10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended January 31, 2017

OR

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

For the transition period from               to               .

COMMISSION FILE NUMBER 000-51277

GRANITE FALLS ENERGY, LLC

(Exact name of registrant as specified in its charter)

Minnesota	41-1997390
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
15045 Highway 23 SE, Granite Falls, MN 56241-0216
(Address of principal executive offices)
(320) 564-3100
(Registrant's telephone number, including area code)

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

☒Yes    ☐No

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

☒Yes    ☐No

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

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

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 17, 2017 there were 30,606 membership units outstanding.

INDEX

	Page Number
PART I. FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3. Quantitative and Qualitative Disclosures about Market Risk	32
Item 4. Controls and Procedures	34
PART I. OTHER INFORMATION	34
Item 1. Legal Proceedings	34
Item 1A. Risk Factors	34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3. Defaults Upon Senior Securities	35
Item 4. Mine Safety Disclosures	36
Item 5. Other Information	36
Item 6. Exhibits	36
SIGNATURES	37

2

PART IFINANCIAL INFORMATION

Item 1.  Financial Statements

GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

	January 31, 2017		October 31, 2016
ASSETS	(unaudited)
Current Assets
Cash	$	3,190,935	$	13,797,857
Accounts receivable		4,352,618		6,654,994
Inventory		18,612,499		18,341,413
Commodity derivative instruments		892,711		1,228,926
Prepaid expenses and other current assets		397,987		325,989
Total current assets		27,446,750		40,349,179
Property and Equipment, net		77,046,207		78,968,016
Goodwill		1,372,473		1,372,473
Investment Deposit		750,000		—
Other Assets		771,717		781,254
Total Assets	$	107,387,147	$	121,470,922
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities
Current maturities of long-term debt	$	462,086	$	490,057
Checks drawn in excess of bank balance		636,678		1,866,683
Accounts payable		3,523,335		5,624,840
Corn payable to FCE		29,790		5,358,111
Commodity derivative instruments		122,800		—
Accrued expenses		1,161,856		997,319
Total current liabilities		5,936,545		14,337,010
Long-Term Debt, less current portion		1,292,753		1,393,669
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, 2017 and October 31, 2016		76,673,130		83,684,529
Non-controlling interest		23,484,719		22,055,714
Total members' equity		100,157,849		105,740,243
Total Liabilities and Members' Equity	$	107,387,147	$	121,470,922

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

3

GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

	Three Months Ended January 31,
	2017		2016
	(unaudited)		(unaudited)
Revenues	$	54,576,064	$	51,001,654
Cost of Goods Sold		47,731,157		49,568,777
Gross Profit		6,844,907		1,432,877
Operating Expenses		1,607,221		1,400,846
Operating Income		5,237,686		32,031
Other Income (Expense):
Other income, net		392,265		67,679
Interest income		454		2,799
Interest expense		(41,609)		(75,964)
Total other income (expense), net		351,110		(5,486)
Net Income	$	5,588,796	$	26,545
Less: Net Income Attributable to Non-controlling Interest		(1,429,005)		(15,019)
Net Income Attributable to Granite Falls Energy, LLC	$	4,159,791	$	11,526
Weighted Average Units Outstanding - Basic and Diluted		30,606		30,606
Amounts attributable to Granite Falls Energy, LLC:
Net Income Per Unit - Basic and Diluted	$	135.91	$	0.38
Distributions Per Unit	$	365.00	$	315.00

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

4

GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

	Three Months Ended January 31,
	2017		2016
	(unaudited)		(unaudited)
Cash Flows from Operating Activities:
Net income	$	5,588,796	$	26,545
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		2,492,791		2,408,849
Change in fair value of commodity derivative instruments		(383,860)		(306,912)
Gain on sale of asset		(45,000)		—
Changes in operating assets and liabilities:
Restricted cash		—		(411,790)
Commodity derivative instruments		842,875		811,134
Accounts recievable		2,302,376		4,383,728
Inventory		(271,086)		(213,974)
Prepaid expenses and other current assets		(71,998)		(1,661,945)
Accounts payable		(7,605,717)		(1,669,322)
Accrued expenses		164,537		39,135
Net Cash Provided by Operating Activities		3,013,714		3,405,448
Cash Flows from Investing Activities:
Payment for investment deposit		(750,000)		—
Payments for capital expenditures		(385,554)		(2,294,859)
Proceeds from sale of asset		45,000		—
Net Cash Used in Investing Activities		(1,090,554)		(2,294,859)
Cash Flows from Financing Activities:
Proceeds from long-term debt		—		4,613,122
Payments on long-term debt		(128,887)		(3,721,574)
Proceeds (payments) from checks drawn in excess of bank balance		(1,230,005)		3,505,086
Distributions to non-controlling interests		—		(2,006,558)
Member distributions paid		(11,171,190)		(9,640,887)
Net Cash Used in Financing Activities		(12,530,082)		(7,250,811)
Net Decrease in Cash		(10,606,922)		(6,140,222)
Cash - Beginning of Period		13,797,857		12,696,536
Cash - End of Period	$	3,190,935	$	6,556,314
Supplemental Cash Flow Information
Cash paid during the period for:
Interest expense	$	41,609	$	75,964
Supplemental Disclosure of Noncash Investing and Financing Activities
Capital expenditures and construction in process included in accounts payable	$	175,891	$	164,491

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

5

Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

January 31, 2017

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 31, 2017 consolidate the operating results and financial position of GFE, and its 50.6% 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 49.4% 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 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 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. 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, 2016, contained in the Company’s annual report on Form 10-K.

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

6

Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

January 31, 2017

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, and inventory purchase and sale commitments, and the assumptions used in the impairment analysis of long-lived assets, which includes goodwill. Actual results may differ from previously estimated amounts, and such differences may be material to our condensed consolidated unaudited financial statements. The Company periodically reviews estimates and assumptions, and the effects of revisions are reflected in the period in which the revision is made.

Revenue Recognition

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

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

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

7

Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

January 31, 2017

Inventory

Inventory is stated at the lower of cost or net realizable value in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2015-11 issued in July 2015. 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

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.  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. If Ringneck accepts GFE’s subscription, GFE will be required to pay Ringneck the entire amount due under the promissory note within 20 days of receiving notice from Ringneck that it is due. If GFE fails to pay the entire amount due, GFE will be charged 12% interest per year, and Ringneck may seek legal action to force GFE to pay. If Ringneck does not meet certain conditions of its offering or rejects GFE’s subscription, GFE expects that its promissory note will be cancelled and our down payment will be refunded to us.

8

Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

January 31, 2017

Ringneck is a South Dakota limited liability company that intends to build an 80 million gallon per year ethanol manufacturing plant in outside of Onida, South Dakota in Sully County. If Ringneck accepts our subscription, our investment is sufficient to secure the Company the right to appoint one director to the board of directors of Ringneck.  

The investment is 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 Consolidated Statement 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. Our 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 our risk management program used to protect against the price volatility of these commodities.

The supply and demand for ethanol are impacted by federal and state legislation and regulation, most significantly the Renewable Fuels Standard (“RFS”), and any changes in legislation or regulation could cause the demand for ethanol to decline or its supply to increase, which could have a material adverse effect on our business, results of operations and financial condition, and the ability to operate at a profit.

On November 23, 2016, the U.S. Environmental Protection Agency (the “EPA”) announced the final rule for 2017 Renewable Volume Obligation (“RVO”) requirements, which is set at 15.0 billion gallons for corn-based ethanol, which equates to the original requirements set by the RFS. Comparatively, the EPA established RVOs requirements for the RFS for calendar years 2014, 2015, and 2016 were below the original requirements set by the RFS. In January 2017, the Trump administration imposed a government-wide freeze on new and pending regulations, which included the 2017 RVOs that were originally intended to go into effect on February 10, 2017. Industry organizations such as the Renewable Fuels Association and Growth Energy believe this action is simply procedural with a new administration, and do not expect it to result in any substantive changes to the rule itself. Additionally, opponents of ethanol such as large oil companies will likely continue their efforts to repeal or reduce the RFS through lawsuits or lobbying of Congress. Successful reduction or repeal of the blending requirements of the RFS and/or continued political uncertainty under the new administration regarding the RFS could result in a significant decrease in ethanol demand. If demand for ethanol decreases, it could materially adversely affect our business, results of operations and financial condition.

Ethanol has historically traded at a discount to gasoline; however, due to a decline in oil prices, ethanol traded at a premium to gasoline during much of the three months ended January 31, 2017, causing a disincentive for discretionary blending of ethanol. However, in January 2017, the oil and gasoline prices rose resulting in ethanol trading at a discount to gasoline since January 2017, which may encourage discretionary blending of ethanol beyond the required blend rate. Management anticipates that ethanol prices will continue to change in relation to changes in corn and energy prices. If corn, crude oil and gasoline prices decrease, that could have a negative impact on ethanol pricing and demand, which could result in a material adverse effect on our business, results of operations and financial condition.

9

Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

January 31, 2017

3.   INVENTORY

Inventories consist of the following:

	January 31, 2017		October 31, 2016
	(unaudited)
Raw materials	$	7,349,648	$	9,098,492
Supplies		2,625,071		2,755,958
Work in process		1,364,882		1,347,754
Finished goods		7,272,898		5,139,209
Totals	$	18,612,499	$	18,341,413

The Company performs a lower of cost or net realizable value analysis on inventory to determine if the market 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, the Company recorded a loss on ethanol inventories, as a component of cost of goods sold, of approximately $207,000 and $353,000 for the three months ended January 31, 2017 and 2016, respectively.

4.   DERIVATIVE INSTRUMENTS

As of January 31, 2017, the total notional amount of GFE’s outstanding corn derivative instruments was approximately 2,975,000 bushels, comprised of long corn positions on 1,800,000 bushels that were entered into to hedge forecasted ethanol sales through March 2017, and short corn positions on 1,175,000 bushels that were entered into to hedge forecasted corn purchases through December 2017. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding as disclosed above. 

As of January 31, 2017, the total notional amount of GFE’s outstanding ethanol derivative instruments was approximately 1,260,000 gallons that were entered into to hedge forecasted ethanol sales through March 2017.

As of January 31, 2017, GFE did not have any cash collateral (restricted cash) related to margin requirements for commodity derivative instrument positions held by a broker.

As of January 31, 2017, the total notional amount of HLBE’s outstanding corn derivative instruments was approximately 5,630,000 bushels, comprised of long corn positions on 3,250,000 bushels that were entered into to hedge forecasted ethanol sales through March 2017, and short corn positions on 2,380,000 bushels that were entered into to hedge forecasted corn purchases through December 2017. 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, 2017, the total notional amount of HLBE’s outstanding ethanol derivative instruments was approximately 1,260,000 gallons that were entered into to hedge forecasted ethanol sales through March 2017.

As of January 31, 2017, HLBE did not have any cash collateral (restricted cash) related to margin requirements for commodity derivative instrument positions held by a broker.

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

	Balance Sheet location	Assets		Liabilities
Corn contracts - GFE	Commodity derivative instruments	$	—	$	116,719
Corn contracts - HLBE	Commodity derivative instruments		—		6,081
Ethanol contracts - GFE	Commodity derivative instruments		445,706		—
Ethanol contracts - HLBE	Commodity derivative instruments		447,005		—
Totals		$	892,711	$	122,800

10

Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

January 31, 2017

The following tables provide details regarding the Company's derivative instruments at October 31, 2016, none of which were designated as hedging instruments:

	Balance Sheet location	Assets		Liabilities
Corn contracts - GFE	Commodity derivative instruments	$	63,050	$	—
Corn contracts - HLBE	Commodity derivative instruments		388,525		—
Ethanol Contracts - GFE	Commodity derivative instruments		503,538		—
Ethanol Contracts - HLBE	Commodity derivative instruments		273,813		—
Totals		$	1,228,926	$	—

At October 31, 2016, the Company did not have any cash collateral (restricted cash) related to margin requirements for commodity derivative instrument positions held by a broker.

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:

	Statement of	Three Months Ended  January 31,
	Operations Location	2017		2016
Corn contracts	Cost of Goods Sold	$	(33,137)	$	195,998
Ethanol contracts	Revenues		416,997		78,556
Natural gas contracts	Cost of Goods Sold		—		32,358
Total gain		$	383,860	$	306,912

5.   FAIR VALUE

The following table provides information on those derivative assets and liabilities measured at fair value on a recurring basis at January 31, 2017:

					Fair Value Measurement Using
	Carrying Amount				Quoted Prices		Significant Other		Significant
	in Balance Sheet				in Active Markets		Observable Inputs		Unobservable Inputs
Financial Asset:	January 31, 2017		Fair Value		(Level 1)		(Level 2)		(Level 3)
Commodity Derivative Instruments - Ethanol	$	892,711	$	892,711	$	511,825	$	380,886	$	—
Financial Liabilities:
Commodity Derivative Instruments - Corn	$	122,800		122,800	$	122,800	$	—	$	—

The following table provides information on those derivative assets measured at fair value on a recurring basis at October 31, 2016:

					Fair Value Measurement Using
	Carrying Amount				Quoted Prices		Significant Other		Significant
	in Balance Sheet				in Active Markets		Observable Inputs		Unobservable Inputs
Financial Asset:	October 31, 2016		Fair Value		(Level 1)		(Level 2)		(Level 3)
Commodity Derivative Instruments - Corn	$	451,575	$	451,575	$	451,575	$	—	$	—
Commodity Derivative Instruments - Ethanol	$	777,351	$	777,351	$	777,351	$	—	$	—

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

11

Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

January 31, 2017

6.   DEBT FACILITIES

Debt financing consists of the following:

	January 31, 2017		October 31, 2016
	(unaudited)
GRANITE FALLS ENERGY:
Revolving term loan, see terms below.	$	—	$	—
Term note payable to Fagen Energy, see terms below.		—		—
HERON LAKE BIOENERGY:
Revolving term note payable to lending institution, see terms below.		—		—
Assessment payable as part of water treatment agreement, due in semi-annual installments of $189,393 with interest at 6.55%, enforceable by statutory lien, with the final payment due in 2021. HLBE made deposits for one years' worth of debt service payments of approximately $364,000, which is included with other assets that are held on deposit to be applied with the final payments of the assessment.		1,516,977		1,517,046
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.		87,862		97,930
Note payable to electrical company with monthly payments of $6,250 with interest at 0.00% and a 1.00% maintenance fee due each October, due September 2017. The electrical company is a member of HLBE.		50,000		68,750
Note payable to non-controlling interest member of Agrinatural.  Interest is at One Month LIBOR plus 4.0%, which was approximately 4.78% and 4.53% at January 31, 2017 and October 31, 2016, respectively.  The note is considered due on demand with payments due at Agrinatural's Board of Managers' discretion.		100,000		200,000
Totals		1,754,839		1,883,726
Less: amounts due within one year		462,086		490,057
Net long-term debt	$	1,292,753	$	1,393,669

Granite Falls Energy:

GFE has a revolving term loan facility, under which GFE could initially borrow, repay, and re-borrow in an amount up to $18,000,000.  However,  the amount available for borrowing by GFE under this facility reduces by $2,000,000 semi-annually, beginning September 1, 2014, with final payment due March 1, 2018. GFE had no outstanding balance on the revolving term loan at January 31, 2017 and October 31, 2016. Therefore, the aggregate amount available for borrowing by GFE on this facility was $10,000,000 at January 31, 2017 and October 31, 2016.  The amount available for borrowing under this facility was further reduced at March 1, 2017 to $8,000,000.

