GRANITE FALLS ENERGY LLC : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-K)

February 16, 2021 at 03:14 pm EST

General

We prepared the following discussion and analysis to help readers better understand our financial condition, changes in our financial condition, and results of operations for the fiscal year ended October 31, 2020. This discussion

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should be read in conjunction with the consolidated financial statements included herewith and notes to the consolidated financial statements thereto and the risk factors contained herein.





Overview



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

The GFE plant has an annual production capacity of approximately 63 million gallons of denatured ethanol, but is currently permitted to produce up to 70 million gallons of undenatured ethanol on a twelve month rolling sum basis.

The


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



Beginning December 11, 2019, HLBE also owns a 100% interest in Agrinatural,
which is a natural gas distribution and sales company located in Heron Lake,
Minnesota that owns approximately 190 miles of natural gas pipeline and provides
natural gas to HLBE's ethanol plant and other commercial, agricultural and
residential customers through a connection with the natural gas pipeline
facilities of Northern Border Pipeline Company. Agrinatural's revenues are
generated through natural gas distribution fees and sales. At October 31, 2019,
HLBE held a 73% controlling interest in Agrinatural.

Plan of Operations Through October 31, 2021





The Company, and the ethanol industry as a whole, experienced significant
adverse conditions throughout most of 2019 and 2020 as a result of industry-wide
record low ethanol prices due to reduced demand, high industry inventory levels
and other effects of the COVID-19 pandemic. These factors resulted in prolonged
negative operating margins, significantly lower cash flow from operations and
substantial net losses. We expect to have sufficient cash generated by
continuing operations and availability on our credit facilities and other loans
to fund our operations.  However, should unfavorable operating conditions
continue in the ethanol industry that prevent us from profitably operating our
plants, we may need to seek additional debt or equity funding or further idle
ethanol production altogether.

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





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

Trends and Uncertainties Impacting Our Operations





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



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

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octane enhancers, refining capacity and utilization, government regulation and
incentives and consumer demand for alternative fuels. Distillers' grains prices
are impacted by livestock numbers on feed, prices for feed alternatives and
supply, which is associated with ethanol plant production.



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



For the fiscal year ended October 31, 2020 compared to fiscal year ended October
31, 2019, our average price per gallon of ethanol sold decreased by
approximately 4.4%. Ethanol prices were lower during the fiscal year ended
October 31, 2020 due primarily to effects of the COVID-19 pandemic, which
resulted in reduced demand and high inventory levels. Additionally, the increase
in approved economic hardship exemptions from the RVOs has recently effectively
lowered the RVOs by a significant number of gallons of domestic demand. If this
trend continues, it may continue to negatively impact the U.S. ethanol market.
Management believes that the ethanol outlook moving into fiscal year 2021 will
remain relatively flat and our margins will remain tight due to higher corn
prices and depressed gasoline demand.



In recent years, including fiscal year 2020 over fiscal year 2019, exports of
ethanol have increased. Export demand for ethanol is less consistent compared to
domestic demand which can lead to ethanol price volatility. During 2017, Brazil
and China adopted import quotas and/or tariffs on the importation of ethanol
which are expected to continue to negatively impact U.S. exports. China, the
number three importer of U.S. ethanol in 2016, has imported negligible volumes
since imposing a 70% tariff in 2018  until January 2021.



On September 1, 2017, Brazil's Chamber of Foreign Trade imposed a 20% tariff on
U.S. ethanol imports in excess of 150 million liters, or 39.6 million gallons,
per quarter. The tariff was renewed in September 2019, but the import quota was
raised to 187.5 million liters, or 49.5 million gallons, per quarter. In
December 2020, the import quota expired, thereby subjecting all Brazilian
imports of U.S. ethanol to a 20% tariff. These tariffs have had and will likely
continue to have a negative impact on the export market demand and prices for
ethanol produced in the United States. Any decrease in U.S. ethanol exports
could adversely impact the market price of ethanol unless domestic demand
increases or additional foreign markets are developed..



Corn prices trended upward during fiscal year 2020, due primarily to strong
export demand during the 2020 period compared to the 2019 period. The latest
estimates of supply and demand provided by the U.S. Department of Agriculture
("USDA") estimate the 2019-2020 ending corn stocks at approximately 1.9 billion
bushels, and project the 2020-2021 corn supply at approximately 16.5 billion
bushels, which is more than the 2019-2020 supply, with corn consumption for
ethanol and co-products slightly higher at approximately 5.1 billion bushels,
suggesting higher corn prices into fiscal 2021. Beginning in December 2020, and
carrying through January and into February 2021, China substantially increased
its purchase of U.S. corn reducing U.S. inventories and increasing prices.
Weather, world supply and demand, current and anticipated stocks, agricultural
policy and other factors can contribute to volatility in corn prices. If corn
prices rise, it will have a negative effect on our operating margins unless the
price of ethanol and distillers grains out paces rising corn prices.

Distillers' grains prices decreased in 2020 over 2019, due to decreased supply
as a result of decreased production. Top export markets include Mexico, Vietnam,
Korea, Indonesia, Turkey, Thailand, and the European Union and United Kingdom.
Of note, however, is that export demand from China, historically one of the
largest importers of U.S. produced distillers grains, has significantly
declined. In 2017, China imposed significant anti-dumping and anti-subsidies on
distillers' grains imported from the U.S. which resulted in significant declines
in exports of U.S. distillers' grains to China. The anti-dumping tariffs range
from 42.2% to 53.7% and the anti-subsidy tariffs range from 11.2% to 12%. The
imposition of these duties has resulted in a significant decline in demand from
this top importer requiring U.S. producers to seek out alternative markets.
While exports to China increased during fiscal year 2020 compared to fiscal year
2019, exports to China remain substantially below the pre-tariff export levels.
There is no guarantee that distillers' grains exports to China will return to
pre-tariff levels.

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On January 15, 2020, President Trump signed a "phase one" trade agreement with
China. The agreement includes a commitment by China to purchase agricultural
products over the next two years, including distillers' grains. The agreement
will also provide U.S. manufacturers of DDGS with a streamlined process for
registration and licensing in order to facilitate U.S. exports to China. While
this agreement appears positive for the industry, there is no guarantee that the
agreement will be fully implemented, nor is there a guarantee that exports to
China return to pre-tariff levels.

Additionally, exports of U.S. distillers' grains to Vietnam had halted
completely due to Vietnam's imposition of stricter regulations in December 2016.
In a statement issued September 1, 2017, the U.S. Grains Council announced that
Vietnam is lifting its suspension of U.S. distillers' grains imports and easing
fumigation requirements. While exports to Vietnam have resumed, they remain
substantially below the pre-2016 levels. There is no guarantee that distillers'
grains exports to Vietnam will return to such levels.

