10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
	For the quarterly period ended April 30, 2012
	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 000-53588

HIGHWATER ETHANOL, LLC

(Exact name of registrant as specified in its charter)

Minnesota	20-4798531
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
24500 US Highway 14, Lamberton, MN 56152
(Address of principal executive offices)
(507) 752-6160
(Registrant's telephone number, including area code)

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

x Yes     o No

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes     o No

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

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

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

o Yes     x No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  As of June 12, 2012, there were 4,953 membership units outstanding.

1

INDEX

	Page Number
PART I. FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3. Quantitative and Qualitative Disclosures about Market Risk	24
Item 4. Controls and Procedures	24
PART II. OTHER INFORMATION	25
Item 1. Legal Proceedings	25
Item 1A. Risk Factors	25
Item 2. Unregistered Sales of Equity Securities	25
Item 3. Defaults Upon Senior Securities	25
Item 4. Mine Safety Disclosures	25
Item 5. Other Information	25
Item 6. Exhibits	26
SIGNATURES	26

2

PART I    FINANCIAL INFORMATION

Item 1. Financial Statements

HIGHWATER ETHANOL, LLC

Condensed Balance Sheets

ASSETS	April 30, 2012			October 31, 2011
	(Unaudited)
Current Assets
Cash and equivalents	$	4,689,266		$	3,427,683
Restricted cash	34,213			465,720
Restricted marketable securities	42,081			66,319
Accounts receivable	3,604,328			7,493,851
Inventories	4,135,991			4,167,870
Prepaids and other	95,406			73,737
Total current assets	12,601,285			15,695,180
Property and Equipment
Land and land improvements	6,820,842			6,813,722
Buildings	37,997,211			37,965,861
Office equipment	349,729			346,259
Equipment	60,697,581			60,209,552
Vehicles	41,994			41,994
Construction in progress	113,951			138,714
	106,021,308			105,516,102
Less accumulated depreciation	(16,833,918		)	(13,704,182		)
Net property and equipment	89,187,390			91,811,920
Other Assets
Investments in RPMG	605,000			605,000
Restricted marketable securities	1,518,000			1,518,000
Debt issuance costs, net	961,914			1,103,740
Deposits	195,727			195,547
Total other assets	3,280,641			3,422,287
Total Assets	$	105,069,316		$	110,929,387

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

3

HIGHWATER ETHANOL, LLC

Condensed Balance Sheets

LIABILITIES AND MEMBERS' EQUITY	April 30, 2012		October 31, 2011
	(Unaudited)
Current Liabilities
Accounts payable	$	1,449,039	$	2,489,769
Accrued expenses	730,109		511,933
Deferred revenue	141,139		—
Derivative instruments	797,333		1,020,599
Current maturities of long-term debt	2,056,106		3,719,499
Total current liabilities	5,173,726		7,741,800
Long-Term Debt	49,936,371		50,997,079
Derivative Instrument	775,959		1,118,709
Commitments and Contingencies	—		—
Members' Equity
Members' equity, 4,953 units outstanding	49,183,260		51,071,799
Total Liabilities and Members’ Equity	$	105,069,316	$	110,929,387

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

4

HIGHWATER ETHANOL, LLC

Condensed Statements of Operations

	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	April 30, 2012			April 30, 2011			April 30, 2012			April 30, 2011
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues	$	33,771,321		$	37,394,958		$	73,598,897		$	73,664,456
Cost of Goods Sold	34,752,072			34,960,815			72,241,801			69,146,241
Gross Profit (Loss)	(980,751		)	2,434,143			1,357,096			4,518,215
Operating Expenses	486,777			471,601			1,001,892			908,893
Operating Profit (Loss)	(1,467,528		)	1,962,542			355,204			3,609,322
Other Income (Expense)
Interest income	1,346			710			36,856			37,898
Other income	75			50,566			50,164			50,566
Interest expense	(1,070,314		)	(1,287,161		)	(2,171,728		)	(2,452,242		)
Gain (loss) on derivative instrument	206,145			110,820			365,203			636,580
Total other expense, net	(862,748		)	(1,125,065		)	(1,719,505		)	(1,727,198		)
Net Income (Loss)	$	(2,330,276	)	$	837,477		$	(1,364,301	)	$	1,882,124
Weighted Average Units Outstanding	4,953			4,953			4,953			4,953
Net Income (Loss) Per Unit	$	(470.48	)	$	169.08		$	(275.45	)	$	380.00
Distributions Per Unit	$	100.95		$	—		$	100.95		$	—

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

5

HIGHWATER ETHANOL, LLC

Condensed Statements of Comprehensive Income (Loss)

	Six Months Ended			Six Months Ended
	April 30, 2012			April 30, 2011
	(Unaudited)			(Unaudited)
Net Income (Loss)	$	(1,364,301	)	$	1,882,124
Other Comprehensive Income
Unrealized gains (losses) on restricted marketable securities	(24,238		)	(37,741		)
Comprehensive Income (Loss)	$	(1,388,539	)	$	1,844,383