The interest rate is based on the bank's “One Month LIBOR Index Rate”, plus 3.05%, which equated to 3.83% and 3.25% at January 31, 2017 and October 31, 2016, respectively.

The credit facility also requires GFE to comply with certain financial covenants, including including restriction of the payment of dividends and maintenance of certain financial ratios including minimum working capital and a debt service coverage ratio as defined by the credit facility.  As of January 31, 2017 and October 31, 2016, GFE was in compliance with these financial covenants and expects to be in compliance throughout fiscal 2017. 

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.

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

January 31, 2017

In connection with GFE’s subscription for investment in Ringneck in November 2016, GFE entered into a credit facility with Fagen Energy which allows GFE to borrow up to $7.5 million of variable-rate, amortizing non-recourse debt from Fagen Energy using the Ringneck investment as collateral. The Fagen Energy loan bears interest from 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 Fagen Energy 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 November 1, 2025. 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 and commercial security agreement entered into in connection with the Fagen Energy 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 Fagen Energy will be to foreclose and seize all of GFE’s right, title and interest in its investment in Ringneck. GFE expects to use the proceeds of the loan to finance its balance of its investment in Ringneck.  As of January 31, 2017, there were no amounts outstanding under this credit facility.

Heron Lake BioEnergy:

HLBE has a revolving term note payable with a lender, under which HLBE could initially borrow, repay, and re-borrow in an amount up to $28,000,000 at any time prior to the March 1, 2022 maturity date. However, the amount available for borrowing by HLBE under this facility reduces by by $3,500,000 annually, beginning March 1, 2015 and continuing each anniversary thereafter until maturity.  HLBE had no outstanding balance on the revolving term note payable at January 31, 2017, and October 31, 2016.  Therefore, the aggregate principal amount available for borrowing by HLBE on this facility was $21,000,000 at January 31, 2017 and October 31, 2016. The amount available for borrowing under this facility was further reduced at March 1, 2017 to $17,500,000.

Interest on the revolving term loan accrues at a variable rate equal to 3.25% above the One-Month London Interbank Offered Rate ("LIBOR") Index rate, which was 4.03% and 3.45% at January 31, 2017, and October 31, 2016, 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 secured by substantially all of HLBE's assets including a subsidiary guarantee. 

During the term of the revolving term loan, HLBE is subject to certain financial covenants, including restriction of the payment of dividends, restrictions on 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 of  January 31, 2017 and October 31, 2016, HLBE was in compliance with these financial covenants and expects to be in compliance throughout fiscal 2017.

As part of the credit facility closing, HLBE entered into an Administrative Agency Agreement with CoBank, ACP (“CoBank”).  CoBank purchased a participation interest in the AgStar loans and was appointed the administrative agent for the purpose of servicing the loans.  As a result, CoBank will act as the agent for AgStar with respect to the credit facility. HLBE agreed to pay CoBank an annual fee of $2,500 as the agent for AgStar.

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

January 31, 2017

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

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

As of January 31, 2017 and October 31, 2016, there were a total of approximately $1,605,000 and $1,615,000, respectively, in outstanding water revenue bonds. HLBE classifies its obligations under these bonds as assessments payable. The interest rates on the bonds range from 0.50% to 8.73%.

Estimated annual maturities of debt at January 31, 2017, are as follows based on the most recent debt agreements:

2018	$	462,086
2019		333,015
2020		307,467
2021		326,798
2022		325,473
Total debt	$	1,754,839

7.   LEASES

GFE leases equipment, primarily rail cars, under operating leases through December 2026. Rent expense for these leases was approximately $878,000 and $894,000 for the three months ended January 31, 2017 and 2016, respectively.

HLBE leases equipment, primarily rail cars, under operating leases through January 2027.  Rent expense for these leases was approximately $540,000 and $533,000 for the three months ended January 31, 2017 and 2016, respectively.

8.   MEMBERS' EQUITY

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 31, 2017 and October 31, 2016, GFE had 30,606 membership units authorized, issued, and outstanding.

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.

In December 2015, the Board of Governors of GFE declared a cash distribution of $315 per unit, or approximately $9,641,000, for unit holders of record as of December 17, 2015. The distribution was paid in January 2016.

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

January 31, 2017

In December 2015, the Board of Governors of HLBE declared a cash distribution of $0.05 per unit, or approximately $3,897,000, for unit holders of record as of December 17, 2015, of which approximately $2,007,000 was made to the noncontrolling interest members of HLBE. The distribution was paid in January 2016. At December 17, 2015, GFE owned 39,420,949 Class A membership units and 15,000,000 Class B units of HLBE, and received an aggregate distribution from HLBE of $1,971,000.  The remaining $1,926,000 was distributed by HLBE to the non-controlling interest.

9.   COMMITMENTS AND CONTINGENCIES

Corn Storage and Grain Handling Agreement and Purchase Commitments

GFE has a corn storage and grain handling agreement with Farmers Cooperative Elevator Company (FCE), a member. Under the agreement, GFE agrees to purchase all of the corn needed for the operation of the plant from FCE. The price of the corn purchased will be the bid price the member establishes for the plant plus a set fee per bushel. 

On February 27, 2017, GFE and FCE executed an amendment to the corn storage and grain handling agreement with an effective date of February 21, 2017. Pursuant to the terms of the amendment, the parties agreed to amend their corn storage and grain handling agreement to accelerate the termination date of the agreement to midnight August 31, 2017.  Additionally, GFE may begin posting bids for the purchase of corn beginning June 1, 2017 and thereafter, but may not accept delivery of corn at its Granite Falls, Minnesota plant until September 1, 2017.  In exchange for the early termination, GFE agreed to pay an early termination fee to FCE of approximately $255,000 on or before August 31, 2017. Prior to the amendment, the termination date of the corn storage and grain handling agreement was set to expire on November 2017.

At January 31, 2017, GFE had approximately 1,217,000 bushels of stored corn totaling approximately $3,898,000 with FCE, a related party, that is included in inventory.

At January 31, 2017, HBLE had cash and basis contracts for forward corn purchase contracts for approximately 7,740,000 bushels for delivery periods through October 2017.

Ethanol Contracts

At January 31, 2017, GFE had fixed and basis contracts to sell approximately $13,040,000 of ethanol for various delivery periods through March 2017.  

At January 31, 2017, HLBE had fixed and basis contracts to sell approximately $12,779,000 of ethanol for various delivery periods through March 2017.  

Distillers' Grain Contracts

At January 31, 2017, GFE had forward contracts to sell approximately $1,944,000 of distillers' grain for deliveries through March 2017.

At January 31, 2017, HLBE had forward contracts to sell approximately $1,255,000 of distillers' grains for delivery through March 2017.

Corn Oil

At January 31, 2017, GFE had forward contracts to sell approximately $295,000 of corn oil for delivery through February 2017.

At January 31, 2017, HLBE had forward contracts to sell approximately $304,000 of corn oil for delivery through February 2017.

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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 months ended January 31, 2017 and 2016. 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, 2016.

Disclosure Regarding Forward-Looking Statements

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

Forward-looking statements are subject to a number of known and unknown risks, uncertainties and other factors, many of which may be beyond our control, and may cause actual results, performance or achievements to differ materially from those projected in, expressed or implied by forward-looking statements. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us are described more particularly in the “Risk Factors” section of our annual report on Form 10-K for the year ended October 31, 2016 and of 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 a disincentive for discretionary blending of ethanol beyond the 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 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 the Chinese government’s imposition of increased tariffs on ethanol exported to China and anti-dumping and countervailing duties on U.S. distillers’ grains exported to China;

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

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

· Competition from alternative fuels and alternative fuel additives;

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

· Our reliance on key management personnel.

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

Available Information

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

Industry and Market Data

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

Overview

Granite Falls Energy, LLC (“Granite Falls Energy” or “GFE”) is a Minnesota limited liability company that owns and operates a dry mill cornbased, natural gas fired ethanol plant.  Additionally, through a wholly owned subsidiary, Project Viking, L.L.C. (“Project Viking”), GFE owns a majority interest of Heron Lake BioEnergy, LLC (“Heron Lake BioEnergy” or “HLBE”), a Minnesota limited liability company that also owns and operates a dry mill cornbased, natural gas fired ethanol plant. As of January 31, 2017, we control approximately 50.6% of HLBE's outstanding membership units through Project Viking.  Additionally, through a wholly owned subsidiary, HLBE Pipeline Company, LLC (“HLBE Pipeline Company”), HLBE owns a majority interest of Agrinatural Gas, LLC (“Agrinatural”), which operates a natural gas pipeline. Unless the context otherwise requires, references to “we”, “us”, “our”, and the “Company” refer to Granite Falls Energy and its wholly-owned 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 ethanol plant has an approximate annual production capacity of 60 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 60 million gallons of denatured ethanol, but is currently permitted to produce up to 72 million gallons of undenatured ethanol on a twelve month rolling sum basis.  We intend to continue working toward increasing production at both the GFE and HLBE plants to take advantage of the additional production allowed pursuant to our permits so long as we believe it is profitable to do so.

We market and sell the products produced at the GFE and HLBE 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.  We also independently market a small portion of the ethanol production at the GFE plant as E-85 to local retailers. 

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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.

Our cost of goods sold consists primarily of costs relating to the corn and natural gas supplies necessary to produce ethanol and distillers' grains for sale at our ethanol plants. Pursuant to a corn storage and grain handling agreement, Farmers Cooperative Elevator (“FCE”) is the exclusive supplier of corn to the GFE plant. However, on February 27, 2017, GFE and FCE executed an amendment to corn storage and grain handling agreement pursuant to which, the parties agreed to amend the agreement to accelerate the termination date of the agreement to midnight August 31, 2017.  Prior to the amendment, the termination date of the corn storage and grain handling agreement was set to expire on November 2017. Under the terms of the amendment, GFE may begin posting bids for the purchase of corn beginning June 1, 2017 and thereafter, but may not accept delivery of corn at its Granite Falls, Minnesota plant until September 1, 2017.  In exchange for the early termination, GFE agreed to pay an early termination fee to FCE of approximately $255,000 on or before August 31, 2017. 

HLBE generally does not have long-term, fixed price contracts for the purchase of corn. Typically, HLBE purchases its corn directly from grain elevators, farmers, and local dealers within approximately 80 miles of Heron Lake, Minnesota.

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 owns approximately 187 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 Ringneck Energy & Feed, LLC (“Ringneck”) at a price of $5,000 per unit for a total of $7,500,000.  If Ringneck accepts our subscription, our investment is sufficient to secure the Company the right to appoint one director to the board of directors of Ringneck. Details regarding our subscription for investment in Ringneck are provided below in the section below titled “Investments.”

In connection with our subscription, we entered into a credit facility with Fagen Energy, LLC (“Fagen Energy”), which allows GFE to borrow up to $7.5 million of variable-rate, amortizing non-recourse debt using the Ringneck investment as collateral. Details of the Fagen Energy credit facility are provided below in the section below entitled “Indebtedness - Granite Falls Energy - Credit Facility with Fagen Energy”.

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Reportable Operating Segments

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

Additionally, we also realize relatively immaterial revenue from natural gas pipeline operations at Agrinatural, HLBE's majority owned subsidiary.  The intercompany transactions between HLBE and Agrinatural resulting from the 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 ethanol plant. 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. We anticipate using cash we generate from our operations and our revolving term loan to finance these plant upgrade projects.

Trends and Uncertainties Impacting Our Operations

The principal factors affecting our results of operations and financial conditions are the market prices for corn, ethanol, distillers’ grains and natural gas, as well as governmental programs designed to create incentives for the use of corn-based ethanol.  Other factors that may affect our future results of operation include those risks discussed below and in “PART II - Item 1A. Risk Factors” of this report and “PART I - Item 1. Business” and “PART I - Item 1A. Risk Factors” of our annual report on Form 10-K for the fiscal year ended October 31, 2016.

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.

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

The Renewable Fuels Standard

The RFS has been, and we expect will continue to be, a significant factor impacting ethanol usage. Under the provisions of the RFS, the Environmental Protection Agency (“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. The EPA assigns individual refiners, blenders and importers the renewable volume obligations (“RVOs”) they are obligated to use based on their percentage of total fuel sales. The EPA has the authority to waive the RVO requirements, in whole or in part, if there is inadequate domestic renewable fuel supply or the requirement severely harms the economy or the environment.

On November 23, 2016, the EPA announced the final rule for 2017 RVOs, which is set at 15.0 billion gallons for corn-based ethanol. This rule is set at 100% of the original statutory requirement for conventional ethanol, and is considered a favorable outcome by the industry.

