10-K

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2015.
Or
o	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 000-51825

Heron Lake BioEnergy, LLC

(Exact name of registrant as specified in its charter)

Minnesota (State or other jurisdiction of incorporation or organization) 41-2002393 (IRS Employer Identification No.)

91246 390th Avenue, Heron Lake, MN 56137-1375

(Address of principal executive offices)

Registrant's telephone number, including area code: (507) 793-0077

Securities registered pursuant to Section 12(b) of the Act:	Securities registered pursuant to Section 12(g) of the Act:
None	Class A Units

Name of Exchange on Which Registered: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act: Yes o    No ý

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 ý    No o

Indicate by check mark 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer ý Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 126-2 of the Act) Yes o    No ý

As of April 30,2015, the aggregate market value of the 31,105,720 Class A units held by non-affiliates (computed by reference to the most recent offering price of Class A membership units) was $5,611,916. The units are not listed on an exchange or otherwise publicly traded. Additionally, the membership units are subject to significant restrictions on transfer under the registrant's operating and member control agreement. In determining this value, the registrant has assumed that all of its directors, chief executive officer, chief financial officer, Granite Falls Energy, LLC and beneficial owners of 5% or more of its outstanding membership units are affiliates, but this assumption shall not apply to or be conclusive for any other purpose.

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As of April 30,2015, all of the 15,000,000 Class B units were held by an affiliate of the Company.

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

As of January 27, 2016, there were 62,932,107 Class A units and 15,000,000 Class B units outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

The registrant has incorporated by reference into Part III of this Annual Report on Form 10-K portions of its definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Annual Report (October 31, 2015). This proxy statement is referred to in this report as the 2016 Proxy Statement.

INDEX

PART I
Item 1.	Business	4
Item 1A.	Risk Factors	18
Item 1B.	Unresolved Staff Comments	31
Item 2.	Properties	31
Item 3.	Legal Proceedings	31
Item 4.	Mine Safety Disclosures	31
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	31
Item 6.	Selected Financial Data	34
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	35
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	48
Item 8.	Financial Statements and Supplementary Data	50
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	71
Item 9A.	Controls and Procedures	71
Item 9B.	Other Information	72
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	72
Item 11.	Executive Compensation	72
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	72
Item 13.	Certain Relationships and Related Transactions, and Director Independence	72
Item 14.	Principal Accounting Fees and Services	72
PART IV
Item 15.	Exhibits, Financial Statement Schedules	72
SIGNATURES		73

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CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains historical information, as well as forward-looking statements regarding our business, financial condition, results of operations, performance and prospects. All statements that are not historical or current facts are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and relate to future events, our future financial performance, or our expected future operations and actions. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "future," "intend," "could," "hope," "predict," "target," "potential," or "continue" or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions based on current information and involve numerous assumptions, risks and uncertainties, including, but not limited to the following:

• Fluctuations in the prices of grain, utilities and ethanol, which are affected by various factors including weather, production levels, supply, demand, and availability of production inputs;

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

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

• Fluctuations in the price of crude oil and gasoline;

• Ethanol may trade at a premium to gasoline at times, causing a disincentive for discretionary blending of ethanol beyond the requirements of the Renewable Fuels Standard ("RFS") and resulting in a negative impact on ethanol prices and demand;

• Changes in federal and/or state laws and environmental regulations including elimination, waiver or reduction of the Renewable Fuels Standard, may have an adverse effect on our business;

• Any delays in shipping our products by rail due to an increase in rail traffic congestion or delays in returning rail cars to our plant and any reductions of plant production due to ethanol storage capacity constraint;

• Any shipping delays and corresponding decreases in our sales as a result of these shipping delays;

• The supply of ethanol rail cars in the market has fluctuated in recent years and may affect our ability to obtain new tanker cars or negotiate new leases at a reasonable fee when our current leases expire;

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

• Any effect on prices of distillers' grains resulting from actions in international markets, particularly China, limiting imports due to the present of genetically modified material;

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

• The effect of our risk mitigation strategies and hedging activities on our financial performance and cash flows;

• Competition from alternative fuel additives;

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

• Our ability to profitably operate the ethanol plant and maintain positive margins and generate free cash flow, which may impact our ability to meet current obligations, invest in our business, service our debt and satisfy the financial covenants contained in our credit agreement with our lender;

• Changes in interest rates or the lack of credit availability;

• Our ability to make distributions in light of financial covenants in our credit facility;

• Our ability to retain key employees and maintain labor relations;

• Our units are subject to a number of transfer restrictions, no public market exists for our units, and we do not expect one to develop.

Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the reasons described in Part I, Item 1A. "Risk Factors" of this Form 10-K. We undertake no duty to update these forward-looking statements, even though our situation may change in the future. We cannot guarantee future results, levels of activity, performance or achievements.  We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report.  You should read this report and the documents that we reference in this report and have filed as exhibits, completely and with the understanding that our actual future results may be materially different from what we currently expect.  We qualify all of our forward-looking statements with these cautionary statements. Unless otherwise stated, references in this report to particular years or quarters refer to our fiscal years ended October 31 and the associated quarters of those fiscal years.

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INDUSTRY AND MARKET DATA

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

AVAILABLE INFORMATION

Our principal executive offices are located at 91246 390th Avenue, Heron Lake, Minnesota 56137, and our telephone number is 507-793-0077. We make available free of charge on or through our Internet website, www.heronlakebioenergy.com, all of our reports and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (SEC). The Securities and Exchange Commission also maintains an Internet site (http://www.sec.gov) through which the public can access our reports. We will provide electronic or paper copies of these documents free of charge upon request.

PART I

When we use the terms "Heron Lake BioEnergy," "we," "us," "our," the "Company", "HLBE" or similar words in this Annual Report on Form 10-K, unless the context otherwise requires, we are referring to Heron Lake BioEnergy, LLC and its subsidiary, HLBE Pipeline Company, LLC. Additionally, when we refer to "units" in this Annual Report on Form 10-K, unless the context otherwise requires, we are referring to the Class A units of Heron Lake BioEnergy, LLC.

ITEM 1.    BUSINESS

Overview

We were organized as a Minnesota limited liability company on April 12, 2001 under the name "Generation II, LLC." In June 2004, we changed our name to Heron Lake BioEnergy, LLC.

In July 2013, Granite Falls Energy, LLC ("Granite Falls" or "GFE") acquired a controlling interest in the Company from Project Viking, L.L.C. GFE, now a related party, owns an ethanol plant located in Granite Falls, Minnesota. As of January 27, 2016, GFE owns approximately 50.6% of our outstanding membership units. As a result of its majority ownership, GFE has the right to appoint five (5) of the nine (9) governors to our board of governors under our member control agreement.

We operate a dry mill fuel-grade ethanol plant in Heron Lake, Minnesota. Our plant was originally constructed as a coal fired plant but was converted to natural gas in November 2011.  Since beginning operation of our ethanol plant on September 21, 2007, our primary business has been the production and sale of ethanol and co-products, including dried distillers' grains and since February 2012, non-edible corn oil.

Our ethanol plant has a nameplate capacity of 50 million gallons per year. On July 10, 2015, the Minnesota Pollution Control Agency approved a major amendment to our air emission permit which increased our permitted production capacity from 59.9 million gallons to approximately 72.3 million gallons of undenatured fuel-grade ethanol on a twelve-month rolling sum basis. We are currently operating above our stated nameplate capacity at an annual rate of approximately 61 million gallons and intend to continue to take advantage of the additional production allowed pursuant to our permit as long as we believe it is profitable to do so.

Several upscaling projects will be required to increase the plant's current production capacity and take full advantage of the additional production allowed under our amended air permit. One such project includes replacing our existing regenerative thermal oxidizer ("RTO"). We estimate that the total capital commitment for the new RTO will be approximately $1.9 million and have made down payment of approximately $375,000 to secure the equipment order. Once installed, the new RTO will improve emissions control and allow us to continue to maintain applicable regulatory compliance. We expect completion of this project during the latter part of fiscal year 2016.

In fiscal years 2015, 2014, and 2013, we sold approximately 61.4 million, 59.3 million and 55.4 million gallons of ethanol, respectively.

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Our wholly owned subsidiary, HLBE Pipeline Company, LLC, owns 73% of Agrinatural Gas, LLC ("Agrinatural"). Agrinatural is a natural gas pipeline company that was formed to construct, own, and operate the natural gas pipeline that provides natural gas to the Company's ethanol production facility and other customers through a connection with the natural gas pipeline facilities of Northern Border Pipeline Company in Cottonwood County, Minnesota. Rural Energy Solutions, LLC ("RES") owns the remaining 27% non-controlling interest in Agrinatural.

On December 18, 2014, our board of governors declared a distribution of $0.12 per membership unit for a total of approximately $9.4 million to be paid to members of record as of December 18, 2014. The distribution was paid on January 19, 2015.

Subsequent to the end of our 2015 fiscal year, on December 17, 2015, our board of governors declared a distribution of $0.05 per membership unit for a total of approximately $3.9 million to be paid to members of record as of December 17, 2015. The distribution was paid on January 25, 2016. Based on the covenants contained in our AgStar credit facilities, the foregoing distribution was approved by our lender prior to distribution.

Reportable Operating Segments

Accounting Standards Codification (ASC) 280, “Segment Reporting,” establishes the standards for reporting information about segments in financial statements. Based on the criteria set forth in ASC 280, the Company has two reportable operating segments for financial reporting purposes.

• Ethanol Production. Based on the nature of the products and production process and the expected financial results, the Company’s operations at its ethanol plant, including the production and sale of ethanol and its co-products, are aggregated into one financial reporting segment.

• Natural Gas Pipeline. The Company has majority ownership in Agrinatural, through its wholly owned subsidiary, HLBE Pipeline, LLC, and operations of Agrinatural's natural gas pipeline are aggregated into another financial reporting segment.

Before intercompany eliminations, revenues from our natural gas pipeline segment represented 2.4%, 1.8% and 1.5% of our total consolidated revenues in the years ended October 31, 2015, 2014, and 2013, respectively. After accounting for intercompany eliminations for fees paid by the Company for natural gas transportation services pursuant to our natural gas transportation agreement with Agrinatural, Agrinatural's revenues represented 0.9%, 0.6%, and 0.6% of our consolidated revenues for the fiscal years ended October 31, 2015, 2014, and 2013, respectively, and have little to no impact on the overall performance of the Company.

We currently do not have or anticipate we will have any other lines of business or other significant sources of revenue other than the sale of ethanol, distillers' grains, corn oil and natural gas transportation. Refer to Note 14, "Business Segments", of the notes to consolidated audited financial statements for financial information about our financial reporting segments.

Financial Information

Please refer to "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" for information about our revenue, profit and loss measurements and total assets and liabilities and "Item 8 - Financial Statements and Supplementary Data" for our consolidated financial statements and supplementary data.

Ethanol Production Segment

Revenues from our ethanol production segment have represented 99.1%, 99.4%, and 99.4% of our revenues in the years ended October 31, 2015, 2014, and 2013 respectively.

Principal Products

The principal products from our ethanol production are fuel-grade ethanol, distillers' grains, non-edible corn oil and miscellaneous sales of distillers' syrup, a by-product of the ethanol production process. We did not introduce any new products or services as part of our ethanol production segment during our fiscal year ended October 31, 2015. The table below shows the approximate percentage of our total revenue which is attributable to each of our principal products for each of the last three fiscal years.

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	Fiscal Year 2015	Fiscal Year 2014	Fiscal Year 2013
Ethanol	77.6%	79.7%	76.7%
Distillers Grains	19.5%	17.1%	19.9%
Corn Oil	2.4%	2.1%	2.5%
Misc. Syrup Sales	0.5%	0.5%	0.3%

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Ethanol

Ethanol is a type of alcohol produced in the United States principally from corn. Ethanol is ethyl alcohol, a fuel component made primarily from corn in the United States but can also be produced from various other grains. Ethanol is primarily used as:

• an octane enhancer in fuels;

• an oxygenated fuel additive that can reduce ozone and carbon monoxide vehicle emissions;

• a non-petroleum-based gasoline substitute; and

• as a renewable fuel to displace consumption of imported oil.

Ethanol produced in the United States is primarily used for blending with unleaded gasoline and other fuel products as an octane enhancer or fuel additive. Ethanol is most commonly sold as E10 (10% ethanol and 90% gasoline), which is the blend of ethanol approved by the United States Environmental Protection Agency ("EPA") for use in all American automobiles. Increasingly, ethanol is also available as E85, a higher percentage ethanol blend (85% ethanol and 15% gasoline) approved by the EPA for use in flexible fuel vehicles.

Distillers' Grains

The principal co-product of the ethanol production process is distillers' grains, a high protein and high-energy animal feed ingredient primarily marketed to the dairy, swine, poultry and beef industries. Distillers grains contain by-pass protein that is superior to other protein supplements such as cottonseed meal and soybean meal. By-pass proteins are more digestible to the animal, thus generating greater lactation in milk cows and greater weight gain in beef cattle and swine. Distillers grains can also be included in the rations of breeder hens and laying hens which can potentially contain up to 20% and 15% percent distillers' grains, respectively.

Dry mill ethanol processing creates three primary forms of distillers' grains: wet distillers' grains, modified wet distillers' grains, and dried distillers' grains with solubles. Most of the distillers' grains that we sell are in the form of dried distillers' grains. Dried distillers' grains with solubles are corn mash that has been dried to approximately 10% moisture. It has an almost indefinite shelf life and may be sold and shipped to any market and fed to almost all types of livestock.

Corn Oil

Since our installation of a corn oil extraction system in February 2012, we are able to extract non-edible crude corn oil during the thin stillage evaporation process immediately prior to production of distillers’ grains. Corn oil is produced by processing evaporated thin stillage through a disk stack style centrifuge. Corn oil has a lower density than the water or solids that make up the corn syrup. The centrifuges separate the relatively light oil from the heavier components of the corn syrup, eliminating the need for significant retention time. Corn oil is used primarily as a biodiesel feedstock and as a supplement for animal feed.

Generally, we return the de-oiled corn syrup into the production process adding it to the modified, or dry distillers’ grains during the drying process. However, we also occasionally sell excess corn syrup in liquid syrup form to livestock feeders. Excess syrup results from a plant upset, or when the amount of syrup produced during evaporation process exceeds our distillers' grains' dryer capacity. Corn syrup is primarily used as a feed additive to moisten dry feed stuffs such as hay.

Principal Product Markets

As described below in “Distribution of Principal Products", we market and distribute all of our ethanol and all of our distillers' grains shipped by rail through professional third party marketers. Our ethanol and distillers' grains marketers make all decisions with regard to where our products are marketed. Our ethanol and distillers' grains are primarily sold in the domestic market. As distillers' grains become more accepted as an animal feed substitute throughout the world, distillers' grains exporting may increase.

We expect our ethanol and distillers' grains marketers to explore all markets for our products, including export markets. However, due to high transportation costs, and the fact that we are not located near a major international shipping port, we expect our products to continue to be marketed primarily domestically.

Ethanol Markets

There are local, regional, national, and international markets for ethanol. Our products are primarily sold in the domestic market. The principal markets for our ethanol are petroleum terminals in the continental United States. The principal purchasers of ethanol are generally wholesale gasoline distributors or blenders.

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We believe that local markets will be limited and must typically be evaluated on a case-by-case basis. Although local markets may be the easiest to service, they may be oversold because of the number of ethanol producers near our plant, which may depress the price of ethanol in those markets.

Typically, a regional market is one that is outside of the local market, yet within the neighboring states. Some regional markets include large cities that are subject to anti-smog measures in either carbon monoxide or ozone non-attainment areas, or that have implemented oxygenated gasoline programs, such as Chicago, St. Louis, Denver, and Minneapolis. We consider our primary regional market to be large cities within a 450-mile radius of our ethanol plant. In the national ethanol market, the highest demand by volume is primarily in the southern United States and the east and west coast regions.

However, as domestic production of ethanol continues to expand, we anticipate increased international sales. Ethanol export demand, however, tends to fluctuate due to the relative strength of the U.S. dollar compared to foreign currencies and monetary and political policies in other nations. During our 2015 fiscal year, exports of ethanol produced in the U.S. with Canada as the leading importer, followed by Brazil, India, the Philippines, South Korea and the United Arab Emirates.

The markets in which our ethanol is sold will depend primarily upon the efforts of Eco-Energy, Inc. ("Eco-Energy"), which buys and markets our ethanol. We expect Eco-Energy to explore all markets for our ethanol, including export markets. However, due to high transportation costs, and the fact that we are not located near a major international shipping port, we expect a majority of our ethanol to continue to be marketed and sold domestically.

We transport our ethanol primarily by rail. In addition to rail, we service certain regional markets by truck from time to time. We believe that regional pricing tends to follow national pricing less the freight difference.

Over the past several years, there has been an increase in rail traffic congestion throughout the United States primarily due to the increase in cargo trains carrying shale oil from the North Dakota Bakkan oil fields. From time to time, this congestion has affected many ethanol plants' ability to ship ethanol on a timely basis and caused those plants to slow or suspend production. As of the date of this report, our plant has not experienced any material delays from the rail congestion problems. Delays in returning rail cars to our plants may affect our ability to operate our plants at full capacity due to ethanol storage capacity constraints.

Distillers' Grains Markets

We sell distillers' grains as animal feed for beef and dairy cattle, poultry, and hogs. Most of the distillers' grains that we sell are in the form of dried distillers' grains. Currently, the United States ethanol industry exports a significant amount of dried distiller grains. During our 2015 fiscal year, the largest importers of United States distiller grains were China, Mexico, South Korea, Vietnam and Canada. In June 2014, China announced that it would stop issuing import permits for United States distillers' grains due to the presence of a genetically modified trait that was not approved by China for import. This announcement was followed in July 2014 by a new certification requirement that distiller grains shipments to China were free of the genetically modified corn trait. As a result, distillers' grains exports to China decreased during the second half of 2014. However, in December 2014, China lifted the June 2014 ban and the Chinese export market rebounded in early 2015 only to diminish in recent months. Further, a new registration requirement for Chinese importers of distillers grains began on September 1, 2015 which may result in a decline in export demand for distillers grains and declines in the price of distillers' grains in the United States, which could impact our ability to profitably operate.

We also sell modified wet distillers' grains, which typically have a shelf life of a maximum of fourteen days. This provides for a much smaller, more local market and makes the timing of its sale critical. Further, because of its moisture content, the modified wet distillers' grains are heavier and more difficult to handle. The customer must be close enough to justify the additional handling and shipping costs. As a result, modified wet distillers' grains are principally sold only to local feedlots and livestock operations.

Various factors affect the price of distillers' grain, including, among others, the price of corn, soybean meal and other alternative feed products, the performance or value of distillers' grains in a particular feed market, and the supply and demand within the market. Like other commodities, the price of distillers' grains can fluctuate significantly.

Corn Oil Markets

Our corn oil is primarily sold to biodiesel manufacturers and, to a lesser extent, feed lot and poultry markets. We generally transport our corn oil by truck to users located primarily in the upper Midwest.

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Distribution of Principal Products

Our ethanol plant is located in Heron Lake, Minnesota in Jackson County. We selected the plant site because of its accessibility to road and rail transportation and its proximity to grain supplies. The ethanol plant has the facilities necessary to load ethanol and distillers' grains onto trucks and rail cars. It is served by the Union Pacific Railroad. Our site is in close proximity to major highways that connect to major population centers such as Minneapolis, Minnesota; Chicago, Illinois; and Detroit, Michigan.

Ethanol Marketing

Eco-Energy is our ethanol marketer. Pursuant to the agreement we have with Eco-Energy, it has agreed to market the entire ethanol output of our ethanol plant. We pay Eco-Energy a fixed fee for each gallon of ethanol shipped from our plant in consideration of Eco-Energy's services.

Distillers' Grains Marketing

Gavilon Ingredients, LLC ("Gavilon") serves as the distillers' grains marketer for our plant pursuant to a distillers' grains off-take agreement. Pursuant to our agreement with Gavilon, Gavilon purchases all of the distillers' grains produced at our ethanol plant. We pay Gavilon a service fee for its services under this agreement.

Corn Oil Marketing

RPMG, Inc. markets the corn oil produced at our ethanol plant pursuant to a corn oil marketing agreement. We pay RPMG a commission based on each pound of corn oil sold by RPMG under the agreement.

New Products and Services

We did not introduce any new products or services during our fiscal year ended October 31, 2015.

Dependence on One or a Few Major Customers

As discussed above, we have exclusive ethanol marketing agreements with Eco-Energy. Additionally, we have agreements with Gavilon and RPMG to market all of the distillers' grains and corn oil, respectively, produced at the plant. We rely on Eco-Energy, RPMG and Gavilon for the sale and distribution of all of our products, therefore, we are highly dependent on Eco-Energy, RPMG and Gavilon for the successful marketing of our products. Any loss of these companies as our marketing agents for our ethanol, distillers' grains, or corn oil could have a negative impact on our revenues.

Seasonality of Ethanol Sales

Since ethanol is predominantly blended with conventional gasoline for use in automobiles, ethanol demand tends to shift in relation to gasoline demand. As a result, we experience some seasonality of demand for ethanol in the summer months related to increased driving. In addition, we experience some increased ethanol demand during holiday seasons related to increased gasoline demand.

Pricing of Corn and Ethanol

We expect that ethanol sales will represent our primary revenue source and corn will represent our primary component of cost of goods sold. Therefore, changes in the price at which we can sell the ethanol we produce and the price at which we buy corn for our ethanol plant present significant operational risks inherent in our business.

Generally, the price at which ethanol can be sold does not track with the price at which corn can be bought. Historically, ethanol prices have tended to correlate with wholesale gasoline prices, with demand for and the price of ethanol increasing as supplies of petroleum decreased or appeared to be threatened, crude oil prices increased and wholesale gasoline prices increased. However, the prices of both ethanol and corn do not always follow historical trends. Trends in ethanol prices and corn prices are subject to a number of factors and are difficult to predict.

Hedging

We may hedge anticipated corn purchases and ethanol and distillers' grain sales through a variety of mechanisms.

We procure corn through spot cash, fixed-price forward, basis only, futures only, and delayed pricing contracts. Additionally, we may use hedging positions in the corn futures and options market to manage the risk of excessive corn price fluctuations for a portion of our corn requirements.

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For our spot purchases, we post daily corn bids so that corn producers can sell to us on a spot basis. Our fixed-price forward contracts specify the amount of corn, the price and the time period over which the corn is to be delivered. These forward contracts are at fixed prices indexed to Chicago Board of Trade, or CBOT, prices. Our corn requirements can be contracted in advance under fixed-price forward contracts or options. The parameters of these contracts are based on the local supply and demand situation and the seasonality of the price. For delayed pricing contracts, producers will deliver corn to us, but the pricing for that corn and the related payment will occur at a later date.

To hedge a portion of our exposure to corn price risk, we may buy and sell futures and options positions on the CBOT. In addition, our facilities have significant corn storage capacity. At the ethanol plant, we have the ability to store approximately 10 days of corn supply.

Eco-Energy is the exclusive marketer for all of the ethanol produced at our facility. To mitigate ethanol price risk and to obtain the best margins on ethanol that is marketed and sold by our marketer, we may utilize ethanol swaps, over-the-counter ("OTC") ethanol swaps, or OTC ethanol options that are typically settled in cash, rather than gallons of the ethanol we produce.

Our marketing and risk management committee assists the board and our risk management personnel to, among other things, establish appropriate policies and strategies for hedging and enterprise risk.

Sources and Availability of Raw Materials

The primary raw materials used in the production of ethanol at our plant are corn and natural gas. Our ethanol plant also requires significant and uninterrupted amounts of electricity and water. We have entered into agreements for our supply of electricity, natural gas, and water.

Corn Procurement

The cost of corn represented approximately 74.1%, 70.0% and 82.0% of our cost of sales for the years ended October 31, 2015, 2014, and 2013, respectively. At our current production rate of approximately 61 million gallons of ethanol per year, we need to procure approximately 21 million bushels of corn per year for our dry mill ethanol process. Typically, we purchase our corn directly from grain elevators, farmers, and local dealers within approximately 80 miles of Heron Lake, Minnesota.

Generally, higher corn prices will produce lower profit margins and, therefore, negatively affect our financial performance. If a period of high corn prices were to be sustained for some time, such pricing may reduce our ability to operate profitably because of the higher cost of operating our plants. We may not be able to offset any increase in the price of corn by increasing the price of our products. If we cannot offset increases in the price of corn, our financial performance may be negatively affected.

We generally purchase corn through spot cash, fixed-price forward, basis only, and futures only contracts and may utilize hedging positions in the corn futures market for a portion of our corn requirements to manage the risk of excessive corn price fluctuations. Our fixed-price forward contracts specify the amount of corn, the price and the time period over which the corn is to be delivered. These forward contracts are at fixed prices or prices based on the Chicago Board of Trade (CBOT) prices. Our corn requirements can be forward contracted on either a fixed-price basis or futures only contracts. The parameters of these contracts are based on the local supply and demand situation and the seasonality of the price. We also purchase a portion of our corn on a spot basis.

The price and availability of corn is subject to significant fluctuation depending upon a number of factors that affect commodity prices generally. These include, among others, crop conditions, crop production, weather, government programs, and export demands. We can attempt to mitigate fluctuations in the corn and ethanol markets by locking in a favorable margin through the use of hedging activities, including forward contracts. However, we are not always presented with an opportunity to lock in a favorable margin and our plant's profitability may be negatively impacted during periods of high grain prices.

Natural Gas Procurement

The primary source of energy in our manufacturing process is natural gas. The cost of natural gas represented approximately 6.9%, 10.0% and 4.3% of our cost of sales for the years ended October 31, 2015, 2014, and 2013, respectively. We have a facilities agreement with Northern Border Pipeline Company, which allows us access to an existing interstate natural gas pipeline located approximately 16 miles north from our plant.

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We have entered into a firm natural gas transportation agreement with our majority owned subsidiary, Agrinatural Gas, LLC. Under the terms of the firm natural gas transportation agreement, Agrinatural will provide natural gas to the plant with a specified price per MMBTU for an initial term of 10 years, with two automatic renewal options for five years periods. On July 1, 2014, we entered into an amendment of this agreement pursuant to which we agreed on an early exercise of one of the two automatic five-year term renewals thereby extending the term of the firm natural gas transportation agreement to October 31, 2021.

We also have a base agreement for the sale and purchase of natural gas with Constellation NewEnergy—Gas Division, LLC. We buy all of our natural gas from Constellation and this agreement runs until March 31, 2016.

The prices for and availability of natural gas are subject to volatile market conditions.  These market conditions often are affected by factors beyond our control such as higher prices as a result of colder than average weather conditions or natural disasters, overall economic conditions and foreign and domestic governmental regulations and relations.  Significant disruptions in the supply of natural gas could impair our ability to manufacture ethanol and more significantly, dried distillers grains for our customers.  Furthermore, increases in natural gas prices or changes in our natural gas costs relative to natural gas costs paid by competitors may adversely affect our results of operations and financial condition.

Electricity

Our plant requires a continuous supply of electricity. We have agreements in place to supply electricity to our plant.

Water

Our plant also requires a continuous supply of water, which we obtain pursuant to an industrial water supply agreement with the City of Heron Lake and Jackson County, Minnesota.

Process Improvement

We are continually working to develop new methods of operating the ethanol plant more efficiently. We continue to conduct process improvement activities in order to realize these efficiency improvements.

Patents, Trademarks, Licenses, Franchises and Concessions

We do not currently hold any patents, trademarks, franchises or concessions. We were granted a license by ICM to use certain ethanol production technology necessary to operate our ethanol plant. The cost of the license granted by ICM was included in the amount we paid to Fagen, Inc. to design and build our ethanol plant.

Competition

Producers of Ethanol

We sell our ethanol in a highly competitive market. Ethanol is a commodity product where competition in the industry is predominantly based on price.

We are in direct competition with numerous other ethanol producers, both regionally and nationally, many of which have more experience and greater resources than we have. Some of these producers are, among other things, capable of producing a significantly greater amount of ethanol or have multiple ethanol plants that may help them achieve certain benefits that we could not achieve with one ethanol plant. Further, new products or methods of ethanol production developed by larger and better-financed competitors could provide them competitive advantages over us and harm our business.

Following the significant growth in the ethanol industry during 2005 and 2006, the ethanol industry has grown at a much slower pace. According to the RFA, as of November 13, 2015, there are approximately 213 biorefineries with a total nameplate capacity of 15.5 billion gallons of ethanol per year. However, the RFA estimates that approximately 3% of the ethanol production capacity in the United States was not operating as of November 13, 2015.

The largest ethanol producers include: Abengoa Bioenergy Corp.; Archer Daniels Midland Company; Cargill, Inc.; Flint Hills Resources, LP; Green Plains, Inc.; POET, LLC and Valero Renewable Fuels, each of which are capable of producing significantly more ethanol than we produce. Ethanol is a commodity product where competition in the industry is predominantly based on price. Larger ethanol producers may have an advantage over us from economies of scale and stronger negotiating positions with purchasers. This could put us at a competitive disadvantage to other ethanol producers.

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The following table identifies the top five largest ethanol producers in the United States along with their production capacities.

Company	Nameplate Capacity (mmgy)
Archer Daniels Midland	1,762
POET Biorefining	1,626
Valero Renewable Fuels	1,300
Green Plains, Inc.	1,085
Flint Hills Resources LP	820

Updated: November 13, 2015, Renewable Fuels Association

A majority of the United States ethanol plants, and therefore, the greatest number of gallons of ethanol production capacity, are concentrated in the corn-producing states of Iowa, Nebraska, Illinois, Indiana, Minnesota, South Dakota, Ohio, Wisconsin, Kansas, and North Dakota. Below is the United States ethanol production by state in millions of gallons for the ten states with the most total ethanol production:

State	Nameplate	Operating	Under Construction/ Expansion	Total
Iowa	3,990	3,985	30	4,020
Nebraska	2,044	1,991	—	2,044
Illinois	1,472	1,434	—	1,472
Indiana	1,148	1,046	—	1,148
Minnesota	1,147	1,129	—	1,147
South Dakota	1,024	1,024	—	1,024
Kansas	529	504	—	529
Ohio	528	528	—	528
Wisconsin	516	516	5	521
North Dakota	382	382	65	447
Total	12,780	12,539	100	12,880

Source: Renewable Fuels Association, 2015 Ethanol Industry Outlook issued January 2015.

Because Minnesota is one of the top producers of ethanol in the United States, we face increased competition because of the location of our ethanol plant. There are eight ethanol plants within an approximate 50 mile radius of our plant with a combined ethanol capacity of 586 million gallons. Therefore, we compete with other ethanol producers both for markets in Minnesota and markets in other states. We believe that we are able to reach the best available markets through the use of our experienced marketer and by the rail delivery methods we use. We believe that we can compete favorably with other ethanol producers due to our proximity to ample grain, natural gas, electricity and water supplies at favorable prices.

In addition to intense competition with local, regional, and national producers of ethanol, we have faced increased competition from imported ethanol and foreign producers of ethanol, most likely due to the expiration of the 2.5 percent ad valorem tax and an additional 54 cents a gallon surcharge in December 2011. Although ethanol imports have decreased since 2012, if demand for imported ethanol were to increase again, demand for domestic ethanol may be reduced, which could lead to lower domestic prices and lower operating margins.

We anticipate increased competition from renewable fuels that do not use corn as the feedstock. Many of the current ethanol production incentives are designed to encourage the production of renewable fuels using raw materials other than corn. One type of ethanol production feedstock that is being explored is cellulose. Cellulose is found in wood chips, corn stalks and rice straw, amongst other common plants. Several companies and researchers have commenced pilot projects to study the feasibility of commercially producing cellulosic ethanol and three companies have announced they have begun producing on a commercial scale this past year. If this technology can be profitably employed on a commercial scale, it could potentially lead to ethanol that is less expensive to produce than corn based ethanol, especially when corn prices are high. Cellulosic ethanol may also capture more government subsidies and assistance than corn based ethanol. This could decrease demand for our product or result in competitive disadvantages for our ethanol production process.

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Producers of Other Fuel Additives and Alternative Fuels

In addition to competing with ethanol producers, we also compete with producers of other gasoline oxygenates. Many gasoline oxygenates are produced by other companies, including oil companies, that have far greater resources than we have. Historically, as a gasoline oxygenate, ethanol primarily competed with two gasoline oxygenates, both of which are ether-based: MTBE (methyl tertiary butyl ether) and ETBE (ethyl tertiary butyl ether). Many states have enacted legislation prohibiting the sale of gasoline containing certain levels of MTBE or are phasing out the use of MTBE because of health and environmental concerns. As a result, national use of MTBE has decreased significantly in recent years. Use of ethanol now exceeds that of MTBE and ETBE as a gasoline oxygenate.

While ethanol has displaced these two gasoline oxygenates, the development of ethers intended for use as oxygenates is continuing and we will compete with producers of any future ethers used as oxygenates.

A number of automotive, industrial and power generation manufacturers are developing alternative fuels and clean power systems, both for vehicles and other applications, using fuel cells, plug-in hybrids, electric cars or clean burning gaseous fuels. Like ethanol, the emerging fuel cell industry offers a technological option to address worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns. Fuel cells have emerged as a potential alternative power system to certain existing power sources because of their higher efficiency, reduced noise and lower emissions. Fuel cell industry participants are currently targeting the transportation, stationary power, and portable power markets in order to decrease fuel costs, lessen dependence on crude oil, and reduce harmful emissions. If the fuel cell industry continues to expand and gain broad acceptance, and becomes readily available to consumers for motor vehicle use, we may not be able to compete effectively. This additional competition could reduce the demand for ethanol, which would negatively impact our profitability.

Additionally, there are more than a dozen alternative and advanced fuels currently in development, production or use, including the following alternative fuels that, like ethanol, have been or are currently commercially available for vehicles:

• biodiesel

• electricity

• hydrogen

• methanol

• natural gas

• propane

Several emerging fuels are currently under development. Many of these fuels are also considered alternative fuels and may have other benefits such as reduced emissions or decreasing dependence upon oil. Examples of emerging fuels include:

• Biobutanol: Like ethanol, biobutanol is an alcohol that can be produced through the processing of domestically grown crops, such as corn and sugar beets, and other biomass, such as fast-growing grasses and agricultural waste products.

• Biogas: Biogas is produced from the anaerobic digestion of organic matter such as animal manure, sewage, and municipal solid waste. After it is processed to required standards of purity, biogas becomes a renewable substitute for natural gas and can be used to fuel natural gas vehicles.

• Fischer-Tropsch Diesel: Diesel made by converting gaseous hydrocarbons, such as natural gas and gasified coal or biomass, into liquid fuel, including transportation fuel.

• Hydrogenation-Derived Renewable Diesel (HDRD): The product of fats or vegetable oils—alone or blended with petroleum—that has been refined in an oil refinery.

• P-Series: A blend of natural gas liquids (pentanes plus), ethanol, and the biomass-derived co-solvent methyltetrahydrofuran (MeTHF) formulated to be used in flexible fuel vehicles.

• Ultra-Low Sulfur Diesel: This is diesel fuel with 15 parts per million or lower sulfur content. This ultra-low sulfur content enables the use of advanced emission control technologies on vehicles using ULSD fuels produced from non-petroleum and renewable sources that are considered alternative fuels.

Additionally, there are developed and developing technologies for converting natural gas, coal, and biomass to liquid fuel, including transportation fuels such as gasoline, diesel, and methanol. We expect that competition will increase between ethanol producers, such as HLBE, and producers of these or other newly developed alternative fuels or power systems, especially to the extent they are used in similar applications such as vehicles.

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Producers of Distillers' Grains

The amount of distillers' grains produced annually in North America has increased significantly as the number of ethanol plants increased. We compete with other producers of distillers' grains products both locally and nationally, with more intense competition for sales of distillers' grains among ethanol producers in close proximity to our ethanol plant. There are eight ethanol plants within an approximate 50 mile radius of our plant with a combined capacity capable of producing approximately 1.8 million tons of distillers' grains. These competitors may be more likely to sell to the same markets that we target for our distillers' grains.

