)		(Level 3)		Consolidated Balance Sheet		Fair Value		(Level 1)		(Level 2)		(Level 3)
Commodity Derivative Instruments - Corn	$	5,025	$	5,025	$	5,025	$	—	$	—	$	554,627	$	554,627	$	554,627	$	—	$	—
Commodity Derivative Instruments - Ethanol	$	31,500	$	31,500	$	31,500	$	—	$	—

Financial Liabilities:
Commodity Derivative Instruments - Corn	$	70,000	$	70,000	$	70,000	$	—	$	—	$	70,392	$	70,392	$	—	$	70,392	$	—
Commodity Derivative Instruments - Natural Gas	$	6,264	$	6,264	$	—	$	6,264	$	—

The following table sets forth, by level, the Company assets and liabilities that were accounted for at fair value on a recurring basis at October 31, 2017:


					Fair Value Measurement Using										Fair Value Measurement Using
					Quoted Prices		Significant Other		Significant						Quoted Prices		Significant Other		Significant
	Carrying Amount in				in Active Markets		Observable Inputs		Unobservable Inputs		Carrying Amount in				in Active Markets		Observable Inputs		Unobservable Inputs
Financial Asset:	Consolidated Balance Sheet		Fair Value		(Level 1)		(Level 2)		(Level 3)		Consolidated Balance Sheet		Fair Value		(Level 1)		(Level 2)		(Level 3)
Commodity Derivative Instruments - Corn	$	244,294	$	244,294	$	244,294	$	—	$	—	$	244,294	$	244,294	$	244,294	$	—	$	—

Financial Liabilities:
Commodity Derivative Instruments - Ethanol	$	24,998	$	24,998	$	36,500	$	(11,502)	$	—	$	24,998	$	24,998	$	36,500	$	(11,502)	$	—
Commodity Derivative Instruments - Natural Gas	$	15,381	$	15,381	$	—	$	15,381	$	—	$	15,381	$	15,381	$	—	$	15,381	$	—

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

~~January~~July 31, 2018

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

6. DEBT FACILITIES

Debt financing consists of the following:


	January 31, 2018		October 31, 2017		July 31, 2018		October 31, 2017
	(unaudited)				(unaudited)
GRANITE FALLS ENERGY:
Seasonal loan, see terms below.	$	—	$	—	$	—	$	—
Term note payable to Project Hawkeye, see terms below.		7,500,000		7,500,000		7,500,000		7,500,000

HERON LAKE BIOENERGY:
Revolving term loan, see terms below.		—		—
Amended revolving term loan, see terms below.						—		—
Seasonal loan, see terms below.						—		—
Assessment payable as part of water treatment agreement, due in semi-annual installments of $189,393 with interest at 6.55%, enforceable by statutory lien, with the final payment due in 2021. HLBE made deposits for one years' worth of debt service payments of approximately $364,000, which is included with other assets that are held on deposit to be applied with the final payments of the assessment.		1,241,171		1,241,171		1,094,236		1,241,171
Assessment payable as part of water supply agreement, due in monthly installments of $3,942 with interest at 8.73%, enforceable by statutory lien, with the final payment due in 2019.		45,670		56,514		23,367		56,514
Note payable to non-controlling interest member of Agrinatural. Interest is at One Month LIBOR plus 4.0%, which was approximately 5.58% and 5.24% at January 31, 2018 and October 31, 2017, respectively. The note was paid in full in January 2018.		—		100,000
Note payable to non-controlling interest member of Agrinatural. Interest is at One Month LIBOR plus 4.0%, which was approximately 5.24% at October 31, 2017. The note was paid in full in January 2018.						—		100,000
Totals		8,786,841		8,897,685		8,617,603		8,897,685
Less: amounts due within one year		333,015		432,183		322,048		432,183
Net long-term debt	$	8,453,826	$	8,465,502	$	8,295,555	$	8,465,502

Granite Falls Energy

Seasonal Revolving Loan

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

The interest rate on the seasonal revolving loan is based on the bank's One Month London Interbank Offered Rate (“LIBOR”) Index Rate, plus 2.75%, which equated to ~~4.33%~~4.83% and 3.99% at ~~January~~July 31, 2018 and October 31, 2017, respectively.

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

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

~~January~~July 31, 2018

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

Project Hawkeye Loan

On August 2, 2017, GFE entered into a credit facility with Project Hawkeye to finance its investment in Ringneck. Pursuant to this credit facility, GFE borrowed $7.5 million from Project Hawkeye using the Ringneck investment as ~~collateral~~.collateral. The Project Hawkeye loan bears interest from date funds are first advanced on the loan through maturity, at a rate per annum equal to the sum of the One Month LIBOR Index Rate plus 3.05% per annum, with an interest rate floor of 3.55%, which equated to ~~4.63%~~5.13% and 4.29% at ~~January~~July 31, 2018 and October 31, 2017 respectively.

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

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

Heron Lake BioEnergy

Revolving Term Loan

HLBE ~~has~~had a revolving term note payable with a lender under which HLBE ~~can~~could borrow, repay and re-borrow in an amount up to the original aggregate principal commitment at any time prior to maturity at March 1, 2022. The original aggregate principal commitment was $28,000,000, which reduced by $3,500,000 annually, starting March 1, 2015 and continuing each anniversary thereafter until maturity. In December 2017, HLBE and its lender orally agreed to reduce the aggregate principal commitment of the revolving term loan to $8,000,000. On April 6, 2018, HLBE ~~had no outstanding balance on the~~finalized loan agreements with an effective date of March 29, 2018 for an amended credit facility with its lender.

Amended Credit Facility

The amended credit facility includes an amended and restated revolving term loan at January 1, 2018 and October 31, 2017. Therefore, the aggregate principal amount available to HLBE for borrowing at January 31, 2018 and October 31, 2017 was $8,000,000 and $17,500,000, respectively.

~~In connection~~ with ~~the reduction in the aggregate~~a $4,000,000 principal commitment ~~the interest rate on the~~and a revolving ~~term loan was reduced from 3.25% above the One-Month LIBOR Index rate to 2.85% above the One-Month LIBOR Index rate.~~seasonal line of credit with a $4,000,000 principal commitment. The interest rate on this facility was 4.42% and 4.49% at January 31, 2018, and October 31, 2017, respectively. HLBE may elect to enter into a fixed interest rate on this loan at various times throughout the term of the loan as provided in the loan agreements.

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

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

As part of the amended credit facility closing, HLBE entered into an ~~Administrative Agency Agreement~~amended administrative agency agreement with CoBank, ACP (“CoBank”). ~~CoBank purchased a participation interest in the revolving term loan and was appointed the administrative agent for the purpose of servicing the loan.~~ As a result, CoBank will continue act as the agent for the lender with respect to the amended credit facility. HLBE agreed to pay CoBank an annual fee of $2,500 for its services as administrative agent.

Amended Revolving Term Loan

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

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

~~January~~July 31, 2018

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

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

Seasonal Revolving Loan

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

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

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


2019	$	333,015	$	322,048
2020		842,921		1,389,682
2021		1,389,227		1,410,526
2022		1,391,250		1,209,634
2023		1,071,428		1,071,429
Thereafter		3,759,000		3,214,284
Total debt	$	8,786,841	$	8,617,603

7. MEMBERS' EQUITY

Granite Falls Energy

GFE has one class of membership units. The units have no par value and have identical rights, obligations and privileges. Income and losses are allocated to all members based upon their respective percentage of units held. As of ~~January~~July 31, 2018 and October 31, 2017, GFE had 30,606 membership units authorized, issued, and outstanding.

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

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

Heron Lake BioEnergy

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

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

~~8. COMMITMENTS AND CONTINGENCIES~~

~~Corn Purchase Commitments~~

~~At January 31, 2018, GFE had cash and basis contracts for forward corn contracts~~ ~~for approximately 4,096,000 bushels~~ ~~for delivery periods through February 2019.~~

~~At January 31, 2018, HLBE had cash and basis contracts for forward corn purchase commitments~~ ~~for approximately 3,392,000 bushels~~ ~~for delivery periods through January 2019.~~

~~Corn Purchases - Members~~

~~GFE purchased corn from board members of approximately $437,000 and $0 for the three months ended January 31, 2018 and 2017, respectively.~~

~~HLBE purchased corn from board members of approximately $4,455,000 and $3,025,000 for the three months ended January 31, 2018 and 2017, respectively.~~

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

~~January~~July 31, 2018

8. COMMITMENTS AND CONTINGENCIES

Corn Purchase Commitments

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

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

Corn Purchases - Members

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

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

Ethanol Contracts

At ~~January~~July 31, 2018, GFE had fixed and basis contracts to sell approximately ~~$11,710,000~~$11,832,000 of ethanol for various delivery periods through ~~March~~September 2018.

At ~~January~~July 31, 2018, HLBE had fixed and basis contracts to sell approximately ~~$14,003,000~~$11,716,000 of ethanol for various delivery periods through ~~March~~September 2018.

Distillers' Grain Contracts

At ~~January~~July 31, 2018, GFE had forward contracts to sell approximately ~~$993,000~~$848,000 of distillers' grain for various delivery periods through ~~February~~August 2018.

At ~~January~~July 31, 2018, HLBE had forward contracts to sell approximately ~~$1,640,000~~$2,517,000 of distillers' grains for various delivery periods through ~~March~~August 2018.

Corn Oil

At ~~January~~July 31, 2018, GFE had forward contracts to sell approximately ~~$260,000~~$829,000 of corn oil for various delivery periods through ~~February~~December 2018.