Management anticipates distillers' grains prices will remain steady during our
2021 fiscal year, unless additional domestic demand or other foreign markets
develop. Domestic demand for distillers' grains could remain low if corn prices
decline and end-users switch to lower priced alternatives.



Corn oil prices as a whole have been adversely impacted during the last few
years by oversupply of corn oil due to the substantial increase in corn oil
production. Additionally, corn oil prices have been impacted by the oversupply
of soybeans and the resulting lower price of soybean oil which competes with
corn oil for biodiesel production. In December 2019, legislation was signed
extending the $1.00 per-gallon biodiesel blender tax credit retroactively to
January 1, 2018, and through December 31, 2022.



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.

Results of Operations for the Fiscal Years Ended October 31, 2020 and 2019





The following table shows the results of our operations and the percentage of
revenues, costs of goods sold, operating expenses and other items to total
revenues in our audited consolidated statements of operations for the fiscal
years ended October 31, 2020 and 2019 (amounts in thousands):




                                                   Fiscal Year Ended October 31,
                                                   2020                      2019
 Statement of Operations Data               Amount         %          Amount         %
 Revenue                                  $  164,954     100.0 %    $  208,777     100.0 %
 Cost of Goods Sold                          176,031     106.7 %       212,560     101.8 %
 Gross Loss                                 (11,077)     (6.7) %       (3,783)     (1.8) %
 Operating Expenses                            8,581       5.2 %         6,493       3.1 %
 Goodwill Impairment                           1,372       0.8 %             -         -
 Operating Loss                             (21,030)    (12.7) %      (10,276)     (4.9) %
 Other Income (Expense), net                     463       0.3 %         (745)     (0.4) %
 Net Loss                                   (20,567)    (12.4) %      (11,021)     (5.3) %

Less: Net Loss Attributable to


 Non-controlling Interest                      7,289       4.4 %

2,630 1.3 %

Net Loss Attributable to Granite


 Falls Energy, LLC                        $ (13,278)     (8.0) %    $  (8,391)     (4.0) %




Revenues

Our revenues from operations come from three primary sources: sales of fuel ethanol, sales of distillers' grains and sales of corn oil. Our remaining consolidated revenues are attributable to miscellaneous other revenue from incidental sales of corn syrup at HLBE's plant and revenues generated from natural gas pipeline operations at Agrinatural, net of eliminations for distribution fees paid by HLBE to Agrinatural for natural gas transportation services.

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The following table shows the sources of our consolidated revenue and the approximate percentage of revenues from those sources to total revenues in our audited consolidated statements of operations for the fiscal year ended October 31, 2020 (amounts in thousands):






                                    Fiscal Year Ended Fiscal October 31, 2020
    Revenue Sources                 Sales Revenue             % of Total Revenues
    Ethanol sales               $              126,605                      76.8 %


    Distillers' grains sales                    29,673


17.9 %
    Corn oil sales                               6,590                       4.0 %
    Miscellaneous other                          2,086                       1.3 %
    Total Revenues              $              164,954                     100.0 %






                                    Fiscal Year Ended Fiscal October 31, 2019
    Revenue Sources                 Sales Revenue             % of Total Revenues
    Ethanol sales               $              161,590                      77.4 %
    Distillers' grains sales                    37,046                      17.8 %
    Corn oil sales                               7,586                       3.6 %
    Miscellaneous other                          2,555                       1.2 %
    Total Revenues              $              208,777                     100.0 %




Our total consolidated revenues decreased by approximately 21.7% for the fiscal
year ended October 31, 2020, as compared to the fiscal year 2019, primarily due
to decreases in production of ethanol, distillers' grains, and corn oil and
decreases in average price received for our ethanol, distillers' grains, and
corn oil.



The following table reflects quantities of our three primary products sold and
the average net prices received for the fiscal years ended October 31, 2020 and
2019 (quantities in thousands):




                                 Fiscal Year Ended October 31, 2020             Fiscal Year Ended October 31, 2019
Product                         Quantity Sold           Avg. Net Price         Quantity Sold           Avg. Net Price
Ethanol (gallons)                          105,172     $            1.20                  128,262     $            1.26
Distillers' grains (tons)                      240     $          123.43                      289     $          128.25
Corn oil (pounds)                           27,528     $            0.24                   30,907     $            0.25




Ethanol



Total revenues from sales of ethanol decreased by approximately 21.7% for fiscal
year 2020 compared to the fiscal year 2019 due primarily to an approximately
18.0% decrease in the volumes sold from period to period, coupled with an
approximately 4.4% decrease in the average price per gallon we received for our
ethanol. The decrease in price is primarily due to a decrease in demand for
ethanol and significantly lower gasoline prices. We  sold fewer ethanol gallons
during fiscal year 2020 as compared to fiscal year 2019 primarily due to
decreases in ethanol production at the GFE and HLBE plants. Ethanol production
was lower at our plants compared to the prior year as a result of the GFE plant
and HLBE plant being idled due to effects of the COVID-19 pandemic from on or
about April 3, 2020 through approximately May 18, 2020 and from on or about
March 30, 2020 through approximately May 31, 2020, respectively. Additionally,
in July 2020, HLBE's plant experienced operational issues with its boiler, which
negatively impacted production. Management anticipates higher ethanol production
and sales during our 2021 fiscal year, as compared to our 2020 fiscal year.



We occasionally engage in hedging activities with respect to our ethanol sales.
We recognize the gains or losses that result from the changes in the value of
these derivative instruments in revenues as the changes occur. At October 31,
2020, GFE had fixed and basis contracts for forward ethanol sales for various
delivery periods through December 2020 valued at approximately $11.8 million,
and HLBE had fixed and basis contracts for forward ethanol sales for various
delivery periods through December 2020 valued at approximately $12.4 million.
Separately, ethanol derivative instruments

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resulted in a loss of approximately $350,000 during the fiscal year ended October 31, 2020, and a gain of approximately $220,000 during the fiscal year ended October 31, 2019.





Distillers' Grains



Total revenues from sales of distillers' grains decreased approximately 19.9%
for fiscal year 2020 compared to fiscal year 2019. The decrease in distillers'
grains revenues is primarily attributable to an approximately 17.0% decrease in
the tons of distillers' grains sold during fiscal year 2020 compared to fiscal
year 2019, coupled with an approximately 3.8% decrease in the average price per
ton we received for our distillers' grains from period to period.