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

6

HIGHWATER ETHANOL, LLC

Condensed Statements of Cash Flows

	Six Months Ended			Six Months Ended
	April 30, 2012			April 30, 2011
Cash Flows from Operating Activities
Net income (loss)	$	(1,364,301	)	$	1,882,124
Adjustments to reconcile net income to net cash provided by operations
Depreciation and amortization	3,271,562			3,277,377
Interest payments made from restricted cash	67,276			11,220
Change in fair value of derivative instruments	(114,065		)	(113,314		)
Increase in restricted cash from net interest earned	(67,276		)	(33,638		)
Change in assets and liabilities
Restricted cash	431,507			(114,450		)
Accounts receivable, including members	3,889,523			1,760,962
Inventories	31,879			(56,171		)
Derivative instruments	(451,951		)	(492,516		)
Prepaids and other	(21,849		)	383,138
Deferred revenue	141,139			—
Accounts payable, including members	(848,699		)	(94,229		)
Accrued expenses	218,176			(50,027		)
Net cash provided by operating activities	5,182,921			6,360,476
Cash Flows from Investing Activities
Capital expenditures	(515,984		)	(425,581		)
Investment in RPMG	(181,253		)	(206,972		)
Net cash used in investing activities	(697,237		)	(632,553		)
Cash Flows from Financing Activities
Payments on long-term debt	(2,724,101		)	(5,015,231		)
Member distributions	(500,000		)	—
Net cash used in financing activities	(3,224,101		)	(5,015,231		)
Net Increase (Decrease) in Cash	1,261,583			712,692
Cash – Beginning of Period	3,427,683			3,856,173
Cash – End of Period	$	4,689,266		$	4,568,865
Supplemental Cash Flow Information
Cash paid for interest expense	$	1,968,783		$	2,129,360
Supplemental Disclosure of Noncash Financing and Investing Activities
Unrealized gains (losses) on restricted marketable securities	$	(24,238	)	$	(37,741	)
Capital expenditures included in accounts payable	$	1,613		$	93,886
Investment in RPMG included in accounts payable	$	—		$	398,028

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

7

HIGHWATER ETHANOL, LLC

Notes to Unaudited Condensed Financial Statements

April 30, 2012

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations.  These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company's audited financial statements for the year ended October 31, 2011, contained in the Company's Form 10-K.

In the opinion of management, the interim condensed financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary for fair presentation of the Company's financial position as of April 30, 2012 and the results of operations and cash flows for all periods presented.

Nature of Business

Highwater Ethanol, LLC, (a Minnesota Limited Liability Company) operates a 50 million gallon per year ethanol plant in Lamberton, Minnesota. The Company produces and sells fuel ethanol and distillers grains, a co-product of the fuel ethanol production process, in the continental United States, Mexico and Canada.

Accounting Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with 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, among others, the carrying value of property and equipment and related impairment testing, inventory valuation, and derivative instruments. Actual results could differ from those estimates and such differences may be material to the financial statements. The Company periodically reviews estimates and assumptions and the effects of revisions are reflected in the period in which the revision is made.

Revenue Recognition

The Company generally sells ethanol and related products pursuant to marketing agreements. The Company's products are shipped FOB shipping point. Revenues are recognized when the customer has taken title and has assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured. For ethanol sales, title transfers when loaded into the rail car and for distiller's grains when the loaded rail cars leave the plant facility.

In accordance with the Company's agreements for the marketing and sale of ethanol and related products, marketing fees and freight due to the marketers are deducted from the gross sales price at the time incurred. Revenue is recorded net of these marketing fees and freight as they do not provide an identifiable benefit that is sufficiently separable from the sale of ethanol and related products.

Derivative Instruments

Derivatives are recognized in the balance sheet and the measurement of these instruments are 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 recognized currently in earnings.

Contracts are evaluated 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

8

HIGHWATER ETHANOL, LLC

Notes to Unaudited Condensed Financial Statements

April 30, 2012

of normal purchases or sales are documented as normal and exempted from accounting as derivatives, therefore, are not marked to market in our financial statements.

In order to reduce the risk caused by interest rate fluctuations, the Company entered into an interest rate swap agreement. This contract is used with the intention to limit exposure to increased interest rates. The fair value of this contract is based on widely accepted valuation techniques including discounted cash flow analysis which includes observable market-based inputs. The fair value of the derivative is continually subject to change due to changing market conditions. Although this serves as an economic hedge, the Company does not formally designate this instrument as a hedge and, therefore, records in earnings adjustments caused from marking the instrument to market on a monthly basis.

The Company entered into corn commodity-based and natural gas derivatives in order to protect cash flows from fluctuations caused by volatility in prices. These derivatives 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. Corn and natural gas derivative changes in fair market value are included in costs of goods sold.