At ~~January~~July 31, 2018, HLBE had forward contracts to sell approximately ~~$466,000~~$775,000 of corn oil for various delivery periods through ~~February~~December 2018.

Railcar Damages

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

Leases

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

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

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

Disclosure Regarding Forward-Looking Statements

The Securities and Exchange Commission (“SEC”) encourages companies to disclose forward-looking information so investors can better understand future prospects and make informed investment decisions. As such, we have historical information, as well as forward-looking statements regarding our business, financial condition, results of operations, performance and prospects in this report. All statements that are not historical or current facts are forward-looking statements. InIn 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. W~~hile~~While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us are described more particularly in the “Risk Factors” section of our annual report on Form 10-K for the year ended October 31, 2017 and this report on Form 10-Q. These risks and uncertainties include, but are not limited to, the following:

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

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

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

Fluctuations in the availability and price of natural gas, which is may be affected by 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 ~~may~~ trading at a premium to gasoline at times, ~~resulting in~~which may act as a disincentive for discretionary blending of ethanol beyond ~~the~~RFS requirements ~~of the Renewable Fuels Standard (“RFS”)~~ and consequently negatively impacting ethanol prices and demand;

Changes in federal and/or state laws and environmental regulations including elimination, waiver or reduction of ~~the~~ corn-based ethanol ~~use requirement in~~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 on ethanol imported to Brazil and/or increased tariffs on ethanol exported to China and~~ ~~anti-dumping and countervailing duties on U.S. distillers’ grains exported to China;~~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~~.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 ~~cornbased,~~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 ~~cornbased,~~corn-based, natural gas fired ethanol plant near Heron Lake, Minnesota. Additionally, through its a wholly owned subsidiary, HLBE Pipeline Company, LLC (“HLBE Pipeline Company”), HLBE owns a 73% controlling interest of Agrinatural Gas, LLC (“Agrinatural”), which operates a natural gas pipeline.

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

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

~~The GFE~~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 ~~our~~its production capacity to approximately 70 million gallons of undenatured ethanol on a twelve month rolling sum basis. ~~The HLBE~~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 ~~the GFE and HLBE~~our plants primarily using third party marketers. The markets in which our products are sold may be local, regional, national, and international and depend primarily upon the efforts of third party marketers. We have contracted with Eco-Energy, LLC to market all of the ethanol produced at our ethanol plants. WeGFE also independently ~~market~~markets a small portion of the ethanol production at ~~the GFE~~its plant as E-85 to local retailers.

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

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

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

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

We have ~~entered into~~ 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 ~~also~~ owns a controlling 73% interest in Agrinatural, ~~which is~~ a natural gas distribution and sales company located in Heron Lake, ~~Minnesota that~~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 ~~November 1, 2016, we subscribed to purchase 1,500 capital units of~~August 2, 2017, GFE made a $7.5 million investment in Ringneck Energy & Feed, LLC (“Ringneck”) at. Ringneck is constructing an ethanol plant in Onida, South Dakota. On June 29, 2018, GFE made a price of $5,000 per unit for a total of $7,500,000. By letter dated July 12, 2017, GFE was notified of Ringneck’s acceptance of GFE’s subscription and that payment of the balance of GFE’s subscription due under the promissory note was due not later than August 2, 2017. On August 2, 2017, GFE borrowed $7.5$2.0 million ~~under its credit facility with Project Hawkeye,~~investment in Harvestone Group, LLC (“~~Project Hawkeye”~~Harvestone”)~~, an affiliate of Fagen, Inc., which~~. Harvestone is a ~~member of GFE,~~start-up ethanol marketing, logistics, and ~~paid $6,750,000 to Ringneck as payment of the remaining balance of GFE’s subscription and promissory note.~~trading company headquartered in Franklin, Tennessee. Details regarding our investment in Ringneck and Harvestone are provided below in the section below titled “~~Investments~~.“Investments.” ~~Details of the Project Hawkeye credit facility are provided below in the section below entitled “Indebtedness - Granite Falls Energy - GFE’s Other Credit Arrangement~~”.

Reportable Operating Segments

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

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

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

Plan of Operations for the Next Twelve Months

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

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

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

Trends and Uncertainties Impacting Our Operations

The principal factors affecting our results of operations and financial conditions are the market prices for corn, ethanol, distillers’ grains and natural gas, as well as governmental programs designed to create incentives for the use of corn-based ethanol. Other factors that may affect our future results of operation include those risks discussed below and in “PART II - Item 1A. Risk Factors” of this report,PART II - Item 1A. Risk Factors” of our quarterly report on Form 10-Q for the three months ended January 31, 2018, the three months ended April 30, 2018, and “PART I - Item 1A. Risk Factors” of our annual report on Form 10-K for the fiscal year ended October 31, 2017.

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

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

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

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

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

Continued ethanol production capacity increases also could have a negative impact on the market price of ethanol, which could ~~adversely impact our profitability. This negative impact could worsen~~be further exacerbated if domestic ethanol inventories remain high or grow, or if U.S. exports of ethanol decline. The ethanol industry is currently experiencing growth in production capacity principally through plant optimization and some new construction. The EIA ~~has reported~~reports that ~~during 2017, increasing~~domestic ethanol production ~~rates have outpaced domestic E10~~averaged 1.04 million barrels per day during the second calendar quarter of 2018, maintaining the same rate of production as the previous quarter but 3.8% higher than the same quarter of last year. Year-to-date, production volumes are up 1.8% in 2018 compared with the same period in 2017. Refiner and blender input volume decreased slightly to 930 thousand barrels per day for the second quarter of 2018 compared with 934 thousand barrels per day for the same quarter last year despite a 2.0% increase in consumer gasoline demand due to seasonal demand and ~~export growth, leading to elevated ethanol inventory levels.~~ growing numbers of retail stations offering higher blends.

In recent years, ~~the~~ ethanol ~~industry in the U.S.~~demand growth has resulted largely from increased ~~exports of ethanol and distillers’ grains.~~exports. However, e~~xport~~export demand for ethanol is less consistent compared to domestic demand which can lead to ethanol price volatility. ~~During~~Global demand for US ethanol, as reported by the EIA, continues to increase with increased exports to various foreign markets, including China, Canada, and Mexico, in response to higher blending mandates and octane demand within the foreign countries and lower domestic ethanol prices. Despite its imposition tariffs, China resumed imports of US ethanol during late 2017 and had been one of the top importers of US ethanol during the first three months of 2018. However, in April 2018, in response to the tariffs imposed by the Trump administration, China ~~and Brazil instituted tariffs~~announced an additional retaliatory tariff on ethanol ~~produced in~~imports of 15%, bringing the U.S., which are expected to continue to negatively impact U.S. exports. In September 2017, China’s National Development and Reform Commission, the National Energy Board and 15 other state departments issued a joint plan to expand the use and production of biofuels containingtotal tariff up to 10% ethanol by 2020. China, the number three importer of U.S. ethanol in 2016, imported negligible volumes during calendar year 2017 due to a 30% tariff imposed on imports of U.S. and Brazil fuel ethanol, which took effect in January 2017. There is no assurance that the recently issued joint plan will lead to increased imports of U.S. ethanol by China but any increase in exports to China could have a positive impact on the ethanol market.

~~While Chinese export demand has fallen off since imposition of its tariffs,~~45%. Brazilian demand from the ~~U.S.~~US ethanol has remained relatively ~~steady. Additionally, given~~steady, despite a tariff imposed in 2017, due to the ~~ethanol supply struggles Brazil is currently facing, the government~~price of ~~Brazil has indicated that it is contemplating reversing the tariff. As~~corn relative to sugar cane as a ~~result, management anticipates exports to Brazil will remain steady in the near term despite the tariff because of market conditions in~~feedstock and high gasoline prices within Brazil. Any decrease in U.S. ethanol exports could adversely impact the market price of ethanol unless domestic demand increases or foreign markets are developed.

Our margins have ~~also~~ been ~~and could continue to be, negatively~~positively impacted due to lower market prices for distillers’ grains due to lower export demand, largely due to Chinese tariffs, and oversupply in the domestic market, along with increased corn and soybean availability. However, during the three months ended ~~January~~July 31, 2018 d~~istillers’~~by the higher prices received for our distillers’ grains. During our third fiscal quarter of 2018, distillers’ grains prices ~~were somewhat buoyed by~~ improved ~~domestic demand in response to the~~ ~~continued rise in soybean meal price and improved export demand from southeast Asia, particularly Vietnam.~~ ~~Exports of U.S. distillers’ grains to Vietnam had halted completely due to Vietnam’s imposition of stricter regulations on fumigation in December 2016. However, i~~n a statement issued September 1, 2017, the U.S. Grains Council announced that Vietnam is lifting its suspension of U.S. distillers’ grains imports and easing fumigation requirements. Since the lifting of Vietnam’s suspension, ~~exports to Vietnam have resumed, although there is no guarantee that they will reach pre-suspension levels.~~

~~Demand and prices for distillers’ grains have experienced significant decline due to decreased exports to China~~ as a result of relatively firm world soybean meal prices which management believes are attributable to the ~~substantial tariffs~~Argentinian drought. Argentina is the third largest soybean producer in the world and a leading exporter of soybean meal. In addition to being an animal feed substitute for corn, distillers’ grains are increasingly considered a protein feed substitute for soybean meal. In 2018, strong protein meal prices have enabled distillers’ grains prices to rally versus corn. Management currently believes that the impact of the current Chinese imposition of antidumping and countervailing duties ~~imposed~~ on ~~imports into China of~~ distillers’ grains produced in the U.S. ~~imposed~~has been absorbed into the market. However, recent trade disputes with China, Mexico and Canada could result in ~~January 2017. China had historically been one~~the imposition of ~~the largest importers of domestically produced distillers’ grains. However, in November 2017, the Chinese foreign ministry announced that it would be removing the 11% value-added tax~~additional tariffs on ~~U.S. produced dried~~ distillers’ grains ~~but no timeline for removal has been established. While~~produced in the ~~anti-subsidy tariffs may be removed, the more substantial anti-dumping duties remain. As a result, we cannot forecast how much demand from China will come back into the marketplace and~~US, which could lead to an oversupply of distillers’ grains ~~prices~~domestically and negatively impact distillers’ grains prices. Additionally, domestic feeding margins in cattle and hogs in particular could ~~remain low unless additional demand can be created from other foreign markets or domestically.~~have a negative impact on total domestic distillers’ grains demand.