The decrease in the market price of distillers' grains is due to decreased
demand and lower prices in soybean meal, which is a competitive product to
distillers' grains. The decrease in total tons of distillers' grains sold during
fiscal year 2020 compared to the fiscal year 2019 was due to an approximately
34.4% decrease in distillers' grains produced at HLBE's plant and an
approximately 10.0% decrease in distillers' grain production at the GFE
plant. The decreases in tons produced at both the GFE and HLBE plants was due to
overall decreased production at both plants as a result of the GFE plant and
HLBE plant being idled due to effects of the COVID-19 pandemic from on or about
April 3, 2020 through approximately May 18, 2020 and from on or about March 30,
2020 through approximately May 31, 2020, respectively. Additionally, in July
2020, HLBE's plant experienced operational issues with its boiler, which
negatively impacted production. Management anticipates higher distillers' grains
production during our 2021 fiscal year, as compared to our 2020 fiscal year.

At October 31, 2020, GFE had forward contracts to sell approximately $5.9 million of distillers' grains for delivery through March 2021, and HLBE had forward contracts to sell approximately $5.4 million of distillers' grains for delivery through March 2021.





Corn Oil



Separating the corn oil from our distillers' grains decreases the total tons of
distillers' grains that we sell; however, our corn oil has a higher per ton
value than our distillers' grains. Total revenues from sales of corn oil
decreased by approximately 13.1% for fiscal year 2020 compared to the fiscal
year 2019. This decrease is attributable to an approximately 10.9% decrease in
pounds sold from period to period, coupled with an approximately 4.0% decrease
in the average price per pound of corn oil sold from period to period.



Management attributes the decrease in corn oil sales during fiscal year 2020 as
compared to 2019 primarily to decreased production at the plants as a result of
the GFE plant and HLBE plant being idled due to effects of the COVID-19 pandemic
from on or about April 3, 2020 through approximately May 18, 2020 and from on or
about March 30, 2020 through approximately May 31, 2020, respectively.
Additionally, in July 2020, HLBE's plant experienced operational issues with its
boiler, which negatively impacted production. Management anticipates higher corn
oil production during our 2021 fiscal year, as compared to our 2020 fiscal year.



Although management believes that corn oil prices will remain relatively steady,
prices may decrease if there is an oversupply of corn oil production resulting
from increased production rates at ethanol plants or if biodiesel producers
begin to utilize lower-priced alternatives such as soybean oil or if biodiesel
blenders' tax credit is not renewed and biodiesel production declines.



At October 31, 2020, GFE had forward corn oil sales contracts to sell
approximately $681,000 for delivery through December 2020, and HLBE had forward
corn oil sales contracts to sell approximately $633,000 for delivery through
December 2020.



Cost of Goods Sold



Our cost of goods sold decreased by approximately 17.2% for the fiscal year
ended October 31, 2020, as compared to the fiscal year ended October 31, 2019.
However, cost of goods sold, as a percentage of revenues, increased
to approximately 106.7% for the fiscal year ended October 31, 2020, as compared
to approximately 101.8% for the 2019 fiscal year due to a narrower margin
between the price of ethanol and the price of corn.  Approximately 90% of our
total costs of goods sold is attributable to ethanol production. As a result,
the cost of goods sold per gallon of ethanol produced

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for the fiscal year ended October 31, 2020 was approximately $1.69 per gallon of
ethanol sold compared to approximately $1.67 per gallon of ethanol produced for
the fiscal year ended October 31, 2019.



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, depreciation expense,
electricity, and wages, salaries and benefits of production personnel, and the
approximate percentage of costs of those components to total costs of goods sold
in our audited consolidated statements of operations for the fiscal year ended
October 31, 2020 (amounts in thousands):




                                                       Fiscal Year Ended October 31, 2020
                                                      Cost               % of Cost of Goods Sold
                                                 (in thousands)
Corn costs                                     $           126,289                         71.8 %
Natural gas costs                                            9,209                          5.2 %
All other components of costs of goods sold                 40,533                         23.0 %
Total Cost of Goods Sold                       $           176,031                        100.0 %




The following table shows the costs of corn, natural gas and all other
components of cost of goods sold and the approximate percentage of costs of
those components to total costs of goods sold in our audited consolidated
statements of operations for the fiscal year ended October 31, 2019 (amounts in
thousands):




                                                       Fiscal Year Ended October 31, 2019
                                                      Cost               % of Cost of Goods Sold
                                                 (in thousands)
Corn costs                                     $           156,120                         73.4 %
Natural gas costs                                           11,867                          5.6 %
All other components of costs of goods sold                 44,573                         21.0 %
Total Cost of Goods Sold                       $           212,560                        100.0 %




Corn Costs



Our cost of goods sold related to corn decreased approximately 19.1% for our
2020 fiscal year compared to our 2019 fiscal year, due primarily to an
approximately 17.5% decrease in the number of bushels of corn processed from
period to period, coupled with an approximately 1.9% decrease in the average
price per bushel paid for corn from period to period. The corn-ethanol price
spread (the difference between the price per gallon of ethanol and the price per
bushel of grain divided by 2.8) for our 2020 fiscal year was approximately $0.03
less than the corn-ethanol price spread we experienced for same period of 2019.



For our fiscal years ended October 31, 2020 and 2019, our plants processed
approximately 35.4 million and 42.9 million bushels of corn, respectively. This
decrease was due primarily to decreased production at the plants as a result of
the GFE plant and HLBE plant being idled due to effects of the COVID-19 pandemic
from on or about April 3, 2020 through approximately May 18, 2020 and from on or
about March 30, 2020 through approximately May 31, 2020, respectively.
Additionally, in July 2020, HLBE's plant experienced operational issues with its
boiler, which negatively impacted production. Management anticipates higher corn
consumption during our 2021 fiscal year compared to our 2020 fiscal year
provided that we can achieve operating margins that allow us to continue to
operate the ethanol plants at capacity.



The decrease in our cost per bushel of corn was primarily related to lower
markets due to loss of demand as a result of the COVID-19 pandemic as well as
favorable growing conditions through much of the growing season. Due to
projected decreased corn stocks and projected slightly increased demand,
management anticipates that corn prices will be higher during our 2021 fiscal
year.



From time to time we enter into forward purchase contracts for our corn
purchases. At October 31, 2020, GFE had forward corn purchase contracts
for approximately 4.0 million bushels for deliveries through December 2022 and
HLBE had forward corn purchase contracts for approximately 2.5 million bushels
for deliveries through July 2022.