Additionally, distillers' grains compete with other feed formulations, including corn gluten feed, dry brewers' grain, and mill feeds. The primary value of these products as animal feed is their protein content. Dry brewers' grain and distillers' grains have about the same protein content, and corn gluten feed and mill feeds have slightly lower protein contents. Distillers' grains contain nutrients, fat content, and fiber that we believe will differentiate our distillers' grains products from other feed formulations. However, producers of other forms of animal feed may also have greater experience and resources than we do, and their products may have greater acceptance among producers of beef and dairy cattle, poultry, and hogs.

Competition for Corn

We will compete with ethanol producers in close proximity of our plant for the supplies of corn required to operate our plant. The existence of other ethanol plants, particularly those in close proximity to our plant, increase the demand for corn and may result in higher costs for supplies of corn. There are eight ethanol plants within an approximate 50 mile radius of our plant that use approximately 211 million bushels of corn and that we will compete with these other ethanol plants for corn for our ethanol plant.

We compete with other users of corn, including ethanol producers regionally and nationally, producers of food and food ingredients for human consumption (such as high fructose corn syrup, starches, and sweeteners), producers of animal feed and industrial users.

Competition for Personnel

We will also compete with ethanol producers in close proximity of our facility for the personnel required to operate our plant. The existence and development of other ethanol plants will increase competition for qualified managers, engineers, operators and other personnel. We also compete for personnel with businesses other than ethanol producers and with businesses located outside the community of Heron Lake, Minnesota.

Demand for Ethanol

In recent years, the demand for ethanol has increased, particularly in the upper Midwest, in part because of two major programs established by the Clean Air Act Amendments of 1990: the Oxygenated Gasoline Program and the Reformulated Gasoline Program. Under these programs, an additive (oxygenate) is required to be blended with gasoline used in areas with excessive carbon monoxide or ozone pollution to help mitigate these conditions. Because of the potential health and environmental issues associated with MTBE and the actions of the EPA, ethanol is now used as the primary oxygenate in those areas requiring an oxygenate additive pursuant to state or federal law. A clean air additive is a substance that, when added to gasoline, reduces tailpipe emissions, resulting in improved air quality characteristics. Ethanol contains 35% oxygen, approximately twice that of MTBE, a historically used oxygenate. The additional oxygen found in ethanol results in more complete combustion of the fuel in the engine cylinder, which reduces tailpipe emissions by as much as 30%, including a 12% reduction in volatile organic compound emissions when blended at a 10% level. Pure ethanol, which is non-toxic, water soluble and biodegradable, replaces some of the harmful gasoline components, including benzene. The United States consumes approximately 135-140 billion gallons of gasoline a year. More than 95% of those gallons were blended with ethanol, predominantly at the E10 level.

Many in the ethanol industry believe that it will be difficult to meet the federal Renewable Fuels Standard renewable volume obligations in future years without an increase in the percentage of ethanol that can be blended with gasoline for use in standard (non-flex fuel) vehicles. This is commonly referred to as the “blend wall,” which represents a theoretical limit where more ethanol cannot be blended into the national gasoline pool. This is a theoretical limit because it is believed that it would not be possible to blend ethanol into every gallon of gasoline that is being used in the United States and it discounts the possibility of additional ethanol used in higher percentage blends such as E85 used in flex fuel vehicles.

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We believe that the "blend wall" is one of the most critical governmental policies currently facing the ethanol industry. The "blend wall" arises because of several conflicting requirements. First, the renewable fuels standards dictate a continuing increase in the amount of ethanol blended into the national gasoline supply requiring 36 billion gallons of renewable fuels be used annually by 2022. Second, the EPA mandates a limit of 10% ethanol inclusion in non-flex fuel vehicles. E10 is the most common ethanol blend sold and the only blend the EPA has approved for use in all American automobiles. There is growing availability of E85 (85% ethanol and 15% gasoline) for use in flexible fuel vehicles, however it is limited due to lacking infrastructure. In addition, the industry has been working to introduce E15 to the retail market since the EPA issued final approval in 2012 for the sale and use of E15 ethanol blends in light duty passenger vehicles model year 2001 and newer. Since that time, our application with the EPA to register ethanol for use in making E15 has also been approved, as well as 81 other fuel manufacturers according to EPA data. However, wide spread adoption of E15 is hampered by regulatory and infrastructure hurdles in many states, as well as consumer acceptance. To date only thirteen states have approved the commercial sale of E15. As such, we do not anticipate that E15 will impact ethanol demand or pricing in the near term. Additionally, sales of E15 may be limited because: (i) it is not approved for use in all vehicles; (ii) the EPA requires a label that management believes may discourage consumers from using E15; and (iii) retailers may choose not to sell E15 due to concerns regarding liability. In addition, different gasoline blendstocks may be required at certain times of the year in order to use E15 due to federal regulations related to fuel evaporative emissions. This may prevent E15 from being used during certain times of the year in various states. As a result, management believes that E15 may not have an immediate impact on ethanol demand in the United States. Rather, management believes consumer acceptance of E15 and flex fuel vehicles, along with continued growth of E85, is necessary before ethanol can achieve any market growth beyond the blend wall. As industry production capacity reaches the blend wall, the supply of ethanol in the market may surpass the demand which in turn may negatively impact prices.

Government Ethanol Supports

The ethanol industry is dependent on several economic incentives to produce ethanol, the most significant of which is the federal Renewable Fuels Standard (the "RFS"). The RFS is a national program that does not require that any renewable fuels be used in any particular area or state, allowing refiners to use renewable fuel blends in those areas where it is most cost-effective. Under the RFS, the EPA is supposed to pass an annual rule that establishes the number of gallons of different types of renewable fuels that must be used in the United States which is called the renewable volume obligations ("RVOs"). On November 30, 2015, the EPA released the long-delayed final renewable volume obligations for corn-based ethanol for 2014 through 2016. The final RVO’s for corn-based ethanol blending exceeded the RVO reductions initially proposed by the EPA in May 2015, but remained below the original blending requirements set by the RFS. The following chart illustrates the minimum usage established by the RFS statute and the minimums established in the November 30, 2015 final rule:

Year	RVO Source	Total Renewable Fuel RVO	Cellulosic Ethanol Minimum Requirement	Biodiesel Minimum Requirement	Advanced Biofuel Requirement	Maximum Amount of Conventional That Can Be Used to Satisfy TotalRenewable Fuel RVO
2014	RFS Statute	18.15	1.75	—	3.37	14.40
	EPA Final Rule	16.28	0.03	1.63	2.64	13.61
2015	RFS Statute	20.50	3.00	—	5.50	15.00
	EPA Final Rule	16.93	0.12	1.73	2.88	14.05
2016	RFS Statute	22.25	4.25	—	7.25	15.00
	EPA Final Rule	18.11	0.23	1.90	3.61	14.51

Current ethanol production capacity exceeds the EPA's 2014, 2015 and 2016 RVO standard which can be satisfied by corn based ethanol. 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 or E85 blending develops.

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Compliance with Environmental Laws and Other Regulatory Matters

Our business subjects us to various federal, state, and local environmental laws and regulations, including: those relating to discharges into the air, water, and ground; the generation, storage, handling, use, transportation, and disposal of hazardous materials; and the health and safety of our employees. These laws and regulations require us to obtain and comply with numerous permits to construct and operate our ethanol plant, including water, air, and other environmental permits. The costs associated with obtaining these permits and meeting the conditions of these permits have increased our costs of construction and production. Additionally, compliance with environmental laws and permit conditions in the future could require expensive pollution control equipment or operational changes to limit actual or potential impacts to the environment, as well as significant management time and expense. A violation of these laws, regulations or permit conditions can result in substantial fines, natural resource damage, criminal sanctions, permit revocations, and/or plant shutdown, any of which could have a material adverse effect on our operations. Although violations and environmental non-compliance still remain a possibility following our conversion from coal to natural gas combustion, the exposure to the company has been greatly reduced.

For the fiscal year ended October 31, 2015, we incurred costs and expenses of approximately $191,000 complying with environmental laws, including the cost of pursuing permit amendments. Although we have been successful in obtaining all of the permits currently required, any retroactive change in environmental regulations, either at the federal or state level, could require us to obtain additional or new permits or spend considerable resources in complying with such regulations.

When the EPA released its final regulations on the RFS, the gallons produced by first-generation ethanol plants utilizing corn starch, such as the HLBE plant, were grandfathered to generate Renewable Identification Numbers ("RINs") for compliance with the RFS at its then permitted capacity of 59.2 million gallons per year. However, to generate RINs that qualify for compliance with the RFS program, any new production above the grandfathered gallons must meet a threshold of a 20% reduction in greenhouse gas, or GHG, emissions from a 2005 baseline measurement to produce ethanol eligible for the RFS mandate.

In September 2014, the EPA announced a new expedited petition process, referred to as the "efficient producer" petition, for existing corn starch and grain sorghum ethanol producers to gain pathway approval and qualify to generate RINs for production volumes above those grandfathered under the RFS. On January 13, 2015, we submitted an efficient producer petition to the EPA which was approved by the EPA on March 12, 2015. In the approval determination, the EPA's analysis indicated that we achieved at least a 20.1% reduction in GHG emissions for their non-grandfathered volumes compared to the baseline lifecycle GHG emissions.

Pursuant to the award approval, we are only authorized to generate RINs for our plant's non-grandfathered volumes if we can demonstrate that all ethanol produced at the plant during an averaging period (defined as the prior 365 days or the number of days since the date of the EPA efficient producer pathway approval) meets the 20% GHG reduction requirement. To make this demonstration, we must develop a compliance plan and keep certain records as specified in the approvals. Additionally, we must register with the EPA as a renewable fuel producer for the non-grandfathered volumes and satisfy the registration requirements, which include completing an engineering study by an independent engineer and a submitting our proposed compliance plan for approval. As of the date of this report, we have completed and submitted the required engineering study and our proposed compliance plan to the EPA for review and approval. Although we believe we will be able to satisfactorily complete the registration process, there is no guarantee that we will complete registration timely or at all, or, even if we do, that we will be able to maintain continuous compliance with the 20% reduction in GHG emissions requirement. If we do not complete the required registration or maintain continuous compliance with the 20% reduction in GHG emissions requirement, we will not be able issue RINs for the non-grandfathered volumes of ethanol produced at the plant. As a result, we may be forced to rely on export sales for these non-grandfathered volumes of ethanol, which could adversely affect our operating margins, which, in turn could adversely affect our results of operations, cash flows and financial condition.

The California Air Resources Board, or CARB, has adopted a Low Carbon Fuel Standard, or LCFS, requiring a 10% reduction in average carbon intensity of gasoline and diesel transportation fuels from 2010 to 2020.  After a series of rulings that temporarily prevented CARB from enforcing these regulations, the LCFS regulations took effect in January 2013. The practical effect of California's low carbon fuel standard is that it precludes grain-based ethanol from outside California. Federal and state challenges to the LCFS remain ongoing but if ultimately unsuccessful, the LCFS could have a negative impact on demand for corn-based ethanol and result in decreased ethanol prices.

In February 2013, an anti-dumping duty was imposed as a regulation by the Council of the European Union. The Company does not export any ethanol to Europe at this time. Continuation of this duty or imposition of tariffs by other countries or regions could reduce United States exports to Europe, and possibly other export markets. A reduction of exports to Europe could have an adverse effect on domestic ethanol prices, as the available supply of ethanol for the domestic market would increase.

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Employees

As of the date of this report, we have 39 full time employees, of which 5 employees are involved primarily in management and administration and the remaining employees are involved primarily in plant operations. We do not currently anticipate any significant change in the number of employees at our plant.

On July 31, 2013, we entered into a Management Services Agreement with Granite Falls Energy.  Pursuant to the Management Services Agreement, GFE agreed to provide its own personnel to act as part-time officers and managers of the Company for the positions of Chief Executive Officer, Chief Financial Officer, and Commodity Risk Manager.  Each person providing management services to the Company under the Management Services Agreement is subject to oversight by our board of governors.  However, the Chief Executive Officer is solely responsible for hiring and firing persons providing management services under the Management Services Agreement.

The initial term of the Management Services Agreement ends on July 30, 2016.  Following the initial term, the Management Services Agreement automatically renews for additional one year terms unless either party gives notice of termination at least ninety days before the end of the initial or any renewal term.  The Management Services Agreement may also be terminated for cause under certain circumstances. 

GFE is responsible for and agreed to directly pay salary, wages, and/or benefits to the persons providing management services under the Management Services Agreement.  The Company agreed to pay GFE $35,000 per month for the first year of the Management Services Agreement.  During years two and three of the Management Services Agreement, the Company agreed to pay GFE 50% of the total salary, bonuses and other expenses and costs (including all benefits and tax contributions) incurred by GFE for the three management positions, paid on an estimated monthly basis with a “true-up” following the close of GFE’s fiscal year.

Natural Gas Pipeline Segment

Through our wholly owned subsidiary, HLBE Pipeline Company, LLC, we indirectly own 73% of Agrinatural Gas, LLC, a Delaware limited liability company. RES owns the remaining 27% non-controlling interest in Agrinatural. RES is owned by Swan Engineering, Inc. ("SEI") and an unrelated third party. SEI provides project management and management and operating services to Agrinatural as described below.

Agrinatural is governed by a seven (7) member board of managers. Under Agrinatural's operating agreement, we have the right to appoint four (4) of the seven (7) managers and RES has the right to appoint three (3) managers.

Agrinatural is a natural gas distribution and sales company located in Heron Lake, Minnesota. Agrinatural's natural gas pipeline originates from an interconnection with the natural gas transmission pipeline of Northern Border Pipeline Company approximately seven miles southwest of Jeffers, Minnesota in Cottonwood County. Agrinatural currently owns and operates approximately 187 miles of distribution mains and services. The Agrinatural pipeline was initially installed in 2011 to serve the Company. Since the initial installation of the pipeline, Agrinatural has added several other commercial, agricultural and residential customers in the communities and surrounding areas of Heron Lake, Jeffers, Delft, Dundee, Storder, and Okabena, Minnesota. As of October 31, 2015, Agrinatural has 732 customers.

On March 27, 2015, Agrinatural terminated its prior management and operating agreement with SEI and executed a new management and operating agreement with SEI. Under the new management and operating agreement, SEI will continue to provide Agrinatural with day-to-day management and operation of Agrinatural's pipeline distribution business. In exchange for these services, Agrinatural will pay SEI an aggregate management fee equal to the fixed monthly base fee plus the variable customer management fee based on the number of customers served on the pipeline less the agreed monthly fee reduction of $4,500. Under the previous management and operating agreement with SEI, Agrinatural paid SEI monthly fee of $6,000. The new management and operating agreement with SEI expires July 1, 2019 unless earlier terminated for cause as defined in the agreement.

On March 27, 2015, Agrinatural also executed a new project management agreement with SEI, replacing the prior project management agreement with SEI. Pursuant to the new project management agreement, SEI will continue to supervise all of Agrinatural's pipeline construction projects. These projects are constructed by unrelated third-party pipeline construction companies. Under the new project management agreement, Agrinatural will pay SEI a total of 10% of the actual capital expenditures for construction projects approved by Agrinatural's Board of Directors, excluding capitalized marketing costs. The new project management with SEI expires June 30, 2019 unless earlier terminated for cause as defined in the agreement.

On March 30, 2015, Agrinatural entered into a restructure agreement with SEI. Pursuant to the SEI restructure agreement, Mychael Swan, the principal of SEI, resigned as the CEO of Agrinatural effective as January 10, 2015. Mr. Swan will continue to serve as the Chairman of the Agrinatural board of managers.

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On March 31, 2015, Agrinatural entered into a professional services agreement with Wildwood Technology, LLC. Pursuant to the Wildwood Technology agreement, Wildwood Technology will act as the chief financial officer of Agrinatural through the services of its principal, Ann Tessier. Pursuant to the Wildwood Technology agreement, Agrinatural will pay Wildwood Technology $6,000 per month for the services provided by Ms. Tessier. The Wildwood Technology agreement may be terminated at any time upon 30 day prior written notice by either party.

On April 2, 2015, Agrinatural entered into a professional services agreement with Woodbury Consulting, LLC. Pursuant to the Woodbury Consulting agreement, Woodbury Consulting will act as the chief executive officer of Agrinatural, effective as of January 1, 2015, through the services of its principal, John Sprangers. Pursuant to the Woodbury Consulting agreement, Agrinatural will pay Woodbury Consulting $150 per hour for the services provided by Mr. Sprangers plus travel expenses. The Woodbury Consulting agreement may be terminated at any time upon 30 day prior written notice by either party.

Additionally, the Company has entered into two intercompany credit facilities with Agrinatural. Under these credit facilities, the Company agreed to make a five-year term loan in the principal amount of $3.05 million and 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. Details of the Agrinatural credit facilities are provided below in the section below entitled "PART II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources; Indebtedness".

Assets from our natural gas pipeline segment have represented 19.5%, 18.6% and 10.2% of our consolidated total assets in the years ended October 31, 2015, 2014, and 2013, respectively. Agrinatural's assets consist of distribution main pipelines and service pipelines, together with the associated easement and land rights, a town border station, meters and regulators, office and other equipment and construction in process.

Agrinatural's revenues are generated through natural gas distribution fees and sales, including distribution fees paid by the Company pursuant to our firm natural gas transportation agreement with Agrinatural. Before intercompany eliminations, revenues from our natural gas pipeline segment represented 2.4%, 1.8% and 1.5% of our total consolidated revenues in the years ended October 31, 2015, 2014, and 2013, respectively. After accounting for intercompany eliminations for fees from the Company for natural gas transportation services, Agrinatural's revenues represented 0.9%, 0.6% and 0.6% of our consolidated revenues for the fiscal years ended October 31, 2015, 2014, and 2013, respectively, and have little to no impact on the overall performance of the Company.

Financial Information about Geographic Areas

All of our operations are domiciled in the United States, including those of Agrinatural, our majority owned subsidiary. All of the products sold to our customers for the fiscal years ended October 31, 2015, 2014, and 2013 were produced in the United States and all of our long-lived assets are domiciled in the United States.

For the principal products of our ethanol production segment, we have engaged third-party professional marketers who decide where our products are marketed and we have no control over the marketing decisions made by our third-party professional marketers. These third-party marketers may decide to sell our products in countries other than the United States. However, we anticipate that our products will primarily be sold in the United States.

ITEM 1A.    RISK FACTORS

You should carefully read and consider the risks and uncertainties below and the other information contained in this report.  The risks and uncertainties described below are not the only ones we may face.  The following risks, together with additional risks and uncertainties not currently known to us or that we currently deem immaterial could impair our financial condition and results of operation. If any of the following risks actually occur, our results of operations, cash flows and the value of our units could be negatively impacted.

Risks Relating to Our Ethanol Production Operations

Because we are primarily dependent upon one product of our ethanol production segment, our business is not diversified, and we may not be able to adapt to changing market conditions or endure any decline in the ethanol industry.

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Our success depends on our ability to efficiently produce and sell ethanol, and, to a lesser extent, distillers' grains and corn oil. Although we operate a natural gas pipeline through our majority owned subsidiary, it does not produce significant revenue to rely upon if we are unable to produce and sell ethanol, distillers' grains and corn oil, or if the market for those products decline. Our lack of diversification means that we may not be able to adapt to changing market conditions, changes in regulation, increased competition or any significant decline in the ethanol industry.

Our profitability depends upon purchasing corn at lower prices and selling ethanol at higher prices and because the difference between ethanol and corn prices can vary significantly, our financial results may also fluctuate significantly.

The results of our ethanol production business are highly impacted by commodity prices. The substantial majority of our revenues are derived from the sale of ethanol. Our gross profit relating to the sale of ethanol is principally dependent on the difference between the price we receive for the ethanol we produce and the cost of corn and natural gas that we must purchase. Prices and supplies of corn and natural gas are subject to and determined by market forces over which we have no control, such as weather, domestic and global demand, shortages, export prices, and various governmental policies in the United States and around the world. As a result of price volatility for these commodities, our operating results may fluctuate substantially. Increases in corn or natural gas prices or decreases in ethanol, distillers' grains and corn oil prices may make it unprofitable to operate our plant. No assurance can be given that we will be able to purchase corn and natural gas at, or near, current prices and that we will be able to sell ethanol, distillers' grains and corn oil at, or near, current prices. Consequently, our results of operations and financial position may be adversely affected by increases in the price of corn or natural gas or decreases in the price of ethanol, distillers' grains and corn oil. 

We seek to minimize the risks from fluctuations in the prices of corn and natural gas through the use of hedging instruments.  However, these hedging transactions also involve risks to our business.  If we were to experience relatively higher corn and natural gas costs compared to the selling prices of our products for an extended period of time, the value of our units may be reduced.

Sustained negative operating margins may require some ethanol producers to temporarily limit or cease production.

Our ability and the ability of other ethanol producers to operate profitably is largely determined by the spread between the price paid for corn and the price received for ethanol. If this spread is narrow or is negative for a sustained period, some ethanol producers may elect to temporarily limit or cease production until their possibility for profitability returns. Although we currently have no plans to limit or cease ethanol production, we may be required to do so if we experience a period of sustained negative operating margins. In such an event, we would still incur certain fixed costs, which would impact our financial performance.

Declining oil prices and resultant lower gas prices may materially affect ethanol pricing and demand.

Ethanol has historically traded at a discount to gasoline; however with the recent volatility in oil and gas prices, ethanol prices have also fluctuated. When ethanol trades at a discount to gasoline it encourages discretionary blending, thereby increasing the demand for ethanol beyond required blending rates. Conversely, when ethanol trades at a premium to gasoline, there is a disincentive for discretionary blending and ethanol demand is negatively impacted. Consequently, ethanol pricing and demand may also be volatile, which makes it difficult to manage profit margins and which could result in a material adverse effect on our business, results of operations and financial condition.

If the supply of ethanol exceeds the demand for ethanol, the price we receive for our ethanol and distillers' grains may decrease.

Domestic ethanol production capacity has increased substantially over the past decade. However, demand for ethanol may not increase as quickly as expected or to a level that exceeds supply, or at all.

Excess ethanol production capacity may result from decreases in the demand for ethanol or increased domestic production or imported supply. There are many factors affecting demand for ethanol, including regulatory developments and reduced gasoline consumption as a result of increased prices for gasoline or crude oil. Higher gasoline prices could cause businesses and consumers to reduce driving or acquire vehicles with more favorable gasoline mileage, or higher prices could spur technological advances, such as the commercialization of engines utilizing hydrogen fuel-cells, which could supplant gasoline-powered engines. There are a number of governmental initiatives designed to reduce gasoline consumption, including tax credits for hybrid vehicles and consumer education programs.

If ethanol prices decline for any reason, including excess production capacity in the ethanol industry or decreased demand for ethanol, our business, results of operations and financial condition may be materially and adversely affected.

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In addition, because ethanol production produces distillers' grains as a co-product, increased ethanol production will also lead to increased production of distillers' grains. An increase in the supply of distillers' grains, without corresponding increases in demand, could lead to lower prices or an inability to sell our distillers' grains production. A decline in the price of distillers' grains or the distillers' grains market generally could have a material adverse effect on our business, results of operations and financial condition.

Excess ethanol supply in the market could put negative pressure on the price of ethanol which could lead to tight operating margins and may impact our ability to operate profitably.

In the past the ethanol industry has confronted market conditions where ethanol supply exceeded demand which led to unfavorable operating conditions. Most recently, in 2012, profitability in the ethanol industry was reduced due to increased ethanol imports from Brazil at a time when gasoline demand in the United States was lower and domestic ethanol supplies were higher. This disconnect between ethanol supply and demand resulted in lower ethanol prices at a time when corn prices were higher which led to unfavorable operating conditions. We may experience periods of time when ethanol supply exceeds demand which could negatively impact our profitability. The United States benefited from additional exports of ethanol during our 2015 fiscal year which may not continue to occur during our 2016 fiscal year. We may experience periods of ethanol supply and demand imbalance during our 2016 fiscal year, especially since the corn-based ethanol use requirement in the RFS was reduced by the EPA in November 2015 compared to the statutory requirements. If we experience excess ethanol supply, either due to increased ethanol production or lower gasoline demand, it could negatively impact the price of ethanol which could hurt our ability to profitably operate the ethanol plant.

The price of distillers' grains is affected by the price of other commodity products, such as soybeans, and decreases in the price of these commodities could decrease the price of distillers' grains.

Distillers' grains compete with other protein-based animal feed products. The price of distillers' grains may decrease when the price of competing feed products decrease. The prices of competing animal feed products are based in part on the prices of the commodities from which they are derived. Downward pressure on commodity prices, such as soybeans, will generally cause the price of competing animal feed products to decline, resulting in downward pressure on the price of distillers' grains. The price of distillers' grains is not tied to production costs. However, decreases in the price of distillers' grains would result in less revenue from the sale of distillers' grains and could result in lower profit margins.

The prices of ethanol and distillers' grains may decline as a result of trade barriers imposed by foreign countries with respect to ethanol and distillers' grains originating in the United States and negatively affect our profitability.

An increasing amount of our industry's products are being exported. If producers and exporters of ethanol and distillers' grains are subjected to trade barriers when selling products to foreign customers there may be a reduction in the price of these products in the United States. Declines in the price we receive for our products will lead to decreased revenues and may result in our inability to operate the ethanol plant profitably.

China, the largest buyer of distillers' grains in the world, announced in June 2014 that it would stop issuing import permits for United States distillers' grains due to the presence of a genetically modified trait was not approved by China for import. As a result, Chinese imports of distillers' grains for the second half of 2014 were halted and a drop in distillers' grains prices followed. Following the resolution of these issues in December 2014, Chinese imports resumed at volumes prior to the ban. However, a new registration requirement for Chinese importers of distillers grains began on September 1, 2015 which may result in a decline in export demand for distillers grains. If United States producers can not satisfy import requirements imposed by China or other countries importing distillers' grains, export demand could be significantly reduced as a result. If export demand of distillers' grains is significantly reduced as a result, the price of distillers' grains in the United States would likely continue to decline which would have a negative effect on our revenue and could impact our ability to profitably operate which could in turn reduce the value of our units.

We face intense competition that may result in reductions in the price we receive for our ethanol, increases in the prices we pay for our corn, or lower gross profits.

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Competition in the ethanol industry is intense. We face formidable competition in every aspect of our business from both larger and smaller producers of ethanol and distillers' grains. Some larger producers of ethanol, such as Archer Daniels Midland Company, Cargill, Inc., Valero Energy Corporation, have substantially greater financial, operational, procurement, marketing, distribution and technical resources than we have. Additionally, smaller competitors, such as farmer-owned cooperatives and independent companies owned by farmers and investors, have business advantages, such as the ability to more favorably procure corn by operating smaller plants that may not affect the local price of corn as much as a larger-scale plant like ours or requiring their farmer-owners to sell them corn as a requirement of ownership. Competing ethanol producers may introduce competitive pricing pressures that may adversely affect our sales levels and margins or our ability to procure corn at favorable prices. As a result, we cannot assure you that we will be able to compete successfully with existing or new competitors.

Because Minnesota is one of the top producers of ethanol in the United States, we face increased competition because of the location of our ethanol plants.

We also face increasing competition from international ethanol suppliers. Most international ethanol producers have cost structures that can be substantially lower than ours and therefore can sell their ethanol for substantially less than we can. While ethanol imported to the United States was subject to an ad valorem tax and a per gallon surcharge that helped mitigate the effects of international competition for United States ethanol producers, the tax and per gallon surcharge expired on December 31, 2011. Because the tax and surcharge on imported ethanol was not extended beyond December 31, 2011, we are facing increased competition from imported ethanol and foreign producers of ethanol. In addition, ethanol imports from certain countries are exempted from these tariffs under the Caribbean Basin Initiative to spur economic development in Central America and the Caribbean.

Competing ethanol producers may introduce competitive pricing pressures that may adversely affect our sales levels and margins or our ability to procure corn at favorable prices. As a result, we cannot assure you that we will be able to compete successfully with existing or new competitors.

We engage in hedging transactions which involve risks that can harm our business.

In an attempt to offset some of the effects of pricing and margin volatility, we may hedge anticipated corn purchases and ethanol and distillers' grain sales through a variety of mechanisms. Because of our hedging strategies, we are exposed to a variety of market risks, including the effects of changes in commodities prices of ethanol and corn.

Hedging arrangements also expose us to the risk of financial loss in situations where the other party to the hedging contract defaults on its contract or, in the case of exchange-traded contracts, where there is a change in the expected differential between the underlying price in the hedging agreement and the actual prices paid or received by us. Hedging activities can themselves result in losses when a position is purchased in a declining market or a position is sold in a rising market. Our losses or gains from hedging activities may vary widely.

There can be no assurance that our hedging strategies will be effective and we may experience hedging losses in the future. We also vary the amount of hedging or other price mitigation strategies we undertake, and we may choose not to engage in hedging transactions at all. As a result, whether or not we engage in hedging transactions, our business, results of operations and financial condition may be materially adversely affected by increases in the price of corn or decreases in the price of ethanol.

Operational difficulties at our plant could negatively impact our sales volumes and could cause us to incur substantial losses.

We have experienced operational difficulties at our plant in the past that have resulted in scheduled and unscheduled downtime or reductions in the number of gallons of ethanol we produce. Some of the difficulties we have experienced relate to production problems, repairs required to our plant equipment and equipment maintenance, the installation of new equipment and related testing, and our efforts to improve and test our air emissions. Our revenues are driven in large part by the number of gallons of ethanol and the number of tons of distillers' grains we produce. If our ethanol plant does not efficiently produce our products in high volumes, our business, results of operations, and financial condition may be materially adversely affected.

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Our operations are also subject to operational hazards inherent in our industry and to manufacturing in general, such as equipment failures, fires, explosions, abnormal pressures, blowouts, pipeline ruptures, transportation accidents and natural disasters. Some of these operational hazards may cause personal injury or loss of life, severe damage to or destruction of property and equipment or environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. The occurrence of any of these operational hazards may materially adversely affect our business, results of operations and financial condition. Further, our insurance may not be adequate to fully cover the potential operational hazards described above or we may not be able to renew this insurance on commercially reasonable terms or at all.

Our operations and financial performance could be adversely affected by infrastructure disruptions and lack of adequate transportation and storage infrastructure in certain areas.

We ship our ethanol to our customers primarily by the railroad adjacent to our site. We also have the potential to receive inbound corn via the railroad. Our customers require appropriate transportation and storage capacity to take delivery of the products we produce. We also receive our natural gas through a pipeline that is approximately 16 miles in length. Without the appropriate flow of natural gas through the pipeline our plant may not be able to run at desired production levels or at all. Therefore, our business is dependent on the continuing availability of rail, highway and related infrastructure. Any disruptions in this infrastructure network, whether caused by labor difficulties, earthquakes, storms, other natural disasters, human error or malfeasance or other reasons, could have a material adverse effect on our business. We rely upon third-parties to maintain the rail lines from our plant to the national rail network, and any failure on their part to maintain the lines could impede our delivery of products, impose additional costs on us and could have a material adverse effect on our business, results of operations and financial condition.

In addition, lack of this infrastructure prevents the use of ethanol in certain areas where there might otherwise be demand and results in excess ethanol supply in areas with more established ethanol infrastructure, depressing ethanol prices in those areas. In order for the ethanol industry to grow and expand into additional markets and for our ethanol to be sold in these new markets, there must be substantial development of infrastructure including:

• additional rail capacity;

• additional storage facilities for ethanol;

• increases in truck fleets capable of transporting ethanol within localized markets;

• expansion of refining and blending facilities to handle ethanol; and

• growth in service stations equipped to handle ethanol fuels.

The substantial investments that will be required for these infrastructure changes and expansions may not be made on a timely basis, if at all, and decisions regarding these infrastructure improvements are outside of our control. Significant delay or failure to improve the infrastructure that facilitates the distribution could curtail more widespread ethanol demand or reduce prices for our products in certain areas, which would have a material adverse effect on our business, results of operations or financial condition.

Rail logistical problems may result in delays in shipments of our products which could negatively impact our financial performance. 

There has been an increase in rail traffic congestion throughout the United States primarily due to the increase in cargo trains carrying shale oil. From time to time, periodic high demand and unusually adverse weather conditions may cause rail congestion resulting in rail delays and rail logistical problems. Although we have not been materially affected by prior rail congestion period, future periods of congestion may affect our ability to operate our plant at full capacity due to ethanol storage capacity constraints, which in turn could have a negative affect on our financial performance.

Competition for qualified personnel in the ethanol industry is intense and we may not be able to hire and retain qualified personnel to operate our ethanol plant.

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Our success depends in part on our ability to attract and retain competent personnel. For our ethanol plant, we must hire qualified managers, operations personnel, accounting staff and others, which can be challenging in a rural community. Further, our current employees may decide to end their employment with us.  Competition for employees in the ethanol industry is intense, and we may not be able to attract and retain qualified personnel. Part of our management team is provided by Granite Falls Energy pursuant to the Management Services Agreement.  The Management Services Agreement provides that it can be terminated on thirty days notice in certain circumstances. If the Management Services Agreement is terminated or one or more of our employees terminate their employment, either with us or Granite Falls Energy, we may not be able to replace these individuals.  Any loss of these managers or key employees may prevent us from operating the ethanol plant efficiently and comply with our other obligations.

Technology in our industry evolves rapidly, potentially causing our plant to become obsolete, and we must continue to enhance the technology of our plant or our business may suffer.

We expect that technological advances in the processes and procedures for processing ethanol will continue to occur. It is possible that those advances could make the processes and procedures that we utilize at our ethanol plant less efficient or obsolete. These advances could also allow our competitors to produce ethanol at a lower cost than we are able. If we are unable to adopt or incorporate technological advances, our ethanol production methods and processes could be less efficient than those of our competitors, which could cause our ethanol plant to become uncompetitive.

Ethanol production methods are continually advancing. The current trend in ethanol production research is to develop an efficient method of producing ethanol from cellulose-based biomass such as agricultural waste, forest residue and municipal solid waste. This trend is driven by the fact that cellulose-based biomass is generally cheaper than corn and producing ethanol from cellulose-based biomass would create opportunities to produce ethanol in areas that are unable to grow corn. Another trend in ethanol production research is to produce ethanol through a chemical or thermal process, rather than a fermentation process, thereby significantly increasing the ethanol yield per pound of feedstock. Although current technology does not allow these production methods to be financially competitive, new technologies may develop that would allow these methods to become viable means of ethanol production in the future. If we are unable to adopt or incorporate these advances into our operations, our cost of producing ethanol could be significantly higher than those of our competitors, which could make our ethanol plant obsolete. Modifying our plant to use the new inputs and technologies would likely require material investment.

If ethanol fails to compete successfully with other existing or newly-developed oxygenates or renewable fuels, our business will suffer.

Alternative fuels, additives and oxygenates are continually under development. Alternative fuels and fuel additives that can replace ethanol are currently under development, which may decrease the demand for ethanol. Technological advances in engine and exhaust system design and performance could reduce the use of oxygenates, which would lower the demand for ethanol, and our business, results of operations and financial condition may be materially adversely affected.

Our sales will decline, and our business will be materially harmed if our third party marketers do not effectively market or sell the ethanol, distillers' grains and corn oil we produce or if there is a significant reduction or delay in orders from our marketers.

We have entered into agreements with a third parties to market our supply of ethanol, distillers' grains and corn oil. Our marketers are independent businesses that we do not control. We cannot be certain that our marketers will market or sell our ethanol, distillers' grains and corn oil effectively. Our agreements with our marketers do not contain requirements that a certain percentage of sales are of our products, nor do the agreements restrict the marketer's ability to choose alternative sources for ethanol, distillers' grains or corn oil.