In January 2017, the Trump administration imposed a government-wide freeze on new and pending regulations, which included the 2017 RVOs that were originally intended to go into effect on February 10, 2017. Industry organizations such as the Renewable Fuels Association and Growth Energy believe this action is simply procedural with a new administration, and do not expect it to result in any substantive changes to the rule itself. However, to the extent federal laws or regulations are modified, the demand for ethanol may be reduced, which could negatively and materially affect our ability to operate profitably.

Obligated parties use RINs to show compliance with RFS-mandated volumes. 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 2016, the EPA also proposed denying a petition to change the point of obligation under the RFS to the parties that own the gasoline before it is sold. In December 2016, the EPA extended the comment period to February 22, 2017. Comments submitted are now under review by the EPA.

The point of obligation does not directly impact ethanol producers; however, moving the point of obligation could indirectly affect ethanol producers. On February 28, 2017, the RFA reported that the Trump administration was reportedly considering an executive order to direct the EPA to move the point of obligation. On March 1, 2017, the Trump Administration announced that an executive order to change the point of obligation under the RFS was not imminent.  However, the chaotic nature of the news on shifting the point of obligation and the White House response resulted in significant short-term fluctuations in the corn, ethanol and RIN markets.

Current ethanol production capacity exceeds the EPA’s 2017 RVO mandates which can be satisfied by corn based ethanol. Future demand will be influenced by economic incentives to blend based on the relative value of gasoline versus ethanol, taking into consideration the octane value of ethanol, environmental requirements and the RFS RVO requirements. A significant increase in supply beyond the RFS RVO mandates could have an adverse impact on ethanol prices. Moreover, beyond the federal mandates, there are limited markets for ethanol. Further, opponents of ethanol such as large oil companies will likely continue their efforts to repeal or reduce the RFS through lawsuits or lobbying of Congress. If such efforts are successful in further reducing or repealing the blending requirements of the RFS, a significant decrease in ethanol demand may result and could have a material adverse effect on our results of operations, cash flows and financial condition, unless additional demand from exports or discretionary blending develops.

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Results of Operations for the Three Months Ended January 31, 2017 and 2016 

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 31, 2017 and 2016 (amounts in thousands).  

	Three Months Ended  January 31,
	2017				2016
	(unaudited)				(unaudited)
Income Statement Data	Amount		%		Amount		%
Revenue	$	54,576	100.0	%	$	51,002	100.0	%
Cost of Goods Sold		47,731	87.5	%		49,569	97.2	%
Gross Profit		6,845	12.5	%		1,433	2.8	%
Operating Expenses		1,607	2.9	%		1,401	2.7	%
Operating Income		5,238	9.6	%		32	0.1	%
Other Income (Expense), net		351	0.6	%		(5)	(0.0)	%
Net Income		5,589	10.2	%		27	0.1	%
Less: Net Income Attributable to Non-controlling Interest		(1,429)	(2.6)	%		(15)	(0.0)	%
Net Income Attributable to Granite Falls Energy, LLC	$	4,160	7.6	%	$	12	0.1	%

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 98.9% of our total revenues for the three months ended January 31, 2017 and 2016.  The remaining approximately 1.1% attributable to miscellaneous other revenue for the three months ended January 31, 2017 and 2016 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 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	%

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 31, 2016:

	Three Months Ended  January 31, 2016
	Sales Revenue		% of Total Revenues
Revenue Sources	(in thousands)
Ethanol sales	$	40,118	78.7	%
Distillers' grains sales		8,531	16.7	%
Corn oil sales		1,815	3.5	%
Miscellaneous other		538	1.1	%
Total Revenues	$	51,002	100.0	%

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Our total consolidated revenues increased by approximately 7.0% for the three months ended January 31, 2017, as compared to the three months ended January 31, 2016 due primarily to increases 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 three months ended January 31, 2017 and 2016: 

	Three Months Ended  January 31, 2017			Three Months Ended  January 31, 2016
	Quantity Sold	Avg. Net Price		Quantity Sold	Avg. Net Price
Product	(in thousands)			(in thousands)
Ethanol (gallons)	30,828	$	1.42	30,573	$	1.31
Distillers' grains (tons)	80	$	95.89	77	$	110.19
Corn oil (pounds)	8,889	$	0.27	8,110	$	0.22

Ethanol

Total revenues from sales of ethanol increased by approximately 9.5% for the three months ended January 31, 2017 compared to the three months ended January 31, 2016 due to an increase of approximately 8.6% in the average price per gallon we received for our ethanol, coupled with an slight increase of approximately 0.8% in the volumes sold. This increase in the number of gallons sold during the 2017 period is attributable to an approximately 5.7% increase in the number of gallons sold at the GFE plant during the three months ended January 31, 2017 as compared to the three months ended January 31, 2016the timing of ethanol shipments and an increase in ethanol production at the GFE plant. This increase was mitigated by a 3.7% decrease in the number of gallons of ethanol sold at the HLBE plant during the three months ended January 31, 2017 as compared to the three months ended January 31, 2016. We are currently operating our plants above their nameplate capacities. Management anticipates relatively stable ethanol production and sales during our 2017 fiscal year.

The increase in average market price for the three months ended January 31, 2017 as compared to the same period of 2016 is due to several factors. Strong domestic demand and export demand, as well as higher market prices for crude oil and gasoline, put upward pressure on ethanol prices. In comparison, for the three months ended January 31, 2016, lower crude oil and gasoline prices and the reduction of the volume obligations set forth in the RFS by the EPA in November 2015 had a negative effect on ethanol prices.

Ethanol exports have provided support for ethanol prices, especially as domestic ethanol stocks have grown. A decrease in U.S. ethanol exports could contribute to higher ethanol stocks and additional decrease in domestic ethanol prices unless additional domestic demand due to discretionary blending develop. In January 2017, China increased its tariff on ethanol imported from the U.S to 30% as of January 1, 2017, up from a 5% tariff in 2016. U.S. exports of ethanol to China were at a historical high in 2016, as China was one of the top buyers of U.S. ethanol. Management cannot estimate the effect this tariff will have on the domestic ethanol market. While ethanol exports to China continue, if ethanol prices increase, these exports to China may cease. Further, ethanol exports could potentially be higher without the higher Chinese tariff. However, it is possible that declines in domestic ethanol prices could result if export demand for U.S. ethanol by China decreases due to the higher tariff unless additional demand from domestic discretionary blending or other foreign markets develop.

Management anticipates that ethanol prices will continue to change in relation to changes in corn and energy prices. Declines in the price of corn or crude oil and wholesale gasoline markets could have a significant negative impact on the market price of ethanol and our profitability particularly if domestic ethanol stocks continue to build. The ethanol industry is currently experiencing growth in production capacity, predominantly through plant optimization and expansions versus new construction projects, which may result in oversupply that could negatively affecting prices unless additional domestic or export demand can be created.

From time to time, we engage in hedging activities with respect to our ethanol sales. At  January 31, 2017, we had approximately 2.5 million gallons of fixed and basis contracts for forward ethanol sales, comprised of approximately 1.3 million gallons of positions held by each of GFE and HLBE, for delivery periods through March 2017 .

Separately, ethanol derivative instruments resulted in gains of approximately $417,000 and $78,000 during the three months ended January 31, 2017 and 2016, respectively. 

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Distillers' Grains

Total revenues from sales of distillers’ grains decreased by approximately 10.4% for the three months ended January 31, 2017 compared to the three months ended January 31, 2016, due to an approximately 13.0% decline in the average price per ton we received for our distillers’ grains, which was offset by an approximately 3.0% increase in the volumes sold from period to period. The increase in total tons of distillers’ grains sold during the three months ended January 31, 2017 compared to the same period of 2016 was due to an increase in the amount of wet distillers’ grains produced and sold at the HLBE plant and increase in the amount of dried distillers’ grains produced and sold at the GFE plant.  Management anticipates relatively stable distillers’ grains production going forward.

Management believes the decline in the selling price results primarily from weaker imports of domestic dried distillers’ grains by China, a significant buyer of domestic distillers’ grains, as well as the increased grain supplies for corn and soybeans, resulting in lower market grain prices during the three months ended January 31, 2017. The Chinese government commenced an anti-dumping investigation in January 2016 into distillers’ grains produced in the U.S. culminating in the imposition by China of anti-dumping and anti-subsidy duties on U.S. imports which has had a negative effect on export demand from China. Last fall, China issued a preliminary ruling imposing immediate anti-dumping and anti-subsidy duties on distillers grains that are produced in the United States. On January 10, 2017, China then announced a final ruling increasing anti-dumping and anti-subsidy duties, which were significantly higher than the anti-dumping duties and anti-subsidy tariffs imposed in its preliminary ruling. The imposition of these duties are expected to result in a further decline in demand from this top importer and distillers’ grains prices could remain low unless additional demand can be created from other foreign markets or domestically.

At January 31, 2017, GFE had forward distillers’ grains sales contracts valued at $1.9 million at for various delivery periods through March 2017 and HLBE had forward distillers’ grains sales contracts valued at $1.3 million at for various delivery periods through March 2017.

Corn Oil

Total revenues from sales of corn oil increased by approximately 33.3% for the three months ended January 31, 2017 compared to the three months ended January 31, 2016 due to an approximately 9.6% increase in pounds sold, which coupled with an approximately 21.6% higher average price per pound received for our corn oil from period to period.

The increase in pounds sold from period to period was attributable to an approximately 31.9%  increase in the volume sold at the GFE plant for the three months ended January 31, 2017 compared to the same period of 2016, offset by a 7.0% decrease in the volume sold at the HLBE plant.  The decrease in pounds sold at the HLBE plant was due primarily to due reduced ethanol production at the HLBE plant and decreased oil extraction rates per bushel of corn from period to period. The increase in pounds sold at the GFE plant was due primarily to due increased ethanol production and improved oil extraction rates per bushel of corn from period to period.  Management anticipates that the corn oil production our ethanol plants will be relatively stable going forward.

Management attributes the increase in the corn oil prices we experienced in the three months ended January 31, 2017 due to increased demand from the biodiesel industry in November and December 2016, as well as increased demand from the corn oil feed market throughout period. Management anticipates that corn oil demand due to biodiesel production will decrease as the biodiesel blenders' tax credit expired on December 31, 2016.

Management expects corn oil prices will remain relatively steady in the near term. However, corn oil prices may also decrease if biodiesel plants switch to lower priced alternatives such as soybean oil. 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. Management expects our corn oil production will be relatively stable going forward.

At January 31, 2017, GFE and HLBE had forward corn oil sales contracts valued at $295,000 and $304,000, respectively, at for various delivery periods through February 2017.

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Cost of Goods Sold

Our cost of goods sold decreased by approximately 3.7% for the three months ended January 31, 2017, as compared to the three months ended January 31, 2016. As a percentage of revenues, our cost of goods sold also decreased to approximately 87.5% for the three months ended January 31, 2017, as compared to approximately 97.2% for the same period in 2016 due to the expansion of the margin between the price of ethanol and the price of corn. The cost of goods sold per gallon of ethanol sold for the three months ended January 31, 2017 was approximately $1.39 per gallon of ethanol sold compared to approximately $1.46 per gallon of ethanol produced for the three months ended January 31, 2016.

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 31, 2017:

	Three Months Ended  January 31, 2017
	Cost		% of Cost of Goods Sold
	(in thousands)
Corn costs	$	35,816	75.0	%
Natural gas costs		3,433	7.2	%
All other components of costs of goods sold		8,482	17.8	%
Total Cost of Goods Sold	$	47,731	100.0	%

The following table shows the costs of corn, natural gas and all other components of cost of goods sold and the approximate percentage of costs of those components to total costs of goods sold in our unaudited condensed consolidated statements of operations for the three months ended January 31, 2016:

	Three Months Ended  January 31, 2016
	Cost		% of Cost of Goods Sold
	(in thousands)
Corn costs	$	38,978	78.6	%
Natural gas costs		2,647	5.3	%
All other components of costs of goods sold		7,944	16.1	%
Total Cost of Goods Sold	$	49,569	100.0	%

Corn

Our aggregate cost of corn was approximately 8.1%  less for the three months ended January 31, 2017 compared to the same period of 2016,  due to an approximately 7.9% decrease in the average price per bushel paid for corn coupled with a slight decrease of 0.2% in the number of bushels of corn processed from period to period.  The corn-ethanol price spread (the difference between the price per gallon of ethanol and the price per bushel of grain divided by 2.8) for the three months ended January 31, 2017 was approximately $0.14 greater than the corn-ethanol price spread we experienced for same period of 2016.

The decrease in corn prices was primarily due to lower market prices as a result of the strong 2016 harvest and the expected 2016 carryout. Corn supplies have been sufficient locally and we have had no difficulty sourcing corn during our first fiscal quarter. Management anticipates that corn supplies will remain favorable during our 2017 fiscal year which should result in relatively stable corn prices. However, lower corn prices could impact the amount of corn which is planted during 2017 which could result in higher corn prices as our 2017 fiscal year progresses. Additionally, corn prices and availability may be volatile in the future due to weather conditions, domestic and world supply and demand, current and anticipated stocks, agricultural policy and 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.

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From time to time we enter into forward purchase contracts for our commodity purchases and sales. At January 31, 2017,  GFE had approximately 1.2 million bushels of stored corn with FCE totaling approximately $3.9 million. At January 31, 2017, HLBE had approximately 7.7 million bushels of cash and basis contracts for forward corn purchase commitments for delivery periods through October 2017.  

Our corn derivative positions resulted in a loss of approximately $33,000 for the three months ended January 31, 2017, which increased cost of goods sold, compared to gains of approximately $196,000 related to corn derivative instruments for the same period of 2016. 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

Our cost of goods sold related to natural gas costs increased approximately 29.7% for the three months ended January 31, 2017, as compared to the three months ended January 31, 2016.  This increase in cost of natural gas for the three months ended January 31, 2017 as compared to the same period in 2016 was primarily the result of an increase in the average price per MMBTU of natural gas due to increased demand and lower production which have used up natural gas stocks that built up in 2015.

Management anticipates that natural gas prices may increase in the future if natural gas procedures continue to decrease production or shut down wells.  Natural gas prices will continue to be dependent upon major supply disruptions due to production problems or catastrophic weather events.