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

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In February 2018, legislation was signed retroactively extending the $1.00-per-gallon biodiesel blender tax credit retroactively to January 1, 2017. ~~Any extension of the biodiesel blenders tax credit beyond December 31, 2017 could increase demand for corn oil and soybean oil and positively impact the price of corn oil.~~ However, ~~due to the recent uncertainty in Congress,~~ management cannot predict whether additional legislation further extending the biodiesel tax credit will be passed by Congress. Corn oil prices may decrease if biodiesel producers reduce production and/or demand for corn oil to reduce without extension of the biodiesel blenders tax credit.

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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 ~~federal Renewable Fuels Standard (the “RFS”).~~RFS. The RFS has been, and we expect will continue to be, a significant factor impacting ethanol usage. Any adverse ruling on, or legislation affecting, the RFS could have an adverse impact on short-term ethanol prices and our financial performance in the future.

Under the provisions of the RFS, the ~~Environmental Protection Agency (“EPA”)~~EPA must publish an annual rule that establishes the number of gallons of different types of renewable fuels, including corn-based ethanol, that must be blended with gasoline in the U.S. by refineries, blenders, distributors, and importers, which affects the domestic market for ethanol. In November 2017, the EPA announced it would maintain the 1515.0 billion gallon mandate for conventional ethanol in ~~2018.~~ 2018, excluding any waivers granted by the EPA to small refiners for “hardship”.

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

Under the RFS, if mandatory renewable fuel volumes are reduced by at least 20% for two consecutive years, the EPA is required to modify, or reset, statutory volumes through 2022. ~~Although the EPA maintained the RVO for conventional ethanol at 15 billion gallons,~~Since 2018 is the first year the total proposed ~~RVOs~~volume requirements are more than 20% below statutory ~~volumes levels. Thus,~~levels, the EPA Administrator ~~Pruitt~~ directed his staff to initiate the required technical analysis to perform any future reset consistent with the reset rules. ~~The~~If the final 2019 volume requirements are also more than 20% below statutory levels, the reset will be triggered ifunder the ~~2019 RVOs continue to be more than 20% below the statutory levels. If the reset is triggered,~~RFS and the EPA will be required to modify statutory volumes through 2022 within one year of the trigger event, based on the same factors used to set the ~~RVOs~~volume requirements post-2022. ~~Any adverse ruling on, or legislation affecting,~~The proposed 2019 Rule is more than 20% below the ~~RFS could have an adverse impact on short-term ethanol prices~~original 2019 statutory level of 28.0 billion gallons, and ~~our financial performance in~~if finalized as proposed will fulfill the ~~future.~~two consecutive year requirements and require a reset of the RFS.

The EPA assigns individual refiners, blenders, and importers the ~~renewable volume obligations (“RVOs”)~~RVOs they are obligated to use based on their percentage of total fuel sales. ~~However, the EPA has the authority to waive the mandates in whole or in part if there is inadequate domestic renewable fuel supply or the requirement severely harms the economy or environment.~~ Obligated parties use ~~RINs~~renewable identification numbers (“RINs”) to show compliance with ~~RFS-mandated volumes.~~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. ~~In November 2017, the EPA denied a petition to change the point of obligation under RFS to the parties that own the gasoline before it is sold.~~

~~On October 19, 2017,~~ The EPA has recently granted a number of small refiner exemptions, whereby such refiners were alleviated of their responsibility to supply RINS for their obligated volumes based upon the grounds of economic hardship. In early July 2018, the EPA ~~Administrator Pruitt reiterated his commitment~~reported that hardship waivers for almost 2.25 billion gallons had been granted to small refiners for 2016 and 2017 RVOs.

Legal challenges are underway to the ~~text~~RFS, including the EPA's recent reductions in the RFS volume requirements, the Final 2018 Rule, and ~~spirit~~the denial of the RFS. In a letter to seven senators from the Midwestern states, he stated the EPA is actively exploring its authority to issue an RVP waiver and will not pursue action on RINs involving ethanol exports. Moreover, on November 22, 2017, the EPA issued a Notice of Denial of Petitions for rulemakingpetitions to change the RFS point of ~~obligation, confirming~~obligation. If the EPA's decision to reduce the volume requirements under the RFS is allowed to stand, if the volume requirements are further reduced, or if the RFS point of obligation ~~will not change. The point of obligation does not directly~~were changed, it could have an adverse effect on the market price and demand for ethanol which would negatively impact ~~ethanol producers; however, moving the point of obligation could indirectly affect ethanol producers.~~

Valero Energy and refining trade group American Fuel and Petrochemical Manufacturers (AFPM) have challenged the EPA’s handling of the U.S. biofuel mandate in separate actions on January 26, 2018. AFPM is asking the D.C. U.S. Court of Appeals to review the EPA’s November 2017 decision to reject proposed changes to the structure of the RFS, including moving the point of obligation from refiners and importers of fuel to fuel blenders. Valero filed two petitions with the same court, one seeking review of the annual Renewable Volume Obligation (RVO) rule set by EPA’s for 2018 and 2019, which dictates the volumes of renewable fuels to be blended in the coming years, and a second arguing against the EPA’s December 2017 assertion that the agency has fulfilled its duty to periodically review the RFS as directed by statute.our financial performance.

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

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

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

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

Although the maintenance of the 1515.0 billion gallon ~~RVO~~threshold for volume requirements that may be met with corn-based ethanol in the ~~October 2017 letter issued by EPA Administrator Pruitt,~~final 2018 Rule and the ~~resulting actions taken by the EPA consistent with EPA Administrator Pruitt’s letter signals~~proposed 2019 rule signal support from the EPA and the Trump administration for domestic ethanol production, the Trump administration could still elect to materially modify, repeal, or otherwise invalidate the RFS. ~~At the end of February 2018 and continuing into March, several discussions regarding the RFS were held between the Trump administration and congressional and petroleum and ethanol industry leaders.~~ A variety of proposals to modify obligations under the RFS have surfaced in recent months, including application of the various waiver authorities under the RFS, expanding the number of small refinery exemptions, and a $0.10 per gallon cap on the price of the RIN credits used to comply with the RFS. There has also been discussion of granting an RVP waiver for E15 gasoline blends to ~~remove barriers to the year-rounds use of E15 and other mid-level ethanol blends~~. ~~However, it is unclear what regulatory changes, if any, will emerge from these discussions.~~Any ~~changes to the RFS which could significantly affect the market price of RINs or reduce RVOs~~such reform could adversely affect the demand and price for ethanol and the Company's ~~profitability~~.profitability.

Tax Cuts and Job Act

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law. The Tax Reform Act includes significant changes to the taxation of partnership entities. ~~Included in those changes were changes~~ ~~U.S. federal tax rates~~, ~~significant limitations on the deductibility of interest, and allowances for the expensing of capital expenditures~~. The Company ~~is currently evaluating~~continues to evaluate the impact of the Tax Reform Act ~~as well as potential future regulations implementing the new tax law and interpretations of the new tax law~~ with its professional advisors. The full impact of the Tax Reform Act on the Company in future periods cannot be predicted at this ~~time~~

~~The~~time. On March 23, 2018, Congress rescinded an unintended consequence of the Tax Reform Act ~~also included an unintended consequence~~ under section 199A, ~~benefitting~~which provided certain tax benefits to producers ~~of agricultural products that sell their products through cooperatives. Currently, sales t~~o ~~non-cooperative~~selling grain ~~buyers, like the Company, do not qualify for the same benefit. This may provide cooperatives with~~to cooperative associations and enabled a potential marketplace advantage over us as we compete to purchase corn for our plant due to how sales from farmers to such entities are treated for income tax purposes. Any increase in the price we must pay for the corn to effectively compete with cooperatives would result in lower profit margins and adversely affect our financial performance. According recent industry new reports, draft legislation has been proposed to address the marketplace imbalance created by section 199A retroactive to January 1, 2018 for inclusion in the pending 2018 omnibus spending bill. While we believe that Congress intends to correct these provisions favoring cooperatives, there is no assurance that Congress will act to resolve this issue or that if such changes are approved that they will be retroactively applied.other agribusiness companies.