Our success in achieving revenue from the sale of ethanol, distillers' grains and corn oil will depend upon the continued viability and financial stability of our marketers. Our marketers may choose to devote their efforts to other producers or reduce or fail to devote the necessary resources to provide effective sales and marketing support of our products. We believe that our financial success will continue to depend in large part upon the success of our marketers in operating their businesses. If our marketers do not effectively market and sell our ethanol, distillers' grains and corn oil, our revenues may decrease and our business will be harmed.

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We operate in an intensely competitive industry and compete with larger, better financed entities which could impact our ability to operate profitably.

There is significant competition among ethanol producers. There are numerous producer-owned and privately-owned ethanol plants planned and operating throughout the Midwest and elsewhere in the United States.  We also face competition from outside of the United States. The largest ethanol producers include Archer Daniels Midland, POET, Valero Renewable Fuels, and Green Plains Renewable Energy, each of which are each capable of producing significantly more ethanol than we produce. Further, many believe that there will be further consolidation in the ethanol industry in the future, which will likely lead to a few companies who control a significant portion of the ethanol production market. We may not be able to compete with these larger entities. These larger ethanol producers may be able to affect the ethanol market in ways that are not beneficial to us which could negatively impact our financial performance.

Our business is not diversified.

Our success depends almost entirely on our ability to profitably operate our ethanol plant. We do not have any other lines of business or other significant sources of revenue if we are unable to operate our ethanol plant and manufacture ethanol, distiller grains and corn oil.  Further, all of our investments are in companies involved in the ethanol industry. If economic or political factors adversely affect the market for ethanol, distiller grains or corn oil, we have no other line of business to fall back on. Our business would also be significantly harmed if the ethanol plant could not operate at full capacity for any extended period of time.

Competition from the advancement of alternative fuels may lessen the demand forethanol.

Alternative fuels, gasoline oxygenates and ethanol production methods are continually under development. A number of automotive, industrial and power generation manufacturers are developing alternative clean power systems using fuel cells, plug-in hybrids or clean burning gaseous fuels. Like ethanol, these emerging technologies offer an option to address worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns. If these alternative technologies continue to expand and gain broad acceptance and become readily available to consumers for motor vehicle use, we may not be able to compete effectively. This additional competition could reduce the demand for ethanol, resulting in lower ethanol prices that might adversely affect our results of operations and financial condition.

Consumer resistance to the use of ethanol based on the belief that ethanol isexpensive, adds to air pollution, harms engines and/or takes more energy toproduce than it contributes may affect the demand for ethanol.

Certain individuals believe that the use of ethanol will have a negative impact on gasoline prices at the pump. Some also believe that ethanol adds to air pollution and harms car and truck engines. Still other consumers believe that the process of producing ethanol actually uses more fossil energy, such as oil and natural gas, than the amount of energy that is produced. These consumer beliefs could potentially be wide-spread and may be increasing as a result of recent efforts to increase the allowable percentage of ethanol that may be blended for use in conventional automobiles. If consumers choose not to buy ethanol based on these beliefs, it would affect the demand for the ethanol we produce which could negatively affect our profitability and financial condition.

Risks Related to Government Programs and Regulation

Our failure to comply with existing or future regulatory requirements could have a material adverse effect on our business, financial condition and results of operations.

We are subject to various federal, state and local environmental laws and regulations, including those relating to the discharge of materials into the air, water and ground. Certain aspects of our operations require environmental permits and controls to prevent and reduce air and water pollution, and these permits are subject to modification, renewal and revocation by issuing authorities including the Minnesota Pollution Control Agency. We could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions and third-party claims for property damage and personal injury as a result of violations of or liabilities under environmental laws or non-compliance with environmental permits. We could also incur substantial costs and experience increased operating expenses as a result of operational changes to comply with environmental laws, regulations and permits. We have previously incurred substantial costs relating to our air emissions permit and expect additional costs relating to this permit in the future.

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Further, environmental laws and regulations are subject to substantial change. We cannot predict what material impact, if any, these changes in laws or regulations might have on our business. Future changes in regulations or enforcement policies could impose more stringent requirements on us, compliance with which could require additional capital expenditures, increase our operating costs or otherwise adversely affect our business. These changes may also relax requirements that could prove beneficial to our competitors and thus adversely affect our business. In addition, regulations of the EPA and the Minnesota Pollution Control Agency depend heavily on administrative interpretations. We cannot assure you that future interpretations made by regulatory authorities, with possible retroactive effect, will not adversely affect our business, financial condition and results of operations. Failure to comply with existing or future regulatory requirements could have a material adverse effect on our business, financial condition and results of operations.

Meeting the requirements of evolving environmental, health and safety laws and regulations, and in particular those related to climate change, could adversely affect our financial performance.

Our plant emits carbon dioxide as a by-product of the ethanol production process. In 2007, the U.S. Supreme Court classified carbon dioxide as an air pollutant under the Clean Air Act in a case seeking to require the EPA to regulate carbon dioxide in vehicle emissions. When the EPA released its final regulations on RFS, these regulations grandfathered our plant at its current production capacity for the generation of RINs for compliance with RFS. Any expansion of our plant beyond the grandfathered volumes must meet a threshold of a 20% reduction in GHG emissions from a 2005 baseline measurement for the ethanol to be eligible to generate RINS for compliance with the RFS II mandate.

During the second fiscal quarter of 2015, our plant was awarded “efficient producer” status under the pathway petition program for the non-grandfathered volumes of ethanol produced at our plant. Pursuant to the award approval, we are only authorized to generate RINs for our non-grandfathered volume if we can demonstrate that all ethanol produced at the plant during an averaging period (defined as the prior 365 days or the number of days since the date EPA efficient producer pathway approval) meets the 20% GHG reduction requirement.

Although we believe our plant will be able to maintain continuous compliance with the 20% reduction in GHG emissions requirement as presently operated, there is no guarantee that we will not have to install carbon dioxide mitigation equipment or take other steps unknown to us at this time in order to comply with the efficient producer requirements or other future law or regulation. Continued compliance with the efficient producer GHG reduction requirements or compliance with future law or regulation of carbon dioxide, could be costly and may prevent us from operating our plant as profitably, which may have an adverse impact on our operations, cash flows and financial position.

If we fail to comply with the 20% reduction in GHG emissions requirement, we will not be able to generate RINs for our non-grandfathered volumes of ethanol, which could adversely affect our operating margins.

We expect that nearly all of the anticipated demand for our ethanol production will be by customers obligated to comply with the RFS. The EPA's approval of our efficient producer petitions requires that the plant demonstrates continuous compliance with the 20% reduction in GHG emissions for all volumes of ethanol produced, not just non-grandfathered volumes of ethanol. If we cannot show continuous compliance with the requirement for all volumes of ethanol, we will not be able issue RINs for the non-grandfathered volumes of ethanol produced. If our ethanol production does not meet the requirements for RIN generation as administered by the EPA, we may be required to sell those gallons of ethanol without RINs at lower prices in the domestic market to compensate for the lack of RINs or sell these gallons of ethanol in the export market where RINs are not required, which could adversely affect our results of operations, cash flows and financial condition.

Because federal and state regulation heavily influence the supply of and demand for ethanol, changes in government regulation that adversely affect demand or supply will have a material adverse effect on our business.

Various federal and state laws, regulations and programs impact the supply of and demand for ethanol. Some government regulation, for example those that provide economic incentives to ethanol producers, stimulate supply of ethanol by encouraging production and the increased capacity of ethanol plants. Others, such as a federal excise tax incentive program that provides gasoline distributors who blended ethanol with gasoline to receive a federal excise tax rate reduction for each blended gallon they sell, stimulate demand for ethanol by making it price competitive with other oxygenates. Further, tariffs generally apply to the import of ethanol from certain other countries, where the cost of production can be significantly less than in the United States. These tariffs are designed to increase the cost of imported ethanol to a level more comparable to the cost of domestic ethanol by offsetting the benefit of the federal excise tax program. Tariffs have the effect of maintaining demand for domestic ethanol.

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The RFS sets minimum national volume standards for use of renewable fuels, including volume standards for specific categories of renewable fuels: cellulosic, biomass-based diesel and total advanced renewable fuels. While our ethanol does not qualify as one of the new volume categories of renewable fuels, we believe that the overall renewable fuels requirement of RFS creates an incentive for the use of ethanol. Other federal and state programs that require or provide incentives for the use of ethanol create demand for ethanol. Government regulation and government programs that create demand for ethanol may also indirectly create supply for ethanol as additional producers expand or new companies enter the ethanol industry to capitalize on demand. In the case of the RFS, while it creates a demand for ethanol, the existence of specific categories of renewable fuels also creates a demand for these types of renewable fuels and will likely provide an incentive for companies to further develop these products to capitalize on that demand. In these circumstances, the RFS may also reduce demand for ethanol in favor of the renewable fuels for which specific categories exist.

By statute, the RFS requires that 16.55 billion gallons be sold or dispensed in 2013, increasing to 36.0 billion gallons by 2022, but caps the amount of conventional ethanol that can be used to meet the renewable fuels blending requirements at 13.8 billion gallons for 2013, 14.4 billion gallons for 2014 and for 2015 and thereafter, at 15.0 billion gallons. However, on November 30, 2015, the EPA released its long-delayed final renewable volume obligations for corn-based ethanol for 2014 through 2016. The final RVO’s for corn-based ethanol blending were set below the original blending requirements set by the RFS. Moreover, current ethanol production capacity exceeds the EPA's 2014, 2015 and 2016 RVO standard which can be satisfied by corn based 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. Unless additional demand from exports or discretionary or E85 blending develops, the November final rule could result in a significant decrease in ethanol demand, and corresponding reduction in the market price for ethanol, and could have a material adverse effect on our results of operations, cash flows and financial condition.

Federal and state laws, regulations and programs are constantly changing. We cannot predict what material impact, if any, these changes might have on our business. Future changes in regulations and programs could impose more stringent operational requirements or could reduce or eliminate the benefits we receive, directly and indirectly, under current regulations and programs. Future changes in regulations and programs may increase or add benefits to ethanol producers other than us or eliminate or reduce tariffs or other barriers to entry into the United States ethanol market, any of which could prove beneficial to our competitors, both domestic and international. Future changes in regulation may also hurt our business by providing economic incentives to producers of other renewable fuels or oxygenates or encouraging use of fuels or oxygenates that compete with ethanol. In addition, both national and state regulation is influenced by public opinion and changes in public opinion. For example, certain states oppose the use of ethanol because, as net importers of ethanol from other states, the use of ethanol could increase gasoline prices in that state and because that state does not receive significant economic benefits from the ethanol industry, which are primarily experienced by corn and ethanol producing states. Further, some argue that the use of ethanol will have a negative impact on gasoline prices to consumers, result in rising food prices, add to air pollution, harm car and truck engines, and actually use more fossil energy, such as oil and natural gas, than the amount of ethanol that is produced. We cannot predict the impact that opinions of consumers, legislators, industry participants, or competitors may have on the regulations and programs currently benefiting ethanol producers.

The EPA imposed E10 "blend wall" if not overcome will have an adverse effect on demand for ethanol.

We believe that the E10 "blend wall" is one of the most critical governmental policies currently facing the ethanol industry. The "blend wall" issue arises because of several conflicting requirements. First, the renewable fuels standards dictate a continuing increase in the amount of ethanol blended into the national gasoline supply. Second, the EPA mandates a limit of 10% ethanol inclusion in non-flex fuel vehicles, and the E85 vehicle marketplace is struggling to grow due to lacking infrastructure. The EPA policy of 10% and the RFS increasing blend rate are at odds, which is sometimes referred to as the "blend wall." While the issue is being considered by the EPA, there have been no regulatory changes that would reconcile the conflicting requirements. In 2011, the EPA allowed the use of E15, gasoline which is blended at a rate of 15% ethanol and 85% gasoline, in vehicles manufactured in the model year 2001 and later. Management believes that many gasoline retailers will refuse to provide E15 due to the fact that not all standard vehicles will be allowed to use E15 and due to the labeling requirements the EPA may impose. As a result, the approval of E15 may not significantly increase demand for ethanol.

The California Low Carbon Fuel Standard may decrease demand for corn based ethanol which could negatively impact our profitability.

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California passed a Low Carbon Fuels Standard ("LCFS") which requires that renewable fuels used in California must accomplish certain reductions in greenhouse gases which reductions are measured using a lifecycle analysis. Management believes that these regulations could preclude corn based ethanol produced in the Midwest from being used in California. California represents a significant ethanol demand market. If the ethanol industry is unable to supply corn based ethanol to California, it could significantly reduce demand for the ethanol we produce. This could result in a reduction of our revenues and negatively impact our ability to profitably operate the ethanol plant.

Risks Related to Agrinatural and Natural Gas Pipeline Operations

The expansion of Agrinatural's existing assets and construction of new assets is subject to regulatory, environmental, political, legal and economic risks, which could adversely affect our results of operations and financial condition, and require additional capital contributions or loans from us.

One of the ways Agrinatural intends to grow its business is through the expansion of its existing assets and construction of new energy infrastructure assets. The construction of additions or modifications to Agrinatural's existing pipelines, and the construction of other new energy infrastructure assets, involve numerous regulatory, environmental, political and legal uncertainties beyond Agrinatural's control and may require the expenditure of significant capital. Therefore, as the majority-owner of Agrinatural, we may be required to make additional capital contributions, loans and/or guaranty loans to Agrinatural in order to fund such expansion projects. If Agrinatural undertakes these projects they may not be completed on schedule, at the budgeted cost or at all. Moreover, Agrinatural's revenues may not increase immediately upon the expenditure of funds on a particular project. For instance, if it expands or adds a new pipeline, the construction may occur over an extended period of time, and we will not receive any material increases in revenues until the project is completed. Agrinatural may also construct facilities to capture anticipated future growth in production or demand, which may not materialize or where contracts are later canceled. As a result, new pipelines may not be able to attract enough throughput volume to achieve our expected investment return, which could adversely affect our results of operations and financial condition. The construction of new pipelines may also require Agrinatural to obtain new rights-of-way, and it may become more expensive for Agrinatural to obtain these new rights-of-way or to renew existing rights-of-way. If the cost of renewing or obtaining new rights-of-way increases, Agrinatural's cash flows could be adversely affected.

Transporting natural gas involves inherent risks that could cause Agrinatural, and therefore the Company as its majority owner, to incur significant financial losses.

There are inherent hazards and operation risks in gas distribution activities, such as leaks, accidental explosions and mechanical problems that could cause the loss of human life, significant damage to property, environmental pollution, impairment of operations and substantial losses to Agrinatural. The location of pipelines near populated areas, including residential areas, commercial business centers and industrial sites, could increase the level of damages resulting from these risks. These activities may subject us to litigation and administrative proceedings that could result in substantial monetary judgments, fines or penalties against us. To the extent that the occurrence of any of these events is not fully covered by insurance, they could adversely affect Agrinatural's earnings and cash flow.

Volatility in the price of natural gas could result in customers switching to alternative energy sources which could reduce Agrinatural's revenues, earnings and cash flow.

The market price of alternative energy sources such as coal, electricity, propane, oil and steam is a competitive factor affecting the demand for Agrinatural's gas distribution services. Its customers may have or may acquire the capacity to use one or more of the alternative energy sources if the price of natural gas and Agrinatural's distribution services increase significantly. Natural gas has typically been less expensive than these alternative energy sources. However, if natural gas prices increase significantly, some of these alternative energy sources may become more economical or more attractive than natural gas, which could reduce our earnings and cash flow.

Agrinatural's natural gas pipeline operations are subject to significant governmental and private sector regulations.

Agrinatural's natural gas pipeline operations are subject to government regulation, including the Federal Energy Regulatory Commission and Minnesota Office of Pipeline Safety, compliance with which can impose significant costs on Agrinatural's natural gas distribution business. Failure to comply with such regulations can result in additional costs, fines or criminal action.

Risks Related to the Units

Granite Falls Energy owns a large percentage of our units, which may allow it to control or heavily influence matters requiring member approval, and has additional board rights under our member control agreement.

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As of January 27, 2016, Granite Falls Energy, LLC, through its wholly owned subsidiary, Project Viking, L.L.C., owns approximately 50.6% of our outstanding units. As a result, Granite Falls Energy can significantly influence our management and affairs and all matters requiring member approval, including the approval of significant corporate transactions.

Our member control agreement gives members who hold significant amounts of equity in us the right to designate governors to serve on our board of governors. Therefore, as of January 27, 2016, Granite Falls Energy has the right to appoint five persons to our nine-person board pursuant to this provision. With the right to designate a majority of our board, Granite Falls Energy can significantly influence the outcome of any actions taken by our board of governors and our business.

In addition, given the large ownership of Granite Falls Energy, they can significantly influence other actions, such as amendments to our operating agreement, mergers, going private transactions, and other extraordinary transactions, and any decisions concerning the terms of any of these transactions. The ownership and voting positions of Granite Falls Energy may have the effect of delaying, deterring, or preventing a change in control or a change in the composition of our board of directors.

Further, the interests of Granite Falls Energy may not coincide with our interests or the interests of our other members. For example, Granite Falls Energy owns and operates an ethanol production facility that could be considered our competitor. Granite Falls Energy may also use its rights under the member control agreement and their large ownership position to address their own interests, which may be different from those of our other members.

There is no public market for our units and no public market is expected to develop.

There is no established public trading market for our units, and we do not expect one to develop in the foreseeable future. As of January 1, 2014, we have established through FNC Ag Stock, LLC, a Unit Trading Bulletin Board, a private online matching service, in order to facilitate trading among our members. The Unit Trading Bulletin Board has been designed to comply with federal tax laws and IRS regulations establishing a “qualified matching service,” as well as state and federal securities laws. The Unit Trading Bulletin Board does not automatically affect matches between potential sellers and buyers and it is the sole responsibility of sellers and buyers to contact each other to make a determination as to whether an agreement to transfer units may be reached. There are detailed timelines that must be followed under the Unit Trading Bulletin Board Rules and Procedures with respect to offers and sales of membership units. All transactions must comply with the Unit Trading Bulletin Board Rules, our member control agreement, and are subject to approval by our board of governors. As a result, units held by our members may not be easily resold and members may be required to hold their units indefinitely. Even if members are able to resell our units, the price may be less than the members' investment in the units or may otherwise be unattractive to the member.

There are significant restrictions on the transfer of our units.

To protect our status as a partnership for tax purposes and to assure that no public trading market in our units develops, our units are subject to significant restrictions on transfer and transfers are subject to approval by our board of governors. All transfers of units must comply with the transfer provisions of our member control agreement and the unit transfer policy adopted by our board of governors. Our board of governors will not approve transfers which could cause us to lose our tax status or violate federal or state securities laws. As a result of the provisions of our member control agreement, members may not be able to transfer their units and may be required to assume the risks of the investment for an indefinite period of time.

There is no assurance that we will be able to make distributions to our unit holders, which means that holders could receive little or no return on their investment.

Distributions of our net cash flow may be made at the sole discretion of our board of governors, subject to the provisions of the Minnesota Limited Liability Company Act, our member control agreement and restrictions imposed by AgStar under our credit facility. Our credit facility with AgStar currently limits our ability to make distributions to our members. If our financial performance and loan covenants permit, we expect to make cash distributions at times and in amounts that will permit our members to make income tax payments, along with distributions in excess of these amounts. However, our board may elect to retain cash for operating purposes, debt retirement, plant improvements or expansion. Although we have declared distributions that were paid to members in January 2015 and 2016, there is no guarantee that we will be in a financial position to pay distributions in the future, that the terms of our credit facility will allow us to make distributions to our members, or that distributions, if any, will be at times or in amounts to permit our members to make income tax payments. Consequently, members may receive little or no return on their investment in the units.

We may authorize and issue units of new classes which could be superior to or adversely affect holders of our outstanding units.

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Our board of governors, upon the approval of a majority in interest of our members, has the power to authorize and issue units of classes which have voting powers, designations, preferences, limitations and special rights, including preferred distribution rights, conversion rights, redemption rights and liquidation rights, different from or superior to those of our present units. New units may be issued at a price and on terms determined by our board of governors. The terms of the units and the terms of issuance of the units could have an adverse impact on your voting rights and could dilute your financial interest in us.

Our use of a staggered board of governors and allocation of governor appointment rights may reduce the ability of members to affect the composition of the board.

We are managed by a board of governors, currently consisting of four (4) elected governors and five (5) appointed governors. The seats on the board that are not subject to a right of appointment will be elected by the members without appointment rights. An appointed governor serves indefinitely at the pleasure of the member appointing him or her (so long as such member and its affiliates continue to hold a sufficient number of units to maintain the applicable appointment right) until a successor is appointed, or until the earlier death, resignation or removal of the appointed governor.

Under our member control agreement, non-appointed governors are divided into three classes, with the term of one class expiring each year. As the term of each class expires, the successors to the governors in that class will be elected for a term of three years. As a result, members elect only approximately one-third of the non-appointed governors each year.

The effect of these provisions may make it more difficult for a third party to acquire, or may discourage a third party from acquiring, control of us and may discourage attempts to change our management, even if an acquisition or these changes would be beneficial to our members.

Our units represent both financial and governance rights, and loss of status as a member would result in the loss of the holder's voting and other rights and would allow us to redeem such holder's units.

Holders of units are entitled to certain financial rights, such as the right to any distributions, and to governance rights, such as the right to vote as a member. If a unit holder does not continue to qualify as a member or such holder's member status is terminated, the holder would lose certain rights, such as voting rights, and we could redeem such holder's units. The minimum number of units presently required for membership is 2,500 units. In addition, holders of units may be terminated as a member if the holder dies or ceases to exist, violates our member control agreement or takes actions contrary to our interests, and for other reasons. Although our member control agreement does not define what actions might be contrary to our interests, and our board of governors has not adopted a policy on the subject, such actions might include providing confidential information about us to a competitor, taking a board or management position with a competitor or taking action which results in significant financial harm to us in the marketplace. If a holder of units is terminated as a member, our board of governors will have no obligation to redeem such holder's units.

Voting rights of members are not necessarily equal and are subject to certain limitations.

Members of our company are holders of units who have been admitted as members upon their investment in our units and who are admitted as members by our board of governors. The minimum number of units required to retain membership is 2,500 units. Any holder of units who is not a member will not have voting rights. Transferees of units must be approved by our board of governors to become members. Members who are holders of our present units are entitled to one vote for each unit held. The provisions of our member control agreement relating to voting rights applicable to any class of units will apply equally to all units of that class.

However, our member control agreement gives members who hold significant amounts of equity in us the right to designate governors to serve on our board of governors. For every 9% of our units held, the member has the right to appoint one person to our board. Granite Falls has the right to appoint five persons to our board pursuant to this provision and has currently appointed five persons. If units of any other class are issued in the future, holders of units of that other class will have the voting rights that are established for that class by our board of governors with the approval of our members. Consequently, the voting rights of members may not be necessarily proportional to the number of units held.

Further, cumulative voting for governors is not allowed, which makes it substantially less likely that a minority of members could elect a member to the board of governors. Members do not have dissenter's rights. This means that they will not have the right to dissent and seek payment for their units in the event we merge, consolidate, exchange or otherwise dispose of all or substantially all of our property. Holders of units who are not members have no voting rights. These provisions may limit the ability of members to change the governance and policies of our company.

All members will be bound by actions taken by members holding a majority of our units, and because of the restrictions on transfer and lack of dissenters' rights, members could be forced to hold a substantially changed investment.

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We cannot engage in certain transactions, such as a merger, consolidation, dissolution or sale of all or substantially all of our assets, without the approval of our members. However, if holders of a majority of our units approve a transaction, then all members will also be bound to that transaction regardless of whether that member agrees with or voted in favor of the transaction. Under our member control agreement, members will not have any dissenters' rights to seek appraisal or payment of the fair value of their units. Consequently, because there is no public market for the units, members may be forced to hold a substantially changed investment.

Risks Related to Tax Issues in a Limited Liability Company

EACH UNIT HOLDER SHOULD CONSULT THE INVESTOR'S OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL AND STATE TAX CONSEQUENCES OF AN INVESTMENT IN HERON LAKE BIOENERGY, LLC AND ITS IMPACT ON THE INVESTOR'S TAX REPORTING OBLIGATIONS AND LIABILITY.

If we are not taxed as a partnership, we will pay taxes on all of our net income and you will be taxed on any earnings we distribute, and this will reduce the amount of cash available for distributions to holders of our units.

We consider Heron Lake BioEnergy, LLC to be a partnership for federal income tax purposes. This means that we will not pay any federal income tax, and our members will pay tax on their share of our net income. If we are unable to maintain our partnership tax treatment or qualify for partnership taxation for whatever reason, then we may be taxed as a corporation. We cannot assure you that we will be able to maintain our partnership tax classification. For example, there might be changes in the law or our company that would cause us to be reclassified as a corporation. As a corporation, we would be taxed on our taxable income at rates of up to 35% for federal income tax purposes. Further, distributions would be treated as ordinary dividend income to our unit holders to the extent of our earnings and profits. These distributions would not be deductible by us, thus resulting in double taxation of our earnings and profits. This would also reduce the amount of cash we may have available for distributions.

Your tax liability from your allocated share of our taxable income may exceed any cash distributions you receive, which means that you may have to satisfy this tax liability with your personal funds.

As a partnership for federal income tax purposes, all of our profits and losses "pass-through" to our unit holders. You must pay tax on your allocated share of our taxable income every year. You may incur tax liabilities from allocations of taxable income for a particular year or in the aggregate that exceed any cash distributions you receive in that year or in the aggregate. This may occur because of various factors, including but not limited to, accounting methodology, the specific tax rates you face, and payment obligations and other debt covenants that restrict our ability to pay cash distributions. If this occurs, you may have to pay income tax on your allocated share of our taxable income with your own personal funds.

You may not be able to fully deduct your share of our losses or your interest expense.

It is likely that your interest in us will be treated as a "passive activity" for federal income tax purposes. In the case of unit holders who are individuals or personal services corporations, this means that a unit holder's share of any loss incurred by us will be deductible only against the holder's income or gains from other passive activities, e.g., S corporations and partnerships that conduct a business in which the holder is not a material participant. Some closely held C corporations have more favorable passive loss limitations. Passive activity losses that are disallowed in any taxable year are suspended and may be carried forward and used as an offset against passive activity income in future years. Upon disposition of a taxpayer's entire interest in a passive activity to an unrelated person in a taxable transaction, suspended losses with respect to that activity may then be deducted.

Interest paid on any borrowings incurred to purchase units may not be deductible in whole or in part because the interest must be aggregated with other items of income and loss that the unit holder has independently experienced from passive activities and subjected to limitations on passive activity losses.

Deductibility of capital losses that we incur and pass through to you or that you incur upon disposition of units may be limited. Capital losses are deductible only to the extent of capital gains plus, in the case of non-corporate taxpayers, the excess may be used to offset up to $3,000 of ordinary income. If a non-corporate taxpayer cannot fully utilize a capital loss because of this limitation, the unused loss may be carried forward and used in future years subject to the same limitations in the future years.

You may be subject to federal alternative minimum tax.

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Individual taxpayers are subject to an "alternative minimum tax" if that tax exceeds the individual's regular income tax. For alternative minimum tax purposes, an individual's adjusted gross income is increased by items of tax preference. We may generate such preference items. Accordingly, preference items from our operations together with other preference items you may have may cause or increase an alternative minimum tax to a unit holder. You are encouraged and expected to consult with your individual tax advisor to analyze and determine the effect on your individual tax situation of the alternative minimum taxable income you may be allocated, particularly in the early years of our operations.

Preparation of your tax returns may be complicated and expensive.

The tax treatment of limited liability companies and the rules regarding partnership allocations are complex. We will file a partnership income tax return and will furnish each unit holder with a Schedule K-1 that sets forth our determination of that unit holder's allocable share of income, gains, losses and deductions. In addition to United States federal income taxes, unit holders will likely be subject to other taxes, such as state and local taxes, that are imposed by various jurisdictions. It is the responsibility of each unit holder to file all applicable federal, state and local tax returns and pay all applicable taxes. You may wish to engage a tax professional to assist you in preparing your tax returns and this could be costly to you.

Any audit of our tax returns resulting in adjustments could result in additional tax liability to you.

The IRS may audit our tax returns and may disagree with the positions that we take on our returns or any Schedule K-1. If any of the information on our partnership tax return or a Schedule K-1 is successfully challenged by the IRS, the character and amount of items of income, gains, losses, deductions or credits in a manner allocable to some or all our unit holders may change in a manner that adversely affects those unit holders. This could result in adjustments on unit holders' tax returns and in additional tax liabilities, penalties and interest to you. An audit of our tax returns could lead to separate audits of your personal tax returns, especially if adjustments are required.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

None.

ITEM 2.    PROPERTIES

We own approximately 216 acres of land located near Heron Lake, Minnesota on which we have constructed and operate our ethanol plant, which also includes corn, ethanol, distillers' grains and corn oil storage and handling facilities. Located on these 216 acres is an approximately 7,320 square foot building that serves as our headquarters. Our address is 91246 390th Avenue, Heron Lake, Minnesota 56137-3175.

All of our real property is subject to mortgages in favor of AgStar as security for loan obligations.

Our majority owned subsidiary, Agrinatural, property consists of 187 miles of distribution main pipelines and service pipelines, together with the associated easement and land rights, a town border station, meters and regulators, office and other equipment and construction in process. Agrinatural's assets have represented 19.5%, 18.6% and 10.2% of our consolidated total assets for the years ended October 31, 2015, 2014 and 2013, respectively. All of Agrinatural's real property and assets are subject to mortgages in favor of HLBE as security for loan obligations.

ITEM 3.    LEGAL PROCEEDINGS

From time to time in the ordinary course of business, 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 4.    MINE SAFETY DISCLOSURES

None.

PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

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There is no public trading market for our Class A or Class B units.

However, effective as of January 1, 2014, we established, an online unit trading bulletin board ("QMS") through FNC Ag Stock, LLC, in order to facilitate trading in our units. The QMS has been designed to comply with federal tax laws and IRS regulations establishing a “qualified matching service,” as well as state and federal securities laws. Our QMS consists of an electronic bulletin board that provides a list of interested buyers with a list of interested sellers, along with their non-firm price quotes. The QMS does not automatically affect matches between potential sellers and buyers and it is the sole responsibility of sellers and buyers to contact each other to make a determination as to whether an agreement to transfer units may be reached. We do not become involved in any purchase or sale negotiations arising from our QMS and have no role in effecting the transactions beyond approval, as required under our member control agreement, and the issuance of new certificates. We do not give advice regarding the merits or shortcomings of any particular transaction. We do not receive, transfer or hold funds or securities as an incident of operating the QMS. We do not receive any compensation for creating or maintaining the QMS. In advertising our QMS, we do not characterize Heron Lake BioEnergy, LLC as being a broker or dealer or an exchange. We do not use the QMS to offer to buy or sell securities other than in compliance with securities laws, including any applicable registration requirements.

There are detailed timelines that must be followed under the QMS rules and procedures with respect to offers and sales of membership units. All transactions must comply with the QMS rules and procedures, our member control agreement, and are subject to approval by our board of governors.

So long as we remain a publicly reporting company, information about the Company will be publicly available through the SEC's filing system. However, if at any time we cease to be a publicly reporting company, we anticipate continuing to make information about the Company publicly available on our website in order to continue operating the QMS.

The following table contains historical information by fiscal quarter for the past two fiscal years regarding the actual unit transactions that were completed by our unit-holders during the periods specified. We believe the following table most accurately represents the current trading value of the Company's units. The information was compiled by reviewing the completed unit transfers that occurred on our qualified matching service bulletin board during the quarters indicated.

Quarter	Low Per Unit Price	High Per Unit Price	Total Units Traded
2014 1st	—	—	None
2014 2nd	0.37	0.43	44,500
2014 3rd	0.45	0.75	214,750
2014 4th	0.90	0.90	88,000
2015 1st	1.41	1.5	18,500
2015 2nd	—	—	None
2015 3rd	1.2	1.25	807,109
2015 4th	1.15	1.3	26,500

As a limited liability company, we are required to restrict the transfers of our membership units in order to preserve our partnership tax status.  Our membership units may not be traded on any established securities market or readily traded on a secondary market (or the substantial equivalent thereof).  All transfers are subject to a determination that the transfer will not cause Heron Lake BioEnergy to be deemed a publicly traded partnership.

Issuer Repurchases of Equity Securities

We did not make any repurchases of our Class A or Class B units during fiscal 2015.

Holders of Record

As of January 27, 2016, there were 62,932,107 Class A units outstanding held of record by 1,190 unit holders, and 15,000,000 Class B units outstanding held of record by one unit holder. There are no other classes of units outstanding. The determination of the number of members is based upon the number of record holders of the units as reflected in the Company's internal unit records.

As of January 27, 2016, Granite Falls Energy, LLC owns a 50.6% controlling interest in the Company through its wholly owned subsidiary, Project Viking, L.L.C. GFE, a related party by virtue of its ownership interest in us, owns an ethanol plant located in Granite Falls, Minnesota. As a result of its majority ownership, GFE has the right to appoint five (5) of the nine (9) governors to our board of governors under our member control agreement.

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As of October 31, 2015 and January 27, 2016, there were no outstanding options or warrants to purchase, or securities convertible for or into, our units.

Distributions

Distributions by the Company to our unit holders are in proportion to the number of units held by each unit holder. A unit holder's distribution is determined by multiplying the number of units by distribution per unit declared. Our board of governors has complete discretion over the timing and amount of distributions to our unit holders. Distributions are restricted by certain loan covenants in our comprehensive credit facility with AgStar. We may only make distributions to our members in an amount that does not exceed 65% of our net profit (determined according to GAAP) for such fiscal year; provided that the we are and will remain in compliance with all of the covenants, terms and conditions of the comprehensive credit facility. If our financial performance and loan covenants permit, we expect to make future cash distributions at times and in amounts that will permit our members to make income tax payments, along with distributions in excess of these amounts. Cash distributions are not assured, however, and we may never be in a position to make distributions. Under Minnesota law, we cannot make a distribution to a member if, after the distribution, we would not be able to pay our debts as they become due or our liabilities, excluding liabilities to our members on account of their capital contributions, would exceed our assets.

We did not make any distributions to our members during fiscal years 2013 or 2014.

On December 18, 2014, our board of governors declared a distribution of $0.12 per membership unit for a total of approximately $9.4 million to be paid to members of record as of December 18, 2014. The distribution was paid on January 19, 2015.

Subsequent to the end of our 2015 fiscal year, on December 17, 2015, our board of governors declared a distribution of $0.05 per membership unit for a total of approximately $3.9 million to be paid to members of record as of December 17, 2015. The distribution was paid on January 25, 2016. Based on the covenants contained in our AgStar credit facilities, the foregoing distribution was approved by our lender prior to distribution.

Our expectations with respect to our ability to make future distributions are discussed in greater detail in "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations". We do not currently have any plans to declare a future distribution.

Unregistered Sales of Equity Securities

The Company had no unregistered sales of securities in fiscal year 2015.

Securities Authorized for Issuance Under Equity Compensation Plans

As of the date of this annual report, we had no "equity compensation plans" (including individual equity compensation arrangements) under which any of our equity securities are authorized for issuance.

Performance Graph

The following graph shows a comparison of cumulative total member return since October 31, 2009, calculated on a dividend reinvested basis, for the Company, the NASDAQ Composite Index (the “NASDAQ”) and an index of other companies that have the same SIC code as the Company (the “Industry Index”). The graph assumes $100 was invested in each of the Company's units, the NASDAQ, and the Industry Index on October 31, 2009. Data points on the graph are semi-annual. Note that historic stock price performance is not necessarily indicative of future unit price performance.