Fair Value of Financial Instruments

The carrying value of cash, accounts receivable, and accounts payable, and other working capital items approximate fair value at April 30, 2012 due to the short maturity nature of these instruments.

The carrying value of restricted cash and restricted marketable securities approximate their fair value based on quoted market prices at year end. The Company believes the carrying value of the derivative instruments approximates fair value based on widely accepted valuation techniques including discounted cash flow analysis which includes observable market-based inputs.

The Company believes the carrying amount of the long-term debt approximates the fair value due to a significant portion of total indebtedness contains variable interest rates and this rate is a market interest rate for these borrowings.

Investments

The Company entered into a capital contribution agreement with their ethanol marketer for $605,000 and became a minority owner in February 2011, which is being accounted for using the cost method.

2. UNCERTAINTIES

The Company derives substantially all of its revenues from the sale of ethanol and distillers grains. These products are commodities and the market prices for these products display substantial volatility and are subject to a number of factors which are beyond the control of the Company. The Company's most significant manufacturing inputs are corn and natural gas. The price of these commodities is also subject to substantial volatility and uncontrollable market factors. In addition, these input costs do not necessarily fluctuate with the market prices for ethanol and distillers grains. As a result, the Company is subject to significant risk that its operating margins can be reduced or eliminated due to the relative movements in the market prices of its products and major manufacturing inputs. As a result, market fluctuations in the price of or demand for these commodities can have a significant adverse effect on the Company's operations, profitability, and availability of cash flows to make loan payments and maintain compliance with the loan agreement.

3. FAIR VALUE MEASUREMENTS

The following table provides information on those assets measured at fair value on a recurring basis.

	Fair Value as of			Fair Value Measurement Using
	April 30, 2012			Level 1		Level 2			Level 3
Restricted marketable securities - current	$	42,081		$	42,081	$	—		$	—
Restricted marketable securities - long-term	$	1,518,000		$	1,518,000	$	—		$	—
Derivative instrument - interest rate swap	$	(1,573,292	)	$	—	$	(1,573,292	)	$	—

9

HIGHWATER ETHANOL, LLC

Notes to Unaudited Condensed Financial Statements

April 30, 2012

	Fair Value as of			Fair Value Measurement Using
	October 31, 2011			Level 1			Level 2			Level 3
Restricted marketable securities - current	$	66,319		$	66,319		$	—		$	—
Restricted marketable securities - long-term	$	1,518,000		$	1,518,000		$	—		$	—
Derivative instrument - interest rate swap	$	(1,938,496	)	$	—		$	(1,938,496	)	$	—
Derivative instrument - corn contracts	$	(200,812	)	$	(200,812	)	$	—		$	—

The fair value of restricted marketable securities, which is a municipal debt obligation, is based on quoted market prices in an active market. The Company determined the fair value of the interest rate swap by using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each instrument and observable market-based inputs. The analysis reflects the contractual terms of the swap agreement, including the period to maturity and uses observable market-based inputs and uses the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The Company determines the fair value of the corn contracts by obtaining the fair value measurements from an independent pricing service based on dealer quotes and live trading levels from the Chicago Board of Trade.

4. RESTRICTED MARKETABLE SECURITIES

The cost and fair value of the Company's restricted marketable securities consist of the following at April 30, 2012:

	Amortized Cost		Gross Unrealized Gains		Fair Value
Restricted marketable securities - Current
municipal obligations	$	42,081	$	—	$	42,081
Restricted marketable securities - Long-term    municipal obligations	1,467,036		50,963		1,518,000
Total restricted marketable securities	$	1,509,117	$	50,963	$	1,560,081

The long-term restricted marketable securities relate to the debt service reserve fund required by the capital lease agreement. The Company had unrealized gains of $50,963 and $75,202 included in accumulated other comprehensive income at April 30, 2012 and October 31, 2011, respectively.

Shown below are the contractual maturities of marketable securities with fixed maturities at April 30, 2012. Actual maturities may differ from contractual maturities because certain securities may contain early call or prepayment rights.

Due within 1 year	$	—
Due in 1 to 3 years	1,560,081
Total	$	1,560,081

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HIGHWATER ETHANOL, LLC

Notes to Unaudited Condensed Financial Statements

April 30, 2012

5. INVENTORIES

Inventories consisted of the following at:

	April 30, 2012		October 31, 2011*
Raw materials	$	1,111,189	$	1,957,121
Spare parts and supplies	716,429		487,128
Work in process	1,202,185		1,139,783
Finished goods	1,106,188		583,838
Total	$	4,135,991	$	4,167,870

*Derived from Audited financial statements

6. DERIVATIVE INSTRUMENTS

As of April 30, 2012, the Company had entered into corn and natural gas derivative instruments and an interest rate swap agreement, which are required to be recorded as either assets or liabilities at fair value in the statement of financial position. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the derivative instrument and the related change in value of the underlying hedged item. The Company must designate the hedging instruments based upon the exposure being hedged as a fair value hedge, a cash flow hedge or a hedge against foreign currency exposure. The Company had no corn or natural gas derivative instruments outstanding at April 30, 2012.