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

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


	Three Months Ended January 31,								Three Months Ended July 31,
	2018				2017				2018				2017
	(unaudited)				(unaudited)				(unaudited)				(unaudited)
Statement of Operations Data	Amount		%		Amount		%		Amount		%		Amount		%
Revenues	$	52,993	100.0	%	$	54,576	100.0	%	$	53,221	100.0	%	$	54,251	100.0	%
Cost of Goods Sold		49,989	94.3	%		47,731	87.5	%		49,527	93.1	%		50,048	92.3	%
Gross Profit		3,004	5.7	%		6,845	12.5	%		3,694	6.9	%		4,203	7.7	%
Operating Expenses		1,680	3.2	%		1,607	2.9	%		1,459	2.7	%		1,463	2.7	%
Operating Income		1,324	2.5	%		5,238	9.6	%		2,235	4.2	%		2,740	5.0	%
Other Income, net		200	0.4	%		351	0.6	%
Other Expense, net										(105)	(0.2)	%		(18)	(0.0)	%
Net Income		1,524	2.9	%		5,589	10.2	%		2,130	4.0	%		2,722	5.0	%
Less: Net Income Attributable to Non-controlling Interest		(473)	(0.9)	%		(1,429)	(2.6)	%		(128)	(0.2)	%		(672)	(1.2)	%
Net Income Attributable to Granite Falls Energy, LLC	$	1,051	2.0	%	$	4,160	7.6	%	$	2,002	3.8	%	$	2,050	3.8	%

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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 ~~98.4% and 98.9%~~99.6% of our total revenues for the three months ended ~~January~~July 31, 2018 and ~~2017, respectively.~~2017. The remaining approximately ~~1.6% and 1.1%~~0.4% is attributable to miscellaneous other revenue for the three months ended ~~January~~July 31, 2018 and 2017 ~~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 ~~January~~July 31, 2018:


	Three Months Ended January 31, 2018				Three Months Ended July 31, 2018
	Sales Revenue		% of Total Revenues		Sales Revenue		% of Total Revenues
Revenue Sources	(in thousands)				(in thousands)
Ethanol sales	$	39,863	75.2	%	$	40,419	75.9	%
Distillers' grains sales		9,927	18.8	%		10,514	19.8	%
Corn oil sales		2,347	4.4	%		2,078	3.9	%
Miscellaneous other		856	1.6	%		210	0.4	%
Total Revenues	$	52,993	100.0	%	$	53,221	100.0	%

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

Three Months Ended  January 31, 2017

Sales Revenue

% of Total Revenues
Revenue Sources

(in thousands)

Ethanol sales

$
43,921

80.5
%
Distillers' grains sales

7,648

14.0
%
Corn oil sales

2,419

4.4
%
Miscellaneous other

588

1.1
%
Total Revenues

$
54,576

100.0
%

Our total consolidated revenues decreased by approximately 2.9% for the three months ended January 31, 2018, as compared to the three months ended January 31, 2017 due primarily to the decrease in the average price received for our ethanol and corn oil, which was partially mitigated by the increase in the average price received for our distillers’ grains. ~~The following table reflects quantities of our three primary products sold and the average net prices received for~~ ~~the three months ended January 31, 2018 and 2017:~~

Three Months Ended January 31, 2018

Three Months Ended January 31, 2017

Quantity Sold

Avg. Net Price

Quantity Sold

Avg. Net Price
Product

(in thousands)

(in thousands)

Ethanol (gallons)

33,193

$
1.20

30,828

$
1.42
Distillers' grains (tons)

82

$
121.22

80

$
95.89
Corn oil (pounds)

9,204

$
0.25

8,889

$
0.27


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

~~Ethanol~~

Total revenues from sales of ethanol decreased by approximately 9.2% for the three months ended January 31, 2018 compared to the same period of 2017 due to a decrease of approximately 15.7% in the average price per gallon we received for our ethanol, partially offset by a 7.7% increase in volume sold. This aggregate increase in the number of gallons sold is attributable to an approximately 2.4% and 13.0% increase in the number of gallons sold at the GFE and HLBE plants, respectively, during the three months ended January 31, 2018. We sold more ethanol at our plants as a result of increased ethanol production at the HLBE during the 2018 period and the timing of shipments at the GFE plant. We are currently operating our plants above their nameplate capacities. Management anticipates relatively stable ethanol production and sales during our 2018 fiscal year.

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~~The decrease in average market price~~

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


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

Ethanol

Total revenues from sales of ethanol decreased by approximately 8.4% for the three months ended July 31, 2018 compared to the same period of 2017 is ~~due to lower market corn prices and increased ethanol supply in the market. Management anticipates that ethanol prices may continue lower during our 2018 fiscal year~~ due to a ~~several factors, including anticipated increases~~decrease of approximately 6.9% in ~~U.S.~~the average price per gallon we received for our ethanol, coupled with an approximately 1.7% decrease in aggregate volume sold. The aggregate decrease in the number of gallons sold is due to an approximately 6.2% decrease in the number of gallons sold at the HLBE plant resulting decreased ethanol production at the HLBE plant during the 2018 period, which was mitigated, in part, by an approximate 3.2% increase in the volume of ethanol sold at the GFE plant during the 2018 period. The increase in gallons produced at the GFE plant was due to increased ethanol production during the 2018 period. The decrease in ethanol prices is due to increased production industry-wide which resulted in higher inventories. Additionally, ongoing concerns related to recent trade disputes and RVO waivers granted by the EPA exempting certain refiners from ~~plant expansions coming online, along with lower export demand from Brazil and China. Domestic production expansion, coupled~~compliance with the ~~Chinese and Brazilian~~RFS negatively impacted ethanol tariffs, have increased domestic stocks of ethanol, pushing ethanol prices downward. Management anticipates that this excess ethanol supply may continue unless new export markets for ethanol are developed or domestic demand for ethanol increases. While ethanol exports to Brazil continue, if ethanol prices increase, these exports to Brazil may cease. Further, ethanol exports could potentially be higher without the Chinese and Brazilian tariffs. Additionally, if domestic use increases as a result of the traditional summer driving season, ethanol prices may increase. prices.

From time to time, we engage in hedging activities with respect to our ethanol sales. At ~~January~~July 31, 2018, GFE had fixed and basis contracts for forward ethanol sales for various delivery periods through ~~March~~September 2018 valued at approximately ~~$11.7~~$11.8 million. At ~~January~~July 31, 2018, HLBE had fixed and basis contracts for forward ethanol sales for various delivery periods through ~~March~~September 2018 valued at approximately ~~$14.0~~$11.7 million. Separately, ethanol derivative instruments resulted in ~~gains~~losses of approximately ~~$139,000~~$286,000 and ~~$417,000~~$123,000 during the three months ended ~~January~~July 31, 2018 and ~~January 31,~~ 2017, respectively.

Distillers' Grains

Total revenues from sales of distillers’ grains increased by approximately ~~29.8%~~45.8% for the three months ended ~~January~~July 31, 2018 compared to the same period of 2017. This increase was due to an approximately ~~26.4%~~42.4% increase in the average price per ton we received for our distillers’ grains, coupled with an approximately ~~2.7%~~2.3% increase in the volumes sold from period to period. ~~The increase in total~~We sold more tons of distillers’ grains ~~sold during~~in the three months ended ~~January~~July 31, 2018 as compared to the same period ofin 2017 ~~was~~ due to ~~an approximately 11.6% increase in distillers’ grains produced at HLBE’s plant, offset by an approximately 5.2% decrease in distillers’ grain~~increased ethanol production at the GFE ~~plant.~~ plant which increased its output of distillers’ grains. The decrease ~~in tons produced at the GFE plant was due primarily~~ ~~to decreased ethanol production.~~ ~~The increase~~ in tons produced at the HLBE plant was due primarily to ~~an increase in~~decreased ethanol production ~~from period to period, which resulted in~~and increased production of wet distillers’ ~~grains production~~.

~~Management attributes the~~grains. The increase in the market price of distillers’ grains is due to a stronger domestic market as a result of increases in prices of soybean meal and increased export demand, particularly from ~~southeast Asia, particularly~~ Vietnam ~~as well as increased prices for soybean meal.~~ ~~Management anticipates distillers’ grains prices will remain steady during our 2018 fiscal year,~~ ~~unless China reduces or eliminates its tariffs~~ ~~or additional domestic demand and/ or other foreign markets develop. Domestic demand for distillers’ grains could decline if corn or soybean meal prices weaken~~ and ~~end-users switch to lower priced alternatives.~~ ~~Domestic demand for distillers’ grains may also decrease due to over-supply resulting from expansion of production capacity in the ethanol industry.~~Argentina.

At ~~January~~July 31, 2018, GFE had forward distillers’ grains sales contracts valued at approximately ~~$993,000~~$848,000 for various delivery periods through ~~February~~August 2018 and HLBE had forward distillers’ grains sales contracts valued at approximately ~~$1.6~~$2.5 million for various delivery periods through ~~March~~August 2018.

~~Corn Oil~~

Total revenues from sales of corn oil decreased by approximately 3.0% for the three months ended January 31, 2018 compared to the same period of 2017 due to an approximately 6.3% decrease in the average price per pound received for our corn oil, which was offset by an approximately 3.5% increase in pounds sold from period to period.

~~Management attributes the decrease in corn oil prices~~ to decreased demand from the biodiesel industry and from the feed market. Management expects corn oil prices will remain relatively steady in the near term. However, we may experierence lower demand for corn oil from the biodiesel industry since the proposed volume obligations in the 2018 RFS for biodiesel are lower than statutory levels unless the biodiesel blenders tax credit is extended beyond December 31, 2017. Additionally, the production capacity increase that is occurring throughout the ethanol industry may also result in oversupply that may negatively affecting prices unless plants curtail corn oil production or additional demand can be created.