We had no gain or loss on natural gas derivative instruments during the three months ended January 31, 2017 for the three months ended January 31, 2016.

Operating Expenses

Operating expenses include wages, salaries and benefits of administrative employees at the plant, insurance, professional fees and similar costs. Our operating expenses increased by 14.7% for the three months ended January 31, 2017 compared to the same period ended 2016.  This increase was primarily due to an increase in our property taxes which was a result of the expiration of the State of Minnesota’s JOBZ program, which expired on December 31, 2015. Under the JOBZ program, our plants were exempt from property tax. 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 remainder of the 2017 fiscal year.

Operating Income

We had income from operations of approximately $5.2 million for the three months ended January 31, 2017, compared to income from operations of approximately $32,000 for the three months ended January 31, 2016. This increase in our operating income is primarily due to the widening of our operating margins due to higher average prices received for our ethanol and corn oil at our plants.

Other Income (Expense), Net

Our net other income for the three months ended January 31, 2017 was approximately $351,000, compared to a net other expense of approximately $5,000 for the three months ended January 31, 2016.  We had more net other income for the three months ended January 31, 2017 compared to net interest expense for the same period of 2016 due to patronage income and decreased interest expense because we had less borrowings under our credit facilities during the 2017 period.

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Investments

On November 1, 2016, we subscribed to purchase 1,500 capital units of Ringneck at a price of $5,000 per unit for a total of $7,500,000.  We paid a down payment of $750,000 in connection with our subscription, and signed a promissory note for $6,750,000 for the remaining balance of the subscription. If Ringneck accepts our subscription, we will be required to pay Ringneck the entire amount due under the promissory note within 20 days of receiving notice from Ringneck that it is due. If we fail to pay the entire amount due, we will be charged 12% interest per year, and Ringneck may seek legal action to force us to pay. If Ringneck does not meet certain conditions of its offering or rejects our subscription, we expect that our promissory note will be cancelled and our down payment will be refunded to us.

Ringneck is a South Dakota limited liability company that intends to build an 80 million gallon per year ethanol manufacturing plant in outside of Onida, South Dakota in Sully County. If Ringneck accepts our subscription, our investment is sufficient to secure the Company the right to appoint one director to the board of directors of Ringneck. The units we expect to acquire in Ringneck will be subject to restrictions on transfer, therefore, this should not be considered a liquid investment.  If our subscription is accepted, 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.

Ringneck is offering the sale of its units pursuant to a private placement memorandum. Additionally, because Ringneck is not conducting a federally-registered offering, we do not expect that information about Ringneck will be available via the SEC’s EDGAR filing system. Therefore, it may be difficult for our investors to obtain information about Ringneck.

In connection with our subscription, GFE entered into a credit facility with Fagen Energy, which allows GFE to borrow up to $7.5 million of variable-rate, amortizing non-recourse debt using the Ringneck investment as collateral. Details of the Fagen Energy credit facility are provided below in the section below entitled “Indebtedness - Granite Falls Energy - Credit Facility with Fagen Energy”.

Changes in Financial Condition at January 31, 2017 and October 31, 2016

The following table highlights our financial condition at January 31, 2017 and October 31, 2016 (amounts in thousands):

	January 31, 2017		October 31, 2016
	(unaudited)
Current Assets	$	27,447	$	40,349
Total Assets	$	107,387	$	121,470
Current Liabilities	$	5,937	$	14,337
Long-Term Debt, less currrent portion	$	1,293	$	1,394
Members' Equity attributable to Granite Falls Energy, LLC	$	76,673	$	83,685
Non-controlling Interest	$	23,485	$	22,056

Total assets were approximately $107.4 million at January 31, 2017, an approximately 11.6% decrease from our total assets at October 31, 2016. The decrease in our total assets is primarily due to an approximately $12.9 million decrease in total current assets at January 31, 2017 compared to October 31, 2016. The change in our current assets is due to decreases of approximately $10.6 million in cash on hand, $2.3 million in accounts receivable, and $336,000 decrease in the value of our commodity derivative instruments the three months ended January 31, 2017. Our cash on hand at January 31, 2017 was less than cash on hand at October 31, 2016, due primarily to payment of distributions to members in January 2017. Our trade accounts receivable decreased primarily due to the timing of shipments. Also contributing to the decrease in total assets was a decrease of approximately $1.9 million in net property and equipment due to depreciation expense during the three months ended January 31, 2017, offset by capital expenditures.

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Current liabilities decreased by approximately $8.4 million at January 31, 2017 compared to October 31, 2016.  This decrease was mainly due to decreases of approximately $5.3 million in corn payable to FCE, approximately $2.1 million in accounts payable, and approximately  $1.2 million in checks drawn in excess of bank balance at January 31, 2017compared to October 31, 2016. The decrease in our corn payable to FCE and accounts payable is due to the timing of payments to vendors and lower corn prices during the three months ended January 31, 2017 which reduced the amount of corn payable at January 31, 2017.  Our outstanding checks drawn in excess of our bank balance represents any checks that HLBE has issued which have not yet been cashed which exceed the cash HLBE has in its bank account. Checks that HLBE issues are paid from its revolving term loans and any cash that it generates is used to pay down outstanding balances on its line of credit with AgStar.  

Our long-term debt decreased approximately $101,000 at January 31, 2017 compared to October 31, 2016. The decrease is mostly due to payments on the note payable to the minority owner of Agrinatural, as well as payments on the note payable to the electric company and assessments paid under industrial water supply treatment agreement with the City of Heron Lake and Jackson County.

Members’ equity attributable to Granite Falls Energy, LLC at January 31, 2017 compared to October 31, 2016 decreased by $7.0 million. The approximately 8.4% decrease was related to the distribution to our members of approximately $11.2 million during January 2017, offset by our approximately $4.2 million of net income attributable to GFE during the three months ended January 31, 2017. 

Noncontrolling interest totaled approximately $23.5 million and $22.1 million at January 31, 2017 and October 31, 2016, respectively.  This is directly related to recognition of the 49.4% 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. Our principal uses of cash are to pay operating expenses of the plants, to make debt service payments on long-term debt, and to make distribution payments to our members.  We expect to have sufficient cash generated by continuing operations and current lines of credit to fund our operations for the next twelve months.

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. However, 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 credit facilities.

Cash Flows

The following table shows our cash flows for the three months ended January 31, 2017 and 2016 (amounts in thousands): 

	2017		2016
	(unaudited)		(unaudited)
Net cash provided by operating activities	$	3,014	$	3,405
Net cash used in investing activities	$	(1,091)	$	(2,295)
Net cash used in financing activities	$	(12,530)	$	(7,250)
Net decrease in cash	$	(10,607)	$	(6,140)

Operating Cash Flows

Our cash flows from operations were approximately $391,000 less for the three months ended January 31, 2017 compared to the three months ended January 31, 2016. This was due to an approximately $5.9 million net increase in the amount of cash used for various working capital items, offset by an increase of approximately $5.6 million in net income for the three months ended January 31, 2017.

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Investing Cash Flows

Cash used in investing activities was approximately $1.2 million less for the three months ended January 31, 2017, compared to the three months ended January 31, 2016. This decrease was due primarily to reduced payments of approximately $1.9 million for capital expenditures for the three months ended January 31, 2017.  This decrease was partially offset by $750,000 of cash used by GFE during the three months ended January 31, 2017 for the initial payment on our subscription for its Ringneck investment. Comparatively, during the three months ended January 31, 2016, we used cash at the GFE plant for our grain bin storage expansion and at HLBE plant for our RTO replacement project.        

Financing Cash Flows

Cash used in financing activities was approximately $5.3 million more for the three months ended January 31, 2017 compared to the same period of 2016. For the three months ended January 31, 2017, we made payments of approximately $11.2 million in distributions to our unit holders, approximately $1.2 million reduction in checks drawn in excess of bank balance, and made principal payments of approximately $129,000 on HLBE’s long-term debt.  In comparison, for the same period in 2016,  we made payments of approximately $9.6 million in distributions to our unit holders and approximately $2.0 million to non-controlling interests. This was offset by approximately $3.5 million provided by checks drawn in excess of bank balance, and approximately $9.9 million on HLBE’s long-term debt, and $347,000 checks drawn in excess of bank balance and approximately $892,000 in net proceeds from HLBE’s long-term debt. 

Indebtedness

GFE’s United FCS Credit Facility

GFE has a credit facility with United FCS consisting of a long-term revolving term loan. The credit facility with United FCS is secured by substantially all of GFE’s assets. There are no savings account balance collateral requirements as part of this credit facility.  CoBank serves as administrative agent for this credit facility.

Under GFE’s long-term revolving term loan, GFE could initially borrow, repay, and re-borrow up to $18.0 million. However, the aggregate principal commitment available for borrowing under this facility reduces by $2.0 million semi-annually, beginning September 1, 2014, with the final payment due on March 1, 2018.  There was no outstanding balance on the revolving term loan at January 31, 2017. Therefore, the aggregate principal amount available for borrowing under this revolving term loan facility at January 31, 2017 and October 31, 2016 was $10.0 million.  The amount available for borrowing under this facility was further reduced at March 1, 2017 to $8.0 million.

The interest rate is based on the bank's One Month London Interbank Offered Rate (“LIBOR”) Index Rate, plus 3.05%, which equated to 3.83% and 3.25% at January 31, 2017 and October 31, 2016, respectively.

GFE’s credit facility with United FCS 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 must maintain working capital of at least $10.0 million. Working capital is calculated as GFE’s current assets plus the amount available under GFE’s long-term revolving term loan, less GFE’s current liabilities.

· GFE must maintain local net worth of at least $34.0 million.  Local net worth is defined as total assets, minus total liabilities, minus investments by GFE in other entities.

· 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 United FCS 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 United FCS. 

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As of January 31, 2017, GFE was in compliance with these financial covenants. Management’s current financial projections indicate that GFE will be in compliance with its financial covenants for the next 12 months and we expect to remain in compliance thereafter. 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 United FCS, and United FCS refuses to waive the non-compliance, United FCS could terminate the credit facility and any commitment to loan funds to GFE.

GFE’s Other Credit Arrangement

In connection with GFE’s subscription for investment in Ringneck, GFE entered into a credit facility with Fagen Energy which allows GFE to borrow up to $7.5 million of variable-rate, amortizing, non-recourse debt from Fagen Energy using the Ringneck investment as collateral. Fagen Energy is an affiliate of Fagen, Inc., the design-builder for the our plants and a member of GFE. The Fagen Energy loan bears interest from 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 Fagen Energy 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 November 1, 2025. 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 and commercial security agreement entered into in connection with the Fagen Energy 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 Fagen Energy will be to foreclose and seize all of GFE’s right, title and interest in its investment in Ringneck. GFE expects to use the proceeds of the loan to finance its balance of its investment in Ringneck.  At of January 31, 2017 and October 31, 2016, there were no amounts outstanding under this credit facility.

HLBE’s AgStar Credit Facility

HLBE has a comprehensive credit credit facility with AgStar Financial Services, FCLA (“AgStar”) which consists of a revolving term loan with a maturity date of March 1, 2022.  As part of the credit facility closing, HLBE entered into an administrative agency agreement with CoBank, ACP (“CoBank”). CoBank purchased a participation interest in the AgStar loans and was appointed the administrative agent for the purpose of servicing the loans.  As a result, CoBank acts as the agent for AgStar with respect to the credit facility. 

Under the AgStar revolving term note, HLBE may borrow, repay, and re-borrow up to the aggregate principal commitment. The revolving term loan principal commitment, initially $28.0 million, declines by $3.5 million on March 1 each year until maturity. There was no outstanding balance on the revolving term loan at January 31, 2017 or October 31, 2016. Therefore, the aggregate principal commitment under this facility at January 31, 2017 and October 31, 2016 was $21.0 million.  The amount available for borrowing under this facility was further reduced at March 1, 2017 to $17.5 million.

Interest on the revolving term loan accrues at a variable rate equal to 3.25% above the One-Month LIBOR Index rate, which was 4.03% and 3.45% at January 31, 2017 and October 31, 2016, 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 secured by substantially all of HLBE's assets including a subsidiary guarantee.

29

HLBE's credit facility with AgStar is subject to numerous 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, including the following:

· HLBE may not make loans or advances to Agrinatural, HLBE’s subsidiary, which exceed an aggregate principal amount of approximately $3.1 million without the consent of AgStar. 

· HLBE must maintain working capital of at least $8.0 million. Working capital is calculated as HLBE’s unconsolidated current assets plus the amount available under HLBE’s revolving term loan, less HLBE’s unconsolidated current liabilities.

· HLBE must maintain net worth of at least $32.0 million. Local net worth is defined as HLBE’s unconsolidated total assets, minus unconsolidated total liabilities plus the approximately $3.9 million of HLBE subordinated convertible debt converted into units on July 1, 2014.

· HLBE must maintain a debt service coverage ratio of at least 1.5 to 1.0.  The debt service coverage ratio is, calculated on an unconsolidated basis, HLBE’s net income (after taxes), plus depreciation and amortization, minus non-cash dividends/income received, minus extraordinary gains (plus losses), minus gain (plus loss) on asset sales and divided by $4.0 million.

· HLBE may make member distributions of up to 65% of HLBE’s net income without the consent of AgStar provided HLBE remains in compliance with its loan covenants following the distribution. Any member distributions in excess of 65% of HLBE’s net income must be pre-approved by AgStar.

As of January 31, 2017 and October 31, 2016, HLBE was in compliance with these loan covenants. Management’s current financial projections indicate that HLBE will be in compliance with its financial covenants for the next 12 months and we expect to remain in compliance thereafter. 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 AgStar credit facility. If HLBE fails to comply with the terms of its credit agreement with AgStar, and AgStar refuses to waive the non-compliance, AgStar 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 AgStar, HLBE has other material credit arrangements and debt obligations.

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

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

There was a total of approximately $1.6 million in outstanding water revenue bonds at January 31, 2017 and October 31, 2016. HLBE classifies its obligations under these bonds as assessments payable. The interest rates on the bonds range from 0.50% to 8.73%.