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Pursuant to the rules and regulations of the Securities and Exchange Commission, the performance graph and the information set forth therein shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

ITEM 6.    SELECTED FINANCIAL DATA

The following table presents selected consolidated financial and operating data as of the dates and for the periods indicated. The selected financial data for the consolidated balance sheets as of October 31, 2015 and 2014 and the consolidated statements of operations data for the years ended October 31, 2015, 2014, and 2013 have been derived from the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The selected financial data for the consolidated balance sheets as of October 31, 2013, 2012 and 2011 and the consolidated statements of operations data for the years ended October 31, 2012 and 2011 were derived from audited consolidated financial statements filed previously. This selected consolidated financial data should be read in conjunction with "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K. Among other things, those financial statements include more detailed information regarding the basis of presentation for the following consolidated financial data.

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Statement of Operations Data for the fiscal years ended October 31,	2015			2014			2013			2012			2011
Revenues	$	115,660,469		$	149,418,044		$	163,764,144		$	168,659,935		$	164,120,375
Total Cost of Goods Sold	105,248,092			120,569,409			155,536,974			166,529,283			157,163,624
Gross Profit	10,412,377			28,848,635			8,227,170			2,130,652			6,956,751
Operating Expenses	(3,001,095		)	(2,950,047		)	(3,214,036		)	(3,171,331		)	(3,613,465		)
Impairment Charge	—			—			—			(27,844,579		)	—
Settlement Expense	—			—			—			(900,000		)	—
Operating Income (Loss)	7,411,282			25,898,588			5,013,134			(29,785,258		)	3,343,286
Other expense, net	(431,566		)	(1,571,070		)	(2,745,274		)	(2,567,385		)	(2,800,269		)
Net Income (Loss)	6,979,716			24,327,518			2,267,860			(32,352,643		)	543,017
Net Income (Loss) Attributable to Non-­controlling Interest	228,483			358,673			327,018			353,019			(27,838		)
Net Income (Loss) Attributable to Heron Lake BioEnergy, LLC	$	6,751,233		$	23,968,845		$	1,940,842		$	(32,705,662	)	$	570,855
Weighted Average Units Outstanding—Basic (Class A and B)	77,932,107			69,233,367			44,868,463			38,510,066			33,391,636
Net Income (Loss) Per Unit Attributed to Heron Lake BioEnergy, LLC—Basic (Class A and B)	$	0.09		$	0.35		$	0.04		$	(0.85	)	$	0.02
Weighted Average Units Outstanding - Diluted (Class A and B)	77,932,107			78,389,586			48,086,445			38,510,066			33,391,636
Net Income (Loss) Per Unit Attributed to Heron Lake BioEnergy, LLC—Diluted (Class A and B)	$	0.09		$	0.31		$	0.04		$	(0.85	)	$	0.02
Distributions Per Unit (Class A and B)	$	0.12		$	—		$	—		$	—		$	—

Balance Sheet Data at October 31,	2015		2014		2013		2012		2011
Current assets	$	12,892,432	$	10,896,702	$	7,849,244	$	7,538,782	$	14,237,942
Property and equipment, net	52,984,550		54,367,998		51,670,272		58,099,286		88,592,945
Other assets	819,402		857,550		1,274,401		942,951		1,303,037
Total assets	$	66,696,384	$	66,122,250	$	60,793,917	$	66,581,019	$	104,133,924
Current liabilities	$	6,456,103	$	8,109,395	$	5,061,910	$	45,000,237	$	7,807,727
Long-term debt	6,711,975		2,112,412		28,181,155		4,031,335		46,844,912
Members' equity attributable to Heron Lake BioEnergy, LLC	52,446,500		55,047,120		27,142,275		17,344,433		49,508,123
Non-controlling interest	1,081,806		853,323		408,577		205,014		(26,838		)
Total liabilities and members' equity	$	66,696,384	$	66,122,250	$	60,793,917	$	66,581,019	$	104,133,924

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

We prepared the following discussion and analysis to help readers better understand our financial condition, changes in our financial condition, and results of operations for the fiscal year ended October 31, 2015. This discussion should be read in conjunction with the consolidated financial statements included herewith and notes to the consolidated financial statements thereto and the risk factors contained herein.

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Overview

Heron Lake BioEnergy, LLC is a Minnesota limited liability company that owns and operates a dry mill corn-based, natural gas fired ethanol plant near Heron Lake, Minnesota.

Our revenues are derived from the sale and distribution of our ethanol throughout the continental United States and in the sale and distribution of our distillers' grains (DGS) locally, and throughout the continental United States.

Based on the criteria set forth in ASC 280, the Company has two reportable operating segments for financial reporting purposes: (1) production of ethanol and related distillers' grains, corn oil and syrup collectively referred to as ethanol production; and (2) natural gas pipeline distribution and services from the Company's majority owned subsidiary, Agrinatural.

Before intercompany eliminations, revenues from our natural gas pipeline segment represented 2.4%, 1.8% and 1.5% of our total consolidated revenues in the years ended October 31, 2015, 2014, and 2013, respectively. After accounting for intercompany eliminations for fees paid by the Company for natural gas transportation services pursuant to our natural gas transportation agreement with Agrinatural, Agrinatural's revenues represented 0.9%, 0.6% and 0.6% of our consolidated revenues for the fiscal years ended October 31, 2015, 2014, and 2013, respectively, and have little to no impact on the overall performance of the Company.

Trends and Uncertainties Impacting Our Operations

Our current results of operation are affected and will continue to be affected by factors such as (a) volatile and uncertain pricing of ethanol and corn; (b) availability of corn that is, in turn, affected by trends such as corn acreage, weather conditions, and yields on existing and new acreage diverted from other crops; and (c) the supply and demand for ethanol, which is affected by acceptance of ethanol as a substitute for fuel, public perception of the ethanol industry, government incentives and regulation, and competition from new and existing construction, among other things. Other factors that may affect our future results of operation include those factors discussed in "Item 1. Business" and "Item 1A. Risk Factors."

Critical Accounting Estimates

Management uses estimates and assumptions in preparing our consolidated 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. Of the significant accounting policies described in the notes to our consolidated financial statements, we believe that the following are the most critical:

Property and Equipment

Management’s estimate of the depreciable lives of property, plant, and equipment is based on the estimated useful lives. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment testing for assets requires various estimates and assumptions, including an allocation of cash flows to those assets and, if required, an estimate of the fair value of those assets. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. These valuations require the use of management's assumptions, which do not reflect unanticipated events and circumstances that may occur. In our analysis, we consider future corn costs and ethanol prices, break-even points for our plant and our risk management strategies in place through our derivative instruments and forward contracts. Given the significant assumptions required and the possibility that actual conditions will differ, we consider the assessment of impairment of our long-lived assets to be a critical accounting estimate.

Derivative Instruments

We enter forward contracts for corn purchases to supply the plant. These contracts represent firm purchase commitments which along with inventory on hand must be evaluated for potential market value losses.

Inventory

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

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Recently Issued Accounting Pronouncements

Inventory Measurement (Adopted)

In July 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-11, which amended Inventory (Topic 330) Related to Simplifying the Measurement of Inventory of the Accounting Standards Codification. The amended guidance applies to all inventory except that which is measured using last-in, first-out (LIFO) or the retail inventory method. Inventory measured using first-in, first-out (FIFO) or average cost is included in the new amendments. Inventory within the scope of the new guidance should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments will take effect for the Company for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The new guidance should be applied prospectively, and earlier application is permitted as of the beginning of an interim or annual reporting period. The Company has elected to adopt the standard as of November 1, 2014, and it did not have a material effect on the financial statements.

Contract Revenue Recognition (Evaluating)

In May 2014 and amended in August 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09 which amended the Revenue from Contracts with Customers (Topic 606) of the Accounting Standards Codification. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for the Company for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company will apply the guidance using a full retrospective approach. The Company is still evaluating the guidance and its effect on its financial statements.

Results of Operations for the Fiscal Years Ended October 31, 2015 and 2014

The following table shows the results of our operations and the percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our statements of operations for the fiscal years ended October 31, 2015 and 2014:

	2015					2014
Income Statement Data	Amount			%		Amount			%
Revenues	$	115,660,469		100.0	%	$	149,418,044		100.0	%
Cost of Goods Sold	105,248,092			91.0	%	120,569,409			80.7	%
Gross Profit	10,412,377			9.0	%	28,848,635			19.3	%
Operating Expenses	(3,001,095		)	(2.6	)%	(2,950,047		)	(2.0	)%
Operating Income	7,411,282			6.4	%	25,898,588			17.3	%
Other Expense	(431,566		)	(0.4	)%	(1,571,070		)	(1.1	)%
Net Income before non-controlling interest	6,979,716			6.0	%	24,327,518			16.2	%
Net Income attributable to non-controlling interest	228,483			0.2	%	358,673			0.2	%
Net Income attributable to Heron Lake BioEnergy, LLC	$	6,751,233		5.8	%	$	23,968,845		16.0	%

Our revenues from operations come from three primary sources: sales of fuel ethanol, distillers' grains and corn oil. Additionally, we also realize relatively immaterial revenue from incidental sales of distillers' syrup and revenues generated from natural gas pipeline operations at Agrinatural Gas, LLC. These incidental syrup sales and revenues from our natural gas pipeline operations are aggregated together for revenue reporting purposes as "Other/Miscellaneous".

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 The following table shows the sources of our revenue for the fiscal year ended October 31, 2015:

Revenue Sources	Amount		Percentage of Total Revenues
Ethanol sales	$	88,995,963	76.9	%
Distillers' grains sales	22,395,048		19.4	%
Corn oil sales	2,799,251		2.4	%
Other/Miscellaneous	1,470,207		1.3	%
Total Revenues	$	115,660,469	100.0	%

The following table shows the sources of our revenue for the fiscal year ended October 31, 2014:

Revenue Sources	Amount		Percentage of Total Revenues
Ethanol sales	$	119,112,756	79.7	%
Distillers' grains sales	25,604,229		17.1	%
Corn oil sales	3,200,509		2.1	%
Other/Miscellaneous	1,500,550		1.1	%
Total Revenues	$	149,418,044	100.0	%

Our total revenue decreased 22.6% for our 2015 fiscal year compared to our 2014 fiscal year. Management attributes this decrease in revenues primarily to a lower average price for our ethanol and distillers' grains. Offsetting this decrease, however was an 3.5% and 2.1% increase in gallons of ethanol and tons distillers' grains sold, respectively during our 2015 fiscal year compared to the same period of 2014.

Ethanol

The average price we received for our ethanol decreased by approximately 27.8% during our 2015 fiscal year compared to our 2014 fiscal year. Our average price per gallon of ethanol sold was $1.45 in 2015 and $2.01 in 2014. Management attributes the drop in ethanol prices to continuing lower corn and gasoline prices, which impacts the market price of ethanol. In addition, management believes the uncertainty related to EPA proposed reductions in the RFS volume obligations during 2015 also impacted ethanol demand, negatively impacting ethanol prices. In comparison, we experienced unusually high ethanol prices during much of fiscal year 2014 due to rail logistics issues that plagued much of the ethanol industry during much of 2014, restricting the supply of ethanol in the market and resulting in higher ethanol prices.

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In late May 2015, the EPA proposed reducing the amount of corn-based ethanol which was required to be used in 2015 to levels which were below the 2014 requirement. On November 30, 2015, the EPA issued its final renewable volume obligations for corn-based ethanol for 2014 through 2016. The final RVO’s for corn-based ethanol blending exceeded the RVO reductions proposed in May 2015, but remained below the original blending requirements set by the RFS. Management believes this uncertainty during much of 2015 caused fuel blenders to reduce ethanol demand which negatively impacted ethanol prices. The EPA's final renewable volume obligations may result in legal challenges, potentially by both the ethanol industry and the oil industry. Management expects that the reduced renewable volume obligations will continue to negatively impact market ethanol prices through 2016 and potentially after that time. The negative impact of the EPA's release could be increased if the ethanol export market diminishes from current levels, which could result in oversupply of ethanol in domestic markets and depress ethanol prices. Management anticipates that ethanol prices will remain lower during our 2016 fiscal year as a result of lower corn prices, lower oil prices and the reduced renewable volume obligations and as a result our our operating margins will be tight and be unfavorable during portions of 2016.

Distillers' Grains

Total sales of distillers' grains during our 2015 fiscal year were 12.5% less compared to distillers' grains sales during our 2014 fiscal year. The decline in distillers' grains revenues is primarily attributable to a decrease in the price we received for our distillers' grains in our 2015 fiscal year, which was approximately 14.4% lower than the price we received during our 2014 fiscal year. The effect of this price decrease was offset by a slight increase of 2.1% in quantity sold in our 2015 fiscal year compared to our 2014 fiscal year. Management believes these lower distillers' grains prices are a result of low corn and soybean prices coupled with increased supplies of corn and soybeans during much of our 2015 fiscal year. Management anticipates that corn prices and demand will remain relatively low during our 2016 fiscal year due to the size of the 2015 corn harvest and relatively stable corn demand. As a result, management anticipates distiller grains prices will remain lower during our 2016 fiscal year.

Distiller grains prices were negatively impacted during our 2014 and 2015 fiscal years as a result of Chinese trade actions which impacted both corn and distiller grains. In June 2014, China stopped issuing permits for the import of distillers' dried grains from the United States due to the presence of a unapproved genetically modified organism ("GMO") corn trait in some distillers' grains shipments. The GMO trait has been approved in the United States and a number of other countries but was not in China. In December 2014, these trade issues were resolved and China lifted the ban imposed in June 2014. Following the Chinese announcement, Chinese import buyers resumed purchases of United States distillers' grains and domestic distillers' grains prices rebounded but have diminished in recent months due to the availability of corn following the 2015 corn harvest and weaker Chinese markets.

Corn Oil

Separating the corn oil from our distillers' grains decreases the total tons of distillers' grains that we sell; however, our corn oil has a higher per ton value than our distillers' grains. The average price we received per pound of corn oil sold during our 2015 fiscal year was approximately 16.9% less than the average price received during our 2014 fiscal year. Corn oil prices have been impacted by oversupply and lower soybean oil prices, a product that typically competes with corn oil, particularly for biodiesel production. Corn oil is used primarily as animal feed, for certain industrial uses and for biodiesel production. Soybean oil prices were lower during 2015 which resulted in biodiesel producers using more soybean oil to produce biodiesel instead of corn oil.

Offsetting this price decrease, our volume of corn oil sold increased from approximately 10.2 million pounds during our 2014 fiscal year to approximately 10.7 million pounds during our 2015 fiscal year due to increased extraction efficiencies. The net effect of the price decrease and increase in volume sold resulted in a 12.5% decrease in corn oil revenue from fiscal year 2014 to fiscal year 2015.

While the EPA's final renewable volume obligations for biodiesel was more favorable than some expected, the lack of the biodiesel blenders' tax credit has continued to negatively impact biodiesel production. In addition, Management anticipates continued lower corn oil prices unless additional demand can be created.

Biodiesel production is a major source of corn oil demand. Management attributes the diminished demand for corn oil from the biodiesel industry due to reduced production by biodiesel plants resulting from the expiration of the biodiesel blenders' tax credit. However, the federal omnibus tax extenders legislation that was signed into law in December 2015, included a retroactive reinstatement and extended the biodiesel blenders' tax credit through 2016. Additionally, the EPA's final renewable volume obligations for biodiesel issued in November 2015 was more favorable than the RVOs proposed in May 2015. As a result of both the finalized RVOs and the restatement and extension of the biodiesel blenders' tax credit, management anticipates that biodiesel production will increase and as a result corn oil demand may increase which could benefit corn oil prices.

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Hedging of Sales

We occasionally engage in hedging activities with respect to our ethanol sales. We recognize the gains or losses that result from the changes in the value of these derivative instruments in revenues as the changes occur. As ethanol prices fluctuate, the value of our derivative instruments are impacted, which affects our financial performance. However, we did not have any ethanol related derivative instruments other than forward sales contracts as discussed below under "Commodity Price Risk Protection."

Cost of Sales

We experienced a 12.7% decrease in our cost of goods sold for our 2015 fiscal year compared to our 2014 fiscal year. Our cost of goods sold decreased from approximately $120.6 million in our fiscal year ended October 31, 2014 to approximately $105.2 million for our fiscal year ended October 31, 2015. Our two largest costs of production are corn (74.1% of cost of goods sold for our fiscal year ended October 31, 2015) and natural gas (6.9% of cost of goods sold for our fiscal year ended October 31, 2015). A significant decrease in natural gas costs, as well as decreases in corn costs, resulted in the decline in cost of goods sold for our fiscal year ended October 31, 2015, as compared to the fiscal year 2014. However, cost of goods sold as a percentage of revenues increased for fiscal year 2015 compared to fiscal year 2014 due to the narrowing of the margin between the price of ethanol and the price of corn.

Corn Costs

We experienced a decrease of approximately 7.6% in the total amount we paid for corn for our 2015 fiscal year compared to our 2014 fiscal year. This was the net result of a 13.2% decrease in our per bushel cost, offset by a 6.4% increase in the quantity of bushels we purchased. The decrease in corn prices was primarily driven by the strong corn harvest in the fall of 2013 and 2014 resulting in a significant increase in the supply of corn available to the market. In addition, due to another large harvest in 2015, we expect corn prices to remain stable to lower during our 2016 fiscal year. Management anticipates that corn supplies will remain favorable during our 2016 fiscal year which should result in relatively stable corn prices and anticipated reduced demand due to the lower renewable volume obligations for corn-based ethanol released by the EPA in November 2015. These lower corn prices could impact the amount of corn which is planted during 2016 which could result in higher corn prices later in our 2016 fiscal year.

Natural Gas Costs

For our 2015 fiscal year, we experienced a decrease of approximately 39.4% in our overall natural gas costs compared to our 2014 fiscal year due to plentiful supply in fiscal year 2015, which resulted in lower prices for fiscal year 2015 compared to the higher prices we experienced during the first and second quarters of fiscal year 2014 due to lingering supply shortages from the harsh winter in 2014. Management anticipates that natural gas prices will hold steady and may even decrease slightly throughout our 2016 fiscal year. However, if we experience another exceptionally cold and long winter during our 2016 fiscal year, management anticipates that we may experience increases in natural gas prices that will match those that occurred in 2014.

Hedging and Volatility of Purchases

Realized and unrealized gains and losses related to our corn derivative instruments resulted in a decrease of approximately $831,000 in our cost of goods sold for our 2015 fiscal year compared to a decrease of $788,000 in our cost of goods sold for our 2014 fiscal year.  We recognize the gains or losses that result from the changes in the value of our derivative instruments related to 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. 

Operating Expense

Operating expenses include wages, salaries and benefits of administrative employees at the plant, insurance, professional fees and similar costs. Operating expenses as a percentage of revenues rose slightly, increasing from 2.0% of revenues for our fiscal year ended October 31, 2014 to 2.6% of revenues for our fiscal year ended October 31, 2015. We continue to focus on increasing our operating efficiency as we strive to lower our operating expenses. We expect that going forward our operating expenses will remain relatively steady.

Operating Income

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For our fiscal year ended October 31, 2015, we reported operating income of approximately $7.4 million and for our fiscal year ended October 31, 2014, we had operating income of approximately $25.9 million. This decrease resulted largely from decreased prices for our ethanol and its co-products and the narrowing of our net operating margin.

Other Income (Expense), Net

We had total other expense, net for our fiscal year ended October 31, 2015 of approximately $432,000 compared to total other expense, net of approximately $1.6 million for our fiscal year ended October 31, 2014. This decrease is primarily due to a decrease in interest expense during our fiscal year ended October 31, 2015 compared to the same period of 2014 due to decreased borrowings on our credit facilities.

Results of Operations for the Fiscal Years Ended October 31, 2014 and 2013

The following table shows the results of our operations and the percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our statements of operations for the fiscal years ended October 31, 2014 and 2013:

	2014					2013
Income Statement Data	Amount			%		Amount			%
Revenues	$	149,418,044		100.0	%	$	163,764,144		100.0	%
Cost of Goods Sold	120,569,409			80.7	%	155,536,974			95.0	%
Gross Profit	28,848,635			19.3	%	8,227,170			5.0	%
Operating Expenses	(2,950,047		)	(2.0	)%	(3,214,036		)	(2.0	)%
Operating Income	25,898,588			17.3	%	5,013,134			3.0	%
Other Expense	(1,571,070		)	(1.1	)%	(2,745,274		)	(1.7	)%
Net Income before non-controlling interest	24,327,518			16.2	%	2,267,860			1.3	%
Net Income attributable to non-controlling interest	358,673			0.2	%	327,018			0.2	%
Net Income (Loss) attributable to Heron Lake BioEnergy, LLC	$	23,968,845		16.0	%	$	1,940,842		1.1	%

Revenues

Our revenues from operations come from three primary sources: sales of fuel ethanol, distillers' grains and corn oil. Additionally, we also realize relatively immaterial revenue from incidental sales of distillers' syrup and revenues generated from natural gas pipeline operations at Agrinatural Gas, LLC. These incidental syrup sales and revenues from our natural gas pipeline operations are aggregated together for revenue reporting purposes as "Other/Miscellaneous".

 The following table shows the sources of our revenue for the fiscal year ended October 31, 2014:

Revenue Sources	Amount		Percentage of Total Revenues
Ethanol sales	$	119,112,756	79.7	%
Distillers' grains sales	25,604,229		17.1	%
Corn oil sales	3,200,509		2.1	%
Other/Miscellaneous	1,500,550		1.1	%
Total Revenues	$	149,418,044	100.0	%

The following table shows the sources of our revenue for the fiscal year ended October 31, 2013:

Revenue Sources	Amount		Percentage of Total Revenues
Ethanol sales	$	125,541,065	76.7	%
Distillers' grains sales	32,575,616		19.9	%
Corn oil sales	4,033,942		2.5	%
Other/Miscellaneous	1,613,521		0.9	%
Total Revenues	$	163,764,144	100.0	%

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We experienced a 8.8% decrease in our revenues for our 2014 fiscal year compared to our 2013 fiscal year. Management attributes this decrease in revenues primarily to a lower average price for our ethanol and distillers' grains. Offsetting this decrease, however was an 7.1% and 38.0% increase in our production of ethanol and distillers' grains, respectively during our 2014 fiscal year compared to the same period of 2013.

Ethanol

The average price we received for our ethanol decreased by approximately 11.5% during our 2014 fiscal year compared to our 2013 fiscal year. Our average price per gallon of ethanol sold was $2.01 in 2014 and $2.27 in 2013. Management attributes the drop in ethanol prices during fiscal year 2014 as compared to fiscal year 2013 to continuing lower corn and gasoline prices, which impacted the market price of ethanol in 2014. In addition, management believes the uncertainty related to EPA proposed changes in the RFS volume obligation during 2014 also impacted ethanol demand, negatively impacting ethanol prices. However, ethanol prices were somewhat buoyed during fiscal year 2014 by tighter domestic ethanol inventories due to continuing rail delays causing production slow downs and reductions and stronger export markets as a result of lower United States ethanol prices making our ethanol more cost competitive in the world market.

Distillers' Grains

Sales of distillers' grains represent a slightly smaller portion of our revenues during our 2014 fiscal year compared to our 2013 fiscal year as a result of significantly lower prices which were offset by greater quantities of distillers' grains sold. The price we received for our distillers' grains in our 2014 fiscal year was approximately 11.5% lower than the price we received during our 2013 fiscal year; however, this decrease was offset by a increase of 38.0% in quantity sold in our 2014 fiscal year compared to our 2013 fiscal year. Management believes the lower distillers' grains prices are a result of low corn and soybean prices coupled with increased supplies of corn and soybeans during much of our 2014 fiscal year.

Additionally, changes in export demand for distillers' grains by China during summer 2014 negatively impacted distillers' grains prices for much of the second half of fiscal year 2014. In June 2014, China stopped issuing permits for the import of distillers' dried grains from the United States due to the presence of a unapproved genetically modified organism ("GMO") corn trait in some distillers' grains shipments. In December 2014, these trade issues were resolved and China lifted the ban imposed in June 2014. However, the practical effect of the ban was the elimination of the largest export market for distillers' grains which increased competition in the domestic feed market due to increased domestic supplies of distillers' grains and corn.

Corn Oil

The average price we received per pound of corn oil sold during our 2014 fiscal year was approximately 88.6% less than the average price received during our 2013 fiscal year. Management attributes the decrease in corn oil prices to additional corn oil entering the market without any corresponding increase in demand. Offsetting this price decrease, our volume of corn oil sold increased significantly from approximately 1 million pounds during our 2013 fiscal year to approximately 10 million pounds during our 2014 fiscal year relative to due to increased extraction efficiencies. The net effect of the price decrease and increase in volume sold resulted in only slight decrease in corn oil revenue from approximately $4,034,000 in 2013 to approximately $3,201,000 in 2014.

Cost of Sales

We experienced an decrease in our cost of goods sold for our 2014 fiscal year compared to our 2013 fiscal year. Our cost of goods sold decreased to $120,569,409 for our fiscal year ended October 31, 2014 from $155,536,974 in our fiscal year ended October 31, 2013. Our cost of goods sold as a percentage of revenues was 80.7% for our fiscal year ended October 31, 2014 compared to 95.0% for the same period of 2013. Our two largest costs of production are corn (70.0% of cost of goods sold for our fiscal year ended October 31, 2014) and natural gas (10.0% of cost of goods sold for our fiscal year ended October 31, 2014).

Corn Costs

We experienced an decrease of approximately 33.8% in the total amount we paid for corn for our 2014 fiscal year compared to our 2013 fiscal year. This was the net result of a 6.6% increase in the quantity of bushels we purchased, offset by a 38.0% decrease in our per bushel cost. A tight corn supply following the 2012 harvest put upward pressure on corn prices throughout much of our 2013 fiscal year. However, a record 2013 corn harvest eased prices substantially in our fourth fiscal quarter of 2013 and continued into fiscal year 2014.

Natural Gas Costs

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For our 2014 fiscal year, we experienced an increase of approximately 78.0% in our overall natural gas costs compared to our 2013 fiscal year due to significantly higher natural gas costs during our first and second quarters of 2014.

Hedging and Volatility of Purchases

 Realized and unrealized gains and losses related to our corn derivative instruments resulted in a decrease of approximately $788,000 in our cost of goods sold for our 2014 fiscal year compared to a decrease of $0 in our cost of goods sold for our 2013 fiscal year. 

Operating Expense

Operating expenses as a percentage of revenues held steady at 2.0% of revenues for our fiscal year ended October 31, 2013 compared to 2.0% of revenues for our fiscal year ended October 31, 2014.

Operating Income

Our income from operations for our fiscal year ended October 31, 2014 was 17.3% of our revenues compared to income of 3.0% of our revenues for our fiscal year ended October 31, 2013. For our fiscal year ended October 31, 2014, we reported operating income of $25,898,588 and for our fiscal year ended October 31, 2013, we had operating income of $5,013,134. This increase from period to period resulted from increased production and the improvement of our net margin between the price we received for ethanol and the cost of corn and natural gas used in manufacturing.

Other Income (Expense), Net

We had total other expense, net for our fiscal year ended October 31, 2014 of $1,571,070 compared to total other expense, net of $2,745,274 for our fiscal year ended October 31, 2013. This decrease is primarily due to a decrease in interest expense during our fiscal year ended October 31, 2014 compared to the same period of 2013 due to decreased borrowings on our credit facilities. Additionally, our other income, net increased to $93,279 of income for our fiscal year ended October 31, 2014 to $17,335 of expense for our fiscal year ended October 31, 2013.

Changes in Financial Condition for the Fiscal Year EndedOctober 31, 2015and2014

The following table highlights the changes in our financial condition for the fiscal year ended ended October 31, 2015 from our previous fiscal year ended October 31, 2014:

	October 31, 2015		October 31, 2014
Current Assets	$	12,892,432	$	10,896,702
Total Assets	$	66,696,384	$	66,122,250
Current Liabilities	$	6,456,103	$	8,109,395
Long-Term Debt	$	6,711,975	$	2,112,412
Members' Equity attributable to Heron Lake BioEnergy, LLC	$	52,446,500	$	55,047,120
Non-controlling Interest	$	1,081,806	$	853,323

Total assets were approximately $66.7 million at October 31, 2015 compared to approximately $66.1 million at October 31, 2014.

The increase in current assets at October 31, 2015 compared to October 31, 2014 is primarily due to an increase in accounts receivable, as well in increases in cash on hand, inventory and derivative instruments. These increases were offset slightly by a decrease in prepaid expenses. Trade accounts receivable increased because we were awaiting payment for a larger quantity of our products at October 31, 2015 compared to October 31, 2014. 

Offsetting the increase in total assets was a decrease in our property and equipment. Property and equipment, less accumulated depreciation, totaled approximately $53.0 million at October 31, 2015, which is slightly less than our property and equipment, less accumulated depreciation, as of October 31, 2014, which totaled approximately $54.4 million. The decrease is due to depreciation expense of approximately $4.6 million offset by capital expenditures of approximately $3.2 million during the fiscal year ended October 31, 2015. These capital expenditures are primarily attributable to approximately $1.6 million of ethanol production equipment additions and pipeline construction activities during the fiscal year ended October 31, 2015.

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Total current liabilities decreased approximately $1.6 million and totaled approximately $6.5 million at October 31, 2015 as compared to total current liabilities of approximately $8.1 million at October 31, 2014. This decrease was primarily due to an decrease in our accounts payable to approximately $3.9 million at October 31, 2015 from approximately $7.0 million at October 31, 2014, and a decrease in the current portion of our long-term debt to approximately $518,000 at October 31, 2015 as compared to approximately $846,000 at October 31, 2014. Offsetting the decreases in accounts payable and current portion of long-term debt was liability for $1.8 million in checks drawn in excess of bank balance at October 31, 2015. Our checks in drawn excess of bank balance represents any checks that we have issued which have not yet been cashed which exceed the cash we have in our bank account. Checks that we issue are paid from our revolving lines of credit and any cash that we generate is used to pay down our lines of credit with our primary lender. The decrease in our accounts payable is primarily due to a decrease in Agrinatural's accounts payables for pipeline construction in progress from period to period. The decrease in the current liability of our long-term debt was a result of scheduled debt repayments during the fiscal year.

Long-term debt totaled approximately $6.7 million at October 31, 2015 compared to long-term debt as of October 31, 2014 which totaled approximately $2.1 million. The increase is due to increased borrowings on our AgStar debt facilities to finance a portion of distributions made to unit holders in January 2015 and an additional $3.5 million in intercompany loans to Agrinatural.

Members’ equity attributable to Heron Lake BioEnergy, LLC decreased approximately $2.6 million at October 31, 2015 compared to October 31, 2014. The decrease was related to the distribution to members of approximately $9.4 million offset by net income attributable to Heron Lake BioEnergy, LLC of approximately $6.8 million for the year ended October 31, 2015.

Non-controlling interest totaled approximately $1.1 million at October 31, 2015 compared to approximately $853,000 at October 31, 2014.  This is directly related to recognition of the 27.0% non-controlling interest in Agrinatural, LLC.

Liquidity and Capital Resources

Year Ended October 31, 2015 Compared to Year Ended October 31, 2014

Our principal sources of liquidity consist of cash provided by operations, cash and equivalents on hand, and available borrowings under our credit facility with AgStar. Our principal uses of cash are to pay operating expenses of the plant, to make debt service payments on our 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. Our RTO replacement project is being funded from current earnings from operations and we do not expect that we require additional capital to fund this project.

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 lines of credit.

Cash Flows

The following table summarizes our sources and uses of cash from our audited consolidated statements of cash flows for the periods presented:

	Year Ended October 31
	2015			2014
Net cash provided by operating activities	$	6,530,673		$	28,319,812
Net cash used in investing activities	$	(2,822,633	)	$	(3,544,389	)
Net cash used in financing activities	$	(3,243,885	)	$	(24,656,533	)
Net increase in cash and equivalents	$	464,155		$	118,890

Operating Cash Flows

44

During the fiscal year ended October 31, 2015, we had net cash provided by operating activities of approximately $6.5 million compared to approximately $28.3 million during the fiscal year ended October 31, 2014. This difference is primarily due to generating income of $7.0 million during fiscal year 2015 compared to approximately $24.3 million during fiscal year 2014. Currently, our capital needs are being adequately met through cash flows from our operating activities and our currently available credit facilities.

Investing Cash Flows

During the fiscal year ended October 31, 2015, investing activities used approximately $2.8 million in cash primarily to purchase a condenser and sieve beads to remediate the system pressure fluctuations we experienced during the first fiscal quarter of 2015 and make a down payment on the RTO replacement equipment. During the same period of 2014, we used proceeds of $3.6 million primarily for payments for pipeline construction in progress at Agrinatural.

Financing Cash Flows

During the fiscal year ended October 31, 2015, we used approximately $3.2 million from financing activities compared to approximately $24.7 million for financing activities during the same period of 2014. Our sources of cash from financing activities in fiscal year 2015 consisted primarily of proceeds of $1.8 million from checks in excess of bank balance, which was offset by payments of $9.4 million in distributions to our unit holders and net proceeds of approximately $9.2 million on our long term debt. During fiscal year 2014, our uses of cash for financing activities included payments on our long term debt of approximately $24.4 million and $207,000 of payments on our convertible subordinated debt.

Year Ended October 31, 2014 Compared to Year Ended October 31, 2013

The following table summarizes our sources and uses of cash and equivalents from our consolidated statements of cash flows for the periods presented:

	Year Ended October 31
	2014			2013
Net cash provided by operating activities	$	28,319,812		$	3,957,770
Net cash provided by (used in) investing activities	$	(3,544,389	)	$	2,811,649
Net cash used in financing activities	$	(24,656,533	)	$	(6,879,542	)
Net decrease in cash and equivalents	$	118,890		$	(110,123	)

Operating Cash Flows

During the fiscal year ended October 31, 2014, we had net cash provided by operating activities of approximately $28.3 million compared to approximately $4.0 million during the fiscal year ended October 31, 2013. This difference is primarily due to generating income of $24.3 million during fiscal year 2014 compared to approximately $2.3 million during fiscal year 2013. Currently, our capital needs are being adequately met through cash flows from our operating activities and our currently available credit facilities.

Investing Cash Flows

During the fiscal year ended October 31, 2014, investing activities used approximately $3.6 million for capital expenditures. During the same period of 2013, we received proceeds of $3.7 million primarily attributable to the sale by our subsidiary, Lakefield Farmers Elevator, LLC, of grain facilities at Lakefield and Wilder, Minnesota, which was offset by approximately $0.9 million of capital expenditures.

Financing Cash Flows

During the fiscal year ended October 31, 2014, we used approximately $24.7 million from financing activities consisting primarily of payments on our long term debt and line of credit of approximately $24.4 million and payments on the convertible subordinated debt of $207,000. During the fiscal year ended October 31, 2013, we used approximately $6.9 million for financing activities consisting primarily of payments on our long term debt of approximately $19.5 million. Offsetting cash sources from financing activities for fiscal year 2013 included issuances of member units of approximately $6.9 million and convertible subordinated debt of approximately $5.1 million.

Contractual Obligations

45

The following table provides information regarding the consolidated contractual obligations of the Company as of October 31, 2015:

	Total		Less than One Year		One to Three Years		Four to Five Years		Greater Than Five Years
Long-term debt obligations(1)	$	8,469,727	$	810,071	$	1,436,077	$	1,085,882	$	5,137,697
Operating lease obligations (2)	3,139,950		2,133,300		1,006,650		—		—
Purchase obligations (3)	3,329,460		3,329,460		—		—		—
Total contractual obligations	$	14,939,137	$	6,272,831	$	2,442,727	$	1,085,882	$	5,137,697

_______________________________________________________________________________

(1) Long-term debt obligations include estimated interest and interest on unused debt.

(2) The operating lease obligations in the table above include our rail car leases.

(3) Purchase obligations consist of forward contracted corn deliveries and forward contracted natural gas purchases.

Off Balance-Sheet Arrangements

We have no off balance-sheet arrangements.