Interest Rate Swap

At April 30, 2012, the Company had a notional amount of approximately $19,896,000 outstanding in the swap agreement that fixes the interest rate at 7.6% until June 2014.

Corn and Natural Gas Contracts

As of April 30, 2012, the Company has no open positions for corn or natural gas.

The following tables provide details regarding the Company's derivative instruments at April 30, 2012:

Instrument	Balance Sheet location	Assets		Liabilities
Interest rate swap	Derivative instruments	$	—	$	1,573,292

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

	Statement of	Three Months Ended April 30,
	Operations location	2012			2011
Interest rate swap	Other income (expense)	$	206,145		$	110,820
Corn contracts	Cost of goods sold	122,905			555,817
Natural gas contracts	Cost of goods sold	(190,412		)	—
	Statement of	Six Months Ended April 30,
	Operations location	2012			2011
Interest rate swap	Other income (expense)	$	365,203		$	636,580
Corn contracts	Cost of goods sold	129,431			612,273
Natural gas contracts	Cost of goods sold	(418,016		)	—

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HIGHWATER ETHANOL, LLC

Notes to Unaudited Condensed Financial Statements

April 30, 2012

7. DEBT FINANCING

Long-term debt consists of the following at:

	April 30,		October 31,*
	2011		2011
Fixed rate note payable, see terms below	$	21,245,714	$	22,209,080
Variable rate note payable, see terms below	15,566,763		17,327,498
Capital lease	15,180,000		15,180,000
Total	51,992,477		54,716,578
Less amounts due within one year	2,056,106		3,719,499
Net long-term debt	$	49,936,371	$	50,997,079

*Derived from Audited financial statements

Bank Financing

The Company has two promissory notes including a $25,200,000 Fixed Rate Note and a $20,200,000 Variable Rate Note. The Company also had a $5,000,000 Long-Term Revolving Note which was paid in full in 2011. The promissory notes are described in the credit agreement and below. The credit agreement also provided a revolving loan for $5,000,000 and supports the issuance of letters of credit up to $5,600,000, all of which are secured by substantially all assets.

Fixed Rate Note

The Fixed Rate Note was initially $25,200,000 and has a variable interest rate that is fixed with an interest rate swap. The Company makes monthly principal payments on the Fixed Rate Note of approximately $157,000 plus accrued interest. Interest accrues on the Fixed Rate Note at the greater of the one-month LIBOR rate plus 300 basis points or 4%, which was 4% at April 30, 2012. A final balloon payment on the Fixed Rate Note of approximately $15,196,000 will be due February 26, 2015.

Variable Rate Note

The Variable Rate Note was initially $20,200,000. The Company makes monthly payments of interest only. Interest accrues on the Variable Rate Note at the greater of the one-month LIBOR rate plus 350 basis points or 5%, which was 5% at April 30, 2012. The Company also makes quarterly 50% excess cash flow payments which are first applied to interest and then to principal on the Variable Rate Note with a minimum annual principal reduction of $750,000 which has been made at the time of this filing. A final balloon payment of approximately $12,567,000 will be due February 26, 2015.

Long-term Revolving Note

The Long-Term Revolving Note was initially $5,000,000 and was reduced to $4,500,000 pursuant to the terms of the third amendment to the loan documents with FNBO. The amount available on the Long-Term Revolving Note was set to decline annually by the greater of $125,000 or 50% of the excess cash flow, as defined by the third amendment. The Company was also required to make a $750,000 principal repayment on the Long-Term Revolving Note prior to February 2012 and reduce the outstanding principal balance to zero as of February 1, 2013. The payments to reduce the Long-Term Revolving Note balance to zero as required by February 1, 2013 were made in September 2011. The Long-Term Revolving Note accrues interest monthly at the greater of the one-month LIBOR plus 350 basis points or 4%.

Line of Credit

The Company's Line of Credit accrues interest at the 90 day LIBOR plus 350 basis points which was 3.97% at April 30, 2012. The line of credit requires monthly interest payments. In April 2012, the Company extended the line of credit to April 2013. At

12

HIGHWATER ETHANOL, LLC

Notes to Unaudited Condensed Financial Statements

April 30, 2012

April 30, 2012, there are no borrowings outstanding and the maximum availability was $5,000,000.

As of April 30, 2012, the Company has letters of credit outstanding of $3,500,000. The Company pays interest at a rate of 1.75% on amounts outstanding and the letters of credit are valid until August 2012.