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Our corn derivative positions resulted in a loss of approximately $2.4 million
for the fiscal year ended October 31, 2020, which increased cost of goods sold
and a gain of approximately $1.1 million for the fiscal year ended October 31,
2019, which decreased cost of goods sold. We recognize the gains or losses that
result from the changes in the value of our derivative instruments from corn in
cost of goods sold as the changes occur.  As corn prices fluctuate, the value of
our derivative instruments are impacted, which affects our financial
performance. We anticipate continued volatility in our cost of goods sold due to
the timing of the changes in value of the derivative instruments relative to the
cost and use of the commodity being hedged.



Natural Gas Costs



For our 2020 fiscal year, we experienced a decrease of approximately 22.4% in
our overall natural gas costs compared to our 2019 fiscal year.  Management
attributes the decrease in price to increased natural gas supply and less
consumption due to decreased production at the plants as a result of the GFE
plant and HLBE plant being idled due to effects of the COVID-19 pandemic from on
or about April 3, 2020 through approximately May 18, 2020 and from on or about
March 30, 2020 through approximately May 31, 2020, respectively. Additionally,
in July 2020, HLBE's plant experienced operational issues with its boiler, which
negatively impacted production.  However, management anticipates higher natural
gas prices during the winter months due to the typical seasonal natural gas cost
increases experienced during the winter months.



Operating Expense

Operating expenses include wages, salaries and benefits of administrative employees at the plants, insurance, professional fees and similar costs.


 Operating expenses as a percentage of revenues rose to 5.2% of revenues for our
fiscal year ended October 31, 2020 compared to 3.1% of revenues for our fiscal
year ended October 31, 2019. This increase is primarily due to lower revenues
and the recognition of approximately $1.8 million loss on disposal of assets
during the 2020 period at HLBE.



Our efforts to optimize efficiencies and maximize production may result in a
decrease in our operating expenses on a per gallon basis. However, because these
expenses generally do not vary with the level of production at the plant, we
expect our operating expenses to remain relatively steady throughout the 2021
fiscal year.



Operating Loss



Our operating loss increased by approximately $10.8 million for our fiscal year
ended October 31, 2020 compared to fiscal year 2019. This increase resulted
largely from increased prices for corn relative to the price of ethanol and
negative operating margin, largely due to losses on disposal of assets of
approximately $1.8 million and goodwill impairment of approximately $1.4
million, and losses resulting from the GFE plant and HLBE plant being idled due
to effects of the COVID-19 pandemic from on or about April 3, 2020 through
approximately May 18, 2020 and from on or about March 30, 2020 through
approximately May 31, 2020, respectively, and the HLBE plant experiencing
operational issues with its boiler after production resumed.



Other Income (Expense), Net



We had net other income for our fiscal year ended October 31, 2020 of
approximately $463,000 compared to net other expense of approximately $745,000
for our fiscal year ended October 31, 2019. We had more other income during
fiscal year 2020 compared to fiscal year 2019 due primarily to approximately
$472,000 investment income received during the 2020 fiscal year compared to the
2019 fiscal year.



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Changes in Financial Condition at October 31, 2020 and 2019

The following table highlights the changes in our financial condition at October 31, 2020 compared to October 31, 2019 (amounts in thousands):






                                                   October 31, 2020     October 31, 2019
Current Assets                                     $          31,715    $          36,163
Total Assets                                       $         116,198    $         106,055
Current Liabilities                                $          31,252    $          13,355
Long-Term Debt, less current portion               $           5,876    $

6,639


Operating lease, long-term liabilities             $          15,755    $               -
Other Long-Term Liabilities                        $           1,422    $

1,376


Members' Equity attributable to Granite Falls
Energy, LLC                                        $          52,112    $          65,469
Non-controlling Interest                           $           9,780    $          19,216

The increase in total assets at October 31, 2020 compared to the prior year is primarily due to the recognition of operating lease right of use asset of approximately $19.4 million in the 2020 period.





Total current liabilities increased by approximately $17.9 million at October
31, 2020 compared to October 31, 2019. This increase was mainly due to increases
in current maturities of long-term debt of approximately $10.9 million, accounts
payable of approximately $1.1 million, checks drawn in excess of bank balance of
approximately $693,000, commodity derivative instruments of approximately
$816,000, and the recognition of short-term operating lease liabilities of
approximately $3.6 million.



Long-term debt totaled approximately $5.9 million at October 31, 2020, which is
approximately $0.7 million lower than our long-term debt at October 31, 2019.
The decrease is primarily due to the amortization of the Project Hawkeye loan.

Our other long-term liabilities increased by approximately $46,000 at October 31, 2020 compared to October 31, 2019. The increase is due to rail car rehabilitation costs recorded for fiscal year 2020.





Members' equity attributable to Granite Falls Energy, LLC at October 31, 2020
decreased by approximately $13.4 million compared to October 31, 2019. The
decrease was due primarily to the net loss attributable to Granite Falls Energy,
LLC of approximately $13.3 million at October 31, 2020.



Non-controlling interest totaled approximately $9.8 million at October 31,
2020. This is directly related to recognition of the approximately 49.3%
noncontrolling interest in HLBE at October 31, 2020. Also, this decreased by
approximately $2.0 million due to acquisition of the Agrinatural non-controlling
interest during fiscal year 2020.

Liquidity and Capital Resources





Our principal sources of liquidity consist of cash provided by operations, cash
on hand, and available borrowings under our credit facilities with AgCountry and
Compeer.  Our principal uses of cash are to purchase raw materials necessary to
operate the ethanol plants, capital expenditures to maintain and upgrade our
plants, to make debt service payments, and to make distribution payments to our
members.



We do not currently anticipate any significant purchases of property and
equipment that would require us to secure additional capital in the next twelve
months. For our 2021 fiscal year, we anticipate completion of several small
capital projects to maintain current plant infrastructure and improve operating
efficiency.  We expect to have sufficient cash generated by continuing
operations and availability on our credit facilities and other loans to fund our
operations and complete our capital expenditures during our 2021 fiscal year.

However, should unfavorable operating conditions continue in the ethanol industry that prevent us from profitably operating our plants, we may need to seek additional debt or equity funding or further idle ethanol production altogether.