Credit Arrangements

Credit Arrangements with AgStar

We have a comprehensive credit facility with AgStar Financial Services, FCLA (“AgStar”) which consists of a revolving term loan with a maturity date of March 1, 2022.  The credit facility is secured by all of our real property, equipment and other assets.  Our credit facility with AgStar is subject to numerous covenants requiring us to maintain various financial ratios.

Under the AgStar revolving term note, we could initially borrow, repay, and re-borrow up to $28.0 million.  However, the maximum principal amount of this loan decreases by $3.5 million annually starting on March 1, 2015 and continuing each anniversary thereafter until maturity.  Therefore, the amount available under this facility at October 31, 2015 was $24.5 million.

Interest on this loan accrues at 3.25% above the One-Month London Interbank Offered Rate (LIBOR) Index rate.  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. In the event any amount is outstanding on this loan in excess of the new credit limit, we agreed to repay principal on the loan until we reach the new credit limit.  We agreed to pay an annual fee of 0.5% of the unused portion of this loan.  The revolving term loan is subject to a prepayment fee for any prepayment on the Term Loan prior to July 1, 2016 due to refinancing. We had approximately $4.8 million outstanding on this loan at October 31, 2015 and had no balance outstanding at October 31, 2014. The interest rate was 3.45% and 3.41% at October 31, 2015, and October 31, 2014, respectively.

For additional information related to the the revolving term note, see Note 8 included herein as part of the Notes to the Consolidated Financial Statements.

As part of the Credit Facility closing, we entered into an Administrative Agency Agreement with CoBank, ACP (“CoBank”). CoBank purchased a participation interest in the AgStar loan and was appointed the administrative agent for the purpose of servicing the loans.

Other Credit Arrangements

In addition to our primary credit arrangement with AgStar, we have other material credit arrangements and debt obligations.

46

In October 2003, we entered into an industrial water supply development and distribution agreement with the City of Heron Lake, Jackson County, and Minnesota Soybean Processors, an unrelated company. In consideration of this agreement, we 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, we entered into an industrial water supply treatment agreement with the City of Heron Lake and Jackson County. Under this agreement, we pay 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 us if any funds remain after final payment in full on the bonds and assuming we comply with all payment obligations under the agreement. As of October 31, 2015 and 2014, there was a total of approximately $2.0 million and $2.3 million in outstanding water revenue bonds, respectively. We classify our 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, we entered into a loan agreement with Federated Rural Electric Association pursuant to which we borrowed $600,000 by a secured promissory note. Under the note we are required to make monthly payments to Federated Rural Electric Association of $6,250 consisting of principal and an annual maintenance 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 balances of this loan at October 31, 2015 and 2014 were approximately $144,000 and $219,000, respectively.

We financed our corn oil separation equipment from the equipment vendor. We pay approximately $40,000 per month on this debt, conditioned upon revenue generated from the corn oil separation equipment. The monthly payment includes implicit interest of 5.57% until maturity, which was in May 2015. The note was secured by the corn oil separation equipment. We paid the balance of this loan in full during the quarter ended April 30, 2015.

We also have a note payable to the minority owner of Agrinatural Gas, LLC in the amount of $300,000 at October 31, 2015 and 2014. Interest on the note is One Month LIBOR rate plus 4.0% and payment is due on demand at the discretion of the board of managers of Agrinatural.

Loans to Agrinatural

Original Agrinatural Credit Facility

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

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

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

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

The balance of this loan was approximately $2.8 million at October 31, 2015 and $3.05 million at October 31, 2014.

Additional Agrinatural Credit Facility

47

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

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

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

The balance of this loan was approximately $3.3 million at October 31, 2015.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to the impact of market fluctuations associated commodity prices as discussed below. We have no exposure to foreign currency risk as all of our business is conducted in United States 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 FASB ASC 815, Derivatives and Hedging.

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 AgStar. The specifics of these credit facilities are discussed in greater detail in “PART II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources; Indebtedness".

Below is a sensitivity analysis we prepared regarding our income exposure to changes in interest rates. The sensitivity analysis below shows the anticipated effect on our income from a 10% adverse change in interest rates for a one-year period.

Outstanding Variable Rate Debt at	Interest Rate at	Interest Rate Following 10% Adverse Change	Approximate Adverse Change to Income
October 31, 2015	October 31, 2015
$5,123,000	3.45%	3.80%	$18,000

We had no exposure to interest rate risk as we had no amount outstanding on our variable interest loan at the end of our 2014 fiscal year.

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 quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged.

48

As of October 31, 2015, we had price protection in place for approximately 7% of our anticipated corn needs and 2% of our 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 October 31, 2015, net of the forward and future contracts used to hedge our market risk for corn and natural gas usage requirements. The volumes are based on our expected use and sale of these commodities for a one year period from October 31, 2015. The results of this analysis, which may differ from actual results, are as follows:

	Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)	Unit of Measure	Hypothetical Adverse Change in Price as of 10/31/2015		Approximate Adverse Change to Income
Ethanol	60,000,000	Gallons	10	%	$	8,820,000
Corn	20,350,000	Bushels	10	%	$	7,041,000
Natural Gas	1,600,000	MMBTU	10	%	$	528,000

For comparison purposes, our sensitivity analysis for our 2014 fiscal year is set forth below:

	Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)	Unit of Measure	Hypothetical Adverse Change in Price as of 10/31/2014		Approximate Adverse Change to Income
Ethanol	44,620,000	Gallons	10	%	$	7,719,000
Corn	16,600,000	Bushels	10	%	$	5,843,000
Natural Gas	1,300,000	MMBTU	10	%	$	659,000

49

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Audit Committee and Board of Governors

Heron Lake BioEnergy, LLC

Heron Lake, Minnesota

We have audited the accompanying consolidated balance sheets of Heron Lake BioEnergy, LLC as of October 31, 2015 and 2014, and the related consolidated statements of operations, changes in members’ equity, and cash flows for each of the years in the three-year period ended October 31, 2015. Heron Lake BioEnergy, LLC’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Heron Lake BioEnergy, LLC as of October 31, 2015 and 2014, and the results of its operations and its cash flows for each of the years in the three-year period ended October 31, 2015 in conformity with accounting principles generally accepted in the United States of America.

/s/ Boulay PLLP

Certified Public Accountants

Minneapolis, Minnesota

January 27, 2016

50

HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES Consolidated Balance Sheets
	October 31, 2015		October 31, 2014
ASSETS
Current Assets
Cash	$	1,126,283	$	662,128
Restricted cash	—		264,086
Accounts receivable	5,671,181		4,055,981
Inventory	5,259,346		5,187,267
Commodity derivative instruments	677,149		437,500
Prepaid expenses and other current assets	158,473		289,740
Total current assets	12,892,432		10,896,702
Property and equipment, net	52,984,550		54,367,998
Other Assets
Other intangible assets, net	122,148		160,296
Other assets	697,254		697,254
Total other assets	819,402		857,550
Total Assets	$	66,696,384	$	66,122,250

LIABILITIES AND MEMBERS' EQUITY
Current Liabilities
Current maturities of long-term debt	$	517,957	$	846,235
Checks drawn in excess of bank balance	1,836,682		—
Accounts payable	3,913,714		7,047,544
Accrued expenses	187,750		215,616
Total current liabilities	6,456,103		8,109,395
Long-Term Debt, net of current maturities	6,711,975		2,112,412
Commitments and Contingencies
Members' Equity
Members' equity attributable to Heron Lake BioEnergy, LLC consists of:
77,932,107 units issued and outstanding at both October 31, 2015, and October 31, 2014.	52,446,500		55,047,120
Non-controlling interest	1,081,806		853,323
Total members' equity	53,528,306		55,900,443
Total Liabilities and Members' Equity	$	66,696,384	$	66,122,250

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

51

HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES Consolidated Statements of Operations
	Fiscal Year Ended   October 31, 2015			Fiscal Year Ended   October 31, 2014			Fiscal Year Ended   October 31, 2013
Revenues	$	115,660,469		$	149,418,044		$	163,764,144
Cost of Goods Sold	105,248,092			120,569,409			155,536,974
Gross Profit	10,412,377			28,848,635			8,227,170
Operating Expenses	(3,001,095		)	(2,950,047		)	(3,214,036		)
Operating Income	7,411,282			25,898,588			5,013,134
Other Income (Expense)
Interest income	1,312			658			17,335
Interest expense	(444,625		)	(1,665,007		)	(2,789,373		)
Other income	11,747			93,279			26,764
Total other expense, net	(431,566		)	(1,571,070		)	(2,745,274		)
Net Income	6,979,716			24,327,518			2,267,860
Net Income Attributable to Non-controlling Interest	228,483			358,673			327,018
Net Income Attributable to Heron Lake BioEnergy, LLC	$	6,751,233		$	23,968,845		$	1,940,842
Weighted Average Units Outstanding—Basic	77,932,107			69,233,367			44,868,463
Net Income Per Unit - Basic (Class A and B)	$	0.09		$	0.35		$	0.04
Weighted Average Units Outstanding—Diluted	77,932,107			78,389,586			48,086,445
Net Income Per Unit - Diluted (Class A and B)	$	0.09		$	0.31		$	0.04
Distributions Per Unit (Class A and B)	$	0.12		$	—		$	—

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

52

HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Consolidated Statements of Changes in Members' Equity

	Class A Units	Class B Units	Members' Equity attributable to Heron Lake BioEnergy, LLC			Non-controlling Interest			Total Members' Equity
Balance—October 31, 2012	38,622,107	—	$	17,344,433		$	205,014		$	17,549,447
Capital issuance, net	8,075,000	15,000,000	6,922,500			—			6,922,500
Conversion of subordinated convertible debt	3,115,000	—	934,500			—			934,500
Member distributions	—	—	—			(123,455		)	(123,455		)
Net income attributable to non-controlling interest	—	—	—			327,018			327,018
Net income attributable to Heron Lake BioEnergy, LLC	—	—	1,940,842			—			1,940,842
Balance—October 31, 2013	49,812,107	15,000,000	27,142,275			408,577			27,550,852
Conversion of subordinated convertible debt	13,120,000	—	3,936,000			—			3,936,000
Cancellation of accrued distribution to non-controlling interest	—	—	—			86,073			86,073
Net income attributable to non-controlling interest	—	—	—			358,673			358,673
Net income attributable to Heron Lake BioEnergy, LLC	—	—	23,968,845			—			23,968,845
Balance—October 31, 2014	62,932,107	15,000,000	55,047,120			853,323			55,900,443
Member Distributions	—	—	(9,351,853		)	—			(9,351,853		)
Net income attributable to non-controlling interest	—	—	—			228,483			228,483
Net income attributable to Heron Lake BioEnergy, LLC	—	—	6,751,233			—			6,751,233
Balance - October 31, 2015	62,932,107	15,000,000	$	52,446,500		$	1,081,806		$	53,528,306

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

53

HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES Consolidated Statements of Cash Flows
	Fiscal Year Ended   October 31, 2015			Fiscal Year Ended   October 31, 2014			Fiscal Year Ended   October 31, 2013
Cash Flow From Operating Activities
Net income	$	6,979,716		$	24,327,518		$	2,267,860
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization	4,593,710			4,321,961			4,282,523
Write-off of deferred loan cost included in interest expense	—			369,699			—
Gain on sale of asset	—			(58,000		)	—
Change in fair value of commodity derivative instruments	(831,227		)	(787,617		)	—
Change in operating assets and liabilities:
Restricted cash	264,086			(264,086		)	—
Accounts receivable	(1,615,200		)	(3,306,555		)	1,035,335
Inventory	(72,079		)	417,042			(2,015,737		)
Commodity derivative instruments	591,578			350,117			—
Prepaid expenses and other current assets	131,267			651,610			(155,442		)
Accounts payable	(3,483,312		)	2,387,592			(1,390,905		)
Accrued expenses	(27,866		)	(89,469		)	(65,864		)
Net cash provided by operating activities	6,530,673			28,319,812			3,957,770
Cash Flows from Investing Activities
Payments for capital expenditures	(2,822,633		)	(3,602,389		)	(917,020		)
Proceeds from disposal of property and equipment	—			58,000			3,728,669
Net cash provided by (used in) investing activities	(2,822,633		)	(3,544,389		)	2,811,649
Cash Flows from Financing Activities
Checks in excess of bank balance	1,836,682			—			—
Proceeds from (payments on) line of credit	—			—			(480,000		)
Proceeds from long-term debt	13,440,990			—			—
Payments on long-term debt	(9,169,704		)	(24,449,533		)	(19,493,936		)
Proceeds from note payable	—			—			820,929
Issuance of (payments on) convertible subordinated debt	—			(207,000		)	5,077,500
Issuance of member units	—			—			6,922,500
Distributions Paid	(9,351,853		)	—			—
Deferred financing costs	—			—			(390,858		)
Release of restricted cash	—			—			715,259
Distributions to non-controlling interest	—			—			(50,936		)
Net cash used in financing activities	(3,243,885		)	(24,656,533		)	(6,879,542		)
Net Increase (Decrease) in cash	464,155			118,890			(110,123		)
Cash—Beginning of period	662,128			543,238			653,361
Cash—End of period	$	1,126,283		$	662,128		$	543,238

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

54

HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES Consolidated Statements of Cash Flows
	Fiscal Year Ended   October 31, 2015		Fiscal Year Ended   October 31, 2014		Fiscal Year Ended   October 31, 2013
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest expense	$	444,625	$	1,340,260	$	2,961,259
Supplemental Disclosure of Non-Cash Investing, Operating and Financing Activities
Conversion of subordinated convertible debt to Class A units	$	—	$	3,937,550	$	934,500
Cancellation of accrued distribution to non-controlling interest	$	—	$	86,073	$	—
Capital expenditures included in accounts payable	$	349,482	$	3,359,225	$	605,750
Distribution to non-controlling interest in accrued expenses	$	—	$	—	$	72,519

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

55

HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

The Company owns and operates an ethanol plant near Heron Lake, Minnesota with a permitted capacity of approximately 72.3 million gallons per year of undenatured ethanol on a twelve month rolling sum basis. In addition, the Company produces and sells distillers' grains with solubles and corn oil as co-products of ethanol production. Additionally, the Company through a majority owned subsidiary, operates a natural gas pipeline that provides natural gas to the Company's ethanol production facility and other customers.

Principles of Consolidation

The financial statements include the accounts of Heron Lake BioEnergy, LLC and its wholly owned subsidiary, HLBE Pipeline Company, LLC (collectively, "the Company"). HLBE Pipeline Company, LLC owns 73% of Agrinatural Gas, LLC ("Agrinatural"). Given the Company’s control over the operations of Agrinatural and its majority voting interest, the Company consolidates the financial statements of Agrinatural with its consolidated financial statements, with the equity and earnings attributed to the remaining 27% non-controlling interest identified separately in the accompanying consolidated balance sheets and statements of operations. All significant intercompany balances and transactions are eliminated in consolidation.

Fiscal Reporting Period

The Company's fiscal year end for reporting financial operations is October 31.

Accounting Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with United States generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses.  The Company uses estimates and assumptions in accounting for significant matters including, among others, the economic lives of property, plant, and equipment, the analysis of impairment of long-lived assets and valuation of commodity derivative instruments, inventory, and inventory purchase and sale commitments.  The Company periodically reviews estimates and assumptions, and the effects of revisions are reflected in the period in which the revision is made. Actual results could differ from those estimates.

Non-controlling Interest

Amounts recorded as non-controlling interest relate to the net investment by an unrelated party in Agrinatural. Income and losses are allocated to the members of Agrinatural based on their respective percentage of membership units held. Agrinatural will provide natural gas to the plant with a specified price per MMBTU for an initial term of 10 years, with two automatic renewal options for five years periods. On July 1, 2014, the Company entered into an amendment to this agreement to exercise early one of the two automatic renewals, thereby extending the term of this agreement to October 31, 2021.

The Company previously declared a distribution to the non-controlling interest members for approximately $86,000. This amount was recorded within accrued expenses at October 31, 2013. During the fiscal year ended October 31, 2014, the Company canceled this distribution.

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. Title is generally assumed by the buyer at the Company's shipping point.

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 incurred by the Company 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 ethanol related products are included in cost of goods sold.

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HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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.

Cash

The Company maintains its accounts at multiple financial institutions. At times throughout the year, the Company's cash balances may exceed amounts insured by the Federal Deposit Insurance Corporation and the Securities Investor Protection Corporation. The Company does not believe it is exposed to any significant credit risk on its cash balances.

Restricted Cash

The Company is periodically required to maintain cash balances at its broker related to derivative instrument positions.

Accounts Receivable

Credit terms are extended to customers in the normal course of business. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral.

Accounts receivable are recorded at their estimated net realizable value. Accounts are considered past due if payment is not made on a timely basis in accordance with the Company's credit terms. Accounts considered uncollectible are written off. The Company follows a policy of providing an allowance for doubtful accounts; however, based on historical experience, and its evaluation of the current status of receivables, the Company is of the belief that such accounts will be collectible in all material respects and thus an allowance was not necessary at October 31, 2015 or 2014. It is at least possible this estimate will change in the future.

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. See "Recently Issued Accounting Pronouncements, Inventory Measurement (Adopted)" below for additional information regarding ASU No. 2015-11. 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 in the balance sheets at fair value.

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

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

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

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HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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

Other Intangibles

Other intangibles are stated at cost and include road improvements located near the plant in which the Company has a beneficial interest in but does not own the road. The Company amortizes the assets over the economic useful life of 15 years. The Company recorded amortization expense in the amount of approximately $38,000, $58,000 and $18,000 during the fiscal years ended October 31, 2015, 2014 and 2013, respectively.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided over an estimated useful life by use of the straight-line deprecation method. Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized. Construction in progress expenditures will be depreciated using the straight-line method over their estimated useful lives once the assets are placed into service.

Depreciable useful lives are as follows:

Land improvements	15 Years
Plant building and equipment	7 - 40 Years
Vehicles and other equipment	5 - 7 Years
Office buildings and equipment	3 - 40 Years

Long-Lived Assets

Long-lived assets, such as property, plant, and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset.  If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including, but not limited to, discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No indicators of impairment existed during fiscal 2015, 2014, or 2013 that would have triggered impairment testing, and therefore, no impairment expense was recorded during fiscal 2015, 2014, or 2013.

Debt Financing Costs

Costs associated with the issuance of loans are classified as financing costs. Financing costs are amortized over the term of the related debt by use of the effective interest method. Amortization and write-offs of debt financing costs for the fiscal year ended October 31, 2015, 2014 and 2013 was approximately $0, $370,000, and $21,000, respectively, which is included as a component of interest expense within the consolidated statements of operations.

Fair Value of Financial Instruments

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HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company follows guidance for accounting for fair value measurements of financial assets and liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the consolidated financial statements on a recurring and nonrecurring basis. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy are as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

• Level 2 inputs include:

1. Quoted prices in active markets for similar assets or liabilities.

2. Quoted prices in markets that are observable for the asset or liability either directly or indirectly, for substantially the full term of the asset or liability.

3. Inputs that derived primarily from or corroborated by observable market date by correlation or other means.

• Level 3 inputs are unobservable inputs for the asset or liability.

The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

Except for those assets and liabilities which are required by authoritative accounting guidance to be recorded at fair value in our balance sheets, the Company has elected not to record any other assets or liabilities at fair value. No events occurred during the fiscal 2015, 2014 and 2013 that required adjustment to the recognized balances of assets or liabilities, which are recorded at fair value on a nonrecurring basis.

The carrying value of cash, restricted cash, accounts receivable, accounts payable and accrued liabilities approximates fair value due to the short maturity of these instruments. The fair value of debt has been estimated using discounted cash flow analysis based upon the Company's current incremental borrowing rates for similar types of financing arrangements. The fair value of outstanding debt will fluctuate with changes in applicable interest rates. Fair value will exceed carrying value when the current market interest rate is lower than the interest rate at which the debt was originally issued. The Company believes the carrying amount of its debt facilities approximates the fair value.

Income Taxes

The Company is treated as a partnership for federal and state income tax purposes and generally does not incur income taxes. Instead, its earnings and losses are included in the income tax returns of the members. Therefore, no provision or liability for federal or state income taxes has been included in these financial statements. Differences between financial statement basis of assets and tax basis of assets is related to capitalization and amortization of organization and start-up costs for tax purposes, whereas these costs are expensed for financial statement purposes. In addition, the Company uses the alternative depreciation system (ADS) for tax depreciation instead of the straight-line method that is used for book depreciation, which also causes temporary differences. The Company's tax year end is December 31. Primarily due to the partnership tax status, the Company does not have any significant tax uncertainties that would require disclosure. The Company recognizes and measures tax benefits when realization of the benefits is uncertain under a two-step approach. The first step is to determine whether the benefit meets the more-likely-than-not condition for recognition and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%. Primarily due to the Company's tax status as a partnership, the adoption of this guidance had no material impact on the Company's financial condition or results of operations.

The Company files income tax returns in the United States federal and Minnesota state jurisdictions. The Company is no longer subject to United States federal and state income tax examinations by tax authorities for years before 2012.

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HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Net Income per Unit

Basic net income per unit is computed by dividing net income by the weighted average number of members' units outstanding during the period. Diluted net income or loss per unit is computed by dividing net income by the weighted average number of members' units and members' unit equivalents outstanding during the period.

Environmental Liabilities

The Company's operations are subject to environmental laws and regulations adopted by various governmental entities in the jurisdiction in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its location. Accordingly, the Company has adopted policies, practices, and procedures in the areas of pollution control, occupational health, and the production, handling, storage and use of hazardous materials to prevent material environmental or other damage, and to limit the financial liability, which could result from such events. Environmental liabilities are recorded when the liability is probable and the costs can be reasonably estimated.

Recently Issued Accounting Pronouncements

Inventory Measurement (Adopted)

In July 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-11, which amended Inventory (Topic 330) Related to Simplifying the Measurement of Inventory of the Accounting Standards Codification. The amended guidance applies to all inventory except that which is measured using last-in, first-out (LIFO) or the retail inventory method. Inventory measured using first-in, first-out (FIFO) or average cost is included in the new amendments. Inventory within the scope of the new guidance should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments will take effect for the Company for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The new guidance should be applied prospectively, and earlier application is permitted as of the beginning of an interim or annual reporting period. The Company has elected to adopt the standard as of November 1, 2014, and it did not have a material effect on the financial statements.

Contract Revenue Recognition (Evaluating)

In May 2014 and amended in August 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09 which amended the Revenue from Contracts with Customers (Topic 606) of the Accounting Standards Codification. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for the Company for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company is still evaluating the guidance and its effect on its financial statements.

2. RISKS AND UNCERTAINTIES

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

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

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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 30, 2015, the EPA announced final Renewable Volume Obligation (“RVO”) requirements for the RFS for calendar years 2014, 2015 and 2016. Although the new RVO requirements set are above the proposed reductions, they are below the original requirements set by the RFS. 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 could result in a significant decrease in ethanol demand.

Current ethanol nameplate production capacity is approximately 15.5 billion gallons, with operating production capacity at approximately 14.9 billion gallons according to the Renewable Fuels Association (“RFA”). Reduction of blending requirements could reduce the demand for and price of ethanol. 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 with the recent decline in oil prices, ethanol is currently trading at a premium to gasoline causing a disincentive for discretionary blending of ethanol beyond the required blend rate. Consequently, there may be 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.

3. FAIR VALUE MEASUREMENTS

The Company follows accounting guidance related to fair value disclosures. For the Company, this guidance applies to certain derivative investments. The authoritative guidance also clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair measurements.

The following table sets forth, by level, the Company assets that were accounted for at fair value on a recurring basis as of October 31, 2015.

					Fair Value Measurement Using
	Carrying Amount in Balance Sheet				Quoted Prices in Active Markets		Significant Other Observable Inputs		Significant Unobservable inputs
Financial Assets			Fair Value		(Level 1)		(Level 2)		(Level 3)
Corn Derivative Contracts	$	677,149	$	677,149	$	677,149	$	—	$	—

The following table sets forth, by level, the Company assets that were accounted for at fair value on a recurring basis as of October 31, 2014.

					Fair Value Measurement Using
	Carrying Amount in Balance Sheet				Quoted Prices in Active Markets		Significant Other Observable Inputs		Significant Unobservable inputs
Financial Assets			Fair Value		(Level 1)		(Level 2)		(Level 3)
Corn Derivative Contracts	$	437,500	$	437,500	$	437,500	$	—	$	—

We determine 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.

4. CONCENTRATIONS

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The Company sells all of the ethanol and distiller grains produced to two customers under marketing agreements at October 31, 2015. Two customers accounted for approximately 97% and 88% of the outstanding accounts receivable balance at October 31, 2015 and 2014, respectively. These customers accounted for approximately 97%, 96% and 97% of revenue for the years ended October 31, 2015, 2014 and 2013, respectively.

5. INVENTORY

Inventory consists of the following at October 31:

	2015		2014
Raw materials	$	1,800,320	$	2,462,754
Work in process	693,844		791,490
Finished Goods	1,829,311		1,072,646
Supplies	935,871		860,377
Totals	$	5,259,346	$	5,187,267

6. DERIVATIVE INSTRUMENTS

The Company enters into corn, ethanol, and natural gas derivatives in order to protect cash flows from fluctuations caused by volatility in commodity prices for periods up to 24 months. These derivatives are put in place to protect gross profit margins from potentially adverse effects of market and price volatility on ethanol sales and corn purchase commitments where the prices are set at a future date. Although these derivative instruments serve the Company's purpose as an economic hedge, they are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change.

The following table provides detail regarding the Company's derivative financial instruments at October 31, 2015, none of which were designated as hedging instruments:
	Consolidated Balance Sheet Location	Assets		Liabilities
Corn contracts	Commodity derivative instruments	$	677,149	$	—
Totals		$	677,149	$	—
The following table provides detail regarding the Company's derivative financial instruments at October 31, 2014, none of which were designated as hedging instruments:
	Consolidated Balance Sheet Location	Assets		Liabilities
Corn contracts	Commodity derivative instruments	$	437,500	$	—
Totals		$	437,500	$	—

As of October 31, 2015, the total notional amount of the Company's outstanding corn derivative instruments was approximately 1,875,000 bushels, comprised of long corn positions on 360,000 bushels, and short corn positions on 1,515,000 bushels, that were entered into to hedge forecasted corn purchases through December 2016. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding. As of October 31, 2015, the Company had $0 of cash collateral (restricted cash) related to corn derivatives held by a broker.

As of October 31, 2014, the total notional amount of the Company's outstanding corn derivative instruments was approximately 2,790,000 bushels, comprised of long corn positions on 2,605,000 bushels, and short corn positions on 185,000 bushels, that were entered into to hedge forecasted corn purchases through July 2015. As of October 31, 2014, the Company had approximately $264,000 of cash collateral (restricted cash) related to corn derivatives held by a broker.

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

	Statement of Operations location	Twelve Months Ended October 31,
		2015		2014		2013
Corn contracts	Cost of goods sold	$	831,227	$	787,617	$	—
Totals		$	831,227	$	787,617	$	—

7. PROPERTY AND EQUIPMENT

A summary of property and equipment is as follows:

	October 31, 2015			October 31, 2014
Land and improvements	$	9,111,838		$	9,111,838
Plant buildings and equipment	81,634,966			73,080,366
Vehicles	611,976			611,976
Office buildings	641,860			613,407
Construction in progress	1,148,578			6,559,517
	93,149,218			89,977,104
Less: accumulated depreciation	(40,164,668		)	(35,609,106		)
Net property, plant and equipment	$	52,984,550		$	54,367,998

Depreciation expense totaled approximately $4,556,000, $4,264,000 and $4,258,000 during the fiscal years ended October 31, 2015, 2014 and 2013, respectively.

On July 31, 2015, the Company placed a purchase order with an unrelated party for a new regenerative thermal oxidizer and made a down payment of approximately $375,000 to secure the order. The total commitment approximates $1.9 million and is expected to be completed during the latter part of fiscal year 2016.

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8. DEBT FACILITIES

Long-term debt consists of the following:

	October 31, 2015		October 31, 2014
Revolving term note payable to lending institution, see terms below.	$	4,822,777	$	—
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. The Company 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.	1,775,828		2,018,767
Assessment payable as part of water treatment agreement, due in semi-annual installments of $25,692 with interest at 0.50%, enforceable by statutory lien, with the final payment due in 2016.	51,199		102,074
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.	136,378		172,072
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 the Company.	143,750		218,750
Note payable to non-controlling interest member of Agrinatural. Interest is at One Month LIBOR plus 4.0%. The note is considered due on demand with payments due at Agrinatural Board of Managers discretion.	300,000		300,000
Equipment payable on corn oil separation equipment from a vendor. The Company paid approximately $40,000 per month conditioned upon revenue generated from the corn oil equipment. The monthly payment included implicit interest of 5.57%. This note was paid in full in February 2015.	—		146,984
Totals	7,229,932		2,958,647
Less amounts due within one year	517,957		846,235
Net long-term debt	$	6,711,975	$	2,112,412

Revolving Term Note

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The Company has a revolving term loan with a lender initially totaling $28,000,000. Under the terms of the credit facility, the revolving term loan commitment declines by $3,500,000 annually, starting March 1, 2015 and continues each anniversary thereafter until maturity. Therefore, the amount availableon this facility at October 31, 2015 was $24,500,000. Amounts borrowed by the Company under the revolving term loan and repaid or prepaid may be re-borrowed at any time prior to the March 1, 2022 maturity date. 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. The Company 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. The Company 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 revolving term loan is subject to a prepayment fee for any prepayment on the term loan prior to July 1, 2016 due to refinancing. The credit facility contains customary covenants. The loan is secured by substantially all of the Company assets including a subsidiary guarantee. The interest rate on the revolving term loan was 3.45% and 3.41% at October 31, 2015, and October 31, 2014, respectively.

As part of the Credit Facility closing, the Company 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. The Company agreed to pay CoBank an annual fee of $2,500 as the agent for Ag Star.

Estimated maturities of long-term debt at October 31, 2015 are as follows:

2016	$	517,957
2017	480,064
2018	432,182
2019	319,376
2020	326,798
After 2020	5,153,555
Total debt	$	7,229,932

9. MEMBERS' EQUITY

The Company is authorized to issue 80,000,000 capital units, of which 65,000,000 have been designated Class A units and 15,000,000 have been designated as Class B units. Members of the Company are holders of units who have been admitted as members and who hold at least 2,500 units. Any holder of units who is not a member will not have voting rights. Transferees of units must be approved by our board of governors to become members. Members are entitled to one vote for each unit held. Subject to the Member Control Agreement, all units share equally in the profits and losses and distributions of assets on a per unit basis.

On July 31, 2013, the Company issued 8,075,000 Class A units and 15,000,000 Class B units, at a purchase price of $0.30 per unit, to Project Viking for total proceeds of approximately $6,900,000.  

On September 18, 2013, the Company issued 3,115,000 Class A units, at a conversion price of $0.30 per unit, to current members upon conversion of subordinated convertible debt of $934,500.

On July 1, 2014, the Company issued 13,120,000 Class A units of the Company to the holders of Subordinated Convertible Notes electing conversion and redeemed the remaining $207,000 of the Notes at par value.

On December 18, 2014, the Company's board of governors declared a distribution of $0.12 per membership unit for a total of approximately $9,352,000 to be paid to members of record as of December 18, 2014. The distribution was paid in January 2015. Based on the covenants contained in the Company's AgStar credit facilities, the foregoing distribution was approved by its lender prior to distribution.

Subsequent to the end of the Company's 2015 fiscal year, on December 17, 2015, the Company's board of governors declared a distribution of $0.05 per membership unit for a total of approximately $3,897,000 to be paid to members of record as of December 18, 2015. The distribution was paid in January 2016. Based on the covenants contained in the Company's AgStar credit facilities, the foregoing distribution was approved by its lender prior to distribution.

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10. LEASES

The Company has lease agreements with leasing companies for 145 rail cars for the transportation of the Company's ethanol with various maturity dates through May 2017. The rail car lease payments are due monthly in the aggregate amount of approximately $143,000.

The Company has a lease agreement with a leasing company for 50 hopper cars to assist in with the transport of the distiller's grains by rail with a maturity date of May 2017. The rail car lease payments are due monthly in the amount of approximately $35,000.

At October 31, 2015, the Company had the following minimum future lease payments, which at inception had non-cancelable terms of more than one year:

2016	$	2,133,300
2017	1,006,650
Total lease commitments	$	3,139,950

11. INCOME TAXES

The differences between consolidated financial statement basis and tax basis of assets and liabilities are estimated as follows at October 31:

	2015			2014
Consolidated financial statement basis of assets	$	66,696,384		$	66,122,250
Plus: Organization and start-up costs capitalized	1,091,020			1,248,749
Less: Unrealized gains on commodity derivative instruments	(677,149		)	(437,500		)
Less: Accumulated tax depreciation and amortization greater than financial statement basis	(54,580,532		)	(43,116,534		)
Plus: Impairment charge	27,844,579			27,844,579
Income tax basis of assets	$	40,374,302		$	51,661,544

There were no significant differences between the consolidated financial statement basis of liabilities and the income tax basis of liabilities at October 31, 2015 and 2014.

12. RELATED PARTY TRANSACTIONS

Project Viking, LLC

On July 31, 2013, Project Viking invested $6.9 million in the Company for 8,075,000 Class A units and 15,000,000 Class B units at a purchase price of $0.30 per unit.

In May 2013, Project Viking participated in the initial subordinated convertible debt offering and lent the Company $102,000.

On July 31, 2013, Project Viking obtained a controlling interest in the Company. On July 31, 2013, Project Viking sold its interest to Granite Falls Energy, L.L.C. ("GFE"), which is now considered a related party. GFE operates an ethanol plant in the Midwest.

Granite Falls Energy, LLC

The Company entered into a Management Services Agreement with GFE on July 31, 2015.  Under the Management Services Agreement, GFE agreed to supply its own personnel to act as part-time officers and managers of the Company for the positions of Chief Executive Officer, Chief Financial Officer, and Commodity Risk Manager.  The initial term of the Management Services Agreement is three years. 

The Company agreed to pay GFE $35,000 per month during the first year of the agreement.

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During years two and three of the agreement, the Company agreed to pay GFE 50% of the total salary, bonuses, and other expenses and costs incurred by GFE for the three management positions.  At the expiration of the initial term, the agreement will automatically renew for successive one-year terms unless and until the Company or GFE gives the other party 90-days written notice of termination prior to expiration of the initial term or the start of a renewal term. Total expenses under this agreement were $414,000, $392,000 and $105,000 for fiscal years 2015, 2014 and 2013, respectively.

As part of the purchase of Project Viking, GFE obtained the interest in Project Viking's convertible subordinated debt in the amount of $102,000. In September 2013, the Company completed the convertible subordinated debt offering of $5,077,000 and each subscriber had the option to convert to units at $0.30 per unit conversion price. Subsequently, in September 2013, GFE converted their $102,000 of subordinated debt for 340,000 Class A units. The Company paid approximately $2,000 in interest expense to GFE related to the subordinated convertible debt for the year ended October 31, 2013.

Corn Purchase - Members

The Company purchased approximately $11,032,000 of corn from board members in fiscal year 2015, $14,860,000 in fiscal year 2014 and none in 2013.

Agrinatural

During 2013, the Company borrowed $300,000 from the non-controlling interest member of Agrinatural. Total interest paid in relation to this note payable amounted to approximately $16,000 for each of the years ended October 31, 2015 and 2014.

Swan Engineering

On March 27, 2015, Agrinatural executed a new management and operating agreement with Swan Engineering, Inc. ("SEI"). SEI, together with an unrelated third party owns Rural Energy Solutions, LLC ("RES"), the 27% minority owner of Agrinatural. Under the new management and operating agreement, SEI will continue to provide Agrinatural with day-to-day management and operation of Agrinatural's pipeline distribution business. In exchange for these services, Agrinatural will pay SEI an aggregate management fee equal to the fixed monthly base fee plus the variable customer management fee based on the number of customers served on the pipeline less the agreed monthly fee reduction of $4,500. For the year ended October 31, 2015, the Company paid approximately $18,000 and $83,000 for the monthly base fee and variable customer management fee, respectively. The new management and operating agreement with SEI expires July 1, 2019 unless earlier terminated for cause as defined in the agreement.