The estimated maturities of the long-term debt at April 30, 2012 are as follows:

2013	$	2,056,106
2014	3,555,143
2015	33,234,561
2016	1,574,167
2017 and thereafter	11,572,500
Long-term debt	$	51,992,477

8. COMMITMENTS AND CONTINGENCIES

Marketing Agreements

The Company entered into an ethanol marketing agreement with their current marketer to purchase, market, and distribute all the ethanol produced by the Company. The Company also entered into a member control agreement with the marketer whereby the Company made capital contributions and became a minority owner. The buy-in commitment was $605,000 and as of April 30, 2012, the Company has paid this commitment in full.  The member control agreement became effective on February 1, 2011 and provided the Company a membership interest with voting rights. The marketing agreement would terminate if the Company ceases to be a member.  The Company would assume certain of the member's rail car leases if the agreement is terminated.

Regulatory Agencies

The Company is subject to oversight from regulatory agencies regarding environmental concerns which arise in the ordinary course of its business.

Construction in Progress

The Company had construction in progress of approximately $114,000 at April 30, 2012 for the maintenance and lime cake buildings. The additions are expected to amount to $350,000.

Forward Contracts

The Company has forward contracts in place for natural gas purchases for approximately $2,405,000 through March 2013, which represents approximately 48.81% of the Company's projected usage for the corresponding time period. In addition, the Company has forward corn contracts in place for approximately 290,000 bushels through June 2012.

13

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

We prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition, and results of operations for the three and six month periods ended April 30, 2012, compared to the same periods of the prior fiscal year. This discussion should be read in conjunction with the condensed financial statements and notes and the information contained in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2011.

Cautionary Statements Regarding Forward-Looking Statements

This report contains forward-looking statements that involve future events, our future performance and our expected future operations and actions.  In some cases you can identify forward-looking statements by the use of words such as “will,” “may,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties. Many factors could cause actual results to differ materially from those projected in forward-looking statements. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include, but are not limited to:

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

• Volatile commodity and financial markets;

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

• Our ability to comply with the financial covenants contained in our credit agreements with our lender;

• Our ability to profitably operate the ethanol plant and maintain a positive spread between the selling price of our products and our raw materials costs;

• Our ability to generate free cash flow to invest in our business and service our debt;

• The results of our hedging transactions and other risk management strategies;

• Changes in the environmental regulations or in our ability to comply with such regulations;

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

• Changes in or elimination of federal and/or state laws or policies impacting the ethanol industry (including the elimination of any federal and/or state ethanol tax incentives);

• Ethanol and distillers grains supply exceeding demand and corresponding price reductions;

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

• Changes and advances in ethanol production technology;

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

• Changes in our ability to secure credit or obtain additional debt or equity financing, if we so require;

• Lack of transport, storage and blending infrastructure;

• Competition from alternative fuel additives; and

• Limitations and restrictions contained in the instruments and agreements governing our indebtedness.

The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We are not under any duty to update the forward-looking statements contained in this report. Furthermore, 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 by these cautionary statements.

Available Information

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

Overview

Highwater Ethanol, LLC (“we,” “our,” “Highwater” or the “Company”) is a Minnesota limited liability company formed

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on May 2, 2006. Since August 2009, we have been engaged in the production of ethanol and distillers grains at the ethanol plant. Our plant has nameplate capacity of 50 million gallons of undenatured ethanol per year. However, modifications to our air emissions permit approved by Minnesota Pollution Control Agency in February 2012 allow us to produce 58 million gallons per year of undenatured ethanol per year. Our plant is currently operating at a rate of 55 million gallons per year and management anticipates it will continue to do so in the future.

Our operating results are largely driven by the prices at which we sell our ethanol and distillers grains as well as the other costs related to production. The price of ethanol has historically fluctuated with the price of petroleum-based products such as unleaded gasoline, heating oil and crude oil. The price of distillers grains has historically been influenced by the price of corn as a substitute livestock feed. We expect these price relationships to continue for the foreseeable future, although recent volatility in the commodities markets makes historical pricing relationships less reliable. Our largest costs of production are corn, natural gas, depreciation and manufacturing chemicals. The cost of corn is largely impacted by geopolitical supply and demand factors and the outcome of our risk management strategies. Prices for natural gas, manufacturing chemicals and denaturant are tied directly to the overall energy sector, crude oil and unleaded gasoline. We market and sell our products primarily in the continental United States using third party marketers. Renewable Products Marketing Group, LLC markets our ethanol. CHS, Inc. markets our dried distillers grains. Meadowland Farmers Co-op supplies our corn.

Effective April 1, 2012, we entered into a the Sixth Amendment of Construction Loan Agreement and the Fifth Amended and Restated Promissory Notes which amended our Construction Loan Agreement originally dated April 24, 2008 with First National Bank of Omaha, as administrative agent and collateral agent (collectively referred to as "FNBO"), and the Fourth Amended and Restated Promissory Notes executed on August 26, 2011. These amendments extend our line of credit until April 1, 2013 and modify the interest rate thereon to the three (3) month LIBOR rate plus 350 basis points with no minimum interest rate.