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

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Year Ended Compared October 31, 2020 to Year Ended October 31, 2019





The following table summarizes cash flows for the fiscal years ended October 31
(amounts in thousands):




                                                             2020        2019

Net cash provided by (used in) operating activities $ (3,647) $ 1,967


    Net cash used in investing activities                  $ (5,826)   $

(1,430)

Net cash provided by (used in) financing activities $ 9,479 $ (1,864)

Net increase (decrease) in cash and restricted cash $ 6 $ (1,327)






Operating Cash Flows



During the fiscal year ended October 31, 2020, net cash provided by operating
activities decreased by approximately $5.6 million compared to the fiscal year
ended October 31, 2019. This decrease was due primarily to an approximately $9.5
million increase in net loss, which was partially offset by a non-cash charge in
fiscal year 2020 for loss on disposal of assets of approximately $1.8 million
and decreases from period to period in various working capital items.



Investing Cash Flows



Cash used in investing activities was approximately $4.4 million more during
fiscal year 2020 as compared to fiscal year 2019. During fiscal year 2020, we
used approximately $5.8 million of cash related capital expenditures at the GFE
and HLBE plants. Comparatively, during fiscal year 2019, we used approximately
$500,000 of cash related to GFE's subscription for its additional Ringneck
investment and approximately $930,000 for capital expenditures at the GFE and
HLBE plants.



Financing Cash Flows



We were provided with approximately $9.5 million by financing activities during
fiscal year 2020, as compared to using approximately $1.9 million in financing
activities during fiscal year 2019, to acquire non-controlling interest in the
amount of $2.0 million. During fiscal year 2020, we had net proceeds of
approximately $10.3 million of long-term debt. In comparison, for fiscal year
2019, we used cash to make member distributions of approximately $1.2 million,
payments of approximately $414,000 on long-term debt and to acquire
non-controlling interest in the amount of approximately $225,000. Additionally,
in fiscal year 2020, we received proceeds from our Paycheck Protection Program
loans of approximately $596,000 and $704,000 at HLBE and GFE, respectively.



Credit Arrangements



Granite Falls Energy

Credit Arrangements with AgCountry





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



Under the seasonal revolving loan, GFE could borrow, repay, and re-borrow up to
the aggregate principal commitment of $6.0 million until its maturity on October
1, 2020. On September 30, 2020, the seasonal revolving loan

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was converted into a revolving term loan in the amount of $11,000,000 that will
expire on October 20, 2024. GFE had no outstanding balance on the revolving term
loan at October 31, 2020. The aggregate principal amount available to GFE for
borrowing was $11.0 million at October 31, 2020.



Interest on the revolving term loan accrues at a variable weekly rate equal to
3.25% above the higher of 0.00% or the One-Month London Interbank Offered Rate
("LIBOR") Index rate, which totaled 3.39% at October 31, 2020.



GFE pays an unused commitment fee on the unused portion of the seasonal
revolving loan commitment at the rate of 0.500% per annum, payable monthly in
arrears. The credit facility with AgCountry is secured by substantially all of
GFE's assets. There are no savings account balance collateral requirements as
part of this credit facility.

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

GFE may not create or incur any indebtedness except for debt to 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 without the

consent of Co-Bank or AgCountry.

GFE may not make loans or advances or purchase capital stock, obligations or

other securities, or make any capital contribution to or otherwise invest in

? any entity, other than trade credit in ordinary course of business, investments

of GFE in HLBE as of the date of the amendment of the credit facility, or

investments in Ringneck of up to $7.5 million.

GFE may not create or incur any obligation as a lessee under operating leases

except leases with Farm Credit Leasing Corporation, leases existing as of the

? date of the amendment of the credit facility, rail car leases provided such

rail car leases may not exceed an initial or extended term of 120 months, and

other leases which do not require GFE to make scheduled payments in any fiscal

year in excess of $100,000.

? GFE must maintain working capital of at least $10.0 million. Working capital is

calculated as GFE's current assets, less GFE's current liabilities.

GFE must maintain a debt service coverage ratio of at least 1.5 to 1.0. The

? debt service coverage ratio is calculated as GFE's net income (after taxes),

plus depreciation and amortization, minus extraordinary gains (plus losses),

minus gain (plus loss) on asset sales and divided by $4.0 million.

GFE may make member distributions of up to 75% of GFE's net income without the

? consent of AgCountry provided GFE remains in compliance with its loan covenants

following the distribution. Any member distributions in excess of 75% of GFE's


   net income must be pre-approved by AgCountry.




During the second fiscal quarter of 2020, the credit facility was amended to
reduce the working capital covenant to $9 million, from the original $10 million
working capital covenant, during the period from March 31, 2020 through
September 30, 2020, and increasing to $10 million beginning October 1, 2020.
Additionally, the current portion of leases are excluded from the calculation of
current liabilities.   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. For the fiscal year ended October 31, 2019, GFE had an
event of non-compliance with the debt service coverage ratio as defined in the
credit facility. In December 2019, GFE received a waiver from its lender waiving
this event of non-compliance. In May 2020, GFE had an event of non-compliance
related to the minimum working capital requirement as defined in the credit
facility. The Company obtained a waiver from its lender for this event of
non-compliance. For the fiscal year ended October 31, 2020, GFE had an event of
non-compliance with respect to our debt service coverage ratio.  GFE has
obtained a waiver from its lender for this event of non-compliance.

Credit Arrangements with Fagen Energy and Project Hawkeye





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

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a replacement credit facility with Project Hawkeye on substantially the same as the terms under the terminated credit facility with Fagen Energy.





On August 2, 2017, the Fagen Energy credit facility was terminated and there
were no amounts outstanding at termination. Simultaneously with the termination
of the Fagen Energy credit facility, GFE entered into a replacement credit
facility with Project Hawkeye. The terms of the replacement credit facility
allow GFE to borrow up to $7.5 million of variable-rate, amortizing non-recourse
debt from Project Hawkeye using the Ringneck investment as collateral.  On
August 2, 2017, GFE borrowed $7.5 million under the Project Hawkeye credit
facility to finance the balance of its investment in Ringneck. The outstanding
balance on this loan was approximately $6,339,000 at October 31, 2020.



The Project Hawkeye loan bears interest from the date funds are first advanced
on the loan through maturity, at a rate per annum equal to the sum of
(x) the One Month LIBOR Index Rate plus (y) 3.05% per annum, with an interest
rate floor of 3.55%. The interest rate was 3.55% and 4.82% at October 31, 2020
and 2019, 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 3
through 9 based on a 7-year amortization period. The monthly amortized payments
will be re-amortized following any change in interest rate. The entire
outstanding principal balance of the loan, plus any accrued and unpaid interest
thereon, is due and payable in full on August 2, 2026. GFE is permitted to
voluntarily prepay all or any portion of the outstanding balance of this loan at
any time without premium or penalty.