On March 27, 2015, Agrinatural also executed a new project management agreement with SEI. Pursuant to the new project management agreement, SEI will continue to supervise all of Agrinatural's pipeline construction projects. These projects are constructed by unrelated third-party pipeline construction companies. Under the new project management agreement, Agrinatural will pay SEI a total of 10% of the actual capital expenditures for construction projects approved by Agrinatural's Board of Directors, excluding capitalized marketing costs. For the year ended October 31, 2015, the Company paid approximately $19,000 project management fees. The new project management with SEI expires June 30, 2019 unless earlier terminated for cause as defined in the agreement.

Amounts due to SEI from Agrinatural included in accounts payable on the consolidated balance sheets totaled approximately $340,000 and $517,000at October 31, 2015 and 2014, respectively.

13. COMMITMENTS AND CONTINGENCIES

Water Agreements

In October 2003, the Company entered into an industrial water supply development and distribution agreement with the City of Heron Lake for 15 years. The Company has the exclusive rights to the first 600 gallons per minute of capacity that is available from the well, and provides for the Company, combined with an unrelated company, to approve any other supply contracts that the City may enter into. In consideration, the Company will pay one half of the City's water well bond payments of $735,000, plus a 5% administrative fee, totaling approximately $594,000, and operating costs, relative to the Company's water usage, plus a 10% profit. These costs will be paid as water usage fees. The Company recorded an assessment of approximately $367,000 with long-term debt as described in Note 8. The Company pays operating and administrative expenses of approximately $12,000 per year.

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In May 2006, the Company entered into a water treatment agreement with the City of Heron Lake and Jackson County for 30 years. The Company will pay for operating and maintenance costs of the plant in exchange for receiving treated water. In addition, the Company agreed to an assessment for a portion of the capital costs of the water treatment plant. The Company recorded assessments with long-term debt of $500,000 and $3,550,000 in fiscal 2007 and 2006, respectively, as described in Note 8. The Company paid operating and maintenance expenses of approximately $57,000, $114,000, and $289,000 in fiscal 2015, 2014, and 2013, respectively.

Marketing Agreements

The Company has a marketing agreement ("Eco Agreement") with Eco-Energy, Inc., an unrelated party ("Eco-Energy") for the sale of ethanol. Under this ethanol agreement, Eco-Energy purchases, markets and resells 100% of the ethanol produced at the Company's ethanol production facility and arranges for the transportation of ethanol. The Company pays Eco-Energy a marketing fee based on a percentage of the applicable sale price of the ethanol, as well as a fixed lease fee for rail cars leased from Eco-Energy to the Company. The marketing fee was negotiated based on prevailing market-rate conditions for comparable ethanol marketing services. The term of Eco Agreement continues through December 31, 2016, with automatic renewals for additional three terms of three year periods unless terminated by either party by providing written notice to the other party at least 3 months prior to the end of the then current term.

Gavilon Ingredients, LLC, an unrelated party ("Gavilon"), has serves as the distillers' grains marketer for our plant pursuant to a distillers' grains off-take agreement. Pursuant to our agreement with Gavilon, Gavilon purchases all of the distillers' grains produced at our ethanol plant. We pay Gavilon a service fee for its services under this agreement. The contract commenced on November 1, 2013 with an initial term of six months, and will continue to remain in effect until terminated by either party at its unqualified option, by providing written notice of not less than 60 days to the other party.

RPMG, Inc., an unrelated party, markets the corn oil produced at our ethanol plant pursuant to a corn oil marketing agreement. We pay RPMG a commission based on each pound of corn oil sold by RPMG under the agreement. The contract commenced on November 1, 2013 with an initial term of one year and will continue to remain in effect until terminated by either party at its unqualified option, by providing written notice of not less than 90 days to the other party.

The Company also has a base agreement for the sale and purchase of natural gas with Constellation New Energy—Gas Division, LLC pursuant to which it buys all of its natural gas from Constellation. This agreement runs until March 31, 2016.

Forward Contracts

At October 31, 2015, the Company had cash and basis contracts for forward corn purchase commitments for approximately 2,604,000 bushels for deliveries through October 2016.

At October 31, 2015, the Company had forward contracts to sell approximately $2,366,000 of ethanol for various delivery periods from November 2015 through December 2015 which approximates 15% of its anticipated ethanol sales during that period.

At October 31, 2015, the Company had forward contracts to sell approximately $151,000 of distillers' grains for delivery in November 2015.

At October 31, 2015, the Company had forward contracts to sell approximately $383,000 of corn oil for delivery through November 2015.

14. BUSINESS SEGMENTS

Based on the growth of the Company's natural gas pipeline subsidiary during the fourth quarter of fiscal 2014, the Company has determined they now have two operating segments. The Company groups its operations into the following two business segments:

Ethanol Production:	Ethanol and co-product production and sales
Natural gas pipeline:	Ownership and operations of natural gas pipeline

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Segment reporting is intended to give financial statement users a better view of how the Company manages and evaluates its businesses.   The accounting policies for each segment are the same as those described in the summary of significant accounting policies in Note 1. Segment income or loss does not include any allocation of shared-service costs.  Segment assets are those that are directly used in or identified with segment operations. Inter-segment balances and transactions have been eliminated.

The following tables summarize financial information by segment and provide a reconciliation of segment contribution to operating income and total assets for the fiscal years ended October 31:

Revenue:	2015			2014
Ethanol production	$	114,669,831		$	148,512,052
Natural gas pipeline	2,761,042			2,621,898
Eliminations	(1,770,404		)	(1,715,906		)
Total Revenue	$	115,660,469		$	149,418,044
Operating Income:	2015			2014
Ethanol production	$	8,106,105		$	26,170,923
Natural gas pipeline	1,075,581			1,443,571
Eliminations	(1,770,404		)	(1,715,906		)
Operating Income	$	7,411,282		$	25,898,588
Total Assets:	2015			2014
Ethanol production	$	53,663,064		$	53,826,820
Natural gas pipeline	13,033,320			12,295,430
Total assets	$	66,696,384		$	66,122,250

15. QUARTERLY FINANCIAL DATA (UNAUDITED)

Summary quarterly results are as follows:

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Fiscal year ended October 31, 2015
Revenues	$	27,177,449	$	29,813,571	$	30,192,430	$	28,477,019
Gross profit	1,847,050		2,673,825		4,755,934		1,135,568
Operating income	966,668		1,891,732		4,014,168		538,714
Net income attributable to Heron Lake BioEnergy, LLC	879,256		1,733,837		3,808,820		329,320
Basic earnings per unit (Class A and B)	$	0.01	$	0.02	$	0.05	$	0.01
Diluted earnings per unit (Class A and B)	$	0.01	$	0.02	$	0.05	$	0.01

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Fiscal year ended October 31, 2014
Revenues	$	40,910,555	$	39,149,053	$	39,082,103	$	30,276,333
Gross profit	7,180,730		7,602,033		8,292,015		5,773,857
Operating income	6,340,753		6,758,565		7,514,741		5,284,529
Net income attributable to Heron Lake BioEnergy, LLC	5,824,444		6,323,059		6,785,754		5,035,588
Basic earnings per unit (Class A and B)	$	0.09	$	0.10	$	0.10	$	0.06
Diluted earnings per unit (Class A and B)	$	0.08	$	0.08	$	0.09	$	0.06

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	First Quarter			Second Quarter			Third Quarter		Fourth Quarter
Fiscal year ended October 31, 2013
Revenues	$	44,121,305		$	35,498,926		$	45,583,441	$	38,560,472
Gross profit	920,219			698,812			4,060,158		2,547,981
Operating income (loss)	(95,367		)	(192,887		)	3,385,958		1,915,430
Net income (loss) attributable to Heron Lake BioEnergy, LLC	(920,554		)	(998,139		)	2,554,493		1,305,042
Basic earnings (loss) per unit (Class A and B)	$	(0.02	)	$	(0.03	)	$	0.07	$	0.03
Diluted earnings (loss) per unit (Class A and B)	$	(0.02	)	$	(0.03	)	$	0.06	$	0.03

The above quarterly financial date is unaudited, but in the opinion of management, all adjustments necessary for a fair presentation of the selected data for these periods presented have been included.

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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.    CONTROLS AND PROCEDURES

(a) Disclosure 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.

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 October 31, 2015. Based upon this review and evaluation, these officers have concluded that the weaknesses in internal controls over the accounting, financial reporting and oversight at our majority owned subsidiary, Agrinatural, previously disclosed in our 2014 annual report on Form 10-K (the “preceding Form 10-K”) have been fully remediated. To address these weaknesses, Agrinatural made multiple changes to improve its internal control over financial reporting, including entering into a professional services agreement with Wildwood Technology to provide a chief financial officer to Agrinatural, a professional services agreement with Woodbury Consulting, LLC to provide a chief executive officer to Agrinatural, and improved board oversight and review processes, improving, from a holistic standpoint, Agrinatural's internal controls. As of October 31, 2015, all remedial actions to address the weaknesses at Agrinatural have been implemented, tested and determined to be operating effectively. Therefore, our Chief Executive Officer and Chief Financial Officer concluded that our consolidated disclosure controls and procedures are effective as of October 31, 2015.

(b) Management's Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a15-(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that:

(i)  pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(ii)  provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and governors of the Company; and

(iii)  provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision of our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In conducting the aforementioned evaluation, management concluded that the Company has fully remediated the material weaknesses in our financial close reporting and close procedures and recognition of revenue identified in the preceding From 10-K as discussed above. Accordingly, management believes, based on its knowledge, that (1) 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 not misleading with respect to the period covered by this report, and (2) the financial statements, and other financial information included in this report, fairly present in all material respects our financial condition, results of operations and cash flows for the years and periods for the periods presented in accordance with United States GAAP.

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An attestation report from our accounting firm on our internal control over financial reporting is not included in this annual report because an attestation report is only required under the regulations of the Securities and Exchange Commission for accelerated filers and large accelerated filers.

(c) Changes in Internal Controls Over Financial Reporting

Other than as described above, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the fourth fiscal quarter ended October 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.    OTHER INFORMATION

None.

PART III

Pursuant to General Instruction G(3), we omit Part III, Items 10, 11, 12, 13 and 14 and incorporate such items by reference to an amendment to this Annual Report on Form 10-K or to a definitive proxy statement (the "2016 Proxy Statement") to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year (October 31, 2015) covered by this Annual Report.

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The Information required by this Item is incorporated by reference to the 2016 Proxy Statement.

ITEM 11.    EXECUTIVE COMPENSATION

The Information required by this Item is incorporated by reference to the 2016 Proxy Statement.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The Information required by this Item is incorporated by reference to the 2016 Proxy Statement.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The Information required by this Item is incorporated by reference to the 2016 Proxy Statement.

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

The Information required by this Item is incorporated by reference to the 2016 Proxy Statement.

PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENTS SCHEDULES

The following exhibits and financial statements are filed as part of, or are incorporated by reference into, this report:

(a) Financial Statements

The consolidated financial statements appear beginning at page 48 of this report.

(b) Financial Statement Schedules

All supplemental schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.

(c) Exhibits

See "Exhibit Index" on the page following the Signature Page.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

		HERON LAKE BIOENERGY, LLC
Date:	January 27, 2016	/s/ Steve Christensen
		Steve Christensen
		Chief Executive Officer
Date:	January 27, 2016	/s/ Stacie Schuler
		Stacie Schuler
		Chief Financial Officer

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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date:	January 27, 2016	/s/ Steve Christensen
		Steve Christensen, Chief Executive Officer and General Manager
		(Principal Executive Officer)
Date:	January 27, 2016	/s/ Stacie Schuler
		Stacie Schuler, Chief Financial Officer
		(Principal Financial and Accounting Officer)
Date:	January 27, 2016	/s/ Paul Enstad
		Paul Enstad, Governor and Chairman
Date:	January 27, 2016	/s/ Rodney R. Wilkison
		Rodney R. Wilkison, Governor and Vice Chairman
Date:	January 27, 2016	/s/ Michael Kunerth
		Michael Kunerth, Governor and Secretary
Date:	January 27, 2016	/s/ Dean Buesing
		Dean Buesing, Governor
Date:	January 27, 2016	/s/ Robert Ferguson
		Robert Ferguson, Governor
Date:	January 27, 2016	/s/ Marten Goulet
		Marten Goulet, Governor
Date:	January 27, 2016	/s/ Leslie Bergquist
		Leslie Bergquist, Governor
Date:	January 27, 2016	/s/ Doug Schmitz
		Doug Schmitz, Governor
Date:	January 27, 2016	/s/ David Westehoff
		David Woestehoff, Governor
Date:	January 27, 2016	/s/ Kenton Johnson
		Kenton Johnson, Alternate Governor
Date:	January 27, 2016	/s/ Milton Mekeown
		Milton McKeown, Alternate Governor
Date:	January 27, 2016	/s/ Marty Seifert
		Marty Seifert, Alternate Governor

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HERON LAKE BIOENERGY, LLC

INDEX TO EXHIBITS TO FORM 10-K FOR FISCAL YEAR ENDED OCTOBER 31, 2015

Exhibit Number	Exhibit Title	Incorporated by Reference To:
3.1	First Amended and Restated Articles of Organization of Heron Lake BioEnergy, LLC, as amended effective August 30, 2011	Exhibit 3.1 to Current Report on Form 8-K dated September 2, 2011.
3.2	Member Control Agreement of Heron Lake BioEnergy, LLC, as amended through August 30, 2011	Exhibit 3.2 to Current Report on Form 8-K dated September 2, 2011.
4.1	Form of Class A Unit Certificate	Exhibit 4.1 of the Company's Registration Statement on Form 10 (File No. 000-51825) filed on August 22, 2008 (the "2008 Registration Statement").
4.2	Unit Transfer Policy adopted November 5, 2008	Exhibit 4.1 of the Company's Current Report on Form 8-K dated November 5, 2008.
10.1	Industrial Water Supply Development and Distribution Agreement dated October 27, 2003 among Heron Lake BioEnergy, LLC (f/k/a Generation II Ethanol, LLC), City of Heron Lake, Jackson County, and Minnesota Soybean Processors	Exhibit 10.10 of the Company's 2008 Registration Statement.
10.2	Industrial Water Supply Treatment Agreement dated May 23, 2006 among Heron Lake BioEnergy, LLC, City of Heron Lake and County of Jackson	Exhibit 10.11 of the Company's 2008 Registration Statement.
10.3	Loan Agreement dated December 28, 2007 by and between Federated Rural Electric Association and Heron Lake BioEnergy, LLC	Exhibit 10.19 of the Company's 2008 Registration Statement.
10.4	Secured Promissory Note issued December 28, 2007 by Heron Lake BioEnergy, LLC as borrower to Federated Rural Electric Association as lender in principal amount of $600,000	Exhibit 10.20 of the Company's 2008 Registration Statement.
10.5	Security Agreement dated December 28, 2007 by Heron Lake BioEnergy, LLC in favor of Federated Rural Electric Association	Exhibit 10.21 of the Company's 2008 Registration Statement.
10.6	Electric Service Agreement dated October 17, 2007 by and between Interstate Power and Light Company and Heron Lake BioEnergy, LLC	Exhibit 10.22 of the Company's 2008 Registration Statement.
10.7	Shared Savings Contract dated November 16, 2007 by and between Interstate Power and Light Company and Heron Lake BioEnergy, LLC	Exhibit 10.23 of the Company's 2008 Registration Statement.
10.8	Escrow Agreement dated November 16, 2007 by and between Heron Lake BioEnergy, LLC, Farmers State Bank of Hartland for the benefit of Interstate Power and Light Company	Exhibit 10.24 of the Company's 2008 Registration Statement.
10.9	Management Services Agreement effective as of July 31, 2013 between Granite Falls Energy, LLC and Heron Lake BioEnergy, LLC*	Exhibit 10.4 to Quarterly Report on Form 10-Q for the quarter ended July 31, 2013.
10.10	Corn Oil Marketing Agreement dated September 4, 2013 by and among Heron Lake BioEnergy, LLC and RPMG, Inc. †	Exhibit 10.76 to Annual Report on Form 10-K/A for the year ended October 31, 2013
10.11	Ethanol Marketing Agreement dated September 17, 2013 by and among Heron Lake BioEnergy, LLC and Eco-Energy, LLC †	Exhibit 10.77 to Annual Report on Form 10-K for the year ended October 31, 2013
10.12	Distiller's Grain Off-Take Agreement dated September 24, 2013 by and among Heron Lake BioEnergy, LLC and Gavilon Ingredients, LLC †	Exhibit 10.78 to Annual Report on Form 10-K/A for the year ended October 31, 2013
10.13	Loan Agreement dated July 29, 2014 by and between Agrinatural Gas, LLC, and Heron Lake BioEnergy, LLC	Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended July 31, 2014.

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Exhibit Number	Exhibit Title	Incorporated by Reference To:
10.14	Promissory Note dated July 29, 2014 between Heron Lake BioEnergy, LLC, as Holder, and Agrinatural Gas, LLC, as Borrower	Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended July 31, 2014.
10.15	Security Agreement dated July 29, 2014 by and between Agrinatural Gas, LLC, and Heron Lake BioEnergy, LLC	Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended July 31, 2014.
10.16	Collateral Assignment dated July 29, 2014 by and between Agrinatural Gas, LLC, and Heron Lake BioEnergy, LLC	Exhibit 10.4 to Quarterly Report on Form 10-Q for the quarter ended July 31, 2014.
10.17	Guaranty dated July 29, 2014 by Rural Energy Solutions, LLC, guarantor, in favor of Heron Lake BioEnergy, LLC	Exhibit 10.5 to Quarterly Report on Form 10-Q for the quarter ended July 31, 2014.
10.18	Master Loan Agreement dated July 29, 2014 by and between AgStar Financial Services, FLCA and Heron Lake BioEnergy, LLC	Exhibit 10.6 to Quarterly Report on Form 10-Q for the quarter ended July 31, 2014.
10.19	$28,000,000 Revolving Term Loan Supplement dated July 29, 2014 by and between AgStar Financial Services, FLCA and Heron Lake BioEnergy, LLC	Exhibit 10.7 to Quarterly Report on Form 10-Q for the quarter ended July 31, 2014.
10.20	Security Agreement dated July 29, 2014 between Heron Lake BioEnergy, LLC and AgStar Financial Services, FLCA and CoBank, ACB	Exhibit 10.8 to Quarterly Report on Form 10-Q for the quarter ended July 31, 2014.
10.21	Real Estate Mortgage, Assignment of Rents and Profits and Fixture Financing Statement dated July 29, 2014 by and between AgStar Financial Services, FLCA, CoBank, ACB and Heron Lake BioEnergy, LLC	Exhibit 10.9 to Quarterly Report on Form 10-Q for the quarter ended July 31, 2014.
10.22	Guaranty dated July 29, 2014 by HLBE Pipeline Company, LLC in favor of AgStar Financial Services, FLCA	Exhibit 10.10 to Quarterly Report on Form 10-Q for the quarter ended July 31, 2014.
10.23	Security Agreement dated July 29, 2014 between HLBE Pipeline Company, LLC and AgStar Financial Services, FLCA and CoBank, ACB	Exhibit 10.11 to Quarterly Report on Form 10-Q for the quarter ended July 31, 2014.
10.24	Allonge Agreement dated March 30, 2015 by and between Agrinatural Gas, LLC, and Heron Lake BioEnergy, LLC	Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended April 30, 2015.
10.25	Loan Agreement dated March 30, 2015 by and between Agrinatural Gas, LLC, and Heron Lake BioEnergy, LLC	Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended April 30, 2015.
10.26	Promissory Note dated March 30, 2015 between Heron Lake BioEnergy, LLC, as Holder, and Agrinatural Gas, LLC, as Borrower	Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended April 30, 2015.
10.27	Security Agreement dated March 30, 2015 by and between Agrinatural Gas, LLC, and Heron Lake BioEnergy, LLC	Exhibit 10.4 to Quarterly Report on Form 10-Q for the quarter ended April 30, 2015.
10.28	Collateral Assignment dated March 30, 2015 by and between Agrinatural Gas, LLC, and Heron Lake BioEnergy, LLC	Exhibit 10.5 to Quarterly Report on Form 10-Q for the quarter ended April 30, 2015.
10.29	Guaranty dated March 30, 2015 by Rural Energy Solutions, LLC, guarantor, in favor of Heron Lake BioEnergy, LLC	Exhibit 10.6 to Quarterly Report on Form 10-Q for the quarter ended April 30, 2015.
10.30	Restructure Agreement dated March 30, 2015 by and between Agrinatural Gas, LLC and Swan Engineering, Inc.	Exhibit 10.7 to Quarterly Report on Form 10-Q for the quarter ended April 30, 2015.
21.10	Subsidiaries of the Registrant	Exhibit 21.1 to Annual Report on Form 10-K for the year ended October 31, 2011.
31.1	Certification of Chief Executive Officer (principal executive officer) pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act.	Attached hereto.
31.2	Certifications of Chief Financial Officer (principal financial officer) pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act.	Attached hereto.

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Exhibit Number	Exhibit Title	Incorporated by Reference To:
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350	Attached hereto.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350	Attached hereto.
101.1	The following materials from Heron Lake BioEnergy, LLC's Annual Report on Form 10-K for the fiscal year ended October 31, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets as of October 31, 2015 and October 31, 2014, (ii) the Consolidated Statements of Operations for the fiscal years ended October 31, 2015, 2014, and 2013, (iii) the Consolidated Statements of Changes in Members' Equity, (iv) the Consolidated Statements of Cash Flows for the fiscal years ended October 31, 2015, 2014, and 2013, and (v) the Notes to Consolidated Financial Statements.

_______________________________________________________________________________

* Indicates compensatory agreement.

† Certain portions of this exhibit have been redacted and filed on a confidential basis with the Commission pursuant to a request for confidential treatment under Rule 24b-2 of under the Exchange Act. Spaces corresponding to the deleted portions are represented by brackets with asterisks [* * *].

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EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Steve Christensen, certify that:

1. I have reviewed this annual report on Form 10-K of Heron Lake BioEnergy, 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 officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

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

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

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

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

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

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

Date:	January 27, 2016
		/s/ Steve A. Christensen
		Steve A. Christensen
		Chief Executive Officer
		(principal executive officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Stacie Schuler, certify that:

1. I have reviewed this annual report on Form 10-K of Heron Lake BioEnergy, 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 officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

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

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

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

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

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

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

Date:	January 27, 2016
		/s/ Stacie Schuler
		Stacie Schuler
		Chief Financial Officer
		(principal financial officer and principal accounting 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 annual report on Form 10-K of Heron Lake BioEnergy, LLC (the “Company”) for the fiscal year ended October 31, 2015, 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:	January 27, 2016
		/s/ Steve A. Christensen
		Steve A. 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 annual report on Form 10-K of Heron Lake BioEnergy, LLC (the “Company”) for the fiscal year ended October 31, 2015, 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:	January 27, 2016
		/s/ Stacie Schuler
		Stacie Schuler
		Chief Financial Officer
		(principal financial and accounting officer)

XML

Document and Entity Information - USD ($)	12 Months Ended
	Oct. 31, 2015	Jan. 27, 2016	Apr. 30, 2015
Entity Registrant Name	Heron Lake BioEnergy, LLC
Entity Central Index Key	0001286964
Current Fiscal Year End Date	--10-31
Entity Filer Category	Non-accelerated Filer
Document Type	10-K
Document Period End Date	Oct. 31, 2015
Document Fiscal Year Focus	2015
Document Fiscal Period Focus (Q1,Q2,Q3,FY)	FY
Amendment Flag	false
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Public Float			$ 5,611,916
Class A
Entity Common Stock, Shares Outstanding, Class B		62,932,107
Class B
Entity Common Stock, Shares Outstanding, Class B		15,000,000

XML

Consolidated Balance Sheets - USD ($)	Oct. 31, 2015	Oct. 31, 2014
Current Assets
Cash	$ 1,126,283	$ 662,128
Restricted cash	0	264,086
Accounts receivable	5,671,181	4,055,981
Inventory	5,259,346	5,187,267
Derivative Assets, Current	677,149	437,500
Prepaid expenses and other current assets	158,473	289,740
Total current assets	12,892,432	10,896,702
Property, Plant and Equipment
Land and improvements	9,111,838	9,111,838
Plant buildings and equipment	81,634,966	73,080,366
Vehicles and other equipment	611,976	611,976
Office buildings and equipment	641,860	613,407
Construction in progress	1,148,578	6,559,517
Property, plant and equipment, gross	93,149,218	89,977,104
Less accumulated depreciation	(40,164,668)	(35,609,106)
Property, plant and equipment, net	52,984,550	54,367,998
Other Assets
Other intangible assets, net	122,148	160,296
Other assets	697,254	697,254
Total other assets	819,402	857,550
Total Assets	66,696,384	66,122,250
Current Liabilities
Current maturities of long-term debt	517,957	846,235
Bank Overdrafts	1,836,682	0
Accounts payable	3,913,714	7,047,544
Accrued expenses	187,750	215,616
Total current liabilities	6,456,103	8,109,395
Long-Term Debt, net of current maturities	6,711,975	2,112,412
Members' Equity
Members' Equity Attributable to Heron Lake BioEnergy, LLC: 64,812,107 and 38,622,107 multiple classes of units issued and outstanding at October 31, 2013 and 2012, respectively	52,446,500	55,047,120
Non-controlling interest	1,081,806	853,323
Total members' equity	53,528,306	55,900,443
Total Liabilities and Members' Equity	$ 66,696,384	$ 66,122,250

XML

Consolidated Balance Sheets (Parenthetical) - shares	Oct. 31, 2015	Oct. 31, 2014
Statement of Financial Position [Abstract]
Members' Equity, units issued	64,812,107	38,622,107
Members' Equity, units outstanding	64,812,107	38,622,107

XML

Consolidated Statements of Operations - USD ($)	12 Months Ended
	Oct. 31, 2015	Oct. 31, 2014	Oct. 31, 2013
Income Statement [Abstract]
Revenues	$ 115,660,469	$ 149,418,044	$ 163,764,144
Cost of Goods Sold
Cost of Goods Sold	105,248,092	120,569,409	155,536,974
Gross Profit	10,412,377	28,848,635	8,227,170
Operating Expenses	(3,001,095)	(2,950,047)	(3,214,036)
Impairment Charge	0	0	0
Operating Income	7,411,282	25,898,588	5,013,134
Other Income (Expense)
Interest income	1,312	658	17,335
Interest expense	(444,625)	(1,665,007)	(2,789,373)
Other income	11,747	93,279	26,764
Total other expense, net	(431,566)	(1,571,070)	(2,745,274)
Net Income	6,979,716	24,327,518	2,267,860
Net Income Attributable to Non-controlling Interest	228,483	358,673	327,018
Net Income Attributable to Heron Lake BioEnergy, LLC	$ 6,751,233	$ 23,968,845	$ 1,940,842
Weighted Average Units Outstanding - Basic (in shares)	77,932,107	69,233,367	44,868,463
Net Income Per Unit - Basic (Class A and B)	$ 0.09	$ 0.35	$ 0.04
Weighted Average Units Outstanding - Diluted (in shares)	77,932,107	78,389,586	48,086,445
Net Income Per Unit - Diluted (Class A and B)	$ 0.09	$ 0.31	$ 0.04
Distribution Made to Limited Liability Company (LLC) Member, Cash Distributions Paid	$ 0.12	$ 0	$ 0

XML

Consolidated Statements of Changes in Members' Equity - USD ($)	Total	Class A units	Class B units	Heron Lake Bioenergy [Member]	Agrinatural Gas [Member]	Heron Lake Bioenergy, LLC (including non-controlling interest of Agrinatural) [Member]
Balance at Oct. 31, 2012		$ 38,622,107	$ 0	$ 17,344,433	$ 205,014	$ 17,549,447
Increase (Decrease) in Stockholders' Equity
Capital Issuance		8,075,000	15,000,000	6,922,500	0	6,922,500
Conversion of subordinated convertible debt		3,115,000	0	934,500	0	934,500
Distribution Made to Limited Liability Company (LLC) Member, Cash Distributions Paid	$ 0	0	0	0	(123,455)	(123,455)
Net income (loss) attributable to noncontrolling interest	327,018	0	0	0	327,018	327,018
Net income (loss)	1,940,842	0	0	1,940,842	0	1,940,842
Balance at Oct. 31, 2013		49,812,107	15,000,000	27,142,275	408,577	27,550,852
Increase (Decrease) in Stockholders' Equity
Conversion of subordinated convertible debt		13,120,000	0	3,936,000	0	3,936,000
Distribution Made to Limited Liability Company (LLC) Member, Cash Distributions Paid	0
Capital issuance, net		0	0	0	86,073	86,073
Net income (loss) attributable to noncontrolling interest	358,673	0	0	0	358,673	358,673
Net income (loss)	23,968,845	0	0	23,968,845	0	23,968,845
Balance at Oct. 31, 2014	55,900,443	62,932,107	15,000,000	55,047,120	853,323	55,900,443
Increase (Decrease) in Stockholders' Equity
Distribution Made to Limited Liability Company (LLC) Member, Cash Distributions Paid	(9,351,853)	0	0	(9,351,853)	0	(9,351,853)
Net income (loss) attributable to noncontrolling interest	228,483	0	0	0	228,483	228,483
Net income (loss)	6,751,233	0	0	6,751,233	0	6,751,233
Balance at Oct. 31, 2015	$ 53,528,306	$ 62,932,107	$ 15,000,000	$ 52,446,500	$ 1,081,806	$ 53,528,306

XML

Consolidated Statements of Changes in Members' Equity (Parenthetical) - $ / shares	12 Months Ended
	Oct. 31, 2015	Oct. 31, 2014
Class A units
Class of Stock [Line Items]
Capital issuance (in shares)	8,075,000	8,075,000
Conversion of subordinated convertible debt (in shares)	3,115,000	3,115,000
Stock issuance cost per unit	$ 0.30	$ 0.30
Class B units
Class of Stock [Line Items]
Capital issuance (in shares)	15,000,000	15,000,000
Stock issuance cost per unit	$ 0.30	$ 0.30

XML

Consolidated Statements of Cash Flows - USD ($)	12 Months Ended
	Oct. 31, 2015	Oct. 31, 2014	Oct. 31, 2013	Oct. 31, 2012
Cash Flow From Operating Activities
Net income	$ 6,979,716	$ 24,327,518	$ 2,267,860
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization	4,593,710	4,321,961	4,282,523
Write off of Deferred Debt Issuance Cost	0	369,699	0
Gains (Losses) on Sales of Assets	0	(58,000)	0
Impairment charge	0	0	0
Change in Unrealized Gain (Loss) on Fair Value Hedging Instruments	(831,227)	(787,617)	0
Change in operating assets and liabilities:
Restricted cash	264,086	(264,086)	0
Accounts receivable	(1,615,200)	(3,306,555)	1,035,335
Inventory	(72,079)	417,042	(2,015,737)
Commodity derivative instruments	591,578	350,117	0
Prepaid expenses and other current assets	131,267	651,610	(155,442)
Accounts payable	(3,483,312)	2,387,592	(1,390,905)
Accrued expenses	(27,866)	(89,469)	(65,864)
Net cash provided by operating activities	6,530,673	28,319,812	3,957,770
Cash Flows from Investing Activities
Payments for capital expenditures	(2,822,633)	(3,602,389)	(917,020)
Proceeds from disposal of property and equipment	0	58,000	3,728,669
Net cash provided by (used in) investing activities	(2,822,633)	(3,544,389)	2,811,649
Proceeds from (Repayments of) Bank Overdrafts	1,836,682	0	0
Cash Flows from Financing Activities
Proceeds from (payments on) line of credit	0	0	(480,000)
Proceeds from (Repayments of) Other Long-term Debt	13,440,990	0	0
Payments on long-term debt	(9,169,704)	(24,449,533)	(19,493,936)
Proceeds from note payable	0	0	820,929
Issuance of (payments on) convertible subordinated debt	0	(207,000)	5,077,500
Issuance of member units	0	0	6,922,500
Distribution Made to Limited Liability Company (LLC) Member, Cash Distributions Paid	(9,351,853)	0	0
Deferred financing costs	0	0	(390,858)
Release of restricted cash	0	0	715,259
Distributions to non-controlling interest	0	0	(50,936)
Net cash used in financing activities	(3,243,885)	(24,656,533)	(6,879,542)
Net Increase (Decrease) in cash	464,155	118,890	(110,123)
Cash—Beginning of period	662,128	543,238	653,361
Cash—End of period	1,126,283	662,128	543,238	$ 653,361
Supplemental Disclosure of Cash Flow Information
Interest expense	444,625	1,340,260		$ 2,961,259
Supplemental Disclosure of Non-Cash Investing, Operating and Financing Activities
Conversion of subordinated convertible debt to member units	0	3,937,550	934,500
Cancellation of distribution in accrued expenses	0	86,073	0
Capital expenditures included in accounts payable	349,482	3,359,225	605,750
Distribution to non-controlling interest in accrued expenses	$ 0	$ 0	$ 72,519

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Oct. 31, 2015

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

The Company owns and operates an ethanol plant near Heron Lake, Minnesota with a permitted capacity of approximately 72.3 million gallons per year of undenatured ethanol on a twelve month rolling sum basis. In addition, the Company produces and sells distillers' grains with solubles and corn oil as co-products of ethanol production. Additionally, the Company through a majority owned subsidiary, operates a natural gas pipeline that provides natural gas to the Company's ethanol production facility and other customers.

Principles of Consolidation

The financial statements include the accounts of Heron Lake BioEnergy, LLC and its wholly owned subsidiary, HLBE Pipeline Company, LLC (collectively, "the Company"). HLBE Pipeline Company, LLC owns 73% of Agrinatural Gas, LLC ("Agrinatural"). Given the Company’s control over the operations of Agrinatural and its majority voting interest, the Company consolidates the financial statements of Agrinatural with its consolidated financial statements, with the equity and earnings attributed to the remaining 27% non-controlling interest identified separately in the accompanying consolidated balance sheets and statements of operations. All significant intercompany balances and transactions are eliminated in consolidation.

Fiscal Reporting Period

The Company's fiscal year end for reporting financial operations is October 31.

Accounting Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with United States generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses.  The Company uses estimates and assumptions in accounting for significant matters including, among others, the economic lives of property, plant, and equipment, the analysis of impairment of long-lived assets and valuation of commodity derivative instruments, inventory, and inventory purchase and sale commitments.  The Company periodically reviews estimates and assumptions, and the effects of revisions are reflected in the period in which the revision is made. Actual results could differ from those estimates.

Non-controlling Interest

Amounts recorded as non-controlling interest relate to the net investment by an unrelated party in Agrinatural. Income and losses are allocated to the members of Agrinatural based on their respective percentage of membership units held. Agrinatural will provide natural gas to the plant with a specified price per MMBTU for an initial term of 10 years, with two automatic renewal options for five years periods. On July 1, 2014, the Company entered into an amendment to this agreement to exercise early one of the two automatic renewals, thereby extending the term of this agreement to October 31, 2021.

The Company previously declared a distribution to the non-controlling interest members for approximately $86,000. This amount was recorded within accrued expenses at October 31, 2013. During the fiscal year ended October 31, 2014, the Company canceled this distribution.

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. Title is generally assumed by the buyer at the Company's shipping point.

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 incurred by the Company 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 ethanol related products 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.

Cash

The Company maintains its accounts at multiple financial institutions. At times throughout the year, the Company's cash balances may exceed amounts insured by the Federal Deposit Insurance Corporation and the Securities Investor Protection Corporation. The Company does not believe it is exposed to any significant credit risk on its cash balances.