In November 2011, we signed a non-binding letter of intent with Butamax Advanced Biofuels for the purpose of discussing the possible implementation of biobutanol technology and commercial-scale production of biobutanol at our facility. Management is currently performing its due diligence and working with Butamax Advanced Biofuels to develop a scope of definitive agreements. Management expects to continue to work towards these definitive agreements for approximately the next 3 to 6 months. However, there is no guarantee that definitive agreements to implement biobutanol technology will be executed. If we decide to proceed with biobutanol technology, there is no assurance that there will be a market for biobutanol, that the biobutanol technology as developed by Butamax Advanced Biofuels will be effective or that our Company will be profitable.

There have been some recent developments in legislation that impact the ethanol industry. One such development concerns the Volumetric Ethanol Excise Tax Credit ("VEETC"). VEETC provided a volumetric ethanol excise tax credit of 4.5 cents per gallon of gasoline that contains at least 10% ethanol (total credit of 45 cents per gallon of ethanol blended which is 4.5 divided by the 10% blend). VEETC expired on December 31, 2011. In addition to the expiration of the tax incentives, a 54 cent per gallon tariff imposed on ethanol imported into the United States also expired on December 31, 2011. Management believes that the expiration of VEETC will not have a significant effect on ethanol demand provided gasoline prices remain high and the renewable fuels use requirement of the Federal Renewable Fuels Standard ("RFS") is maintained. The RFS requires that a certain amount of renewable fuels must be used in the United States each year. However, if the RFS is repealed, ethanol demand may be significantly impacted. Recently, there have been proposals in Congress to reduce or eliminate the RFS. Management does not believe that these proposals will be adopted in the near future. However, if the RFS is reduced or eliminated, the market price and demand for ethanol will likely decrease which could negatively impact our financial performance.

Many in the ethanol industry believe that it will be difficult to meet the RFS requirement 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. Most ethanol that is used in the United States is sold in a blend called E10. E10 is a blend of 10% ethanol and 90% gasoline. E10 is approved for use in all standard vehicles. The United States Environmental Protection Agency (the "EPA") has approved 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. However, there were still significant federal and state regulatory hurdles that needed to be addressed. The EPA has made recent gains towards clearing those federal regulatory hurdles. In February 2012, the EPA approved health effects and emissions testing on E15 which was required by the Clean Air Act before E15 can be sold into the market. In March 2012, the EPA approved a model Misfueling Mitigation Plan and fuel survey which must be submitted by applicants before E15 registrations can be approved. Finally, in April 2012, the EPA approved the first E15 registrations approving twenty producers who have successfully registered their product to be used as E15. Although management believes that these developments are significant steps towards introduction of E15 in the marketplace, there are still obstacles to meaningful market penetration by E15. Many states still have regulatory issues that prevent the sale of E15. In addition, sales of E15 may be limited because it is not approved for use in all vehicles, the EPA requires a label that management believes may discourage consumers from using E15, and retailers may choose not to sell E15 due to concerns regarding liability. As a result, management believes that E15 may not have an immediate impact on ethanol demand in the United States.

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The State of Minnesota recently passed the 2012 Omnibus Agriculture Policy bill which extends the start of a mandate for all gasoline blends sold in Minnesota to contain at least 20% ethanol by volume, or the maximum percentage of ethanol by volume allowed by the EPA, to August 30, 2015. The bill also requires certain state agencies to develop recommendations for incorporating biofuels other than ethanol into the mandate.

In late 2009, California passed a Low Carbon Fuels Standard ("LCFS"). The California LCFS requires that renewable fuels used in California must accomplish certain reductions in greenhouse gases which is measured using a lifecycle analysis, similar to the RFS. On December 29, 2011, a federal court in California ruled that the California LCFS was unconstitutional which halted implementation of the California LCFS. However, the California Air Resources Board ("CARB") appealed this court ruling and on April 23, 2012, a federal appellate court in California granted a request to temporarily reinstate the LCFS while the case is on appeal. This decision will allow the CARB to continue implementation of the LCFS which could negatively impact demand for corn-based ethanol and result in decreased ethanol prices.

We expect to fund our operations during the next 12 months using cash flow from our continuing operations and our current credit facilities. However, based on volatility in the cost of corn and potentially tight or even negative margins throughout the period, we may need to seek additional funding.

Results of Operations for the Three Months Ended April 30, 2012 and 2011

The following table shows the results of our operations and the approximate percentage of revenues, costs of goods sold, operating expenses and other items to total revenues in our unaudited statements of operations for the three months ended April 30, 2012 and 2011:

	2012					2011
Income Statement Data	Amount			%		Amount			%
	(unaudited)					(unaudited)
Revenue	$	33,771,321		100.00	%	$	37,394,958		100.00	%
Cost of Goods Sold	34,752,072			102.90	%	34,960,815			93.49	%
Gross Profit (Loss)	(980,751		)	(2.90	)%	2,434,143			6.51	%
Operating Expenses	486,777			1.44	%	471,601			1.26	%
Operating Profit (Loss)	(1,467,528		)	(4.35	)%	1,962,542			5.25	%
Other Expense	(862,748		)	(2.55	)%	(1,125,065		)	(3.01	)%
Net Income (Loss)	$	(2,330,276	)	(6.90	)%	$	837,477		2.24	%

Our revenues are derived from the sale of our ethanol and distillers grains.