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

SBA Paycheck Protection Program Loan





In March 2020, Congress passed the Paycheck Protection Program, authorizing
loans to small businesses for use in paying employees that they continue to
employ throughout the COVID-19 pandemic and for rent, utilities and interest on
mortgages. Loans obtained through the Paycheck Protection Program are eligible
to be forgiven as long as the proceeds are used for qualifying purposes and
certain other conditions are met. On April 17, 2020, GFE received a loan in the
amount of $703,900 through the Paycheck Protection Program. Management expects
that the entire loan will be used for payroll, utilities and interest;
therefore, management anticipates that the loan will be substantially forgiven.
To the extent it is not forgiven, GFE would be required to repay that portion at
an interest rate of 1% over a period of two years, beginning August 2021 with a
final installment in April 2022.



Heron Lake BioEnergy



Revolving Term Note



HLBE had a revolving term note payable to Compeer Financial, formerly known as
AgStar Financial Services, FCLA ("Compeer") under which we 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 Compeer orally agreed to reduce the aggregate principal
commitment of the revolving term loan to $8,000,000.  On April 6, 2018, HLBE
finalized loan agreements with an effective date of March 29, 2018 for an
amended credit facility with Compeer (the "2018 Credit Facility"). On January 7,
2020, the Company finalized loan agreements for an amended credit facility with
its lender (the "2020 Credit Facility").

2018 Credit Facility with Compeer



The 2018 Credit Facility included an amended and restated revolving term loan
with a $4.0 million principal commitment and a revolving seasonal line of credit
with a $4.0 million principal commitment.  CoBank, ACP ("CoBank") will continue
to act as Compeer's administrative agent with respect to HLBE's 2018 Credit
Facility and has a participation interest in the loans. HLBE agreed to pay
CoBank an annual fee of $2,500 for its services as administrative agent.

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Under the terms of the amended revolving term loan, HLBE may borrow, repay, and
reborrow up to the aggregate principal commitment amount of $4.0 million.  Final
payment of amounts borrowed under amended revolving term loan was 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 3.24% at October 31, 2020.

HLBE agreed to pay an unused commitment fee on the unused available portion of the amended revolving term loan commitment at the rate of 0.500% per annum, payable monthly in arrears.

The aggregate principal amount available to HLBE for borrowing under the revolving term loan at October 31, 2019 was $4.0 million.



Under the terms of the seasonal revolving loan, HLBE may borrow, repay, and
reborrow up to the aggregate principal commitment amount of $4.0 million until
its maturing on May 1, 2020.  Amounts borrowed under the seasonal revolving loan
bear interest at a variable weekly rate equal to 2.85% above the LIBOR Index
rate, which was 2.99% at October 31, 2020.

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

The amended revolving term loan and seasonal revolving loan are secured by substantially all of HLBE's assets, including a subsidiary guarantee.



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

In October 2019, HLBE had an event of non-compliance related to the debt service
coverage ratio as defined in the 2018 Credit Facility. In December 2019, HLBE
received a waiver from its lender waiving this event of noncompliance.

2020 Credit Facility with Compeer



The 2020 Credit Facility includes an amended and restated revolving term loan
with an $8,000,000 principal commitment, which was increased to a $13,000,000
principal commitment in June 2020.  The loans are secured by substantially all
of the Company's assets, including a subsidiary guarantee. The 2020 Credit
Facility contains customary covenants, including restrictions on the payment of
dividends and loans and advances to Agrinatural, and maintenance of certain
financial ratios including minimum working capital, minimum net worth and a debt
service coverage ratio as defined by the credit facility. During the second
fiscal quarter of 2020, the 2020 Credit Facility was amended to reduce the
working capital covenant to $8 million, from the original $10 million working
capital covenant, for the period of April 30, 2020 through December 31, 2020,
and increasing to $10 million beginning January 1, 2021. Additionally, the
current portion of leases are excluded from the calculation of current
liabilities. Failure to comply with the protective loan covenants or maintain
the required financial ratios may cause acceleration of the outstanding
principal balances on the revolving term loan and/or the imposition of fees,
charges, or penalties. In May 2020, HLBE had an event of non-compliance related
to the minimum working capital requirement as defined in the 2020 Credit
Facility. HLBE has obtained a waiver from its lender for this event of
non-compliance. As of and for the fiscal year ended October 31, 2020, HLBE had
events of non-compliance with respect to its working capital covenant and its
debt service coverage ratio. HLBE has since obtained a waiver for the
non-compliance events from the lending institution.

Under the terms of the amended and restated revolving term loan, HLBE may
borrow, repay, and reborrow up to the aggregate principal commitment amount of
$13,000,000.  Final payment of amounts borrowed under amended revolving term
loan is due December 1, 2022. Interest on the amended and restated revolving
term loan accrues at a variable weekly rate equal to 3.35% above the LIBOR Index
rate, which was 3.51% at October 31, 2020. HLBE agreed to

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pay an unused commitment fee on the unused available portion of the amended revolving term loan commitment at the rate of 0.500% per annum, payable monthly in arrears.



As part of the 2020 Credit Facility closing, HLBE entered into an amended
administrative agency agreement with CoBank.  As a result, CoBank will continue
act as the agent for the lender with respect to the 2020 Credit Facility. The
Company agreed to pay CoBank an annual fee of $2,500 for its services as
administrative agent.

HLBE was out of compliance with its debt covenants at its fiscal year end.

Although the lender waived this event, additional noncompliance and forecasted probably future noncompliance has resulted in the reclassification of approximately $10,300,000 of long term debt has been as current maturities.

Due


to operational losses, HLBE has a shortage of working capital.  As a result, it
exited its Chicago Board of Trade corn futures positions, realized losses, and
has become unprotected against future corn price increases,   HLBE will need to
obtain either additional equity or debt financing.   There is a risk that
CoBank, as the administrative agent for our lender Compeer, may seek to enforce
its security interests and take control of HLBE's assets.  If that were to
happen, HLBE may be faced with the prospects of either ceasing operations or
seeking Chapter 11 "reorganization" bankruptcy protection.



Single Advance Term Note



In June 2020, HLBE entered into a single advance term note with a $3,000,000
principal commitment, with the purpose to finance the construction of a new
grain bin and provide principal reduction on the revolving term note. The
interest rate is fixed at 3.80%. Principal with interest is to be paid in 10
consecutive, semi-annual installments, with the first installment due on
December 20, 2020 and the last installment due on June 20, 2025. The note is
secured as provided in the 2020 Credit Facility.