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Corn Oil

~~The increase in pounds sold~~Total revenues from ~~period to period was attributable to an~~sales of corn oil decreased by approximately ~~14.6%~~ ~~increase in the volume sold at the HLBE plant~~22.3% for the three months ended ~~January~~July 31, 2018 compared to the same period of 2017 ~~offset by a 6.9%~~due to an approximately 18.0% decrease in the ~~volume~~average price per pound received for our corn oil, coupled with an approximately 5.3% decrease in pounds sold from period to period. We sold fewer pounds of corn oil during the three months ended July 31, 2018 as compared to the same period in 2017 due to due to an approximately 24.2% decrease in pounds sold at ~~the GFE plant.~~ ~~The decrease~~HLBE’s plant, offset by an approximately 17.7% increase in pounds sold at the GFE ~~plant was due primarily~~plant. HLBE’s reduced corn oil sales is attributable to ~~due to decreased~~reduced ethanol production and decreased oil extraction rates per bushel of corn ~~during the 2018 period.~~ ~~The increase in pounds sold~~ at the HLBE plant ~~was~~for the three months ended July 31, 2018 compared to the same period of 2017. Comparatively, the increase in corn oil sales at the GFE plant for the 2018 period is due ~~primarily~~ to increased ethanol production ~~and~~ ~~improved oil extraction rates per bushel of corn~~ ~~from period to period~~.during the three months ended July 31, 2018. Management ~~anticipates that the~~expects our corn oil production ~~our ethanol plants~~ 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 ~~January~~July 31, 2018, GFE had forward corn oil sales contracts valued at approximately ~~$260,000~~$829,00 for various delivery periods through ~~February~~December 2018. At ~~January~~July 31, 2018, HLBE had forward corn oil sales contracts valued at approximately ~~$466,000~~$775,000 for various delivery periods through ~~February~~December 2018.

Cost of Goods Sold

Our cost of goods sold ~~increased~~decreased by approximately ~~4.7%~~1.0% for the three months ended ~~January~~July 31, 2018, as compared to the three months ended ~~January~~July 31, 2017. AsHowever, as a percentage of revenues, our cost of goods sold increased to approximately ~~94.3%~~93.1% for the three months ended ~~January~~July 31, 2018,, as compared to approximately ~~87.5%~~92.3% for the same period in 2017 due primarily to the ~~decline~~narrowing of our operating margin resulting from declines in the average price ofreceived for our ethanol and corn ~~oil which exceeded the decline in the price of corn from period to period.~~oil. Approximately 90% of our total costs of goods sold is attributable to our ethanol production segment. ~~Therefore, t~~heThe cost of goods sold per gallon of ethanol sold for the three months ended ~~January~~July 31, 2018 and 2017 was approximately ~~$1.36~~$1.42 and $1.41 per gallon, ~~of ethanol sold compared to approximately $1.39 per gallon of ethanol sold~~ respectively.~~three months ended January 31, 2017~~.

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 ~~January~~July 31, 2018:


	Three Months Ended January 31, 2018				Three Months Ended July 31, 2018
	Cost		% of Cost of Goods Sold		Cost		% of Cost of Goods Sold
	(in thousands)				(in thousands)
Corn costs	$	36,000	72.0	%	$	36,605	73.9	%
Natural gas costs		3,492	7.0	%		2,627	5.3	%
All other components of costs of goods sold		10,497	21.0	%		10,295	20.8	%
Total Cost of Goods Sold	$	49,989	100.0	%	$	49,527	100.0	%

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The following table shows the costs of corn, natural gas and all other components of cost of goods sold and the approximate percentage of costs of those components to total costs of goods sold in our unaudited condensed consolidated statements of operations for the three months ended ~~January~~July 31, 2017:


	Three Months Ended January 31, 2017				Three Months Ended July 31, 2017
	Cost		% of Cost of Goods Sold		Cost		% of Cost of Goods Sold
	(in thousands)				(in thousands)
Corn costs	$	35,816	75.0	%	$	36,602	73.1	%
Natural gas costs		3,433	7.2	%		2,817	5.6	%
All other components of costs of goods sold		8,482	17.8	%		10,629	21.3	%
Total Cost of Goods Sold	$	47,731	100.0	%	$	50,048	100.0	%

Corn

Our aggregate cost of corn was approximately ~~0.5%~~0.2% more for the three months ended ~~January~~July 31, 2018 compared to the same period of 2017, due to an approximately ~~a 3.5%~~0.5% increase in the number of bushels of corn processed, ~~partially~~ offset by ~~2.9%~~a 0.3% decrease in the average price per bushel paid for corn from period to ~~period~~. period. The corn-ethanol price spread (the difference between the price per gallon of ethanol and the price per bushel of grain divided by 2.8) for the three months ended ~~January~~July 31, 2018 was approximately ~~$0.19~~$0.09 lower than the corn-ethanol price spread we experienced for same period of ~~2017~~.2017. Management anticipates corn prices to increase slightly due to increased global demand and corn stocks to usage ratio. Decreased corn supply and slightly higher demand has resulted in recent increases in corn prices. We may continue to experience some short term corn price volatility.

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The decrease in corn prices was primarily due to lower market prices as a result of the strong 2017 harvest and ample market supplies of corn pushing prices down. Management anticipates that corn prices will remain relatively lower through the first half of 2018 fiscal year. However, we may still experience short term volatility due to weather conditions, domestic and world supply and demand, current and anticipated stocks, agricultural policy, and other factors, and could significantly impact our costs of production. If corn prices rise, it will have a negative effect on our operating margins unless the price of ethanol and distillers’ grains out paces rising corn prices.

From time to time we enter into forward purchase contracts for our commodity purchases and sales. At ~~January~~July 31, 2018, GFE had approximately ~~4.1~~6.4 million bushels of cash and basis contracts for forward corn purchase commitments for delivery periods through ~~February 2019.~~December 2021. At ~~January~~July 31, 2018, HLBE had approximately ~~3.4~~4.2 million bushels of cash and basis contracts for forward corn purchase commitments for various delivery periods through ~~January~~June 2019.

Our corn derivative positions resulted in ~~losses~~gains of approximately ~~$265,000~~$1.8 million and ~~$33,000~~$288,000 for the three months ended ~~January~~July 31, 2018 and 2017, respectively, which ~~increased~~decreased cost of ~~goods.~~goods sold. We recognize the gains or losses that result from the changes in the value of our derivative instruments from corn in cost of goods sold as the changes occur. As corn prices fluctuate, the value of our derivative instruments is impacted, which affects our financial performance. We anticipate continued volatility in our cost of goods sold due to the timing of the changes in value of the derivative instruments relative to the cost and use of the commodity being hedged.

Natural Gas

Our cost of goods sold related to n~~atural~~natural gas costs ~~increased~~decreased approximately ~~1.7%~~6.7% for the three months ended ~~January~~July 31, 2018, as compared to the three months ended ~~January~~July 31, 2017. Management attributes this ~~increase~~decrease in cost of natural gas from period to period to ~~the colder weather during November and December 2017, which led to a spike in~~decreased natural gas ~~prices along with~~consumption, partially offset by higher ~~energy~~natural gas prices ~~generally~~ during the three months ended ~~January~~July 31, 2018. We expect continued higher natural gas prices during winter months of our 2018 fiscal year due to continued colder weather. Further, if we experience a supply disruption during our 2018 fiscal year, it may lead to significantly higher natural gas costs.

From time to time we enter into forward purchase contracts for our natural gas purchases. ~~Our natural gas derivative positions resulted in a gain of approximately $12,000 for the three months ended January 31, 2018, which decreased cost of goods sold. Comparatively, we~~We had no gain or loss on natural gas derivative instruments for the three months ended ~~January~~July 31, ~~2017~~.2018 and 2017. We recognize the gains or losses that result from the changes in the value of our derivative instruments from natural gas in cost of goods sold as the changes ~~occur~~.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 ~~increased~~decreased by approximately ~~4.5%~~0.3% for the three months ended ~~January~~July 31, 2018 compared to the same period ended 2017. T~~his increase is due primarily to fixed production expenses that were higher compared to fiscal year 2018. Our efforts to optimize efficiencies and maximize production may result in~~However, as a ~~decrease in our~~percentage of total revenues, operating expenses ~~on a per gallon basis. However, because these expenses generally do not vary with the level of production at the plant, we expect our operating expenses~~remained consistent from period to ~~remain relatively steady throughout the remainder of the 2018 fiscal year.~~period.

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Operating Income

Our income from operations for the three months ended ~~January~~July 31, 2018 decreased by approximately ~~$3.9 million~~18.4% compared to the same period of 2017. This decrease resulted largely from decreased prices received for our ethanol and corn oil at our plants and the narrowing of our net operating margin.

Other ~~Income,~~Expense, Net

We had approximately $65,000 additional interest expense for the 2018 period, and less other income and interest income, resulting in net other ~~income~~expense of approximately ~~$200,000~~ $105,000 and $18,000 during the three months ended ~~January~~July 31, 2018 and 2017, respectively ~~compared to net other income~~.

Results of ~~approximately $351,000~~Operations for the ~~same period of 2017~~. ~~We had less other income during~~ ~~the three~~Nine months ended ~~January~~July 31, 2018 and 2017

~~compared~~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 ~~the same period~~total revenues in our unaudited condensed consolidated statements of ~~2017~~ ~~due to~~ ~~increased interest expense and decreased other income from patronage income~~operations for the nine months ended July 31, 2018 ~~period.~~and 2017 (amounts in thousands).