The following table shows the sources of our revenue for the three months ended April 30, 2012.

Revenue Sources	Amount (Unaudited)		Percentage of Total Revenues (Unaudited)
Ethanol Sales	$	27,023,106	80.02	%
Modified Distillers grains sales	1,644,606		4.87	%
Dried Distillers grains sales	5,103,609		15.11	%
Total Revenues	$	33,771,321	100.00	%

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The following table shows the sources of our revenue for the three months ended April 30, 2011.

Revenue Sources	Amount (Unaudited)		Percentage of Total Revenues (Unaudited)
Ethanol Sales	$	31,610,932	84.53	%
Modified Distillers grains sales	103,457		0.28	%
Dried Distillers grains sales	5,680,569		15.19	%
Total Revenues	$	37,394,958	100.00	%

Our total revenues were lower for the three month period ended April 30, 2012 compared to the same period in 2011, primarily due to lower prices we received for ethanol.

We experienced a slight decrease in the gallons of ethanol sold in the three month period ended April 30, 2012 as compared to the three month period ended April 30, 2011. The gallons of ethanol we sold during the three month period ended April 30, 2012 decreased by approximately 0.04% as compared to the number of gallons of ethanol we sold for the three months ended April 30, 2011. The average ethanol sales price per gallon we received for the three month period ended April 30, 2012 was approximately 14.46% lower than the average price we received for the same period of 2011.

Management attributes this decrease in the average price we received for our ethanol due to decreased gasoline demand which negatively impacted ethanol demand since ethanol is typically blended with gasoline. In addition, higher ethanol reserves resulted in excess ethanol supply. Management anticipates we will continue to see decreased ethanol prices and volatility throughout our 2012 fiscal year.

Distillers grains represent a larger portion of our revenues during the three months ended April 30, 2012 compared to the same period of 2011. Management believes that this is a result of the higher modified and dried distillers grains prices we received during our second fiscal quarter of 2012 compared to the same period of 2011. For the three months ended April 30, 2012, the average price per ton that we received for our modified distillers grains was approximately 63.47% higher than during the three months ended April 30, 2011. For the three months ended April 30, 2012, the average price per ton that we received for our dried distillers grains was approximately 9.23% higher than the average price we received during the three months ended April 30, 2011. The Company also experienced an increase in the number of tons of modified distillers grains sold of approximately 19,000 tons and a decrease in the number of tons of dried distillers grains sold of approximately 6,000 tons in the first fiscal quarter of 2012 as compared to the same time period of 2011.

Management attributes these higher sales prices it received for its dried distillers grains and its modified distillers grains with higher corn prices which positively impact the market price of distillers grains. Decreased demand from China due to the anti-dumping investigation has not impacted the distillers grains market as much as initially expected due to higher corn prices and increased demand from domestic consumers as well as exports to Mexico. Management anticipates that distillers grains prices will continue to follow corn prices during our 2012 fiscal year, with distillers grains trading closer to the price of corn during the winter months and selling at a greater discount compared to corn during the summer months.

Operating margins were negative during our second fiscal quarter. Management anticipates that our results of operations for our 2012 fiscal year may continue to be affected by volatility in the commodity markets and that negative margins could continue. If plant operating margins remain low or even negative for an extended period of time, management anticipates that this could significantly impact our liquidity, especially if our raw material costs increase. Management believes the industry will need to continue to grow demand and further develop an ethanol distribution system to facilitate additional blending of ethanol and gasoline to offset the increased supply brought to the marketplace by additional production. Management is optimistic that ethanol demand and distribution will expand so long as positive blend economics exist for gasoline refiners and blenders.

Cost of Goods Sold

Our two largest costs of production are corn (83.88% of cost of goods sold for the three months ended April 30, 2012) and natural gas (4.82% of cost of goods sold for the three months ended April 30, 2012).

Our average price per bushel corn for the three months ended April 30, 2012 increased by approximately 1.96% per bushel compared to the same period in 2011. We used 4,539,570 bushels of corn in the three month period ended April 30, 2012 as compared to 4,449,173 bushels for the same period in 2011.

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Management expects that corn prices will remain volatile through the 2012 fiscal year as a result of an increase in demand for corn and limited supply. There is considerable uncertainty regarding corn prices as they can be dramatically affected by many variables such as the weather. High corn prices may have a negative effect on our operating margins unless the price of ethanol and distillers grains outpaces rising corn prices.