SBA Paycheck Protection Program Loan





In March 2020, Congress passed the Paycheck Protection Program, authorizing
loans to small businesses for use in paying employees that they continue to
employ throughout the COVID-19 pandemic and for rent, utilities and interest on
mortgages. Loans obtained through the Paycheck Protection Program are eligible
to be forgiven as long as the proceeds are used for qualifying purposes and
certain other conditions are met. On April 18, 2020, HLBE received a loan in the
amount of $595,693 through the Paycheck Protection Program. Management expects
that the entire loan will be used for payroll, utilities and interest;
therefore, management anticipates that the loan will be substantially forgiven.
To the extent it is not forgiven, HLBE would be required to repay that portion
at an interest rate of 1% over a period of two years, with principal repayment
installments in May 2021 with a final installment in May 2022.



Negotiable Promissory Note



In December 2020, HLBE entered into a negotiable promissory note with GFE with a
$5,000,000 principal commitment. Interest on the loan accrues at a variable
weekly rate equal to the higher of 1.00% or the One-Month LIBOR Index rate, plus
3.35%. The note is due on demand, and accrued interest must be paid in full the
first business day of each month. The note is unsecured and may be prepaid at
any time without penalty.

In January 2021, HLBE borrowed the $5,000,000 on the promissory note. In February 2021, GFE agreed to modify the promissory note to remove the due on demand feature, instead agreeing that GFE will not require any principal repayment on the loan until March 2023. However, should there be future violations of the Compeer loan covenants, those violations would also be considered a default on this promissory note.

Short Term Revolving Promissory Note





In February 2021, HLBE entered into a revolving promissory note with its lender
in order to finance the operating needs of HLBE. Under the terms, HLBE may
borrow, repay and reborrow up to the aggregate principal commitment amount of
$5,000,000. Final payment of amounts borrowed under the revolving promissory
note is June 1, 2021. Interest of the loan accrues at a variable weekly rate
equal to 3.35% above the higher of 0.00% or the One-Month London Interbank
Offered Rate ("LIBOR") Index rate and is payable monthly in arrears. In
addition, HLBE agreed to pay an unused commitment fee on the unused available
portion of the loan at the rate of 0.50% per annum payable monthly in arrears.
The revolving promissory note is subject to the 2020 Credit Facility.



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Other HLBE Credit Arrangements

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





In October 2003, HLBE entered into an industrial water supply development and
distribution agreement with the City of Heron Lake, Jackson County, and
Minnesota Soybean Processors, an unrelated company. In consideration of this
agreement, HLBE and Minnesota Soybean Processors are allocated equally the debt
service on $735,000 in water revenue bonds that were issued by the City to
support this project that mature in February 2019. On September 30, 2019, HLBE
finalized a new industrial water supply development and distribution agreement
with the City of Heron Lake, effective as of February 1, 2019. Under this
agreement, HLBE pays flow charges and fixed monthly charges to the City of Heron
Lake, in addition to certain excess maintenance costs. The term of this
agreement expires February 1, 2029.



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



As of October 31, 2020 and 2019, there was a total of approximately $301,000 and
$634,000 in outstanding water revenue bonds, respectively. HLBE classifies its
obligations under these bonds as assessments payable. The interest rates on the
bonds range from 0.50% to 8.73%. Final payment on the water revenue bonds is due
October 2021.



HLBE Loans to Agrinatural

Original Agrinatural Credit Facility





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



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



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



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



Upon the passage of the May 1, 2019 maturity date, Agrinatural went into default
on the Original Agrinatural Credit Facility. As noted, HLBE has a security
interest in all of Agrinatural's assets. No interruption in the service of
natural gas to its ethanol production facility occurred as a result of the
default. The balance of this loan was approximately $1.1 million October 31,
2019. Subsequent to the closing of HLBE's indirect acquisition of Agrinatural's
non-controlling interest in December 2019, the parties agreed to forgive the
debt related to the Original Agrinatural Credit Facility.



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Additional Agrinatural Credit Facility





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



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



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

The Amendment provides that the portion of principal payments deferred in calendar year 2016 to continue to accrue interest at the rate set forth in the loan agreement and become a part of the balloon payment due at maturity.


 Additionally, for calendar years, 2017, 2018 and 2019, the Amendment provides
that Agrinatural may, without consent of HLBE, proceed with and pay for capital
expenditures in an amount up to $100,000 plus the amount of contributions in aid
of construction received by Agrinatural from customers for capital improvements
("CIAC"), less a reserve for distribution to the Agrinatural members to cover
the income or other taxes imposed as a result of receipt of CIAC in an amount
equal to 40% of CIAC. Prior to the Amendment, Agrinatural's capital expenditures
were restricted to $100,000 per year.



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



Upon the passage of the May 1, 2019 maturity date, Agrinatural went into default
on the Additional Agrinatural Credit Facility. As noted, HLBE has a security
interest in all of Agrinatural's assets. No interruption in the service of
natural gas to its ethanol production facility occurred as a result of the
default. The balance of this loan was approximately $1.5 million at October 31,
2019. Subsequent to the closing of HLBE's indirect acquisition of Agrinatural's
non-controlling interest in December 2019, the parties agreed to forgive the
debt related to the Additional Agrinatural Credit Facility.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements.





Critical Accounting Estimates



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



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Revenue Recognition



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

Agrinatural generates revenue from the transportation of natural gas to residential and commercial customers. Revenue is recognized at the point when natural gas is delivered at the transaction price established in the contract.





Derivative Instruments



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



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



Additionally, the Company is required to evaluate its contracts to determine
whether the contracts are derivatives. Certain contracts that literally meet the
definition of a derivative may be exempted as "normal purchases or normal
sales". Normal purchases and normal sales are contracts that provide for the
purchase or sale of something other than a financial instrument or derivative
instrument that will be delivered in quantities expected to be used or sold over
a reasonable period in the normal course of business.

Contracts that meet the requirements of normal purchases or sales are documented as normal and exempted from accounting and reporting requirements, and therefore, are not marked to market in our consolidated financial statements.





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



The Company has adopted authoritative guidance related to "Derivatives and
Hedging," and has included the required enhanced quantitative and qualitative
disclosure about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of gains and losses from derivative
instruments, and disclosures about credit-risk-related contingent features in
derivative agreements. See further discussion in Note 7 to our consolidated
financial statements.