To fund the purchase of the distribution system and substation for the plant, HLBE entered into a loan agreement with Federated Rural Electric Association pursuant to which HLBE borrowed $600,000 by a secured promissory note. Under the note HLBE is required to make monthly payments to Federated Rural Electric Association of $6,250 consisting of principal and an annual fee of 1% beginning on October 10, 2009. In exchange for this loan, Federated Rural Electric Association was granted a security interest in the distribution system and substation for the plant. The balance of this loan was approximately $50,000 and $69,000 at January 31, 2017 and October 31, 2016, respectively.

30

HLBE also has a note payable to the noncontrolling owner of Agrinatural in the amount of in the amount of $100,000 and $200,000 at January 31, 2017 and October 31, 2016, respectively. Interest on the note is the One-Month LIBOR rate plus 4.0% and the note is due on demand. 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, 2017 and October 31, 2016, respectively.

Agrinatural Credit Facilities

On July 29, 2014, HLBE has entered into an intercompany loan agreement, promissory note and related loan documents with Agrinatural, its majority owned subsidiary (collectively, 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 of this type and size.

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 is due and payable on a monthly basis.

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 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. 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 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, Rural Energy Solutions, LLC, the noncontrolling 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 $2.3 million at January 31, 2017 and $2.4 million at October 31, 2016.

On 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 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, 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.

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 of the capital expenditures allowed by Agrinatural during the term of the facilty.  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.

31

As provided in the amendment, for calendar years 2017, 2018 and 2019, 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.

The balance of this loan was approximately $2.9 million at January 31, 2017 and $2.9 million at October 31, 2016.

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 31, 2017, our critical accounting estimates continue to include those described in our annual report on Form 10-K for the fiscal year ended October 31, 2016. 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 United FCS, HLBE's credit facilities with AgStar 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.”

As of January 31, 2017, GFE had no exposure to interest rate risk as we had no amounts outstanding on our credit facility with United FCS.  As of January 31, 2017, HLBE’s exposure to interest rate risk results primarily from its its note payable to the noncontrolling owner of Agrinatural, as HLBE had no exposure to interest rate risk under its credit facility with AgStar as it had no amounts outstanding under this credit facility.  Below is a sensitivity analysis we prepared regarding HLBE's income exposure to changes in interest rates.

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

Outstanding Variable
Rate Debt at		Interest Rate at		Interest Rate Following 10%		Approximate Adverse
January 31, 2017		January 31, 2017		Adverse Change		Change to Income
$	100,000	4.78	%	5.26	%	$	500

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 31, 2017, GFE had price protection in place for approximately 2% of its anticipated corn needs and approximately 8% of its ethanol sales for the next 12 months. As of January 31, 2017, HBLE had price protection in place for approximately 23% of its anticipated corn needs and approximately 6% of its ethanol sales 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 31, 2017, 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 31, 2017.  

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

	Estimated Volume Requirements		Hypothetical Adverse Change in
	for the next 12 months		Price as of		Approximate Adverse Change to
	(net of forward and futures contracts)	Unit of Measure	January 31, 2017		Income
Ethanol	116,500,000	Gallons	10	%	$	15,500,000
Corn	37,800,000	Bushels	10	%	$	11,900,000
Natural Gas	3,200,000	MMBTU	10	%	$	1,300,000

Participation in Captive Reinsurance Company

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

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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.

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 31, 2017. Based upon this review and evaluation, these officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission; and to ensure that the information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

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

PART II. OTHER INFORMATION

Item 1.   Legal Proceedings

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

Item 1A.   Risk Factors

The risk factors below should be read in conjunction with the risk factors disclosed in Item 1A of our Form 10‑K for the fiscal year ended October 31, 2016. 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

Tariffs imposed on ethanol exports to China have recently been increased by the Chinese government and could negatively affect the demand and pricing for ethanol.

In Janaury 2017, the Chinese government increased the ethanol tariff for U.S. ethanol imports into China to 30%. Previoulsy, the Chinese tariff on U.S. ethanol imported to China was was 5%.  Exports of U.S. ethanol to China were at a historical high in 2016, as China was one of the top buyers of U.S. ethanol.  We cannot estimate the exact effect this tariff will have exports to China or on the overall domestic ethanol market. 

34

It is possible the higher tariff could reduce ethanol prices in the domestic market by decreasing Chinese import demand for U.S. ethanol. Additionally, if ethanol prices increase, exports to China may cease as a result of the increased tariff. Further, ethanol exports could potentially be higher without the increased Chinese tariff. In addition, if other importers of U.S. ethanol reduce their imports, it could negatively impact ethanol prices in the U.S. and could result in an imbalance between ethanol supply and ethanol demand. Any decrease in ethanol prices or demand may negatively impact our ability to profitably operate the ethanol plant.

Government mandates policies affecting ethanol usage could change and impact the ethanol market.

Under the provisions of the RFS, the EPA must publish an annual rule that establishes the number of gallons of different types of renewable fuels, including corn-based ethanol, that must be blended with gasoline in the U.S. by refineries, blenders, distributors and importers, which affects the domestic market for ethanol. The EPA assigns individual refiners, blenders and importers the renewable volume obligations (“RVOs”) they are obligated to use based on their percentage of total fuel sales. The EPA has the authority to waive the RVO requirements, in whole or in part, if there is inadequate domestic renewable fuel supply or the requirement severely harms the economy or the environment.

On November 23, 2016, the EPA announced the final rule for 2017 RVOs, which is set at 15.0 billion gallons for corn-based ethanol.  This rule is set at 100% of the original conventional ethanol RFS requirement of 15.0 billion gallons, and is considered a favorable outcome by the industry.

Obligated parties use RINs to show compliance with RFS-mandated volumes. 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 2016, the EPA also proposed denying a petition to change the point of obligation under the RFS to the parties that own the gasoline before it is sold. In December 2016, the EPA extended the comment period to February 2017.

The point of obligation does not directly impact ethanol producers; however, moving the point of obligation could indirectly affect ethanol producers. On February 28, 2017, the RFA reported that the Trump administration was reportedly considering an executive order to direct the EPA to move the point of obligation. On March 1, 2017, the Trump Administration announced that an executive order to change the point of obligation under the RFS was not imminent.  However, the chaotic nature of the news on shifting the point of obligation and the White House response resulted in significant short-term fluctuations in the corn, ethanol and RIN markets.

In January 2017, the Trump administration imposed a government-wide freeze on new and pending regulations, which included the 2017 RVOs that were originally intended to go into effect on February 10, 2017. Industry organizations such as the Renewable Fuels Association and Growth Energy believe this action is simply procedural with a new administration, and do not expect it to result in any substantive changes to the rule itself.  However, to the extent federal laws or regulations are modified, the demand for ethanol may be reduced, which could negatively and materially affect our ability to operate profitably.

Future demand will be influenced by economic incentives to blend based on the relative value of gasoline versus ethanol, taking into consideration the octane value of ethanol, environmental requirements and the RFS RVO requirements. A significant increase in supply beyond the RFS RVO mandates could have an adverse impact on ethanol prices. Moreover, changes to the RFS which could significantly affect the market price of RINs could in turn negatively impact the price of ethanol or cause imported sugarcane ethanol to become more economical than domestic ethanol.

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

None.

Item 3.   Defaults Upon Senior Securities

None.

35

Item 4.Mine Safety Disclosures

None.

Item 5.Other Information

None.

Item 6.   Exhibits.

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

Exhibit No.	Exhibit
31.1	Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a)*
31.2	Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a)*
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350*
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350*
101	The following financial information from Granite Falls Ethanol, LLC's Quarterly Report on Form 10-Q for the three months ended January 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at January 31, 2017 and October 31, 2016; (ii) the Condensed Consolidated Statements of Operations for the three months ended January 31, 2017 and 2016; (iii) the Condensed Consolidated Statements of Cash Flows for the three months ended January 31, 2017 and 2016; and (iv) Notes to Condensed Consolidated Unaudited Financial Statements.*

*   Filed herewith.

36

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  17,  2017	/s/ Steve Christensen
	Steve Christensen
	Chief Executive Officer
	/s/ Stacie Schuler
Date:   March  17, 2017	Stacie Schuler
	Chief Financial Officer

37

EX-31.1

EXHIBIT 31.1

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

(SECTION 302 CERTIFICATION)

I, Steve Christensen, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Granite Falls Energy, LLC;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report;

4.The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

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

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

Date:	March 17, 2017	/s/ Steve Christensen
		Steve Christensen, Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

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

(SECTION 302 CERTIFICATION)

I, Stacie Schuler, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Granite Falls Energy, LLC;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report;

4.The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

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

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

Date:	March 17, 2017	/s/ Stacie Schuler
		Stacie Schuler, Chief Financial Officer
		(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of Granite Falls Energy, LLC (the “Company”) for the quarter ended January 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steve Christensen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	March 17, 2017	/s/ Steve Christensen
		Steve Christensen, Chief Executive Officer
		(Principal Executive Officer)

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of Granite Falls Energy, LLC (the “Company”) for the quarter ended January 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stacie Schuler, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	March 17, 2017	/s/ Stacie Schuler
		Stacie Schuler, Chief Financial Officer
		(Principal Financial Officer)

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	Jan. 31, 2017	Mar. 17, 2017
Document and Entity Information [Abstract]
Entity Registrant Name	Granite Falls Energy, LLC
Entity Central Index Key	0001181749
Current Fiscal Year End Date	--10-31
Entity Filer Category	Non-accelerated Filer
Document Type	10-Q
Document Period End Date	Jan. 31, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding		30,606
Entity Current Reporting Status	Yes

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Condensed Consolidated Balance Sheets - USD ($)	Jan. 31, 2017	Oct. 31, 2016
Current Assets
Cash	$ 3,190,935	$ 13,797,857
Accounts receivable	4,352,618	6,654,994
Inventory	18,612,499	18,341,413
Commodity derivative instruments	892,711	1,228,926
Prepaid expenses and other current assets	397,987	325,989
Total current assets	27,446,750	40,349,179
Property, Plant and Equipment
Property and Equipment, net	77,046,207	78,968,016
Goodwill	1,372,473	1,372,473
Investment	750,000
Other Assets	771,717	781,254
Total Assets	107,387,147	121,470,922
Current Liabilities
Current maturities of long-term debt	462,086	490,057
CHecks drawn in excess of bank balance	636,678	1,866,683
Accounts payable	3,523,335	5,624,840
Corn payable to FCE	29,790	5,358,111
Commodity derivative instruments	122,800
Accrued expenses	1,161,856	997,319
Total current liabilities	5,936,545	14,337,010
Long-term Debt, less current portion	1,292,753	1,393,669
Commitments and Contingencies
Members' equity attributable to Granite Falls Energy, LLC consists of 30,606 units authorized, issued, and outstanding at both January 31, 2017 and October 31, 2016	76,673,130	83,684,529
Non-controlling interest	23,484,719	22,055,714
Total members' equity	100,157,849	105,740,243
Total Liabilities and Members’ Equity	$ 107,387,147	$ 121,470,922

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Condensed Consolidated Balance Sheets (Parenthetical) - shares	Jan. 31, 2017	Oct. 31, 2016
Condensed Balance Sheets [Abstract]
Common Stock, Shares Authorized	30,606	30,606
Common Stock, Shares, Issued	30,606	30,606
Common stock, shares outstanding	30,606	30,606

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Condensed Consolidated Statements of Operations - USD ($)	3 Months Ended
	Jan. 31, 2017	Jan. 31, 2016
Condensed Statements of Operations [Abstract]
Revenues	$ 54,576,064	$ 51,001,654
Cost of Goods Sold	47,731,157	49,568,777
Gross Profit	6,844,907	1,432,877
Operating Expenses	1,607,221	1,400,846
Operating Income	5,237,686	32,031
Other Income (Expense)
Other income, net	392,265	67,679
Interest income	454	2,799
Interest expense	(41,609)	(75,964)
Total other income (expense), net	351,110	(5,486)
Net Income	5,588,796	26,545
Less: Net Income Attributable to Non-controlling Interest	(1,429,005)	(15,019)
Net Income Attributable to Granite Falls Energy, LLC	$ 4,159,791	$ 11,526
Weighted Average Units Outstanding - Basic and Diluted	30,606	30,606
Net Income Per Unit - Basic and Diluted	$ 135.91	$ 0.38
Distributions Per Unit - Basic and Diluted	$ 365.00	$ 315.00

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Condensed Consolidated Statements of Cash Flows - USD ($)	3 Months Ended
	Jan. 31, 2017	Jan. 31, 2016
Cash Flows from Operating Activities
Net income	$ 5,588,796	$ 26,545
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization	2,492,791	2,408,849
Change in fair value of commodity derivative instruments	(383,860)	(306,912)
Gain on sale of asset	(45,000)
Change in operating assets and liabilities
Restricted cash		(411,790)
Commodity derivative instruments	842,875	811,134
Accounts receivable	2,302,376	4,383,728
Inventory	(271,086)	(213,974)
Prepaid expenses and other current assets	(71,998)	(1,661,945)
Accounts payable	(7,605,717)	(1,669,322)
Accrued expenses	164,537	39,135
Net Cash Provided by Operating Activities	3,013,714	3,405,448
Cash Flows from Investing Activities
Purchase of investment	(750,000)
Payments for capital expenditures	(385,554)	(2,294,859)
Proceeds from sale of assets	45,000
Net Cash Used in Investing Activities	(1,090,554)	(2,294,859)
Cash Flows from Financing Activities
Proceeds from long-term debt		4,613,122
Payments on long-term debt	(128,887)	(3,721,574)
Proceeds (payments) from checks drawn in excess of bank balance	(1,230,005)	3,505,086
Distributions to non-controlling interests		(2,006,558)
Member distributions paid	(11,171,190)	(9,640,887)
Net Cash Used in Financing Activities	(12,530,082)	(7,250,811)
Net Decrease in Cash	(10,606,922)	(6,140,222)
Cash - Beginning of Period	13,797,857	12,696,536
Cash - End of Period	3,190,935	6,556,314
Cash paid during the period for:
Interest Expense	41,609	75,964
Supplemental Disclosure of Noncash Investing, Operating and Financing Activities
Capital expenditures and construction in process included in accounts payable	$ 175,891	$ 164,491

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Summary of Significant Accounting Policies

3 Months Ended

Jan. 31, 2017

Accounting Policies [Abstract]

Summary of Significant Account Policies

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

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

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

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

Basis of Presentation and Principles of Consolidation

The condensed consolidated unaudited financial statements as of January 31, 2017 consolidate the operating results and financial position of GFE, and its 50.6% 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 49.4% 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 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 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. 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, 2016, contained in the Company’s annual report on Form 10-K.