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

Revenues

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


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

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


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

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


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

Ethanol

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

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

Distillers' Grains

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

Corn Oil

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

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Cost of Goods Sold

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


	Nine Months Ended July 31, 2018
	Cost		% of Cost of Goods Sold
	(in thousands)
Corn costs	$	109,700	72.5	%
Natural gas costs		9,252	6.1	%
All other components of costs of goods sold		32,298	21.4	%
Total Cost of Goods Sold	$	151,250	100.0	%

The following table shows the costs of corn, natural gas, and all other components of cost of goods sold and the approximate percentage of costs of those components to total costs of goods sold in our unaudited condensed consolidated statements of operations for the nine months ended July 31, 2017:


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

Corn

Our cost of goods sold related to corn was approximately 3.0% more for the nine months ended July 31, 2018 compared to the same period of 2017, due primarily to an approximately 2.1% increase in the number of bushels of corn processed, coupled with a 0.9% increase in the average price per bushel paid for corn from period to period. For the nine months ended July 31, 2018 and 2017, we processed approximately 33.6 million and 32.9 million bushels of corn, respectively. The corn-ethanol price spread (the difference between the price per gallon of ethanol and the price per bushel of grain divided by 2.8) for the nine months ended July 31, 2018, was approximately $0.15 lower than the corn-ethanol price spread we experienced for same period of 2017.

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

Natural Gas

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

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

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Operating Expenses

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

Operating Income

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

Other Income, Net

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

Investments

On ~~November 1, 2016, we subscribed to purchase~~August 2, 2017, GFE completed a $7.5 million investment in Ringneck, acquiring 1,500 capital units of Ringneck at a price of $5,000 per unit for a total of $7.5 million. We paid a down payment of $750,000 in connection with our subscription, and signed a promissory note 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,Ringneck. GFE ~~borrowed~~financed its investment by borrowing $7.5 million under its credit facility with Project ~~Hawkeye and paid $6.75 million to Ringneck for the remaining balance of GFE’s subscription.~~Hawkeye. Details of the Project Hawkeye credit facility are provided below in the section below entitled “~~Indebtedness~~“Indebtedness - GFE’s Other Credit ~~Arrangement~~”Arrangement”. GFE’s investment is sufficient to the right to appoint one director to the board of directors of Ringneck and has appointed Steve Christensen, its CEO, to fill this seat.

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

~~Because~~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 ~~not subject to SEC registration and~~a registered reporting ~~requirements,~~company with SEC. Therefore, we do not expect that information about Ringneck or Harvestone will be available via the SEC’s EDGAR filing system. ~~Therefore,~~As a result, it may be difficult for our investors to obtain information about ~~Ringneck.~~ 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 ~~January~~July 31, 2018 and October 31, 2017

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


	January 31, 2018		October 31, 2017		July 31, 2018		October 31, 2017
	(unaudited)				(unaudited)
Current Assets	$	31,104	$	45,203	$	34,968	$	45,203
Total Assets	$	111,125	$	127,090	$	114,797	$	127,090
Current Liabilities	$	7,593	$	8,980	$	7,132	$	8,980
Long-Term Debt, less currrent portion	$	8,454	$	8,466
Long-Term Debt, less current portion					$	8,296	$	8,466
Members' Equity attributable to Granite Falls Energy, LLC	$	73,271	$	83,999	$	76,771	$	83,999
Non-controlling Interest	$	21,807	$	25,645	$	22,598	$	25,645

The decrease in total ~~assets is due to a decrease in~~ current assets ~~which~~ is ~~primarily~~ attributable to a decrease in cash on hand of approximately ~~$15.0~~$6.3 million at ~~January~~July 31, 2018 compared to October 31, ~~2017,~~2017. The decrease in cash was due primarily to payment of distributions ~~of approximately $16.1 million~~ to members ~~and non-controlling interests~~ in January 2018~~. Also contributing~~ and deferred payments to ~~the decrease in current assets was~~producers. Additionally, we had a decrease in accounts receivable of ~~$180,000 and~~approximately $5.0 million at July 31, 2018 compared to October 31, 2017. Offsetting these decreases were increases in inventory of approximately $378,000, restricted cash of approximately $58,000, the value of our commodity derivative instruments of approximately ~~$208,000. Offsetting~~ ~~these decreases were~~ ~~increases in restricted cash of approximately $472,000, inventory of approximately $495,000,~~$310,000, and prepaid expenses and other current assets of approximately ~~$341,000~~$254,000 at ~~January~~July 31, 2018 compared to October 31, 2017. ~~Property~~Contributing to the decrease in total assets was an approximately $4.0 million decrease in property and equipment ~~also decreased by approximately $1.9 million~~ primarily due to depreciation expense during the 2018 period.

~~Total~~Our current liabilities decreased by approximately ~~$1.4~~$1.8 million at ~~January~~July 31, 2018 compared to October 31, ~~2017. This decrease was~~2017, due to decreases of approximately ~~$2.7~~$1.7 million in accounts payable, ~~and~~ approximately ~~$99,000~~$110,000 in the current portion of our long-term debt payable, and accrued expenses of approximately $112,000 as of July 31, 2018. These decreases were partially offset by an increase of approximately $30,000 in commodity derivative instruments of July 31, 2018. Our accounts payable were less at ~~January~~July 31, 2018compared to October 31, ~~2017. These decreases were~~ ~~partially offset by increases of approximately $1.2 million in checks drawn in excess of bank balance and approximately $227,000 in accrued expenses.~~ ~~The decrease in our accounts payable is~~2017 due to the timing of payments to vendors ~~and lower corn prices~~ during the ~~three~~nine months ended ~~January~~July 31, ~~2018 which reduced the amount of corn payable at January 31,~~ 2018.

Our long-term debt decreased approximately ~~$12,000~~$170,000 at ~~January~~July 31, 2018 compared to October 31, 2017. The decrease is ~~mostly~~primarily due to assessments paid under HLBE’s industrial water supply treatment agreement with the City of Heron Lake and Jackson ~~County~~.County.

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Members’ equity attributable to Granite Falls Energy, LLC at ~~January~~July 31, 2018 compared to October 31, 2017 decreased by approximately ~~$10.7~~$7.2 million. The decrease was related to the distribution to our members of approximately $11.8 million during January 2018, offset by our approximately ~~$1.1~~$4.6 million of net income attributable to GFE during the ~~three~~nine months ended ~~January~~July 31, 2018.

Non-controlling interest totaled approximately ~~$21.8~~$22.6 million and $25.6 million at ~~January~~July 31, 2018 and October 31, 2017, respectively. This is directly related to recognition of the 49.3% noncontrolling interest in HLBE.

Liquidity and Capital Resources

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

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Cash Flows

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


	2018		2017		2018		2017
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Net cash provided by operating activities	$	575	$	3,014	$	13,902	$	22,364
Net cash used in investing activities	$	(545)	$	(1,091)	$	(3,784)	$	(2,376)
Net cash used in financing activities	$	(15,050)	$	(12,530)	$	(16,370)	$	(13,410)
Net decrease in cash	$	(15,020)	$	(10,607)
Net increase (decrease) in cash					$	(6,252)	$	6,578

Operating Cash Flows

D~~uring~~During the ~~three~~nine months ended ~~January~~July 31, 2018,, operations provided less cash compared to the same period of 2017primarily due to lower net income in the 2018 ~~and~~period. Additionally, changes in various working capital components, including ~~accounts receivable, restricted~~inventory and commodity derivative instruments, contributed to the decrease in cash ~~inventory, prepaid expenses, and accounts payable.~~provided during the 2018 period.

Investing Cash Flows

Cash used in investing activities was approximately ~~$545,000 less~~$1.4 million more for the ~~three~~nine months ended ~~January~~July 31, 2018, compared to the ~~three months ended January 31,~~same period of 2017. During the ~~three~~nine months ended ~~January~~July 31, 2018, we used $1.8 million of cash forcapital expenditures ~~for~~and general plant improvements ~~which was~~ ~~partially offset by proceeds from disposal of property~~ and ~~equipment~~.$2.0 million for GFE’s investment in Harvestone. Comparatively, during the ~~three~~nine months ended ~~January~~July 31, 2017,, we used approximately ~~$386,000~~$1.7 million of cash for capital expenditures and GFE used $750,000 for its initial payment ~~on our~~towards its subscription for its Ringneck investment.

Financing Cash Flows

During the ~~three~~nine months ended ~~January~~July 31, 2018,, we used cash to make payments of approximately ~~$111,000~~$280,000 on our long-term debt and make payments of approximately $11.8 million in distributions to our unit holders and approximately $4.3 million to non-controlling ~~interests, offset by approximately $1.2 million from checks in excess of bank balance.~~interests. Comparatively, during the same period of 2017, we made payments of approximately $11.2 million in distributions to our unit holders, approximately ~~$1.2~~$1.9 million ~~reduction~~payments on in checks drawn in excess of bank balance, ~~and~~ principal payments of approximately ~~$129,000~~$325,000 on HLBE’s long-term ~~debt.~~debt and purchased approximately $47,000 of units in HLBE.