Restricted Cash

The Company is periodically required to maintain cash balances at its broker related to derivative instrument positions.

Accounts Receivable

Credit terms are extended to customers in the normal course of business. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral.

Accounts receivable are recorded at their estimated net realizable value. Accounts are considered past due if payment is not made on a timely basis in accordance with the Company's credit terms. Accounts considered uncollectible are written off. The Company follows a policy of providing an allowance for doubtful accounts; however, based on historical experience, and its evaluation of the current status of receivables, the Company is of the belief that such accounts will be collectible in all material respects and thus an allowance was not necessary at October 31, 2015 or 2014. It is at least possible this estimate will change in the future.

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. See "Recently Issued Accounting Pronouncements, Inventory Measurement (Adopted)" below for additional information regarding ASU No. 2015-11. 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 in the balance sheets at fair value.

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

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

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

Other Intangibles

Other intangibles are stated at cost and include road improvements located near the plant in which the Company has a beneficial interest in but does not own the road. The Company amortizes the assets over the economic useful life of 15 years. The Company recorded amortization expense in the amount of approximately $38,000, $58,000 and $18,000 during the fiscal years ended October 31, 2015, 2014 and 2013, respectively.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided over an estimated useful life by use of the straight-line deprecation method. Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized. Construction in progress expenditures will be depreciated using the straight-line method over their estimated useful lives once the assets are placed into service.

Depreciable useful lives are as follows:

Land improvements	15 Years
Plant building and equipment	7 - 40 Years
Vehicles and other equipment	5 - 7 Years
Office buildings and equipment	3 - 40 Years

Long-Lived Assets

Long-lived assets, such as property, plant, and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset.  If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including, but not limited to, discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No indicators of impairment existed during fiscal 2015, 2014, or 2013 that would have triggered impairment testing, and therefore, no impairment expense was recorded during fiscal 2015, 2014, or 2013.

Debt Financing Costs

Costs associated with the issuance of loans are classified as financing costs. Financing costs are amortized over the term of the related debt by use of the effective interest method. Amortization and write-offs of debt financing costs for the fiscal year ended October 31, 2015, 2014 and 2013 was approximately $0, $370,000, and $21,000, respectively, which is included as a component of interest expense within the consolidated statements of operations.

Fair Value of Financial Instruments

The Company follows guidance for accounting for fair value measurements of financial assets and liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the consolidated financial statements on a recurring and nonrecurring basis. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy are as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

• Level 2 inputs include:

1. Quoted prices in active markets for similar assets or liabilities.

2. Quoted prices in markets that are observable for the asset or liability either directly or indirectly, for substantially the full term of the asset or liability.

3. Inputs that derived primarily from or corroborated by observable market date by correlation or other means.

• Level 3 inputs are unobservable inputs for the asset or liability.

The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

Except for those assets and liabilities which are required by authoritative accounting guidance to be recorded at fair value in our balance sheets, the Company has elected not to record any other assets or liabilities at fair value. No events occurred during the fiscal 2015, 2014 and 2013 that required adjustment to the recognized balances of assets or liabilities, which are recorded at fair value on a nonrecurring basis.

The carrying value of cash, restricted cash, accounts receivable, accounts payable and accrued liabilities approximates fair value due to the short maturity of these instruments. The fair value of debt has been estimated using discounted cash flow analysis based upon the Company's current incremental borrowing rates for similar types of financing arrangements. The fair value of outstanding debt will fluctuate with changes in applicable interest rates. Fair value will exceed carrying value when the current market interest rate is lower than the interest rate at which the debt was originally issued. The Company believes the carrying amount of its debt facilities approximates the fair value.

Income Taxes

The Company is treated as a partnership for federal and state income tax purposes and generally does not incur income taxes. Instead, its earnings and losses are included in the income tax returns of the members. Therefore, no provision or liability for federal or state income taxes has been included in these financial statements. Differences between financial statement basis of assets and tax basis of assets is related to capitalization and amortization of organization and start-up costs for tax purposes, whereas these costs are expensed for financial statement purposes. In addition, the Company uses the alternative depreciation system (ADS) for tax depreciation instead of the straight-line method that is used for book depreciation, which also causes temporary differences. The Company's tax year end is December 31. Primarily due to the partnership tax status, the Company does not have any significant tax uncertainties that would require disclosure. The Company recognizes and measures tax benefits when realization of the benefits is uncertain under a two-step approach. The first step is to determine whether the benefit meets the more-likely-than-not condition for recognition and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%. Primarily due to the Company's tax status as a partnership, the adoption of this guidance had no material impact on the Company's financial condition or results of operations.

The Company files income tax returns in the United States federal and Minnesota state jurisdictions. The Company is no longer subject to United States federal and state income tax examinations by tax authorities for years before 2012.

Net Income per Unit

Basic net income per unit is computed by dividing net income by the weighted average number of members' units outstanding during the period. Diluted net income or loss per unit is computed by dividing net income by the weighted average number of members' units and members' unit equivalents outstanding during the period.

Environmental Liabilities

The Company's operations are subject to environmental laws and regulations adopted by various governmental entities in the jurisdiction in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its location. Accordingly, the Company has adopted policies, practices, and procedures in the areas of pollution control, occupational health, and the production, handling, storage and use of hazardous materials to prevent material environmental or other damage, and to limit the financial liability, which could result from such events. Environmental liabilities are recorded when the liability is probable and the costs can be reasonably estimated.

Recently Issued Accounting Pronouncements

Inventory Measurement (Adopted)

In July 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-11, which amended Inventory (Topic 330) Related to Simplifying the Measurement of Inventory of the Accounting Standards Codification. The amended guidance applies to all inventory except that which is measured using last-in, first-out (LIFO) or the retail inventory method. Inventory measured using first-in, first-out (FIFO) or average cost is included in the new amendments. Inventory within the scope of the new guidance should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments will take effect for the Company for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The new guidance should be applied prospectively, and earlier application is permitted as of the beginning of an interim or annual reporting period. The Company has elected to adopt the standard as of November 1, 2014, and it did not have a material effect on the financial statements.

Contract Revenue Recognition (Evaluating)

In May 2014 and amended in August 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09 which amended the Revenue from Contracts with Customers (Topic 606) of the Accounting Standards Codification. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for the Company for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company is still evaluating the guidance and its effect on its financial statements.

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RISKS AND UNCERTAINTIES

12 Months Ended

Oct. 31, 2015

Risks and Uncertainties [Abstract]

UNCERTAINTIES

RISKS AND UNCERTAINTIES

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

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

The 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 30, 2015, the EPA announced final Renewable Volume Obligation (“RVO”) requirements for the RFS for calendar years 2014, 2015 and 2016. Although the new RVO requirements set are above the proposed reductions, they are below the original requirements set by the RFS. 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 could result in a significant decrease in ethanol demand.

Current ethanol nameplate production capacity is approximately 15.5 billion gallons, with operating production capacity at approximately 14.9 billion gallons according to the Renewable Fuels Association (“RFA”). Reduction of blending requirements could reduce the demand for and price of ethanol. 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 with the recent decline in oil prices, ethanol is currently trading at a premium to gasoline causing a disincentive for discretionary blending of ethanol beyond the required blend rate. Consequently, there may be 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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FAIR VALUE MEASUREMENTS

12 Months Ended

Oct. 31, 2015

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

The Company follows accounting guidance related to fair value disclosures. For the Company, this guidance applies to certain derivative investments. The authoritative guidance also clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair measurements.

The following table sets forth, by level, the Company assets that were accounted for at fair value on a recurring basis as of October 31, 2015.

					Fair Value Measurement Using
	Carrying Amount in Balance Sheet				Quoted Prices in Active Markets		Significant Other Observable Inputs		Significant Unobservable inputs
Financial Assets			Fair Value		(Level 1)		(Level 2)		(Level 3)
Corn Derivative Contracts	$	677,149	$	677,149	$	677,149	$	—	$	—

The following table sets forth, by level, the Company assets that were accounted for at fair value on a recurring basis as of October 31, 2014.

					Fair Value Measurement Using
	Carrying Amount in Balance Sheet				Quoted Prices in Active Markets		Significant Other Observable Inputs		Significant Unobservable inputs
Financial Assets			Fair Value		(Level 1)		(Level 2)		(Level 3)
Corn Derivative Contracts	$	437,500	$	437,500	$	437,500	$	—	$	—

We determine 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.

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CONCENTRATIONS

12 Months Ended

Oct. 31, 2015

CONCENTRATIONS

CONCENTRATIONS

CONCENTRATIONS

The Company sells all of the ethanol and distiller grains produced to two customers under marketing agreements at October 31, 2015. Two customers accounted for approximately 97% and 88% of the outstanding accounts receivable balance at October 31, 2015 and 2014, respectively. These customers accounted for approximately 97%, 96% and 97% of revenue for the years ended October 31, 2015, 2014 and 2013, respectively.

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INVENTORY

12 Months Ended

Oct. 31, 2015

Inventory Disclosure [Abstract]

INVENTORY

INVENTORY

Inventory consists of the following at October 31:

	2015		2014
Raw materials	$	1,800,320	$	2,462,754
Work in process	693,844		791,490
Finished Goods	1,829,311		1,072,646
Supplies	935,871		860,377
Totals	$	5,259,346	$	5,187,267

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DERIVATIVE INSTRUMENTS

12 Months Ended

Oct. 31, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

The Company enters into corn, ethanol, and natural gas derivatives in order to protect cash flows from fluctuations caused by volatility in commodity prices for periods up to 24 months. These derivatives are put in place to protect gross profit margins from potentially adverse effects of market and price volatility on ethanol sales and corn purchase commitments where the prices are set at a future date. Although these derivative instruments serve the Company's purpose as an economic hedge, they are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change.

The following table provides detail regarding the Company's derivative financial instruments at October 31, 2015, none of which were designated as hedging instruments:
	Consolidated Balance Sheet Location	Assets		Liabilities
Corn contracts	Commodity derivative instruments	$	677,149	$	—
Totals		$	677,149	$	—
The following table provides detail regarding the Company's derivative financial instruments at October 31, 2014, none of which were designated as hedging instruments:
	Consolidated Balance Sheet Location	Assets		Liabilities
Corn contracts	Commodity derivative instruments	$	437,500	$	—
Totals		$	437,500	$	—

As of October 31, 2015, the total notional amount of the Company's outstanding corn derivative instruments was approximately 1,875,000 bushels, comprised of long corn positions on 360,000 bushels, and short corn positions on 1,515,000 bushels, that were entered into to hedge forecasted corn purchases through December 2016. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding. As of October 31, 2015, the Company had $0 of cash collateral (restricted cash) related to corn derivatives held by a broker.

As of October 31, 2014, the total notional amount of the Company's outstanding corn derivative instruments was approximately 2,790,000 bushels, comprised of long corn positions on 2,605,000 bushels, and short corn positions on 185,000 bushels, that were entered into to hedge forecasted corn purchases through July 2015. As of October 31, 2014, the Company had approximately $264,000 of cash collateral (restricted cash) related to corn derivatives held by a broker.

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

	Statement of Operations location	Twelve Months Ended October 31,
		2015		2014		2013
Corn contracts	Cost of goods sold	$	831,227	$	787,617	$	—
Totals		$	831,227	$	787,617	$	—

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PROPERTY, PLANT AND EQUIPMENT (Notes)

12 Months Ended

Oct. 31, 2015

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

PROPERTY AND EQUIPMENT

A summary of property and equipment is as follows:

	October 31, 2015			October 31, 2014
Land and improvements	$	9,111,838		$	9,111,838
Plant buildings and equipment	81,634,966			73,080,366
Vehicles	611,976			611,976
Office buildings	641,860			613,407
Construction in progress	1,148,578			6,559,517
	93,149,218			89,977,104
Less: accumulated depreciation	(40,164,668		)	(35,609,106		)
Net property, plant and equipment	$	52,984,550		$	54,367,998

Depreciation expense totaled approximately $4,556,000, $4,264,000 and $4,258,000 during the fiscal years ended October 31, 2015, 2014 and 2013, respectively.

On July 31, 2015, the Company placed a purchase order with an unrelated party for a new regenerative thermal oxidizer and made a down payment of approximately $375,000 to secure the order. The total commitment approximates $1.9 million and is expected to be completed during the latter part of fiscal year 2016.

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DEBT FACILITIES

12 Months Ended

Oct. 31, 2015

Debt Disclosure [Abstract]

LONG-TERM DEBT

DEBT FACILITIES

Long-term debt consists of the following:

	October 31, 2015		October 31, 2014
Revolving term note payable to lending institution, see terms below.	$	4,822,777	$	—
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. The Company 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.	1,775,828		2,018,767
Assessment payable as part of water treatment agreement, due in semi-annual installments of $25,692 with interest at 0.50%, enforceable by statutory lien, with the final payment due in 2016.	51,199		102,074
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.	136,378		172,072
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 the Company.	143,750		218,750
Note payable to non-controlling interest member of Agrinatural. Interest is at One Month LIBOR plus 4.0%. The note is considered due on demand with payments due at Agrinatural Board of Managers discretion.	300,000		300,000
Equipment payable on corn oil separation equipment from a vendor. The Company paid approximately $40,000 per month conditioned upon revenue generated from the corn oil equipment. The monthly payment included implicit interest of 5.57%. This note was paid in full in February 2015.	—		146,984
Totals	7,229,932		2,958,647
Less amounts due within one year	517,957		846,235
Net long-term debt	$	6,711,975	$	2,112,412

Revolving Term Note

The Company has a revolving term loan with a lender initially totaling $28,000,000. Under the terms of the credit facility, the revolving term loan commitment declines by $3,500,000 annually, starting March 1, 2015 and continues each anniversary thereafter until maturity. Therefore, the amount availableon this facility at October 31, 2015 was $24,500,000. Amounts borrowed by the Company under the revolving term loan and repaid or prepaid may be re-borrowed at any time prior to the March 1, 2022 maturity date. 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. The Company 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. The Company 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 revolving term loan is subject to a prepayment fee for any prepayment on the term loan prior to July 1, 2016 due to refinancing. The credit facility contains customary covenants. The loan is secured by substantially all of the Company assets including a subsidiary guarantee. The interest rate on the revolving term loan was 3.45% and 3.41% at October 31, 2015, and October 31, 2014, respectively.

As part of the Credit Facility closing, the Company 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. The Company agreed to pay CoBank an annual fee of $2,500 as the agent for Ag Star.

Estimated maturities of long-term debt at October 31, 2015 are as follows:

2016	$	517,957
2017	480,064
2018	432,182
2019	319,376
2020	326,798
After 2020	5,153,555
Total debt	$	7,229,932

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MEMBERS' EQUITY

12 Months Ended

Oct. 31, 2015

Equity [Abstract]

MEMBERS' EQUITY

MEMBERS' EQUITY

The Company is authorized to issue 80,000,000 capital units, of which 65,000,000 have been designated Class A units and 15,000,000 have been designated as Class B units. Members of the Company are holders of units who have been admitted as members and who hold at least 2,500 units. Any holder of units who is not a member will not have voting rights. Transferees of units must be approved by our board of governors to become members. Members are entitled to one vote for each unit held. Subject to the Member Control Agreement, all units share equally in the profits and losses and distributions of assets on a per unit basis.

On July 31, 2013, the Company issued 8,075,000 Class A units and 15,000,000 Class B units, at a purchase price of $0.30 per unit, to Project Viking for total proceeds of approximately $6,900,000.  

On September 18, 2013, the Company issued 3,115,000 Class A units, at a conversion price of $0.30 per unit, to current members upon conversion of subordinated convertible debt of $934,500.

On July 1, 2014, the Company issued 13,120,000 Class A units of the Company to the holders of Subordinated Convertible Notes electing conversion and redeemed the remaining $207,000 of the Notes at par value.

On December 18, 2014, the Company's board of governors declared a distribution of $0.12 per membership unit for a total of approximately $9,352,000 to be paid to members of record as of December 18, 2014. The distribution was paid in January 2015. Based on the covenants contained in the Company's AgStar credit facilities, the foregoing distribution was approved by its lender prior to distribution.

Subsequent to the end of the Company's 2015 fiscal year, on December 17, 2015, the Company's board of governors declared a distribution of $0.05 per membership unit for a total of approximately $3,897,000 to be paid to members of record as of December 18, 2015. The distribution was paid in January 2016. Based on the covenants contained in the Company's AgStar credit facilities, the foregoing distribution was approved by its lender prior to distribution.

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LEASES

12 Months Ended

Oct. 31, 2015

Leases [Abstract]

LEASES

LEASES

The Company has lease agreements with leasing companies for 145 rail cars for the transportation of the Company's ethanol with various maturity dates through May 2017. The rail car lease payments are due monthly in the aggregate amount of approximately $143,000.

The Company has a lease agreement with a leasing company for 50 hopper cars to assist in with the transport of the distiller's grains by rail with a maturity date of May 2017. The rail car lease payments are due monthly in the amount of approximately $35,000.

At October 31, 2015, the Company had the following minimum future lease payments, which at inception had non-cancelable terms of more than one year:

2016	$	2,133,300
2017	1,006,650
Total lease commitments	$	3,139,950

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INCOME TAXES

12 Months Ended

Oct. 31, 2015

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The differences between consolidated financial statement basis and tax basis of assets and liabilities are estimated as follows at October 31:

	2015			2014
Consolidated financial statement basis of assets	$	66,696,384		$	66,122,250
Plus: Organization and start-up costs capitalized	1,091,020			1,248,749
Less: Unrealized gains on commodity derivative instruments	(677,149		)	(437,500		)
Less: Accumulated tax depreciation and amortization greater than financial statement basis	(54,580,532		)	(43,116,534		)
Plus: Impairment charge	27,844,579			27,844,579
Income tax basis of assets	$	40,374,302		$	51,661,544

There were no significant differences between the consolidated financial statement basis of liabilities and the income tax basis of liabilities at October 31, 2015 and 2014.

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RELATED PARTY TRANSACTIONS

12 Months Ended

Oct. 31, 2015

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

Project Viking, LLC

On July 31, 2013, Project Viking invested $6.9 million in the Company for 8,075,000 Class A units and 15,000,000 Class B units at a purchase price of $0.30 per unit.

In May 2013, Project Viking participated in the initial subordinated convertible debt offering and lent the Company $102,000.

On July 31, 2013, Project Viking obtained a controlling interest in the Company. On July 31, 2013, Project Viking sold its interest to Granite Falls Energy, L.L.C. ("GFE"), which is now considered a related party. GFE operates an ethanol plant in the Midwest.

Granite Falls Energy, LLC

The Company entered into a Management Services Agreement with GFE on July 31, 2015.  Under the Management Services Agreement, GFE agreed to supply its own personnel to act as part-time officers and managers of the Company for the positions of Chief Executive Officer, Chief Financial Officer, and Commodity Risk Manager.  The initial term of the Management Services Agreement is three years. 

The Company agreed to pay GFE $35,000 per month during the first year of the agreement.

During years two and three of the agreement, the Company agreed to pay GFE 50% of the total salary, bonuses, and other expenses and costs incurred by GFE for the three management positions.  At the expiration of the initial term, the agreement will automatically renew for successive one-year terms unless and until the Company or GFE gives the other party 90-days written notice of termination prior to expiration of the initial term or the start of a renewal term. Total expenses under this agreement were $414,000, $392,000 and $105,000 for fiscal years 2015, 2014 and 2013, respectively.

As part of the purchase of Project Viking, GFE obtained the interest in Project Viking's convertible subordinated debt in the amount of $102,000. In September 2013, the Company completed the convertible subordinated debt offering of $5,077,000 and each subscriber had the option to convert to units at $0.30 per unit conversion price. Subsequently, in September 2013, GFE converted their $102,000 of subordinated debt for 340,000 Class A units. The Company paid approximately $2,000 in interest expense to GFE related to the subordinated convertible debt for the year ended October 31, 2013.

Corn Purchase - Members

The Company purchased approximately $11,032,000 of corn from board members in fiscal year 2015, $14,860,000 in fiscal year 2014 and none in 2013.

Agrinatural

During 2013, the Company borrowed $300,000 from the non-controlling interest member of Agrinatural. Total interest paid in relation to this note payable amounted to approximately $16,000 for each of the years ended October 31, 2015 and 2014.

Swan Engineering

On March 27, 2015, Agrinatural executed a new management and operating agreement with Swan Engineering, Inc. ("SEI"). SEI, together with an unrelated third party owns Rural Energy Solutions, LLC ("RES"), the 27% minority owner of Agrinatural. Under the new management and operating agreement, SEI will continue to provide Agrinatural with day-to-day management and operation of Agrinatural's pipeline distribution business. In exchange for these services, Agrinatural will pay SEI an aggregate management fee equal to the fixed monthly base fee plus the variable customer management fee based on the number of customers served on the pipeline less the agreed monthly fee reduction of $4,500. For the year ended October 31, 2015, the Company paid approximately $18,000 and $83,000 for the monthly base fee and variable customer management fee, respectively. The new management and operating agreement with SEI expires July 1, 2019 unless earlier terminated for cause as defined in the agreement.

On March 27, 2015, Agrinatural also executed a new project management agreement with SEI. Pursuant to the new project management agreement, SEI will continue to supervise all of Agrinatural's pipeline construction projects. These projects are constructed by unrelated third-party pipeline construction companies. Under the new project management agreement, Agrinatural will pay SEI a total of 10% of the actual capital expenditures for construction projects approved by Agrinatural's Board of Directors, excluding capitalized marketing costs. For the year ended October 31, 2015, the Company paid approximately $19,000 project management fees. The new project management with SEI expires June 30, 2019 unless earlier terminated for cause as defined in the agreement.

Amounts due to SEI from Agrinatural included in accounts payable on the consolidated balance sheets totaled approximately $340,000 and $517,000at October 31, 2015 and 2014, respectively.

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COMMITMENTS AND CONTINGENCIES

12 Months Ended

Oct. 31, 2015

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

Water Agreements

In October 2003, the Company entered into an industrial water supply development and distribution agreement with the City of Heron Lake for 15 years. The Company has the exclusive rights to the first 600 gallons per minute of capacity that is available from the well, and provides for the Company, combined with an unrelated company, to approve any other supply contracts that the City may enter into. In consideration, the Company will pay one half of the City's water well bond payments of $735,000, plus a 5% administrative fee, totaling approximately $594,000, and operating costs, relative to the Company's water usage, plus a 10% profit. These costs will be paid as water usage fees. The Company recorded an assessment of approximately $367,000 with long-term debt as described in Note 8. The Company pays operating and administrative expenses of approximately $12,000 per year.

In May 2006, the Company entered into a water treatment agreement with the City of Heron Lake and Jackson County for 30 years. The Company will pay for operating and maintenance costs of the plant in exchange for receiving treated water. In addition, the Company agreed to an assessment for a portion of the capital costs of the water treatment plant. The Company recorded assessments with long-term debt of $500,000 and $3,550,000 in fiscal 2007 and 2006, respectively, as described in Note 8. The Company paid operating and maintenance expenses of approximately $57,000, $114,000, and $289,000 in fiscal 2015, 2014, and 2013, respectively.

Marketing Agreements

The Company has a marketing agreement ("Eco Agreement") with Eco-Energy, Inc., an unrelated party ("Eco-Energy") for the sale of ethanol. Under this ethanol agreement, Eco-Energy purchases, markets and resells 100% of the ethanol produced at the Company's ethanol production facility and arranges for the transportation of ethanol. The Company pays Eco-Energy a marketing fee based on a percentage of the applicable sale price of the ethanol, as well as a fixed lease fee for rail cars leased from Eco-Energy to the Company. The marketing fee was negotiated based on prevailing market-rate conditions for comparable ethanol marketing services. The term of Eco Agreement continues through December 31, 2016, with automatic renewals for additional three terms of three year periods unless terminated by either party by providing written notice to the other party at least 3 months prior to the end of the then current term.

Gavilon Ingredients, LLC, an unrelated party ("Gavilon"), has serves as the distillers' grains marketer for our plant pursuant to a distillers' grains off-take agreement. Pursuant to our agreement with Gavilon, Gavilon purchases all of the distillers' grains produced at our ethanol plant. We pay Gavilon a service fee for its services under this agreement. The contract commenced on November 1, 2013 with an initial term of six months, and will continue to remain in effect until terminated by either party at its unqualified option, by providing written notice of not less than 60 days to the other party.

RPMG, Inc., an unrelated party, markets the corn oil produced at our ethanol plant pursuant to a corn oil marketing agreement. We pay RPMG a commission based on each pound of corn oil sold by RPMG under the agreement. The contract commenced on November 1, 2013 with an initial term of one year and will continue to remain in effect until terminated by either party at its unqualified option, by providing written notice of not less than 90 days to the other party.

The Company also has a base agreement for the sale and purchase of natural gas with Constellation New Energy—Gas Division, LLC pursuant to which it buys all of its natural gas from Constellation. This agreement runs until March 31, 2016.

Forward Contracts

At October 31, 2015, the Company had cash and basis contracts for forward corn purchase commitments for approximately 2,604,000 bushels for deliveries through October 2016.

At October 31, 2015, the Company had forward contracts to sell approximately $2,366,000 of ethanol for various delivery periods from November 2015 through December 2015 which approximates 15% of its anticipated ethanol sales during that period.

At October 31, 2015, the Company had forward contracts to sell approximately $151,000 of distillers' grains for delivery in November 2015.

At October 31, 2015, the Company had forward contracts to sell approximately $383,000 of corn oil for delivery through November 2015.

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BUSINESS SEGMENTS (Notes)

12 Months Ended

Oct. 31, 2015

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

BUSINESS SEGMENTS

Based on the growth of the Company's natural gas pipeline subsidiary during the fourth quarter of fiscal 2014, the Company has determined they now have two operating segments. The Company groups its operations into the following two business segments:

Ethanol Production:	Ethanol and co-product production and sales
Natural gas pipeline:	Ownership and operations of natural gas pipeline

Segment reporting is intended to give financial statement users a better view of how the Company manages and evaluates its businesses.   The accounting policies for each segment are the same as those described in the summary of significant accounting policies in Note 1. Segment income or loss does not include any allocation of shared-service costs.  Segment assets are those that are directly used in or identified with segment operations. Inter-segment balances and transactions have been eliminated.

The following tables summarize financial information by segment and provide a reconciliation of segment contribution to operating income and total assets for the fiscal years ended October 31:

Revenue:	2015			2014
Ethanol production	$	114,669,831		$	148,512,052
Natural gas pipeline	2,761,042			2,621,898
Eliminations	(1,770,404		)	(1,715,906		)
Total Revenue	$	115,660,469		$	149,418,044
Operating Income:	2015			2014
Ethanol production	$	8,106,105		$	26,170,923
Natural gas pipeline	1,075,581			1,443,571
Eliminations	(1,770,404		)	(1,715,906		)
Operating Income	$	7,411,282		$	25,898,588
Total Assets:	2015			2014
Ethanol production	$	53,663,064		$	53,826,820
Natural gas pipeline	13,033,320			12,295,430
Total assets	$	66,696,384		$	66,122,250

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QUARTERLY FINANCIAL DATA (UNAUDITED)

12 Months Ended

Oct. 31, 2015

Quarterly Financial Information Disclosure [Abstract]

QUARTERLY FINANCIAL DATA (UNAUDITED)

QUARTERLY FINANCIAL DATA (UNAUDITED)

Summary quarterly results are as follows:

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Fiscal year ended October 31, 2015
Revenues	$	27,177,449	$	29,813,571	$	30,192,430	$	28,477,019
Gross profit	1,847,050		2,673,825		4,755,934		1,135,568
Operating income	966,668		1,891,732		4,014,168		538,714
Net income attributable to Heron Lake BioEnergy, LLC	879,256		1,733,837		3,808,820		329,320
Basic earnings per unit (Class A and B)	$	0.01	$	0.02	$	0.05	$	0.01
Diluted earnings per unit (Class A and B)	$	0.01	$	0.02	$	0.05	$	0.01

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Fiscal year ended October 31, 2014
Revenues	$	40,910,555	$	39,149,053	$	39,082,103	$	30,276,333
Gross profit	7,180,730		7,602,033		8,292,015		5,773,857
Operating income	6,340,753		6,758,565		7,514,741		5,284,529
Net income attributable to Heron Lake BioEnergy, LLC	5,824,444		6,323,059		6,785,754		5,035,588
Basic earnings per unit (Class A and B)	$	0.09	$	0.10	$	0.10	$	0.06
Diluted earnings per unit (Class A and B)	$	0.08	$	0.08	$	0.09	$	0.06

	First Quarter			Second Quarter			Third Quarter		Fourth Quarter
Fiscal year ended October 31, 2013
Revenues	$	44,121,305		$	35,498,926		$	45,583,441	$	38,560,472
Gross profit	920,219			698,812			4,060,158		2,547,981
Operating income (loss)	(95,367		)	(192,887		)	3,385,958		1,915,430
Net income (loss) attributable to Heron Lake BioEnergy, LLC	(920,554		)	(998,139		)	2,554,493		1,305,042
Basic earnings (loss) per unit (Class A and B)	$	(0.02	)	$	(0.03	)	$	0.07	$	0.03
Diluted earnings (loss) per unit (Class A and B)	$	(0.02	)	$	(0.03	)	$	0.06	$	0.03

The above quarterly financial date is unaudited, but in the opinion of management, all adjustments necessary for a fair presentation of the selected data for these periods presented have been included.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Oct. 31, 2015

Accounting Policies [Abstract]

Nature of Operations

Nature of Business

The Company owns and operates an ethanol plant near Heron Lake, Minnesota with a permitted capacity of approximately 72.3 million gallons per year of undenatured ethanol on a twelve month rolling sum basis. In addition, the Company produces and sells distillers' grains with solubles and corn oil as co-products of ethanol production. Additionally, the Company through a majority owned subsidiary, operates a natural gas pipeline that provides natural gas to the Company's ethanol production facility and other customers.

Principles of Consolidation

Principles of Consolidation

The financial statements include the accounts of Heron Lake BioEnergy, LLC and its wholly owned subsidiary, HLBE Pipeline Company, LLC (collectively, "the Company"). HLBE Pipeline Company, LLC owns 73% of Agrinatural Gas, LLC ("Agrinatural"). Given the Company’s control over the operations of Agrinatural and its majority voting interest, the Company consolidates the financial statements of Agrinatural with its consolidated financial statements, with the equity and earnings attributed to the remaining 27% non-controlling interest identified separately in the accompanying consolidated balance sheets and statements of operations. All significant intercompany balances and transactions are eliminated in consolidation.

Fiscal Reporting Period

Fiscal Reporting Period

The Company's fiscal year end for reporting financial operations is October 31.

Accounting Estimates

Accounting Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with United States generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses.  The Company uses estimates and assumptions in accounting for significant matters including, among others, the economic lives of property, plant, and equipment, the analysis of impairment of long-lived assets and valuation of commodity derivative instruments, inventory, and inventory purchase and sale commitments.  The Company periodically reviews estimates and assumptions, and the effects of revisions are reflected in the period in which the revision is made. Actual results could differ from those estimates.

Noncontrolling Interest

Non-controlling Interest

Amounts recorded as non-controlling interest relate to the net investment by an unrelated party in Agrinatural. Income and losses are allocated to the members of Agrinatural based on their respective percentage of membership units held. Agrinatural will provide natural gas to the plant with a specified price per MMBTU for an initial term of 10 years, with two automatic renewal options for five years periods. On July 1, 2014, the Company entered into an amendment to this agreement to exercise early one of the two automatic renewals, thereby extending the term of this agreement to October 31, 2021.

The Company previously declared a distribution to the non-controlling interest members for approximately $86,000. This amount was recorded within accrued expenses at October 31, 2013. During the fiscal year ended October 31, 2014, the Company canceled this distribution.

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. Title is generally assumed by the buyer at the Company's shipping point.

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 incurred by the Company 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 ethanol related products 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.

Cash and Equivalents

Cash

The Company maintains its accounts at multiple financial institutions. At times throughout the year, the Company's cash balances may exceed amounts insured by the Federal Deposit Insurance Corporation and the Securities Investor Protection Corporation. The Company does not believe it is exposed to any significant credit risk on its cash balances.

Restricted Cash

Restricted Cash

The Company is periodically required to maintain cash balances at its broker related to derivative instrument positions.

Accounts Receivable

Accounts Receivable

Credit terms are extended to customers in the normal course of business. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral.

Accounts receivable are recorded at their estimated net realizable value. Accounts are considered past due if payment is not made on a timely basis in accordance with the Company's credit terms. Accounts considered uncollectible are written off. The Company follows a policy of providing an allowance for doubtful accounts; however, based on historical experience, and its evaluation of the current status of receivables, the Company is of the belief that such accounts will be collectible in all material respects and thus an allowance was not necessary at October 31, 2015 or 2014. It is at least possible this estimate will change in the future.

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. See "Recently Issued Accounting Pronouncements, Inventory Measurement (Adopted)" below for additional information regarding ASU No. 2015-11. 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 in the balance sheets at fair value.

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

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

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

Other Intangibles

Other Intangibles

Other intangibles are stated at cost and include road improvements located near the plant in which the Company has a beneficial interest in but does not own the road. The Company amortizes the assets over the economic useful life of 15 years. The Company recorded amortization expense in the amount of approximately $38,000, $58,000 and $18,000 during the fiscal years ended October 31, 2015, 2014 and 2013, respectively.

Property and Equipment

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided over an estimated useful life by use of the straight-line deprecation method. Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized. Construction in progress expenditures will be depreciated using the straight-line method over their estimated useful lives once the assets are placed into service.

Depreciable useful lives are as follows:

Land improvements	15 Years
Plant building and equipment	7 - 40 Years
Vehicles and other equipment	5 - 7 Years
Office buildings and equipment	3 - 40 Years

Long-Lived Assets

Long-Lived Assets

Long-lived assets, such as property, plant, and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset.  If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including, but not limited to, discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No indicators of impairment existed during fiscal 2015, 2014, or 2013 that would have triggered impairment testing, and therefore, no impairment expense was recorded during fiscal 2015, 2014, or 2013.

Debt Financing Costs

Debt Financing Costs

Costs associated with the issuance of loans are classified as financing costs. Financing costs are amortized over the term of the related debt by use of the effective interest method. Amortization and write-offs of debt financing costs for the fiscal year ended October 31, 2015, 2014 and 2013 was approximately $0, $370,000, and $21,000, respectively, which is included as a component of interest expense within the consolidated statements of operations.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Company follows guidance for accounting for fair value measurements of financial assets and liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the consolidated financial statements on a recurring and nonrecurring basis. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy are as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

• Level 2 inputs include:

1. Quoted prices in active markets for similar assets or liabilities.

2. Quoted prices in markets that are observable for the asset or liability either directly or indirectly, for substantially the full term of the asset or liability.

3. Inputs that derived primarily from or corroborated by observable market date by correlation or other means.

• Level 3 inputs are unobservable inputs for the asset or liability.

The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

Except for those assets and liabilities which are required by authoritative accounting guidance to be recorded at fair value in our balance sheets, the Company has elected not to record any other assets or liabilities at fair value. No events occurred during the fiscal 2015, 2014 and 2013 that required adjustment to the recognized balances of assets or liabilities, which are recorded at fair value on a nonrecurring basis.

The carrying value of cash, restricted cash, accounts receivable, accounts payable and accrued liabilities approximates fair value due to the short maturity of these instruments. The fair value of debt has been estimated using discounted cash flow analysis based upon the Company's current incremental borrowing rates for similar types of financing arrangements. The fair value of outstanding debt will fluctuate with changes in applicable interest rates. Fair value will exceed carrying value when the current market interest rate is lower than the interest rate at which the debt was originally issued. The Company believes the carrying amount of its debt facilities approximates the fair value.