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

Reportable Operating Segments

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

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

Accounting Estimates

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

Revenue Recognition

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

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

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

Inventory

Inventory is stated at the lower of cost or net realizable value in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2015-11 issued in July 2015. 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

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.  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. If Ringneck accepts GFE’s subscription, GFE will be required to pay Ringneck the entire amount due under the promissory note within 20 days of receiving notice from Ringneck that it is due. If GFE fails to pay the entire amount due, GFE will be charged 12% interest per year, and Ringneck may seek legal action to force GFE to pay. If Ringneck does not meet certain conditions of its offering or rejects GFE’s subscription, GFE expects that its promissory note will be cancelled and our down payment will be refunded to us.

Ringneck is a South Dakota limited liability company that intends to build an 80 million gallon per year ethanol manufacturing plant in outside of Onida, South Dakota in Sully County. If Ringneck accepts our subscription, our investment is sufficient to secure the Company the right to appoint one director to the board of directors of Ringneck.  

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

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Risks and Uncertainties

3 Months Ended

Jan. 31, 2017

Item 2 Risks and Uncertainties [Abstract]

Risks and Uncertainties

2.   RISKS AND UNCERTAINTIES

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

The Company's operating and financial performance is largely driven by the prices at which they sell ethanol and the net expense of corn. The price of ethanol is influenced by factors such as supply and demand, the weather, government policies and programs, and unleaded gasoline prices and the petroleum markets as a whole. Excess ethanol supply in the market, in particular, puts downward pressure on the price of ethanol. Our 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 our risk management program used to protect against the price volatility of these commodities.

The supply and demand for ethanol are impacted by federal and state legislation and regulation, most significantly the Renewable Fuels Standard (“RFS”), and any changes in legislation or regulation could cause the demand for ethanol to decline or its supply to increase, which could have a material adverse effect on our business, results of operations and financial condition, and the ability to operate at a profit.

On November 23, 2016, the U.S. Environmental Protection Agency (the “EPA”) announced the final rule for 2017 Renewable Volume Obligation (“RVO”) requirements, which is set at 15.0 billion gallons for corn-based ethanol, which equates to the original requirements set by the RFS. Comparatively, the EPA established RVOs requirements for the RFS for calendar years 2014, 2015, and 2016 were below the original requirements set by the RFS. In January 2017, the Trump administration imposed a government-wide freeze on new and pending regulations, which included the 2017 RVOs that were originally intended to go into effect on February 10, 2017. Industry organizations such as the Renewable Fuels Association and Growth Energy believe this action is simply procedural with a new administration, and do not expect it to result in any substantive changes to the rule itself. Additionally, opponents of ethanol such as large oil companies will likely continue their efforts to repeal or reduce the RFS through lawsuits or lobbying of Congress. Successful reduction or repeal of the blending requirements of the RFS and/or continued political uncertainty under the new administration regarding the RFS could result in a significant decrease in ethanol demand. If demand for ethanol decreases, it could materially adversely affect our business, results of operations and financial condition.

Ethanol has historically traded at a discount to gasoline; however, due to a decline in oil prices, ethanol traded at a premium to gasoline during much of the three months ended January 31, 2017, causing a disincentive for discretionary blending of ethanol. However, in January 2017, the oil and gasoline prices rose resulting in ethanol trading at a discount to gasoline since January 2017, which may encourage discretionary blending of ethanol beyond the required blend rate. Management anticipates that ethanol prices will continue to change in relation to changes in corn and energy prices. If corn, crude oil and gasoline prices decrease, that could have a negative impact on ethanol pricing and demand, which could result in a material adverse effect on our business, results of operations and financial condition.

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Inventory

3 Months Ended

Jan. 31, 2017

Inventory [Abstract]

Inventory

3.   INVENTORY

Inventories consist of the following:

	January 31, 2017		October 31, 2016
	(unaudited)
Raw materials	$	7,349,648	$	9,098,492
Supplies		2,625,071		2,755,958
Work in process		1,364,882		1,347,754
Finished goods		7,272,898		5,139,209
Totals	$	18,612,499	$	18,341,413

The Company performs a lower of cost or net realizable value analysis on inventory to determine if the market 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, the Company recorded a loss on ethanol inventories, as a component of cost of goods sold, of approximately $207,000 and $353,000 for the three months ended January 31, 2017 and 2016, respectively.

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Derivative Instruments

3 Months Ended

Jan. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

4.   DERIVATIVE INSTRUMENTS

As of January 31, 2017, the total notional amount of GFE’s outstanding corn derivative instruments was approximately 2,975,000 bushels, comprised of long corn positions on 1,800,000 bushels that were entered into to hedge forecasted ethanol sales through March 2017, and short corn positions on 1,175,000 bushels that were entered into to hedge forecasted corn purchases through December 2017. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding as disclosed above.

As of January 31, 2017, the total notional amount of GFE’s outstanding ethanol derivative instruments was approximately 1,260,000 gallons that were entered into to hedge forecasted ethanol sales through March 2017.

As of January 31, 2017, GFE did not have any cash collateral (restricted cash) related to margin requirements for commodity derivative instrument positions held by a broker.

As of January 31, 2017, the total notional amount of HLBE’s outstanding corn derivative instruments was approximately 5,630,000 bushels, comprised of long corn positions on 3,250,000 bushels that were entered into to hedge forecasted ethanol sales through March 2017, and short corn positions on 2,380,000 bushels that were entered into to hedge forecasted corn purchases through December 2017. 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, 2017, the total notional amount of HLBE’s outstanding ethanol derivative instruments was approximately 1,260,000 gallons that were entered into to hedge forecasted ethanol sales through March 2017.

As of January 31, 2017, HLBE did not have any cash collateral (restricted cash) related to margin requirements for commodity derivative instrument positions held by a broker.

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

	Balance Sheet location	Assets		Liabilities
Corn contracts - GFE	Commodity derivative instruments	$	—	$	116,719
Corn contracts - HLBE	Commodity derivative instruments		—		6,081
Ethanol contracts - GFE	Commodity derivative instruments		445,706		—
Ethanol contracts - HLBE	Commodity derivative instruments		447,005		—
Totals		$	892,711	$	122,800

The following tables provide details regarding the Company's derivative instruments at October 31, 2016, none of which were designated as hedging instruments:

	Balance Sheet location	Assets		Liabilities
Corn contracts - GFE	Commodity derivative instruments	$	63,050	$	—
Corn contracts - HLBE	Commodity derivative instruments		388,525		—
Ethanol Contracts - GFE	Commodity derivative instruments		503,538		—
Ethanol Contracts - HLBE	Commodity derivative instruments		273,813		—
Totals		$	1,228,926	$	—

At October 31, 2016, the Company did not have any cash collateral (restricted cash) related to margin requirements for commodity derivative instrument positions held by a broker.

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:

	Statement of	Three Months Ended  January 31,
	Operations Location	2017		2016
Corn contracts	Cost of Goods Sold	$	(33,137)	$	195,998
Ethanol contracts	Revenues		416,997		78,556
Natural gas contracts	Cost of Goods Sold		—		32,358
Total gain		$	383,860	$	306,912

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Fair Value

3 Months Ended

Jan. 31, 2017

Fair Value [Abstract]

Fair Value

5.   FAIR VALUE

The following table provides information on those derivative assets and liabilities measured at fair value on a recurring basis at January 31, 2017:

					Fair Value Measurement Using
	Carrying Amount				Quoted Prices		Significant Other		Significant
	in Balance Sheet				in Active Markets		Observable Inputs		Unobservable Inputs
Financial Asset:	January 31, 2017		Fair Value		(Level 1)		(Level 2)		(Level 3)
Commodity Derivative Instruments - Ethanol	$	892,711	$	892,711	$	511,825	$	380,886	$	—
Financial Liabilities:
Commodity Derivative Instruments - Corn	$	122,800		122,800	$	122,800	$	—	$	—

The following table provides information on those derivative assets measured at fair value on a recurring basis at October 31, 2016:

					Fair Value Measurement Using
	Carrying Amount				Quoted Prices		Significant Other		Significant
	in Balance Sheet				in Active Markets		Observable Inputs		Unobservable Inputs
Financial Asset:	October 31, 2016		Fair Value		(Level 1)		(Level 2)		(Level 3)
Commodity Derivative Instruments - Corn	$	451,575	$	451,575	$	451,575	$	—	$	—
Commodity Derivative Instruments - Ethanol	$	777,351	$	777,351	$	777,351	$	—	$	—

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

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Debt Facilities

3 Months Ended

Jan. 31, 2017

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

6.   DEBT FACILITIES

Debt financing consists of the following:

	January 31, 2017		October 31, 2016
	(unaudited)
GRANITE FALLS ENERGY:
Revolving term loan, see terms below.	$	—	$	—
Term note payable to Fagen Energy, see terms below.		—		—
HERON LAKE BIOENERGY:
Revolving term note payable to lending institution, see terms below.		—		—
Assessment payable as part of water treatment agreement, due in semi-annual installments of $189,393 with interest at 6.55%, enforceable by statutory lien, with the final payment due in 2021. HLBE made deposits for one years' worth of debt service payments of approximately $364,000, which is included with other assets that are held on deposit to be applied with the final payments of the assessment.		1,516,977		1,517,046
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.		87,862		97,930
Note payable to electrical company with monthly payments of $6,250 with interest at 0.00% and a 1.00% maintenance fee due each October, due September 2017. The electrical company is a member of HLBE.		50,000		68,750
Note payable to non-controlling interest member of Agrinatural.  Interest is at One Month LIBOR plus 4.0%, which was approximately 4.78% and 4.53% at January 31, 2017 and October 31, 2016, respectively.  The note is considered due on demand with payments due at Agrinatural's Board of Managers' discretion.		100,000		200,000
Totals		1,754,839		1,883,726
Less: amounts due within one year		462,086		490,057
Net long-term debt	$	1,292,753	$	1,393,669

Granite Falls Energy:

GFE has a revolving term loan facility, under which GFE could initially borrow, repay, and re-borrow in an amount up to $18,000,000.  However, the amount available for borrowing by GFE under this facility reduces by $2,000,000 semi-annually, beginning September 1, 2014, with final payment due March 1, 2018. GFE had no outstanding balance on the revolving term loan at January 31, 2017 and October 31, 2016. Therefore, the aggregate amount available for borrowing by GFE on this facility was $10,000,000 at January 31, 2017 and October 31, 2016.  The amount available for borrowing under this facility was further reduced at March 1, 2017 to $8,000,000.

The interest rate is based on the bank's “One Month LIBOR Index Rate”, plus 3.05%, which equated to 3.83% and 3.25% at January 31, 2017 and October 31, 2016, respectively.

The credit facility also requires GFE to comply with certain financial covenants, including including restriction of the payment of dividends and maintenance of certain financial ratios including minimum working capital and a debt service coverage ratio as defined by the credit facility.  As of January 31, 2017 and October 31, 2016, GFE was in compliance with these financial covenants and expects to be in compliance throughout fiscal 2017. 

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.

In connection with GFE’s subscription for investment in Ringneck in November 2016, GFE entered into a credit facility with Fagen Energy which allows GFE to borrow up to $7.5 million of variable-rate, amortizing non-recourse debt from Fagen Energy using the Ringneck investment as collateral. The Fagen Energy loan bears interest from 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 Fagen Energy 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 November 1, 2025. 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 and commercial security agreement entered into in connection with the Fagen Energy 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 Fagen Energy will be to foreclose and seize all of GFE’s right, title and interest in its investment in Ringneck. GFE expects to use the proceeds of the loan to finance its balance of its investment in Ringneck.  As of January 31, 2017, there were no amounts outstanding under this credit facility.

Heron Lake BioEnergy:

HLBE has a revolving term note payable with a lender, under which HLBE could initially borrow, repay, and re-borrow in an amount up to $28,000,000 at any time prior to the March 1, 2022 maturity date. However, the amount available for borrowing by HLBE under this facility reduces by by $3,500,000 annually, beginning March 1, 2015 and continuing each anniversary thereafter until maturity.  HLBE had no outstanding balance on the revolving term note payable at January 31, 2017, and October 31, 2016.  Therefore, the aggregate principal amount available for borrowing by HLBE on this facility was $21,000,000 at January 31, 2017 and October 31, 2016. The amount available for borrowing under this facility was further reduced at March 1, 2017 to $17,500,000.

Interest on the revolving term loan accrues at a variable rate equal to 3.25% above the One-Month London Interbank Offered Rate ("LIBOR") Index rate, which was 4.03% and 3.45% at January 31, 2017, and October 31, 2016, 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 secured by substantially all of HLBE's assets including a subsidiary guarantee. 

During the term of the revolving term loan, HLBE is subject to certain financial covenants, including restriction of the payment of dividends, restrictions on 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 of  January 31, 2017 and October 31, 2016, HLBE was in compliance with these financial covenants and expects to be in compliance throughout fiscal 2017.

As part of the credit facility closing, HLBE entered into an Administrative Agency Agreement with CoBank, ACP (“CoBank”).  CoBank purchased a participation interest in the AgStar loans and was appointed the administrative agent for the purpose of servicing the loans.  As a result, CoBank will act as the agent for AgStar with respect to the credit facility. HLBE agreed to pay CoBank an annual fee of $2,500 as the agent for AgStar.

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

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

As of January 31, 2017 and October 31, 2016, there were a total of approximately $1,605,000 and $1,615,000, respectively, in outstanding water revenue bonds. HLBE classifies its obligations under these bonds as assessments payable. The interest rates on the bonds range from 0.50% to 8.73%.