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Indebtedness

GFE’s Seasonal Revolving Loan

GFE has a credit facility with AgCountry Farm Credit Services, PCA, formerly known as United FCS (“~~AgCounty”~~AgCountry”), for which CoBank serves as the administrative agent. The credit facility consists of a seasonal revolving loan. Under the seasonal revolving loan, GFE may borrow, repay, and re-borrow up to the aggregate principal commitment of $6.0 million until its maturity on October 1, 2018, unless a later date is agreed to by CoBank. The outstanding balance on the seasonal revolving loan totaled $0 at ~~January~~July 31, 2018 and October 31, 2017. Therefore, the aggregate principal amount available to GFE for additional borrowing was $6.0 million at ~~January~~July 31, 2018 and October 31, 2017.

The seasonal revolving loan bears interest from date funds are first advanced on the loan through maturity, at a rate per annum equal to the sum of the One Month LIBOR Index Rate plus 2.75% per annum, which ~~equated to~~ ~~4.33%~~was 4.83% and 3.99% at ~~January~~July 31, 2018 and October 31, 2017, respectively. GFE pays an unused commitment fee on the unused portion of the seasonal revolving loan commitment at the rate of 0.250% per annum. The credit facility with ~~AgCounty~~AgCountry is secured by substantially all of GFE’s ~~assets~~.assets.

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Under the ~~United FSC~~AgCountry credit facility, GFE is subject to certain financial and non-financial covenants that limit GFE distributions and debt and require minimum working capital, and debt service coverage ratio. GFE agreed to a debt service coverage ratio of 1.5 to 1.0 and to maintain minimum working capital of $10.0 million. GFE ~~are~~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 c~~reate~~create or incur any indebtedness except for debt to ~~AgCounty,~~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 ~~AgCounty~~.AgCountry. CoBank consented to our investment in Harvestone.

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

GFE’s Other Credit Arrangement

~~On August 2, 2017,~~ GFE ~~entered into~~has a credit facility with Project Hawkeye for a ~~variable-rate, amortizing non-recourse~~ $7.5 million loan to finance the balance of its subscription in Ringneck. ~~Pursuant to this credit facility, GFE borrowed~~ ~~$7.5 million from~~Interest on Project Hawkeye ~~using the Ringneck investment as collateral. The~~ ~~Project Hawkeye~~ loan ~~bears interest from date funds are first advanced on the loan through maturity,~~accrues at a variable 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 was 5.13% and 4.29% at July 31, 2018 and October 31, 2017, 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, meaning that~~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.~~Ringneck.

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

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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, ~~FCLA~~FLCA (“Compeer”), for which ~~consists of a~~CoBank, ACP (“CoBank”) serves as the administrative agent. This credit facility includes an amended and restated revolving term loan with a ~~maturity date~~$4.0 million principal commitment and a revolving seasonal line of ~~March~~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 ~~2022.~~- Financial Statements, Note 6 - Debt Financing for additional details. As ~~part~~ of ~~the~~July 31, 2018, there were no amounts outstanding under HLBE’s credit facility ~~closing, HLBE entered into an administrative agency agreement~~ with ~~CoBank, ACP (“CoBank”). CoBank purchased a participation interest in the~~ Compeer ~~loans~~ and ~~was appointed the administrative agent for the purpose of servicing the loans.~~

~~Under the Compeer revolving term note,~~ HLBE can borrow, repay and re-borrow in an amount up to the original aggregate principal commitment at any time prior to maturity at March 1, 2022. The original aggregate principal commitment was $28,000,000, which reduced by $3,500,000 annually, starting March 1, 2015 and continuing each anniversary thereafter until maturity. In December 2017, HLBE and its lender agreed to reduce the aggregate principal commitment of the revolving term loan to $8,000,000. HLBE had no outstanding balance on the revolving term loan at January 1, 2018 and October 31, 2017. Therefore, the aggregate principal amount available to HLBE for borrowing ~~at January 31, 2018 and October 31, 2017 was $8,000,000 and $17,500,000, respectively.~~

~~In connection with~~under each of the ~~reduction in the aggregate principal commitment, the interest rate on the~~amended revolving term loan and seasonal revolving loan was reduced from 3.25% above the One-Month LIBOR Index rate to 2.85% above the One-Month LIBOR Index rate. The interest rate on this facility was 4.42% and 4.49% at January 31, 2018 and October 31, 2017, respectively. HLBE may elect to enter into a fixed interest rate on this loan at various times throughout the term of the loan as provided in the loan agreements.$4.0 million.

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

Under the Compeer credit facility, HLBE is subject to certain financial and non-financial covenants that limit the ~~Company’s~~ HLBE’s distributions and debt and require minimum working capital, minimum local net worth, and debt service coverage ratio. HLBE agreed to a debt service coverage ratio of ~~1.5~~1.15 to 1.0, ~~and~~ to maintain minimum working capital $8.0 million through September 30, 2018 and $10.0 million thereafter, and to maintain net worth of ~~$8.0 million and~~ $32.0 ~~million, respectively.~~million. HLBE is permitted to pay distributions to its members up to ~~65%~~75% of its net income for the year in which the distributions are paid, provided that immediately prior to the distribution and after giving effect to the distribution, no default exists and HLBE is in compliance with all of its loan ~~covenants including compliance with the financial~~ covenants. Further, HLBE agreed not to make loans or advances to Agrinatural that exceed an aggregate principal amount of approximately ~~$3.1~~$6.6 million without the consent of Compeer.

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

HLBE’s Other Credit Arrangements

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

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

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

There was a total of approximately ~~$1.3~~$1.1 million in outstanding water revenue bonds at ~~January~~July 31, 2018 and October 31, 2017. HLBE classifies its obligations under these bonds as assessments payable. The interest rates on the bonds range from 6.55% to 8.73%.

~~HLBE also had a note payable to the noncontrolling owner of Agrinatural, which accrued interest at a rate equal to the One-Month LIBOR rate plus 4.0%. Payment of the note is due on demand at the discretion of the board of managers of Agrinatural.~~ The interest rate on this note payable was 4.78% and 4.53% at January 31, 2018 and October 31, 2017, respectively. There was a total of $100,000 outstanding on this note at October 31, 2017. In January 2018, HLBE paid this note in full.

Agrinatural Credit Facilities

OnIn July ~~29,~~ 2014, HLBE ~~has entered into~~extended a five-year term loan to Agrinatural in an ~~intercompany loan agreement, promissory note and related loan documents with Agrinatural, its majority owned subsidiary (collectively, the~~aggregate principal amount of approximately $3.06 million (the “Original Agrinatural Credit Facility”). Under the Original Agrinatural Credit Facility, the Company agreed to make a five-year term loan in the principal amount of $3.05 million to Agrinatural for use by Agrinatural to repay approximately $1.4 million of its outstanding debt and provide approximately $1.6 million of working capital to Agrinatural. The Original Agrinatural Credit Facility ~~contains customary financial and non-financial affirmative covenants and negative covenants for loans~~requires monthly principal payments of ~~this type and size.~~

$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. ~~Accrued interest~~Final payment of amounts borrowed under Original Agrinatural Credit Facility is due and payable ~~monthly.~~in full on May 1, 2019.

~~On March 30, 2015, HLBE entered into an allonge to the July 29, 2014 note with Agrinatural. Under the terms of the allonge, HLBE and Agrinatural agreed to increase the principal amount of the~~The Original Agrinatural Credit Facility ~~to approximately $3.06 million, defer commencement~~contains customary financial and non-financial affirmative covenants and negative covenants for loans of ~~repayment of principal until May 1, 2015, decrease the monthly principal payment to $36,000 per month~~this type and ~~shorten maturity of the~~size. The Original Agrinatural Credit Facility ~~to May 1, 2019. Except as otherwise provided in the allonge, all of the terms and conditions contained in the Original Agrinatural Credit Facility remain in full force and effect.~~

~~In exchange for the Original Agrinatural Credit Facility, Agrinatural executed a security agreement granting HLBE a first lien security interest in~~is secured by all of Agrinatural's equipment and assets and a collateral assignment assigning ~~HLBE~~the Company all of Agrinatural's interests in its contracts, leases, easements, and other agreements. In addition, Rural Energy Solutions, LLC, the ~~noncontrolling~~minority owner of Agrinatural (“RES”), executed a guarantee under which RES guaranteed full payment and performance of 27% of Agrinatural's obligations to HLBE.

The balance of this loan was approximately ~~$1.9~~$1.6 million at ~~January~~July 31, 2018 and $2.0 million at October 31, 2017.

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

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

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~~On May 19, 2016, HLBE and Agrinatural amended~~ the Additional Agrinatural Credit Facility, ~~entering into amendment to the loan agreement dated March 30, 2015 to increase the amount~~for each of the capital expenditures allowed by Agrinatural during the term of the facility. HLBE and Agrinatural also executed an allonge to the negotiable promissory note dated March 30, 2015 to defer a portion of the principal payments required for 2016, which such deferred principal payments ~~continue to accrue interest at the rate set forth in the note and become a part of the balloon payment due at maturity~~.

~~As provided in the Amendment, f~~or calendar years, 2017, 2018 and 2019, Agrinatural may not, without consent of HLBE, proceed with and pay for capital expenditures in an amount ~~up to~~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.~~

~~In exchange for~~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 ~~executed~~is required to make monthly installments of principal plus accrued interest. The entire principal balance and accrued and unpaid interest on the term loan is due and payable in full on May 1, 2019.

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The Additional Agrinatural Credit Facility contains customary financial and non-financial affirmative covenants and negative covenants for loans of this type and size, including a ~~security agreement granting HLBE a first lien security interest in~~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 under the Additional Agrinatural Credit Facility.~~HLBE.