Income Taxes

Income Taxes

The Company is treated as a partnership for federal and state income tax purposes and generally does not incur income taxes. Instead, its earnings and losses are included in the income tax returns of the members. Therefore, no provision or liability for federal or state income taxes has been included in these financial statements. Differences between financial statement basis of assets and tax basis of assets is related to capitalization and amortization of organization and start-up costs for tax purposes, whereas these costs are expensed for financial statement purposes. In addition, the Company uses the alternative depreciation system (ADS) for tax depreciation instead of the straight-line method that is used for book depreciation, which also causes temporary differences. The Company's tax year end is December 31. Primarily due to the partnership tax status, the Company does not have any significant tax uncertainties that would require disclosure. The Company recognizes and measures tax benefits when realization of the benefits is uncertain under a two-step approach. The first step is to determine whether the benefit meets the more-likely-than-not condition for recognition and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%. Primarily due to the Company's tax status as a partnership, the adoption of this guidance had no material impact on the Company's financial condition or results of operations.

The Company files income tax returns in the United States federal and Minnesota state jurisdictions. The Company is no longer subject to United States federal and state income tax examinations by tax authorities for years before 2012.

Net Income (Loss) per Unit

Net Income per Unit

Basic net income per unit is computed by dividing net income by the weighted average number of members' units outstanding during the period. Diluted net income or loss per unit is computed by dividing net income by the weighted average number of members' units and members' unit equivalents outstanding during the period.

Environmental Liabilities

Environmental Liabilities

The Company's operations are subject to environmental laws and regulations adopted by various governmental entities in the jurisdiction in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its location. Accordingly, the Company has adopted policies, practices, and procedures in the areas of pollution control, occupational health, and the production, handling, storage and use of hazardous materials to prevent material environmental or other damage, and to limit the financial liability, which could result from such events. Environmental liabilities are recorded when the liability is probable and the costs can be reasonably estimated.

Accounting Pronouncements - Inventory Measurement [Policy Text Block]

Inventory Measurement (Adopted)

In July 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-11, which amended Inventory (Topic 330) Related to Simplifying the Measurement of Inventory of the Accounting Standards Codification. The amended guidance applies to all inventory except that which is measured using last-in, first-out (LIFO) or the retail inventory method. Inventory measured using first-in, first-out (FIFO) or average cost is included in the new amendments. Inventory within the scope of the new guidance should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments will take effect for the Company for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The new guidance should be applied prospectively, and earlier application is permitted as of the beginning of an interim or annual reporting period. The Company has elected to adopt the standard as of November 1, 2014, and it did not have a material effect on the financial statements.

Accounting Pronouncements - Contract Revenue Recognition [Policy Text Block]

Contract Revenue Recognition (Evaluating)

In May 2014 and amended in August 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09 which amended the Revenue from Contracts with Customers (Topic 606) of the Accounting Standards Codification. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for the Company for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company is still evaluating the guidance and its effect on its financial statements.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

12 Months Ended

Oct. 31, 2015

Accounting Policies [Abstract]

Schedule of depreciable useful lives of property and equipment

Depreciable useful lives are as follows:

Land improvements	15 Years
Plant building and equipment	7 - 40 Years
Vehicles and other equipment	5 - 7 Years
Office buildings and equipment	3 - 40 Years

A summary of property and equipment is as follows:

	October 31, 2015			October 31, 2014
Land and improvements	$	9,111,838		$	9,111,838
Plant buildings and equipment	81,634,966			73,080,366
Vehicles	611,976			611,976
Office buildings	641,860			613,407
Construction in progress	1,148,578			6,559,517
	93,149,218			89,977,104
Less: accumulated depreciation	(40,164,668		)	(35,609,106		)
Net property, plant and equipment	$	52,984,550		$	54,367,998

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FAIR VALUE MEASUREMENTS (Tables)

12 Months Ended

Oct. 31, 2015

Fair Value Disclosures [Abstract]

Schedule of fair value of assets measured on a non-recurring basis

The following table sets forth, by level, the Company assets that were accounted for at fair value on a recurring basis as of October 31, 2015.

					Fair Value Measurement Using
	Carrying Amount in Balance Sheet				Quoted Prices in Active Markets		Significant Other Observable Inputs		Significant Unobservable inputs
Financial Assets			Fair Value		(Level 1)		(Level 2)		(Level 3)
Corn Derivative Contracts	$	677,149	$	677,149	$	677,149	$	—	$	—

The following table sets forth, by level, the Company assets that were accounted for at fair value on a recurring basis as of October 31, 2014.

					Fair Value Measurement Using
	Carrying Amount in Balance Sheet				Quoted Prices in Active Markets		Significant Other Observable Inputs		Significant Unobservable inputs
Financial Assets			Fair Value		(Level 1)		(Level 2)		(Level 3)
Corn Derivative Contracts	$	437,500	$	437,500	$	437,500	$	—	$	—

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INVENTORY (Tables)

12 Months Ended

Oct. 31, 2015

Inventory Disclosure [Abstract]

Schedule of inventory

Inventory consists of the following at October 31:

	2015		2014
Raw materials	$	1,800,320	$	2,462,754
Work in process	693,844		791,490
Finished Goods	1,829,311		1,072,646
Supplies	935,871		860,377
Totals	$	5,259,346	$	5,187,267

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DERIVATIVE INSTRUMENTS (Tables)

12 Months Ended

Oct. 31, 2015

Derivatives, Fair Value [Line Items]

Schedule of Derivative Instruments [Table Text Block]

The following table provides detail regarding the Company's derivative financial instruments at October 31, 2015, none of which were designated as hedging instruments:
	Consolidated Balance Sheet Location	Assets		Liabilities
Corn contracts	Commodity derivative instruments	$	677,149	$	—
Totals		$	677,149	$	—
The following table provides detail regarding the Company's derivative financial instruments at October 31, 2014, none of which were designated as hedging instruments:
	Consolidated Balance Sheet Location	Assets		Liabilities
Corn contracts	Commodity derivative instruments	$	437,500	$	—
Totals		$	437,500	$	—

Schedule of gains (losses) from derivative instruments included in the Condensed Consolidated Statements of Operations

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

	Statement of Operations location	Twelve Months Ended October 31,
		2015		2014		2013
Corn contracts	Cost of goods sold	$	831,227	$	787,617	$	—
Totals		$	831,227	$	787,617	$	—

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PROPERTY, PLANT AND EQUIPMENT (Tables)

12 Months Ended

Oct. 31, 2015

Property, Plant and Equipment [Line Items]

Property, Plant and Equipment [Table Text Block]

Depreciable useful lives are as follows:

Land improvements	15 Years
Plant building and equipment	7 - 40 Years
Vehicles and other equipment	5 - 7 Years
Office buildings and equipment	3 - 40 Years

A summary of property and equipment is as follows:

	October 31, 2015			October 31, 2014
Land and improvements	$	9,111,838		$	9,111,838
Plant buildings and equipment	81,634,966			73,080,366
Vehicles	611,976			611,976
Office buildings	641,860			613,407
Construction in progress	1,148,578			6,559,517
	93,149,218			89,977,104
Less: accumulated depreciation	(40,164,668		)	(35,609,106		)
Net property, plant and equipment	$	52,984,550		$	54,367,998

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DEBT FACILITIES (Tables)

12 Months Ended

Oct. 31, 2015

Debt Disclosure [Abstract]

Schedule of Long-term debt

Long-term debt consists of the following:

	October 31, 2015		October 31, 2014
Revolving term note payable to lending institution, see terms below.	$	4,822,777	$	—
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. The Company 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.	1,775,828		2,018,767
Assessment payable as part of water treatment agreement, due in semi-annual installments of $25,692 with interest at 0.50%, enforceable by statutory lien, with the final payment due in 2016.	51,199		102,074
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.	136,378		172,072
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 the Company.	143,750		218,750
Note payable to non-controlling interest member of Agrinatural. Interest is at One Month LIBOR plus 4.0%. The note is considered due on demand with payments due at Agrinatural Board of Managers discretion.	300,000		300,000
Equipment payable on corn oil separation equipment from a vendor. The Company paid approximately $40,000 per month conditioned upon revenue generated from the corn oil equipment. The monthly payment included implicit interest of 5.57%. This note was paid in full in February 2015.	—		146,984
Totals	7,229,932		2,958,647
Less amounts due within one year	517,957		846,235
Net long-term debt	$	6,711,975	$	2,112,412

Schedule of estimated maturities of long-term debt

Estimated maturities of long-term debt at October 31, 2015 are as follows:

2016	$	517,957
2017	480,064
2018	432,182
2019	319,376
2020	326,798
After 2020	5,153,555
Total debt	$	7,229,932

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LEASES (Tables)

12 Months Ended

Oct. 31, 2015

Leases [Abstract]

Schedule of minimum future lease payments

At October 31, 2015, the Company had the following minimum future lease payments, which at inception had non-cancelable terms of more than one year:

2016	$	2,133,300
2017	1,006,650
Total lease commitments	$	3,139,950

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INCOME TAXES (Tables)

12 Months Ended

Oct. 31, 2015

Income Tax Disclosure [Abstract]

Schedule of differences between consolidated financial statement basis and tax basis of assets and liabilities

The differences between consolidated financial statement basis and tax basis of assets and liabilities are estimated as follows at October 31:

	2015			2014
Consolidated financial statement basis of assets	$	66,696,384		$	66,122,250
Plus: Organization and start-up costs capitalized	1,091,020			1,248,749
Less: Unrealized gains on commodity derivative instruments	(677,149		)	(437,500		)
Less: Accumulated tax depreciation and amortization greater than financial statement basis	(54,580,532		)	(43,116,534		)
Plus: Impairment charge	27,844,579			27,844,579
Income tax basis of assets	$	40,374,302		$	51,661,544

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BUSINESS SEGMENTS (Tables)

12 Months Ended

Oct. 31, 2015

Segment Reporting Information [Line Items]

Schedule of Segment Reporting Information, by Segment [Table Text Block]

The following tables summarize financial information by segment and provide a reconciliation of segment contribution to operating income and total assets for the fiscal years ended October 31:

Revenue:	2015			2014
Ethanol production	$	114,669,831		$	148,512,052
Natural gas pipeline	2,761,042			2,621,898
Eliminations	(1,770,404		)	(1,715,906		)
Total Revenue	$	115,660,469		$	149,418,044
Operating Income:	2015			2014
Ethanol production	$	8,106,105		$	26,170,923
Natural gas pipeline	1,075,581			1,443,571
Eliminations	(1,770,404		)	(1,715,906		)
Operating Income	$	7,411,282		$	25,898,588
Total Assets:	2015			2014
Ethanol production	$	53,663,064		$	53,826,820
Natural gas pipeline	13,033,320			12,295,430
Total assets	$	66,696,384		$	66,122,250

Schedule of Primary Business Segments [Table Text Block]

The Company groups its operations into the following two business segments:

Ethanol Production:	Ethanol and co-product production and sales
Natural gas pipeline:	Ownership and operations of natural gas pipeline

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QUARTERLY FINANCIAL DATA (UNAUDITED) (Tables)

12 Months Ended

Oct. 31, 2015

Quarterly Financial Information Disclosure [Abstract]

Summary of quarterly results

Summary quarterly results are as follows:

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Fiscal year ended October 31, 2015
Revenues	$	27,177,449	$	29,813,571	$	30,192,430	$	28,477,019
Gross profit	1,847,050		2,673,825		4,755,934		1,135,568
Operating income	966,668		1,891,732		4,014,168		538,714
Net income attributable to Heron Lake BioEnergy, LLC	879,256		1,733,837		3,808,820		329,320
Basic earnings per unit (Class A and B)	$	0.01	$	0.02	$	0.05	$	0.01
Diluted earnings per unit (Class A and B)	$	0.01	$	0.02	$	0.05	$	0.01

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Fiscal year ended October 31, 2014
Revenues	$	40,910,555	$	39,149,053	$	39,082,103	$	30,276,333
Gross profit	7,180,730		7,602,033		8,292,015		5,773,857
Operating income	6,340,753		6,758,565		7,514,741		5,284,529
Net income attributable to Heron Lake BioEnergy, LLC	5,824,444		6,323,059		6,785,754		5,035,588
Basic earnings per unit (Class A and B)	$	0.09	$	0.10	$	0.10	$	0.06
Diluted earnings per unit (Class A and B)	$	0.08	$	0.08	$	0.09	$	0.06

	First Quarter			Second Quarter			Third Quarter		Fourth Quarter
Fiscal year ended October 31, 2013
Revenues	$	44,121,305		$	35,498,926		$	45,583,441	$	38,560,472
Gross profit	920,219			698,812			4,060,158		2,547,981
Operating income (loss)	(95,367		)	(192,887		)	3,385,958		1,915,430
Net income (loss) attributable to Heron Lake BioEnergy, LLC	(920,554		)	(998,139		)	2,554,493		1,305,042
Basic earnings (loss) per unit (Class A and B)	$	(0.02	)	$	(0.03	)	$	0.07	$	0.03
Diluted earnings (loss) per unit (Class A and B)	$	(0.02	)	$	(0.03	)	$	0.06	$	0.03

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) gal in Millions		12 Months Ended
	Dec. 18, 2014 USD ($)	Oct. 31, 2015 USD ($) option gal	Oct. 31, 2014 USD ($)	Oct. 31, 2013 USD ($)
Accounting Policies [Abstract]
Operating capacity of Ethanol plant owned and operated | gal		72.3
Summary of significant accounting policies
Events requiring balance sheet adjustments		0	0	0
Asset Impairment Charges		$ 0	$ 0	$ 0
Asset Impairment Charges, Cumulative		27,844,579	27,844,579
Cancellation of distribution in accrued expenses		$ 0	86,073	0
Other Intangibles
Economic useful life of other intangibles		15 years
Amortization of Intangible Assets		$ 38,000	58,000	18,000
Amortization of financing costs		$ 0	$ 370,000	21,000
Distribution Made to Limited Liability Company (LLC) Member, Cash Distributions Declared	$ 9,352,000
HLBE Pipeline Company, LLC
Summary of significant accounting policies
Percentage of Agrinatural Gas, LLC owned by HLBE Pipeline Company, LLC		73.00%
Agrinatural
Summary of significant accounting policies
Remaining percentage in Agrinatural Gas, LLC included as noncontrolling interest (as a percent)		27.00%
Agrinatural, LLC [Member]
Summary of significant accounting policies
Remaining percentage in Agrinatural Gas, LLC included as noncontrolling interest (as a percent)		27.00%
Initial term of providing natural gas to the plant		10 years
Number of renewal options | option		2
Term of renewed contract		5 years
Other Intangibles
Distribution Made to Limited Liability Company (LLC) Member, Cash Distributions Declared				$ 86,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) - USD ($)	12 Months Ended
	Oct. 31, 2015	Oct. 31, 2014	Oct. 31, 2013
Property, Plant and Equipment [Line Items]
Depreciation	$ 4,556,000	$ 4,264,000	$ 4,258,000
Long-Lived Assets
Impairment charge	$ 0	$ 0	$ 0
Plant building and equipment | Minimum
Property, Plant and Equipment [Line Items]
Depreciable useful life	7 years
Plant building and equipment | Maximum
Property, Plant and Equipment [Line Items]
Depreciable useful life	40 years
Vehicles and equipment | Minimum
Property, Plant and Equipment [Line Items]
Depreciable useful life	5 years
Vehicles and equipment | Maximum
Property, Plant and Equipment [Line Items]
Depreciable useful life	7 years
Office buildings and equipment | Minimum
Property, Plant and Equipment [Line Items]
Depreciable useful life	3 years
Office buildings and equipment | Maximum
Property, Plant and Equipment [Line Items]
Depreciable useful life	40 years

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RISKS AND UNCERTAINTIES (Details)	12 Months Ended
	Oct. 31, 2015
Total revenues | Ethanol | Minimum
RISKS AND UNCERTAINTIES
Average percentage of total sales or cost of goods sold	75.00%
Total revenues | Ethanol | Maximum
RISKS AND UNCERTAINTIES
Average percentage of total sales or cost of goods sold	85.00%
Cost of goods sold | Corn | Minimum
RISKS AND UNCERTAINTIES
Average percentage of total sales or cost of goods sold	65.00%
Cost of goods sold | Corn | Maximum
RISKS AND UNCERTAINTIES
Average percentage of total sales or cost of goods sold	85.00%

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FAIR VALUE MEASUREMENTS (Details) - USD ($)	12 Months Ended
	Oct. 31, 2015	Oct. 31, 2014	Oct. 31, 2013
Fair value measurements
Other intangible assets, net	$ 122,148	$ 160,296
Asset Impairment Charges	0	0	$ 0
Derivative Assets, Current	677,149	437,500
Derivative Asset, Fair Value, Gross Asset	677,149	437,500
Level 3
Fair value measurements
Derivative Asset, Fair Value, Gross Asset	0	0
Fair Value, Inputs, Level 1 [Member]
Fair value measurements
Derivative Asset, Fair Value, Gross Asset	677,149	437,500
Fair Value, Inputs, Level 2 [Member]
Fair value measurements
Derivative Asset, Fair Value, Gross Asset	$ 0	$ 0

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CONCENTRATIONS (Details) - customer	3 Months Ended		12 Months Ended
	Jan. 31, 2015	Jan. 31, 2014	Oct. 31, 2015
Number of customers to whom all of the ethanol and dry distiller grains sold	1		2
Customer Concentration Risk - Accounts Receivable [Member]
Concentration Risk, Percentage	88.00%		97.00%
Customer Concentration Risk - Revenue [Member]
Concentration Risk, Percentage	96.00%	97.00%	97.00%

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INVENTORY (Details) - USD ($)	Oct. 31, 2015	Oct. 31, 2014
Inventory Disclosure [Abstract]
Raw materials	$ 1,800,320	$ 2,462,754
Work in process	693,844	791,490
Finished Goods	1,829,311	1,072,646
Supplies	935,871	860,377
Totals	$ 5,259,346	$ 5,187,267

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DERIVATIVE INSTRUMENTS (Details)	12 Months Ended
	Oct. 31, 2015 USD ($) bu	Oct. 31, 2014 USD ($) bu	Oct. 31, 2013 USD ($)
Derivative Instruments
Derivative Assets	$ 677,149	$ 437,500
Derivative Liabilities, Current	0	0
Gains and (losses) from derivative instruments	831,227	787,617	$ 0
Restricted Cash and Investments, Current	0	264,000
Corn contracts
Derivative Instruments
Derivative Assets	677,149	437,500
Derivative Liabilities, Current	$ 0	$ 0
Derivative, Nonmonetary Notional Amount | bu	1,875,000	2,790,000
Derivatives not designated as hedging instruments | Commodity prices
Derivative Instruments
Maximum term of corn, ethanol and natural gas derivatives entered to protect cash flows (in months)	24 months
Derivatives not designated as hedging instruments | Corn contracts
Derivative Instruments
Gains and (losses) from derivative instruments	$ 831,227	$ 787,617	$ 0
long position [Member] | Corn contracts
Derivative Instruments
Derivative, Nonmonetary Notional Amount | bu	360,000	2,605,000
Short position [Member] | Corn contracts
Derivative Instruments
Derivative, Nonmonetary Notional Amount | bu	1,515,000	185,000

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PROPERTY, PLANT AND EQUIPMENT (Details) - USD ($)	3 Months Ended	12 Months Ended
	Jan. 31, 2016	Oct. 31, 2015	Oct. 31, 2014	Oct. 31, 2013
Property, Plant and Equipment [Line Items]
Construction in Progress, Gross		$ 1,148,578	$ 6,559,517
Depreciation		4,556,000	4,264,000	$ 4,258,000
Land and Land Improvements		9,111,838	9,111,838
Plant Buildings and Equipment		81,634,966	73,080,366
Vehicles and Other Equipment		611,976	611,976
Office Buildings and Equipment		641,860	613,407
Property, Plant and Equipment, Gross		93,149,218	89,977,104
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment		(40,164,668)	(35,609,106)
Property, Plant and Equipment, Net		52,984,550	$ 54,367,998
Regenerative Thermal Oxidizer (RTO) [Member]
Property, Plant and Equipment [Line Items]
Payments for Construction in Process	$ 375,000
Construction in Progress, Gross		$ 1,900,000

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DEBT FACILITIES (Details) - USD ($)	1 Months Ended	12 Months Ended
	Sep. 18, 2013	Oct. 31, 2015	Oct. 31, 2014	Oct. 31, 2013	Sep. 30, 2013
Debt financing
Long-term Debt		$ 7,229,932	$ 2,958,647
Less amounts due on demand or within one year		517,957	846,235
Net long term debt		6,711,975	2,112,412
Convertible rate of class A unit					$ 0.30
Conversion of subordinated convertible debt to member units		0	3,937,550	$ 934,500
Convertible subordinated debt					$ 5,077,000
Estimated maturities of long-term debt
2014		517,957
2015		480,064
2016		432,182
2017		319,376
2018		326,798
After 2018		5,153,555
Revolving term note payable to lending institution
Debt financing
Long-term Debt		$ 4,822,777	$ 0
Interest rate (as a percent)		3.45%	3.41%
Initial amount of debt		$ 28,000,000
Line of Credit Facility, Amount Outstanding		24,500,000
Annual reduction in maximum borrowing capacity		$ 3,500,000
Debt Instrument, Interest Rate, Effective Percentage Rate Range, Minimum		3.25%
Line of Credit Facility, Interest Rate Description		LIBOR
Line of Credit Facility, Commitment Fee Description		0.005
Debt Instrument, Fee Amount		$ 2,500
Assessments payable as part of water treatment agreement, with interest at 6.55%, due in 2021
Debt financing
Long-term Debt		1,775,828	$ 2,018,767
Semi-annual payment		$ 189,393
Interest rate (as a percent)		6.55%
Period of worth of debt		1 year
Assessments payable as part of water treatment agreement, with interest at 0.50%, due in 2016
Debt financing
Long-term Debt		$ 51,199	102,074
Semi-annual payment		$ 25,692
Interest rate (as a percent)		0.50%
Assessments payable as part of water supply agreement, with interest at 8.73%, due in 2019
Debt financing
Long-term Debt		$ 136,378	172,072
Interest rate (as a percent)		8.73%
Monthly payment		$ 3,942
Note payable to electrical provider, due in December 2012
Debt financing
Implicit interest rate (as a percent)		1.50%
Monthly payment		$ 29,775
Note payable to electrical company, due September 2017
Debt financing
Long-term Debt		$ 143,750	218,750
Maintenance fee (as a percent)		1.00%
Monthly payment		$ 6,250
Construction note payable
Debt financing
Interest rate (as a percent)		5.29%
Term of debt instrument		3 years
Equipment note, second
Debt financing
Long-term Debt		$ 0	146,984
Interest rate (as a percent)		5.57%
Monthly payment		$ 40,000
Class A units
Debt financing
Conversion of subordinated convertible debt to member units	$ 934,500
Agrinatural | Note payable to noncontrolling interest, due October 2014
Debt financing
Long-term Debt		$ 300,000	$ 300,000
Interest rate (as a percent)		5.43%

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MEMBERS' EQUITY (Details)					1 Months Ended			12 Months Ended
	Dec. 17, 2015 USD ($) $ / shares	Dec. 18, 2014 USD ($) $ / shares	Sep. 18, 2013 $ / shares shares	Jul. 31, 2013 USD ($) $ / shares shares	Sep. 18, 2013 USD ($) shares	Jul. 31, 2013 USD ($) $ / shares shares	May. 31, 2013 USD ($)	Oct. 31, 2015 USD ($) vote_per_share $ / shares shares	Oct. 31, 2014 USD ($) $ / shares shares	Oct. 31, 2013 USD ($) $ / shares shares
Class of Stock [Line Items]
Members' Equity, units outstanding								64,812,107	38,622,107
Units authorized (in shares)								80,000,000
Minimum number of units held by members of the company (in shares)								2,500
Number of votes per unit | vote_per_share								1
Gross proceeds | $				$ 6,900,000				$ 0	$ 0	$ 6,922,500
Number of units sold (in shares)								64,812,107	38,622,107
Conversion of subordinated convertible debt to member units | $								$ 0	$ 3,937,550	$ 934,500
Early Repayment of Subordinated Debt | $									$ 207,000
Distribution Made to Member or Limited Partner, Distributions Declared, Per Unit | $ / shares		$ 0.12
Distribution Made to Member or Limited Partner, Cash Distributions Declared | $		$ 9,352,000
Project Viking
Class of Stock [Line Items]
Gross proceeds | $						$ 6,900,000
Purchase price per unit (in dollars per unit) | $ / shares				$ 0.30		$ 0.30
Stock issuance cost per unit | $ / shares						$ 0.30
Conversion of subordinated convertible debt to member units | $							$ 102,000
Class A units
Class of Stock [Line Items]
Units authorized (in shares)								65,000,000
Capital issuance (in shares)								8,075,000	8,075,000	1,414,033
Number of units sold (in shares)			3,115,000		3,115,000
Stock issuance cost per unit | $ / shares			$ 0.30					$ 0.30	$ 0.30	$ 0.50
Conversion of subordinated convertible debt to member units | $					$ 934,500
Stock Issued During Period, Shares, Conversion of Units									13,120,000
Class A units | Project Viking
Class of Stock [Line Items]
Number of units sold (in shares)				8,075,000		8,075,000
Class B units
Class of Stock [Line Items]
Units authorized (in shares)								15,000,000
Capital issuance (in shares)								15,000,000	15,000,000
Stock issuance cost per unit | $ / shares								$ 0.30	$ 0.30
Class B units | Project Viking
Class of Stock [Line Items]
Number of units sold (in shares)				15,000,000		15,000,000
Subsequent Event [Member]
Class of Stock [Line Items]
Distribution Made to Member or Limited Partner, Distributions Declared, Per Unit | $ / shares	$ 0.05
Distribution Made to Member or Limited Partner, Cash Distributions Declared | $	$ 3,897,000

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LEASES (Details)	12 Months Ended
	Oct. 31, 2015 USD ($)
Operating Leased Assets [Line Items]
Minimum non-cancelable lease term at inception (in years)	1 year
Minimum future lease payments
Operating Leases, Future Minimum Payments Due, Next Twelve Months	$ 2,133,300
Capital Leases, Future Minimum Payments Due in Two Years	1,006,650
Total lease commitments	$ 3,139,950
Rail cars [Member]
Operating Leased Assets [Line Items]
Capital Leased Assets, Number of Units	145
Rent expense	$ 143,000
Hopper Cars [Member]
Operating Leased Assets [Line Items]
Capital Leased Assets, Number of Units	50
Rent expense	$ 0

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INCOME TAXES (Details) - USD ($)	12 Months Ended
	Oct. 31, 2015	Oct. 31, 2014
Income Tax Disclosure [Abstract]
Consolidated financial statement basis of assets	$ 66,696,384	$ 66,122,250
Plus: Organization and start-up costs capitalized	1,091,020	1,248,749
Unrealized Gain (Loss) on Derivatives	(677,149)	(437,500)
Less: Accumulated tax depreciation and amortization greater than financial statement basis	54,580,532	43,116,534
Plus: Impairment charge	27,844,579	27,844,579
Income tax basis of assets	$ 40,374,302	$ 51,661,544

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RELATED PARTY TRANSACTIONS (Details) - USD ($)		1 Months Ended			3 Months Ended	12 Months Ended
	Jul. 31, 2013	Sep. 30, 2013	Jul. 31, 2013	May. 31, 2013	Jan. 31, 2016	Oct. 31, 2015	Oct. 31, 2014	Oct. 31, 2013
RELATED PARTY TRANSACTIONS
Gross proceeds	$ 6,900,000					$ 0	$ 0	$ 6,922,500
Conversion of subordinated convertible debt to member units						0	3,937,550	934,500
Management Services Agreement, Term	3 years
Management Services Agreement						414,000	392,000	105,000
Convertible subordinated debt		$ 5,077,000
Convertible rate of class A unit		$ 0.30
Conversion of Stock, Amount Converted		$ 102,000
Amount of corn purchased from members						11,032,000	14,860,000	0
Long-term Debt						$ 7,229,932	2,958,647
Capital Expenditure Reimbursement					10.00%
Project Viking
RELATED PARTY TRANSACTIONS
Gross proceeds			$ 6,900,000
Purchase price per unit (in dollars per unit)	$ 0.30		$ 0.30
Conversion of subordinated convertible debt to member units				$ 102,000
Project Viking | Class A units
RELATED PARTY TRANSACTIONS
Class A units Authorized (in shares)	8,075,000		8,075,000
Project Viking | Class B units
RELATED PARTY TRANSACTIONS
Class A units Authorized (in shares)	15,000,000		15,000,000
Principal Owner [Member] | Class A units
RELATED PARTY TRANSACTIONS
Conversion of Stock, Shares Converted		340,000
Majority Shareholder [Member]
RELATED PARTY TRANSACTIONS
Management Fee, Amount Paid								35,000
Management Services Agreement, Percentage of Applicable Compensation						50.00%
Agrinatural Gas [Member]
RELATED PARTY TRANSACTIONS
Interest Expense, Debt						$ 16,000
Long-term Debt								300,000
Swan Engineering Inc (SEI) [Member]
RELATED PARTY TRANSACTIONS
Accounts Payable, Related Parties, Current						340,000	$ 517,000
Convertible Subordinated Debt [Member] | Majority Shareholder [Member]
RELATED PARTY TRANSACTIONS
Interest Expense, Debt								$ 2,000
Granite Falls Energy LLC [Member] | Project Viking
RELATED PARTY TRANSACTIONS
Convertible Subordinated Debt, Transferred	$ 102,000
Agrinatural, LLC [Member]
RELATED PARTY TRANSACTIONS
Management Fee Reduction						4,500
Monthly Base Fee						18,000
Monthly Variable Fee						83,000
Project Management Fees						$ 19,000

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COMMITMENTS AND CONTINGENCIES (Details)	1 Months Ended		12 Months Ended
	May. 31, 2006	Oct. 31, 2003 USD ($) gal	Oct. 31, 2015 USD ($) bu	Oct. 31, 2014 USD ($)	Oct. 31, 2013 USD ($)	Oct. 31, 2007 USD ($)	Oct. 31, 2006 USD ($)
Corn Contracts [Member]
COMMITMENTS AND CONTINGENCIES
Forward Commitment Contracts | bu			2,604,000
Water supply development and distribution agreement
COMMITMENTS AND CONTINGENCIES
Term of agreement		15 years
Initial volume per minute of capacity that is available from the well for which the entity has exclusive rights (in gallons) | gal		600
City's water well bond payments		$ 735,000
Administrative fee to be paid as water usage fees (as a percent)		5.00%
Administrative fee to be paid as water usage fees		$ 594,000
Percentage of profit to be paid as water usage fees		10.00%
Operating and administrative/maintenance expenses paid		$ 12,000
Water supply development and distribution agreement | Assessments payable
COMMITMENTS AND CONTINGENCIES
Long-term debt		$ 367,000
Water treatment agreement
COMMITMENTS AND CONTINGENCIES
Term of agreement	30 years
Operating and administrative/maintenance expenses paid			$ 57,000	$ 114,000	$ 289,000
Water treatment agreement | Assessments payable
COMMITMENTS AND CONTINGENCIES
Long-term debt						$ 500,000	$ 3,550,000
Marketing, corn supply and corn storage agreements
COMMITMENTS AND CONTINGENCIES
Percentage of ethanol and distillers grains products produced by the entity to be purchased, marketed and resold by Gavilon			100.00%
Ethanol Contracts [Member]
COMMITMENTS AND CONTINGENCIES
Forward Sales Contracts			$ 2,366,000
Percent of Anticipated Sales			15.00%
Distiller's Grains [Member]
COMMITMENTS AND CONTINGENCIES
Forward Sales Contracts			$ 151,000
Corn Oil [Member]
COMMITMENTS AND CONTINGENCIES
Forward Sales Contracts			$ 383,000

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BUSINESS SEGMENTS (Details) - USD ($)	3 Months Ended												12 Months Ended
	Oct. 31, 2015	Jul. 31, 2015	Apr. 30, 2015	Jan. 31, 2015	Oct. 31, 2014	Jul. 31, 2014	Apr. 30, 2014	Jan. 31, 2014	Oct. 31, 2013	Jul. 31, 2013	Apr. 30, 2013	Jan. 31, 2013	Oct. 31, 2015	Oct. 31, 2014	Oct. 31, 2013
Segment Reporting Information [Line Items]
Revenues													$ 115,660,469	$ 149,418,044
Operating Income (Loss)	$ 538,714	$ 4,014,168	$ 1,891,732	$ 966,668	$ 5,284,529	$ 7,514,741	$ 6,758,565	$ 6,340,753	$ 1,915,430	$ 3,385,958	$ (192,887)	$ (95,367)	7,411,282	25,898,588	$ 5,013,134
Total Assets	66,696,384				66,122,250								66,696,384	66,122,250
Ethanol [Member]
Segment Reporting Information [Line Items]
Revenues													114,669,831	148,512,052
Operating Income (Loss)													8,106,105	26,170,923
Total Assets	53,663,064				53,826,820								53,663,064	53,826,820
Natural Gas [Member]
Segment Reporting Information [Line Items]
Revenues													2,761,042	2,621,898
Operating Income (Loss)													1,075,581	1,443,571
Total Assets	$ 13,033,320				$ 12,295,430								13,033,320	12,295,430
Intersegment Eliminations [Member]
Segment Reporting Information [Line Items]
Revenues													(1,770,404)	(1,715,906)
Operating Income (Loss)													$ (1,770,404)	$ (1,715,906)

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QUARTERLY FINANCIAL DATA (UNAUDITED) (Details) - USD ($)	3 Months Ended												12 Months Ended
	Oct. 31, 2015	Jul. 31, 2015	Apr. 30, 2015	Jan. 31, 2015	Oct. 31, 2014	Jul. 31, 2014	Apr. 30, 2014	Jan. 31, 2014	Oct. 31, 2013	Jul. 31, 2013	Apr. 30, 2013	Jan. 31, 2013	Oct. 31, 2015	Oct. 31, 2014	Oct. 31, 2013
Quarterly Financial Information Disclosure [Abstract]
Revenues	$ 28,477,019	$ 30,192,430	$ 29,813,571	$ 27,177,449	$ 30,276,333	$ 39,082,103	$ 39,149,053	$ 40,910,555	$ 38,560,472	$ 45,583,441	$ 35,498,926	$ 44,121,305	$ 115,660,469	$ 149,418,044	$ 163,764,144
Gross profit (loss)	1,135,568	4,755,934	2,673,825	1,847,050	5,773,857	8,292,015	7,602,033	7,180,730	2,547,981	4,060,158	698,812	920,219	10,412,377	28,848,635	8,227,170
Operating income (loss)	538,714	4,014,168	1,891,732	966,668	5,284,529	7,514,741	6,758,565	6,340,753	1,915,430	3,385,958	(192,887)	(95,367)	7,411,282	25,898,588	5,013,134
Net income (loss) attributable to Heron Lake BioEnergy, LLC	$ 329,320	$ 3,808,820	$ 1,733,837	$ 879,256	$ 5,035,588	$ 6,785,754	$ 6,323,059	$ 5,824,444	$ 1,305,042	$ 2,554,493	$ (998,139)	$ (920,554)	$ 6,979,716	$ 24,327,518	$ 2,267,860
Basic earnings (loss) per unit (Class A and B)	$ 0.01	$ 0.05	$ 0.02	$ 0.01	$ 0.06	$ 0.10	$ 0.10	$ 0.09	$ 0.03	$ 0.07	$ (0.03)	$ (0.02)	$ 0.09	$ 0.35	$ 0.04
Diluted earnings (loss) per unit (Class A and B)	$ 0.01	$ 0.05	$ 0.02	$ 0.01	$ 0.06	$ 0.09	$ 0.08	$ 0.08	$ 0.03	$ 0.06	$ (0.03)	$ (0.02)	$ 0.09	$ 0.31	$ 0.04