Estimated annual maturities of debt at January 31, 2017, are as follows based on the most recent debt agreements:

2018	$	462,086
2019		333,015
2020		307,467
2021		326,798
2022		325,473
Total debt	$	1,754,839

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Leases

3 Months Ended

Jan. 31, 2017

Leases [Abstract]

Leases

7.   LEASES

GFE leases equipment, primarily rail cars, under operating leases through December 2026. Rent expense for these leases was approximately $878,000 and $894,000 for the three months ended January 31, 2017 and 2016, respectively.

HLBE leases equipment, primarily rail cars, under operating leases through January 2027.  Rent expense for these leases was approximately $540,000 and $533,000 for the three months ended January 31, 2017 and 2016, respectively.

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Members' Equity

3 Months Ended

Jan. 31, 2017

Members' Equity [Abstract]

Members' Equity

8.   MEMBERS' EQUITY

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 31, 2017 and October 31, 2016, GFE had 30,606 membership units authorized, issued, and outstanding.

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.

In December 2015, the Board of Governors of GFE declared a cash distribution of $315 per unit, or approximately $9,641,000,  for unit holders of record as of December 17, 2015. The distribution was paid in January 2016.

In December 2015, the Board of Governors of HLBE declared a cash distribution of $0.05 per unit, or approximately $3,897,000,  for unit holders of record as of December 17, 2015, of which approximately $2,007,000 was made to the noncontrolling interest members of HLBE. The distribution was paid in January 2016. At December 17, 2015, GFE owned 39,420,949 Class A membership units and 15,000,000 Class B units of HLBE, and received an aggregate distribution from HLBE of $1,971,000.  The remaining $1,926,000 was distributed by HLBE to the non-controlling interest.

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Commitments and Contingencies

3 Months Ended

Jan. 31, 2017

Commitments and Contingencies [Abstract]

Commitments and Contingencies

9.   COMMITMENTS AND CONTINGENCIES

Corn Storage and Grain Handling Agreement and Purchase Commitments

GFE has a corn storage and grain handling agreement with Farmers Cooperative Elevator Company (FCE), a member. Under the agreement, GFE agrees to purchase all of the corn needed for the operation of the plant from FCE. The price of the corn purchased will be the bid price the member establishes for the plant plus a set fee per bushel. 

On February 27, 2017, GFE and FCE executed an amendment to the corn storage and grain handling agreement with an effective date of February 21, 2017. Pursuant to the terms of the amendment, the parties agreed to amend their corn storage and grain handling agreement to accelerate the termination date of the agreement to midnight August 31, 2017.  Additionally, GFE may begin posting bids for the purchase of corn beginning June 1, 2017 and thereafter, but may not accept delivery of corn at its Granite Falls, Minnesota plant until September 1, 2017.  In exchange for the early termination, GFE agreed to pay an early termination fee to FCE of approximately $255,000 on or before August 31, 2017. Prior to the amendment, the termination date of the corn storage and grain handling agreement was set to expire on November 2017.

At January 31, 2017, GFE had approximately 1,217,000 bushels of stored corn totaling approximately $3,898,000 with FCE, a related party, that is included in inventory.

At January 31, 2017, HBLE had cash and basis contracts for forward corn purchase contracts for approximately 7,740,000 bushels for delivery periods through October 2017.

Ethanol Contracts

At January 31, 2017, GFE had fixed and basis contracts to sell approximately $13,040,000 of ethanol for various delivery periods through March 2017.

At January 31, 2017, HLBE had fixed and basis contracts to sell approximately $12,779,000 of ethanol for various delivery periods through March 2017.

Distillers' Grain Contracts

At January 31, 2017, GFE had forward contracts to sell approximately $1,944,000 of distillers' grain for deliveries through March 2017.

At January 31, 2017, HLBE had forward contracts to sell approximately $1,255,000 of distillers' grains for delivery through March 2017.

Corn Oil

At January 31, 2017, GFE had forward contracts to sell approximately $295,000 of corn oil for delivery through February 2017.

At January 31, 2017, HLBE had forward contracts to sell approximately $304,000 of corn oil for delivery through February 2017.

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Jan. 31, 2017

Accounting Policies [Abstract]

Nature of Business

Nature of Business

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

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

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

Basis of Presentation and Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The condensed consolidated unaudited financial statements as of January 31, 2017 consolidate the operating results and financial position of GFE, and its 50.6% 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 49.4% 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 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 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. 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, 2016, contained in the Company’s annual report on Form 10-K.

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

Reportable Operating Segments

Reportable Operating Segments

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

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

Accounting Estimates

Accounting Estimates

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

Revenue Recognition

Revenue Recognition

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

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

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

Inventory

Inventory

Inventory is stated at the lower of cost or net realizable value in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2015-11 issued in July 2015. Cost for all inventories is determined using the first in first out method (“FIFO”).  Net realizable value is the estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation.  Inventory consists of raw materials, work in process, finished goods, and spare parts.  Corn is the primary raw material along with other raw materials.  Finished goods consist of ethanol, distillers' grains, and corn oil.

Derivative Instruments

Derivative Instruments

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

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

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

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

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

Investment

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.  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. If Ringneck accepts GFE’s subscription, GFE will be required to pay Ringneck the entire amount due under the promissory note within 20 days of receiving notice from Ringneck that it is due. If GFE fails to pay the entire amount due, GFE will be charged 12% interest per year, and Ringneck may seek legal action to force GFE to pay. If Ringneck does not meet certain conditions of its offering or rejects GFE’s subscription, GFE expects that its promissory note will be cancelled and our down payment will be refunded to us.

Ringneck is a South Dakota limited liability company that intends to build an 80 million gallon per year ethanol manufacturing plant in outside of Onida, South Dakota in Sully County. If Ringneck accepts our subscription, our investment is sufficient to secure the Company the right to appoint one director to the board of directors of Ringneck.  

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

Investment

Investment

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.  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. If Ringneck accepts GFE’s subscription, GFE will be required to pay Ringneck the entire amount due under the promissory note within 20 days of receiving notice from Ringneck that it is due. If GFE fails to pay the entire amount due, GFE will be charged 12% interest per year, and Ringneck may seek legal action to force GFE to pay. If Ringneck does not meet certain conditions of its offering or rejects GFE’s subscription, GFE expects that its promissory note will be cancelled and our down payment will be refunded to us.

Ringneck is a South Dakota limited liability company that intends to build an 80 million gallon per year ethanol manufacturing plant in outside of Onida, South Dakota in Sully County. If Ringneck accepts our subscription, our investment is sufficient to secure the Company the right to appoint one director to the board of directors of Ringneck.  

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

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Inventory (Tables)

3 Months Ended

Jan. 31, 2017

Inventory in Process [Abstract]

Schedule of Inventory, Current [Table Text Block]

	January 31, 2017		October 31, 2016
	(unaudited)
Raw materials	$	7,349,648	$	9,098,492
Supplies		2,625,071		2,755,958
Work in process		1,364,882		1,347,754
Finished goods		7,272,898		5,139,209
Totals	$	18,612,499	$	18,341,413

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Derivative Instruments (Tables)

3 Months Ended

Jan. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value [Table Text Block]

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

	Balance Sheet location	Assets		Liabilities
Corn contracts - GFE	Commodity derivative instruments	$	—	$	116,719
Corn contracts - HLBE	Commodity derivative instruments		—		6,081
Ethanol contracts - GFE	Commodity derivative instruments		445,706		—
Ethanol contracts - HLBE	Commodity derivative instruments		447,005		—
Totals		$	892,711	$	122,800

The following tables provide details regarding the Company's derivative instruments at October 31, 2016, none of which were designated as hedging instruments:

	Balance Sheet location	Assets		Liabilities
Corn contracts - GFE	Commodity derivative instruments	$	63,050	$	—
Corn contracts - HLBE	Commodity derivative instruments		388,525		—
Ethanol Contracts - GFE	Commodity derivative instruments		503,538		—
Ethanol Contracts - HLBE	Commodity derivative instruments		273,813		—
Totals		$	1,228,926	$	—

Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance [Table Text Block]

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:

	Statement of	Three Months Ended  January 31,
	Operations Location	2017		2016
Corn contracts	Cost of Goods Sold	$	(33,137)	$	195,998
Ethanol contracts	Revenues		416,997		78,556
Natural gas contracts	Cost of Goods Sold		—		32,358
Total gain		$	383,860	$	306,912

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Fair Value (Tables)

3 Months Ended

Jan. 31, 2017

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

The following table provides information on those derivative assets and liabilities measured at fair value on a recurring basis at January 31, 2017:

					Fair Value Measurement Using
	Carrying Amount				Quoted Prices		Significant Other		Significant
	in Balance Sheet				in Active Markets		Observable Inputs		Unobservable Inputs
Financial Asset:	January 31, 2017		Fair Value		(Level 1)		(Level 2)		(Level 3)
Commodity Derivative Instruments - Ethanol	$	892,711	$	892,711	$	511,825	$	380,886	$	—
Financial Liabilities:
Commodity Derivative Instruments - Corn	$	122,800		122,800	$	122,800	$	—	$	—

The following table provides information on those derivative assets measured at fair value on a recurring basis at October 31, 2016:

					Fair Value Measurement Using
	Carrying Amount				Quoted Prices		Significant Other		Significant
	in Balance Sheet				in Active Markets		Observable Inputs		Unobservable Inputs
Financial Asset:	October 31, 2016		Fair Value		(Level 1)		(Level 2)		(Level 3)
Commodity Derivative Instruments - Corn	$	451,575	$	451,575	$	451,575	$	—	$	—
Commodity Derivative Instruments - Ethanol	$	777,351	$	777,351	$	777,351	$	—	$	—

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Debt Facilities (Tables)

3 Months Ended

Jan. 31, 2017

Debt Disclosure [Abstract]

Schedule of Long-term Debt Instruments [Table Text Block]

	January 31, 2017		October 31, 2016
	(unaudited)
GRANITE FALLS ENERGY:
Revolving term loan, see terms below.	$	—	$	—
Term note payable to Fagen Energy, see terms below.		—		—
HERON LAKE BIOENERGY:
Revolving term note payable to lending institution, see terms below.		—		—
Assessment payable as part of water treatment agreement, due in semi-annual installments of $189,393 with interest at 6.55%, enforceable by statutory lien, with the final payment due in 2021. HLBE made deposits for one years' worth of debt service payments of approximately $364,000, which is included with other assets that are held on deposit to be applied with the final payments of the assessment.		1,516,977		1,517,046
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.		87,862		97,930
Note payable to electrical company with monthly payments of $6,250 with interest at 0.00% and a 1.00% maintenance fee due each October, due September 2017. The electrical company is a member of HLBE.		50,000		68,750
Note payable to non-controlling interest member of Agrinatural.  Interest is at One Month LIBOR plus 4.0%, which was approximately 4.78% and 4.53% at January 31, 2017 and October 31, 2016, respectively.  The note is considered due on demand with payments due at Agrinatural's Board of Managers' discretion.		100,000		200,000
Totals		1,754,839		1,883,726
Less: amounts due within one year		462,086		490,057
Net long-term debt	$	1,292,753	$	1,393,669

Schedule of Maturities of Long-term Debt [Table Text Block]

Estimated annual maturities of debt at January 31, 2017, are as follows based on the most recent debt agreements:

2018	$	462,086
2019		333,015
2020		307,467
2021		326,798
2022		325,473
Total debt	$	1,754,839

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Summary of Significant Accounting Policies (Details) $ / shares in Units, gal in Millions		3 Months Ended
	Nov. 01, 2016 USD ($) $ / shares shares	Jan. 31, 2017 shares gal	Jan. 31, 2016 gal
Plant production capacity		60.0
Measurement, Rolling Twelve Months		twelve
Production (Actual)		70.0
Heron Lake BioEnergy, LLC [Member]
Plant production capacity		60.0
Production (Actual)		72.3
Equity Method Investment, Ownership Percentage		100.00%
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners		49.40%
Granite Falls Energy, LLC [Member]
Equity Method Investment, Ownership Percentage		50.60%
Agrinatural, LLC [Member]
Equity Method Investment, Ownership Percentage		73.00%
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners		27.00%
Ring-neck Energy & Feed, LLC [Member]
Investment
Down payment | $	$ 750,000
Promissory note | $	$ 6,750,000
Period of written notice of creditor for promissory note to become due	20 days
Interest rate if promissory note amount is not paid in full when due	12.00%
Expected ethanol production capacity			80.0
Capital Units [Member] | Ring-neck Energy & Feed, LLC [Member]
Investment
Subscribe to purchase capital units, in units | shares	1,500	1,500
Price per unit paid | $ / shares	$ 5,000
Total price | $	$ 7,500,000

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Risks and Uncertainties Narrative (Details) - gal gal in Billions		3 Months Ended
	Nov. 23, 2016	Jan. 31, 2017
UNITED STATES
Concentration Risk [Line Items]
Expected ethanol production capacity	15.0
Minimum [Member]
Concentration Risk [Line Items]
Sales Revenue, Goods, Net, Percentage		75.00%
Minimum [Member] | Corn Contracts [Member]
Concentration Risk [Line Items]
Percent of Cost of Goods Sold		65.00%
Maximum [Member]
Concentration Risk [Line Items]
Sales Revenue, Goods, Net, Percentage		90.00%
Percent of Cost of Goods Sold		85.00%

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Inventory (Details) - USD ($)	3 Months Ended
	Jan. 31, 2017	Jan. 31, 2016	Oct. 31, 2016
Inventory [Abstract]
Raw materials	$ 7,349,648		$ 9,098,492
Supplies	2,625,071		2,755,958
Work in process	1,364,882		1,347,754
Finished goods	7,272,898		5,139,209
Total inventory, net	18,612,499		$ 18,341,413
Loss on ethanol inventories	$ 207,000	$ 353,000