The balance of this loan was approximately ~~$2.4~~$2.1 million at ~~January~~July 31, 2018 and $2.5 million at October 31, 2017.

Critical Accounting Policies and Estimates

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

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

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Interest Rate Risk

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from our credit facilities with ~~AgCounty,~~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”.”

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At ~~January~~July 31, 2018, there were no amounts outstanding under GFE’s credit facility with ~~AgCounty~~AgCountry or HLBE’s credit facility with Compeer. Therefore, at ~~January~~July 31, 2018, we had exposure to interest rate risk only from the amounts outstanding under GFE’s credit facility with Project Hawkeye. Below is a sensitivity analysis ~~. 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	Outstanding Variable							Outstanding Variable
Rate Debt at	Rate Debt at	Interest Rate at		Interest Rate Following 10%		Approximate Adverse		Rate Debt at	Interest Rate at		Interest Rate Following 10%		Approximate Adverse
January 31, 2018		January 31, 2018		Adverse Change		Change to Income
July 31, 2018								July 31, 2018	July 31, 2018		Adverse Change		Change to Income
$	7,500,000	4.63	%	5.10	%	$	34,000	7,500,000	5.13	%	5.65	%	$	39,000

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Commodity Price Risk

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

As of ~~January~~July 31, 2018, GFE had price protection in place for approximately 14.0% and ~~33.0%~~85.0% of its anticipated corn and natural gas needs, respectively, and approximately ~~22.0%~~3.0%, 5.0%, and ~~6.0%~~20.0% of its ethanol, distillers’ grains, and corn oil sales, respectively, for the next 12 months. As of ~~January~~July 31, 2018, HLBE had price protection in place for approximately ~~17.0% and 5.0%~~14.0% of its anticipated corn ~~and natural gas~~ needs ~~respectively~~ and approximately ~~25.0%~~3.0%, ~~6.0%~~7.0%, and ~~10.0%~~20.0% of its ethanol, distillers’ grains, and corn oil sales, respectively, for the next 12 months. Through these contracts we hope to minimize risk from future market price fluctuations and basis fluctuations. As input prices move in reaction to market trends and information, our income statement will be affected depending on the impact such market movements have on the value of our derivative instruments. Depending on market movements, crop prospects and weather, these price protection positions may cause immediate adverse effects, but are expected to produce long-term positive growth for us.

A sensitivity analysis has been prepared to estimate our exposure to ethanol, corn and natural gas price risk. Market risk related to these factors is estimated as the potential change in income resulting from a hypothetical 10% adverse change in the fair value of our corn and natural gas prices and average ethanol price as of ~~January~~July 31, 2018, net of the forward and future contracts used to hedge our market risk for corn and natural gas usage requirements. The volumes are based on our expected use and sale of these commodities for both of the GFE and HLBE plants for a one year period from ~~January~~July 31, 2018.

The results of this sensitivity analysis, which may differ from actual results, are as follows:


	Estimated Volume Requirements		Hypothetical Adverse				Estimated Volume Requirements		Hypothetical Adverse
	for the next 12 months	Unit of	Change in Price as of		Approximate Adverse		for the next 12 months	Unit of	Change in Price as of		Approximate Adverse
	(net of forward and futures contracts)	Measure	January 31, 2018		Change to Income		(net of forward and futures contracts)	Measure	July 31, 2018		Change to Income
Ethanol	120,000,000	Gallons	10	%	$	14,685,000	98,200,000	Gallons	10	%	$	12,800,000
Corn	34,135,000	Bushels	10	%	$	10,939,000	36,500,000	Bushels	10	%	$	12,200,000
Natural Gas	2,550,000	MMBTU	10	%	$	819,000	1,950,000	MMBTU	10	%	$	701,000

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

Changes in Internal Control over Financial Reporting

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

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Item 1A. Risk Factors

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

~~Tax reform may affect the Company and its members.~~Failures Of Our Information Technology Infrastructure Could Have A Material Adverse Effect On Operations.

~~Congress recently passed~~We utilize various software applications and other information technology that are critically important to our business operations. We rely on information technology networks and systems, including the ~~Tax Reform Act, which makes significant changes~~internet, to ~~the taxation~~process, transmit and store electronic and financial information, to manage a variety of business ~~entities. The Tax Reform Act, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest~~processes and ~~allows for the expensing of capital expenditures.~~activities, including production, manufacturing, financial, logistics, sales, marketing, and administrative functions. We ~~continue to assess the impact of the Tax Reform Act, as well as any future regulations implementing the new tax law and any interpretations of the new tax law may have~~depend on our ~~business. The impact~~information technology infrastructure to communicate internally and externally with employees, customers, suppliers, and others. We also use information technology networks and systems to comply with regulatory, legal and tax requirements. These information technology systems, some of ~~this tax reform on~~which are managed by third parties, may be susceptible to damage, disruptions or shutdowns due to failures during the ~~Company~~process of upgrading or replacing software, databases, or components thereof, power outages, hardware failures, computer viruses, attacks by computer hackers or other cybersecurity risks, telecommunication failures, user errors, natural disasters, terrorist attacks or other catastrophic events. If any of our significant information technology systems suffer severe damage, disruption or shutdown, and ~~its members is uncertain but~~our disaster recovery and business continuity plans do not effectively resolve the ~~effect~~issues in a timely manner, our product sales, financial condition, and results of ~~the Tax Reform Act~~operations may be materially and ~~any implementing regulations~~adversely affected.

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A Cyber Attack Or Other Information Security Breach Could Have A Material Adverse Effect On Our Operations and ~~interpretations could adversely affect our business and financial condition.~~Result In Financial Losses.

~~The price~~We are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address, and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact. If we ~~pay for agricultural commodities~~are unable to prevent cyber attacks and other information security breaches, we may ~~increase as a result of the Tax Cuts and Jobs Act~~encounter significant disruptions in our operations which ~~gives a benefit to agricultural producers to sell their products through cooperatives.~~

~~Congress recently passed the Tax Reform Act, which includes a provision that gives a benefit to producers of agricultural products to sell their products through cooperatives. Currently sales t~~o non-cooperative grain buyers like the Company do not qualify for the same benefit. This may put us at a significant disadvantage when competing with cooperatives to purchase corn for our plant. Any increase in the price we must pay for the corn in order to compete with cooperatives would result in lower profit margins and negatively affect our financial performance. While we believe that Congress intends to correct these provisions, there is no assurance that Congress will enact changes that will resolve this issue or that if such changes are approved that they will be retroactively applied.

~~If the U.S. were to withdraw from or materially modify NAFTA or certain other international trade agreements,~~could adversely impact our business, financial condition and results of operations or result in the unauthorized disclosure of confidential information. Such breaches may also harm our reputation, result in financial losses, or subject us to litigation or other costs or penalties.

Government policies and regulations, particularly those affecting the agricultural sector and related industries, could ~~be materially~~ adversely ~~affected.~~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 ~~expect a majority~~may experience negative impacts of ~~our~~higher ethanol distillers’ grains and corn oil to continue to be marketed and sold domestically. However, as domestic production of ethanol and its co-products continues to expand, we anticipate increased international sales, including sales to Canada, Mexicotariffs and other ~~countries with~~disruptions to international agricultural trade ~~agreements with~~related to current trade actions announced by the ~~U.S. The~~ Trump administration ~~has expressed aversion towards certain existing international trade agreements,~~and responsive actions announced by trading partners, including by China. On April 2, 2018, the ~~North American Free Trade Agreement (“NAFTA”), and made comments suggesting that they support significantly increasing tariffs on goods imported into~~Chinese government increased the ~~U.S., which in turn may lead to retaliatory actions~~tariff on U.S. ~~exports. As of~~ethanol imports into China from 30% to 45%. We cannot estimate the ~~date of~~exact effect this report, it remains unclear what the outcomes may be of NAFTA trade regulations, other international trade agreements, and tariffs on various goods imported into the U.S. If the U.S. were to withdraw from or materially modify NAFTA or other international trade agreements to which it is a party, or if tariffs were raisedtariff increase will have on the ~~foreign-sourced goods that lead~~overall domestic ethanol market. However, the increased tariff is expected to ~~retaliatory actions, it~~reduce overall U.S. ethanol export demand, which could have ~~material adverse~~a negative effect on ~~our business, financial condition and results of operations.~~U.S. domestic ethanol prices.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

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Item 5. Other Information

None.

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Item 6. Exhibits.

(a)

The following exhibits are included in this report.


Exhibit No.			Exhibit
10.1			Subscription Agreement for Harvestone Group, LLC dated June 29, 2018

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

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

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

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

101			The following financial information from Granite Falls Ethanol, LLC's Quarterly Report on Form 10-Q for the three and nine months ended ~~January~~July 31, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at ~~January~~July 31, 2018 and October 31, 2017; (ii) the Condensed Consolidated Statements of Operations forfor the three and nine months ended ~~January~~July 31, 2018 and 2017; (iii) the Condensed Consolidated Statements of Cash Flows for the ~~three~~nine months ended ~~January~~July 31, 2018 and ~~2017~~;2017; and (iv) Notes to Condensed Consolidated Unaudited Financial Statements.*

* Filed herewith.

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SIGNATURES~~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: ~~March 19,~~September 14, 2018		/s/ Steve Christensen
		Steve Christensen
		Chief Executive Officer

		/s/ Stacie Schuler
Date: ~~March 19,~~September 14, 2018		Stacie Schuler
		Chief Financial Officer

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