Inventory



We value our inventory at the lower of cost or net realizable value using the
first in first out method or net realized value. Our estimates are based upon
assumptions believed to be reasonable, but which are inherently uncertain and
unpredictable. These valuations require the use of management's assumptions
which do not reflect unanticipated events

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and circumstances that may occur. In our analysis, we consider future corn costs
and ethanol prices, break-even points for our plants and our risk management
strategies in place through our use of derivative instruments. Given the
significant assumptions required and the possibility that actual conditions will
differ, we consider the valuation of the lower of cost or net realized value on
inventory to be a critical accounting estimate.



Property and Equipment



Management's estimate of the depreciable lives of property and equipment is
based on the estimated useful lives. We review long-lived assets for impairment
whenever events or changes in circumstances indicate that the related carrying
amounts may not be recoverable. Impairment testing for assets requires various
estimates and assumptions, including an allocation of cash flows to those assets
and, if required, an estimate of the fair value of those assets. The Company
tests for impairment at the asset group level, which is the lowest level for
which identifiable cash flows are largely independent of the cash flows of other
groups of assets and liabilities.



Our estimates are based upon assumptions believed to be reasonable, but which
are inherently uncertain and unpredictable. These valuations require the use of
management's assumptions, which do not reflect unanticipated events and
circumstances that may occur. In our analysis, we consider future corn costs and
ethanol prices, break-even points for our plant and our risk management
strategies in place through our derivative instruments and forward contracts.
Given the significant assumptions required and the possibility that actual
conditions will differ, we consider the assessment of impairment of our
long-lived assets to be a critical accounting estimate.

Rail Car Rehabilitation Costs





GFE leases 75 hopper rail cars under a multi-year agreement, which ends November
2025. HLBE leases 50 hopper rail cars under a multi-year agreement, which ends
in May 2027. Under the agreements, the Company is required to pay to
rehabilitate each car for "damage" that is considered to be other than normal
wear and tear upon turn in of the car(s) at the termination of the lease. Prior
to the year ending October 31, 2019, the Company believed ongoing repairs
resulted in an insignificant future rehabilitation expense. During the year
ending October 31, 2019, based on new information, we re-evaluated our
assumptions and believe that it is probable that we may be assessed for damages
incurred. During the years ended October 31, 2020 and 2019, GFE has recorded an
estimated long-term liability totaling $825,000. During the fiscal years ended
October 31, 2020 and 2019, HLBE has recorded an estimated long-term liability
totaling approximately $596,000 and $551,000, respectively. The Company accrues
the estimated cost of rail car damages over the term of the leases as the
damages are incurred.





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Delayed OTC Markets Other stock markets 03:22:09 2024-02-16 pm EST			5-day change	1st Jan Change
3,400 ^USD	-2.86%		-.--%	-2.86%

Declaration of Voting Results by Granite Falls Energy	22-11-04	CI
Glacial Lakes Energy Opposes Proposed Amendments to Granite Falls Energy Operating Agreement	22-10-31	CI
Granite Falls Energy, LLC Reports Earnings Results for the Third Quarter and Nine Months Ended July 31, 2022	22-09-14	CI
Granite Falls Energy, LLC Reports Earnings Results for the Second Quarter and Six Months Ended April 30, 2022	22-06-14	CI
Granite Falls Energy, LLC Reports Earnings Results for the First Quarter Ended January 31, 2022	22-03-17	CI
Granite Falls Energy, LLC Reports Earnings Results for the Full Year Ended October 31, 2021	22-01-31	CI
Granite Falls Energy, Llc Declares Cash Distribution	21-12-27	CI
Granite Falls Energy, LLC Announces Amendment of Credit Facility	21-10-01	CI
Granite Falls Energy, LLC completed the acquisition of remaining 49.3% stake in Heron Lake BioEnergy, LLC (OTCPK:HLBY.L).	21-09-27	CI
Granite Falls Energy, Llc Reports Earnings Results for the Third Quarter Ended July 31, 2021	21-09-14	CI
Granite Falls Energy, Llc Reports Earnings Results for the Second Quarter Ended April 30, 2021	21-06-14	CI
Granite Falls Energy, LLC Announces Executive Changes, Effective May 26, 2021	21-05-25	CI
Granite Falls Energy, LLC Announces Appointment of David Forkrud as Governor	21-03-25	CI
Granite Falls Energy, LLC agreed to acquire the remaining 49.3% stake in Heron Lake BioEnergy, LLC (OTCPK:HLBY.L) for $14 million.	21-03-24	CI
Granite Falls Energy, LLC Plans to Terminate Steve Christensen as CEO on or Before December 31, 2021	21-02-22	CI
Granite Falls Energy, LLC Plans to Terminate Steve Christensen as CEO on or Before December 31, 2021	21-02-22	CI
Granite Falls Energy, Llc Reports Earnings Results for the Full Year Ended October 31, 2020	21-02-16	CI
Granite Falls Energy, Llc Reports Earnings Results for the Third Quarter Ended July 31, 2020	20-09-14	CI
Granite Falls Energy, Llc Reports Earnings Results for the Second Quarter Ended April 30, 2020	20-06-15	CI
Granite Falls Energy, Llc to Extend the Current Shutdown	20-04-27	CI
Granite Falls Energy, LLC Extends Current Shutdown of the Company’s Ethanol Production Operations	20-04-17	CI
Granite Falls Energy, LLC to Extend Regularly Scheduled Annual Temporary Shutdown	20-04-09	CI
Granite Falls Energy, Llc Reports Earnings Results for the First Quarter Ended January 31, 2020	20-03-16	CI
Granite Falls Energy, Llc Reports Earnings Results for the Full Year Ended October 31, 2019	20-01-29	CI
Granite Falls Energy, LLC Finalizes Amendment to its Ethanol Marketing Agreement with Eco-Energy LLC	19-10-01	CI

	1st Jan change	Capi.
GRANITE FALLS ENERGY, LLC	-2.86%	104M
GREEN PLAINS INC.	-11.66%	1.43B
CROPENERGIES AG	0.00%	1.09B
REX AMERICAN RESOURCES CORPORATION	+20.80%	985M
CARDINAL ETHANOL, LLC	+2.83%	292M
AEMETIS, INC.	-31.11%	155M
RED TRAIL ENERGY, LLC	-2.56%	153M
ALTO INGREDIENTS, INC.	-28.01%	144M
HIGHWATER ETHANOL, LLC	+1.47%	82.01M

Granite Falls Energy, LLC

Equities

GFGY

US3873661074

Renewable Fuels

GRANITE FALLS ENERGY LLC : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-K)

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2022	Declaration of Voting Results by Granite Falls Energy	CI
2022	Glacial Lakes Energy Opposes Proposed Amendments to Granite Falls Energy Operating Agreement	CI