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Derivative Instrument - Asset And Liabilities (Details)	3 Months Ended
	Jan. 31, 2017 USD ($) bu gal	Oct. 31, 2016 USD ($)
Derivatives, Fair Value [Line Items]
Cash collateral	$ 0
Derivative Assets, Current	892,711	$ 1,228,926
Derivative Liabilities, Current	$ 122,800
Corn Contracts [Member]
Derivatives, Fair Value [Line Items]
Total notional amount outstanding | bu	2,975,000
Corn Contracts [Member] | Long position
Derivatives, Fair Value [Line Items]
Total notional amount outstanding | bu	1,800,000
Corn Contracts [Member] | Short position
Derivatives, Fair Value [Line Items]
Total notional amount outstanding | bu	1,175,000
Ethanol Contracts [Member]
Derivatives, Fair Value [Line Items]
Total notional amount outstanding | gal	1,260,000
Granite Falls Energy, LLC [Member] | Corn Contracts [Member]
Derivatives, Fair Value [Line Items]
Derivative Assets, Current		63,050
Derivative Liabilities, Current	$ 116,719
Granite Falls Energy, LLC [Member] | Ethanol Contracts [Member]
Derivatives, Fair Value [Line Items]
Derivative Assets, Current	445,706	503,538
Heron Lake BioEnergy, LLC [Member]
Derivatives, Fair Value [Line Items]
Cash collateral	$ 0
Heron Lake BioEnergy, LLC [Member] | Corn Contracts [Member]
Derivatives, Fair Value [Line Items]
Total notional amount outstanding | bu	5,630,000
Derivative Assets, Current		388,525
Derivative Liabilities, Current	$ 6,081
Heron Lake BioEnergy, LLC [Member] | Corn Contracts [Member] | Long position
Derivatives, Fair Value [Line Items]
Total notional amount outstanding | bu	3,250,000
Heron Lake BioEnergy, LLC [Member] | Corn Contracts [Member] | Short position
Derivatives, Fair Value [Line Items]
Total notional amount outstanding | bu	2,380,000
Heron Lake BioEnergy, LLC [Member] | Ethanol Contracts [Member]
Derivatives, Fair Value [Line Items]
Total notional amount outstanding | gal	1,260,000
Derivative Assets, Current	$ 447,005	$ 273,813

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Derivative Instrument - Income Statement (Details) - USD ($)	3 Months Ended
	Jan. 31, 2017	Jan. 31, 2016
Derivative Instruments, Gain (Loss) [Line Items]
Derivative Instruments, Gain (Loss) Recognized in Income, Net	$ 383,860	$ 306,912
Not Designated as Hedging Instrument [Member] | Cost of Sales [Member] | Corn Contracts [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative Instruments, Gain (Loss) Recognized in Income, Net	(33,137)	195,998
Not Designated as Hedging Instrument [Member] | Cost of Sales [Member] | Natural Gas Contracts [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative Instruments, Gain (Loss) Recognized in Income, Net		32,358
Not Designated as Hedging Instrument [Member] | Sales [Member] | Ethanol Contracts [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative Instruments, Gain (Loss) Recognized in Income, Net	$ 416,997	$ 78,556

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Fair Value (Details) - Fair Value, Measurements, Recurring [Member] - USD ($)	Jan. 31, 2017	Oct. 31, 2016
Corn Contracts [Member] | Carrying (Reported) Amount, Fair Value Disclosure [Member]
Derivative [Line Items]
Derivative Asset		$ 451,575
Derivative Liabilities	$ 122,800
Corn Contracts [Member] | Fair Value, Inputs, Level 1 [Member]
Derivative [Line Items]
Derivative Asset		451,575
Derivative Liabilities	122,800
Ethanol Contracts [Member] | Carrying (Reported) Amount, Fair Value Disclosure [Member]
Derivative [Line Items]
Derivative Asset	892,711	777,351
Ethanol Contracts [Member] | Fair Value, Inputs, Level 1 [Member]
Derivative [Line Items]
Derivative Asset	511,825	$ 777,351
Ethanol Contracts [Member] | Fair Value, Inputs, Level 2 [Member]
Derivative [Line Items]
Derivative Asset	$ 380,886

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Debt Facilities - Granite Falls Energy And Heron Lake BioEnergy (Details) - USD ($)		3 Months Ended
	Nov. 01, 2016	Jan. 31, 2017	Mar. 01, 2017	Oct. 31, 2016
Line of Credit Facility [Line Items]
Long-term Debt		$ 1,754,839
Less: amounts due within one year		462,086		$ 490,057
Net long term debt		$ 1,292,753		1,393,669
Assessments payable as part of water supply agreement, with interest at 8.73%, due in 2019
Line of Credit Facility [Line Items]
Debt Instrument, Interest Rate, Stated Percentage		8.73%
Long-term Debt		$ 87,862		97,930
Semi-annual payment		$ 3,942
Note payable to electrical company, due September 2017
Line of Credit Facility [Line Items]
Debt Instrument, Interest Rate, Stated Percentage		0.00%
Long-term Debt		$ 50,000		68,750
Maintenance fee (as a percent)		1.00%
Monthly payment		$ 6,250
Note payable to noncontrolling interest member of Agrinatural, Interest One Month LIBOR plus 4.0 %
Line of Credit Facility [Line Items]
Debt Instrument, Interest Rate, Stated Percentage		4.00%
Long-term Debt		$ 100,000		200,000
Heron Lake BioEnergy, LLC [Member]
Line of Credit Facility [Line Items]
Long-term Debt		1,754,839		1,883,726
Less: amounts due within one year		462,086		490,057
Net long term debt		1,292,753		1,393,669
Heron Lake BioEnergy, LLC [Member] | Revolving Term Loan [Member]
Line of Credit Facility [Line Items]
Line of Credit Facility, Amount Outstanding		0		0
Line of Credit Facility, Remaining Borrowing Capacity		21,000,000		21,000,000
Debt Instrument, Fee Amount		2,500
Long-term Debt		$ 28,000,000
Heron Lake BioEnergy, LLC [Member] | Revolving Term Loan [Member] | Subsequent Event [Member]
Line of Credit Facility [Line Items]
Line of Credit Facility, Remaining Borrowing Capacity			$ 17,500,000
Heron Lake BioEnergy, LLC [Member] | Assessments payable as part of water treatment agreement, with interest at 6.55%, due in 2021
Line of Credit Facility [Line Items]
Debt Instrument, Interest Rate, Stated Percentage		6.55%
Long-term Debt		$ 1,516,977		1,517,046
Semi-annual payment		$ 189,393
Period of worth of debt		1 year
Deposit on debt service payments		$ 364,000
Ring-neck Energy & Feed, LLC [Member]
Line of Credit Facility [Line Items]
Down payment	$ 750,000
Granite Falls Energy, LLC [Member]
Line of Credit Facility [Line Items]
Line of Credit Future Reduction, Amount		2,000,000
Granite Falls Energy, LLC [Member] | Revolving Term Loan [Member]
Line of Credit Facility [Line Items]
Line of Credit Facility, Amount Outstanding		0		$ 0
Line of Credit Facility, Maximum Borrowing Capacity		18,000,000
Line of Credit Facility, Remaining Borrowing Capacity		$ 10,000,000
Debt Instrument, Covenant Description		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.
Granite Falls Energy, LLC [Member] | Revolving Term Loan [Member] | Subsequent Event [Member]
Line of Credit Facility [Line Items]
Line of Credit Facility, Remaining Borrowing Capacity			$ 8,000,000
Heron Lake BioEnergy, LLC [Member] | Revolving Term Loan [Member]
Line of Credit Facility [Line Items]
Line of Credit Future Reduction, Amount		$ 3,500,000
Maximum [Member] | Granite Falls Energy, LLC [Member]
Line of Credit Facility [Line Items]
Debt Instrument, Interest Rate, Effective Percentage		3.83%		3.25%
Debt Instrument, Basis Spread on Variable Rate		3.05%
Fagen Energy, LLC Credit Facility [Member]
Line of Credit Facility [Line Items]
Line of Credit Facility, Amount Outstanding		$ 0
Down payment		$ 7,500,000
Maximum period of interest payments		2 years
Debt instrument amortization period after first two years		7 years
Credit facility terms		The Fagen Energy 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 November 1, 2025. GFE is permitted to voluntarily prepay all or any portion of the outstanding balance of this loan at any time without premium or penalty.
LIBOR [Member] | Fagen Energy, LLC Credit Facility [Member]
Line of Credit Facility [Line Items]
Debt instrument, period of moving average on variable rate		1 month
Debt Instrument, Basis Spread on Variable Rate		3.05%
LIBOR [Member] | Fagen Energy, LLC Credit Facility [Member] | Minimum [Member]
Line of Credit Facility [Line Items]
Debt Instrument, Interest Rate, Stated Percentage		3.55%
Capital Units [Member] | Ring-neck Energy & Feed, LLC [Member]
Line of Credit Facility [Line Items]
Subsidiary or Equity Method Investee, Cumulative Number of Shares Issued for All Transactions	1,500	1,500

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Debt Facilities - Estimated Annual Maturities (Details)	Jan. 31, 2017 USD ($)
Debt Disclosure [Abstract]
Long-term Debt, Maturities, Repayments of Principal in Next Rolling Twelve Months	$ 462,086
Long-term Debt, Maturities, Repayments of Principal in Rolling Year Two	333,015
Long-term Debt, Maturities, Repayments of Principal in Rolling Year Three	307,467
Long-term Debt, Maturities, Repayments of Principal in Rolling Year Four	326,798
Long-term Debt, Maturities, Repayments of Principal in Rolling Year Five	325,473
Long-term Debt	$ 1,754,839

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Debt Facilities - Long-Term Debt (Details) - Heron Lake BioEnergy, LLC [Member] - USD ($)	3 Months Ended	12 Months Ended
	Jan. 31, 2017	Oct. 31, 2016
Revolving Term Loan [Member]
Line of Credit Facility, Amount Outstanding	$ 0	$ 0
CoBank [Member] | Revolving Term Loan [Member]
Debt Instrument, Basis Spread on Variable Rate	3.25%
Debt Instrument, Interest Rate During Period	4.03%	3.45%
Line of Credit Facility, Unused Capacity, Commitment Fee Percentage	0.50%
City/County Jurisdiction [Member]
Line of Credit Facility, Amount Outstanding	$ 1,605,000	$ 1,615,000
City/County Jurisdiction [Member] | Water Treatment Plant [Member]
Line of Credit Facility, Maximum Borrowing Capacity	3,600,000
Debt Instrument, Face Amount	$ 735,000
Minimum [Member] | City/County Jurisdiction [Member] | Water Treatment Plant [Member]
Debt Instrument, Interest Rate, Stated Percentage	0.50%
Maximum [Member] | City/County Jurisdiction [Member]
Debt Instrument, Interest Rate, Stated Percentage	8.73%

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Leases (Details) - USD ($)	3 Months Ended
	Jan. 31, 2017	Jan. 31, 2016
Granite Falls Energy, LLC [Member] | Rail Cars [Member]
Operating Leases, Rent Expense	$ 878,000	$ 894,000
Heron Lake BioEnergy, LLC [Member]
Operating Leases, Rent Expense	$ 540,000	$ 533,000

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Members' Equity (Details) - USD ($)		1 Months Ended		3 Months Ended	12 Months Ended
	Dec. 17, 2015	Jan. 31, 2017	Jan. 31, 2016	Jan. 31, 2017	Oct. 31, 2016
Membership Units, Authorized		30,606		30,606
Membership Units, Issued		30,606		30,606	30,606
Membership Units, Outstanding		30,606		30,606	30,606
Granite Falls Energy, LLC [Member]
Distribution Made to Membership, Cash Distribution Paid per Unit				$ 365	$ 315
Distribution Made to Member or Limited Partner, Cash Distributions Paid		$ 11,171,000			$ 9,641,000
Heron Lake BioEnergy, LLC [Member]
Distribution Made to Member or Limited Partner, Cash Distributions Paid			$ 3,897,000
Distributions received	$ 1,971,000
Distribution Made to Limited Liability Company (LLC) Member, Distributions Paid, Per Unit			$ 0.05
Heron Lake BioEnergy, LLC [Member] | Noncontrolling Interest [Member]
Distribution Made to Member or Limited Partner, Cash Distributions Paid	$ 1,926,000		$ 2,007,000
Heron Lake BioEnergy, LLC [Member] | Capital Unit, Class A [Member]
Membership Units, Issued	39,420,949
Heron Lake BioEnergy, LLC [Member] | Capital Unit, Class B [Member]
Membership Units, Issued	15,000,000

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Commitments and Contingencies (Details)	3 Months Ended
	Jan. 31, 2017 USD ($) bu
Distillers' Grains [Member]
Purchase Commitment, Excluding Long-term Commitment [Line Items]
Future Commitment, Dollar	$ 1,944,000
Granite Falls Energy, LLC [Member]
Purchase Commitment, Excluding Long-term Commitment [Line Items]
Fees and Commissions	255,000
Granite Falls Energy, LLC [Member] | Corn Contracts [Member]
Purchase Commitment, Excluding Long-term Commitment [Line Items]
Inventory Dollars, Outside Storage	$ 3,898,000
Inventory, Outside storage | bu	1,217,000
Granite Falls Energy, LLC [Member] | Corn Oil [Member]
Purchase Commitment, Excluding Long-term Commitment [Line Items]
Future Commitment, Dollar	$ 295,000
Granite Falls Energy, LLC [Member] | Ethanol Contracts [Member]
Purchase Commitment, Excluding Long-term Commitment [Line Items]
Future Commitment, Dollar	$ 13,040,000
Heron Lake BioEnergy, LLC [Member] | Corn Contracts [Member]
Purchase Commitment, Excluding Long-term Commitment [Line Items]
Inventory, Outside storage | bu	7,740,000
Heron Lake BioEnergy, LLC [Member] | Corn Oil [Member]
Purchase Commitment, Excluding Long-term Commitment [Line Items]
Future Commitment, Dollar	$ 304,000
Heron Lake BioEnergy, LLC [Member] | Ethanol Contracts [Member]
Purchase Commitment, Excluding Long-term Commitment [Line Items]
Future Commitment, Dollar	12,779,000
Heron Lake BioEnergy, LLC [Member] | Distillers' Grains [Member]
Purchase Commitment, Excluding Long-term Commitment [Line Items]
Future Commitment, Dollar	$ 1,255,000