In the ordinary course of business, we entered into forward purchase contracts for our commodity purchases. At April 30, 2012, we have forward corn purchase contracts for various delivery periods through June 2012 for approximately 290,000 bushels. We had gains related to corn derivative instruments of approximately $123,000 for the three months ended April 30, 2012, which decreased cost of sales. We had gains related to corn derivative instruments of approximately $556,000 for the three months ended April 30, 2011.

For the three month period ended April 30, 2012, we purchased approximately 315,700 MMBTU's compared to 331,031 MMBTU's for the same period of 2011. Our average price per MMBTU of natural gas was $5.30 for the three month period ended April 30, 2012 compared to $5.17 for the same period of 2011. Management anticipates that natural gas prices will continue at their current levels unless the natural gas industry experiences production problems or if there are large increases in natural gas demand during our 2012 fiscal year.

At April 30, 2012, we have forward natural gas purchase contracts for various delivery periods through March 2013 for approximately $2,405,000. We had losses related to natural gas based derivative instruments of approximately $190,000 for the three months ended April 30, 2012, with no corresponding gains or losses in the same period of 2011.

Operating Expense

We had operating expenses for the three months ended April 30, 2012 of $486,777 as compared to operating expenses of $471,601 for the same period of 2011. Management continues to pursue strategies to optimize efficiencies and maximize production. These efforts may result in a decrease in our operating expenses on a per gallon basis. However, because these expenses do not vary with the level of production at the plant, we expect our operating expenses to remain relatively steady.

Operating Profit (Loss)

We had a loss from operations for the three months ended April 30, 2012 of $1,467,528 which is approximately (4.35)% of our revenues compared to a profit of $1,962,542 which was approximately 5.25% of our revenues for the three months ended April 30, 2011. This decrease in our operating income is primarily due to a decrease in the prices we received for our ethanol.

Other Expense

We had total other expense for the three months ended April 30, 2012 of $862,748 compared to other expense of $1,125,065 for the three months ended April 30, 2011. Our other expense for the three months ended April 30, 2012 consisted primarily of interest expense. The net decrease in other expense is due to a decrease in interest expense resulting from our continuing scheduled payments on our debt and an increase in the gain on derivative instrument for the three months ended April 30, 2012 compared to the same period of 2011.

Results of Operations for the Six Months Ended April 30, 2012 and 2011

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 statement of operations for the six months ended April 30, 2012 and 2011:

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	2012					2011
Income Statement Data	Amount			%		Amount			%
	(unaudited)					(unaudited)
Revenue	$	73,598,897		100.00	%	$	73,664,456		100.00	%
Cost of Goods Sold	72,241,801			98.16	%	69,146,241			93.87	%
Gross Profit	1,357,096			1.84	%	4,518,215			6.13	%
Operating Expenses	1,001,892			1.36	%	908,893			1.23	%
Operating Profit	355,204			0.48	%	3,609,322			4.90	%
Other Expense	(1,719,505		)	(2.34	)%	(1,727,198		)	(2.34	)%
Net Income (Loss)	$	(1,364,301	)	(1.85	)%	$	1,882,124		1.13	%

The following table shows the sources of our revenue for the six months ended April 30, 2012.

Revenue Sources	Amount (Unaudited)		Percentage of Total Revenues (Unaudited)
Ethanol Sales	$	59,592,275	80.97	%
Modified Distillers grains sales	2,780,374		3.78	%
Dried Distillers grains sales	11,226,248		15.25	%
Total Revenues	$	73,598,897	100.00	%

The following table shows the sources of our revenue for the six months ended April 30, 2011.

Revenue Sources	Amount (Unaudited)		Percentage of Total Revenues (Unaudited)
Ethanol Sales	$	62,580,646	84.95	%
Modified Distillers grains sales	212,249		0.29	%
Dried Distillers grains sales	10,871,561		14.76	%
Total Revenues	$	73,664,456	100.00	%

Our total revenues were lower for the six month period ending April 30, 2012 compared to the same period of 2011 primarily due to the lower prices we received for our ethanol.

We experienced a slight decrease in the gallons of ethanol sold in the six month period ended April 30, 2012 as compared to the six month period ended April 30, 2011. The gallons of ethanol we sold during the six month period ended April 30, 2012 decreased by approximately .78% as compared to the number of gallons of ethanol we sold for the six months ended April 30, 2011. The average per gallon ethanol sales price we received for the six month period ended April 30, 2012 was approximately 3.98% lower than the average price we received for the same period of 2011.

Distillers grains represent a larger portion of our revenues during the six months ended April 30, 2012 compared to the same period of 2011. For the six months ended April 30, 2012, the average price per ton that we received for our modified distillers grains was approximately 65.16% higher than during the six months ended April 30, 2011. For the six months ended April 30, 2012, the average price per ton that we received for our dried distillers grains was approximately 21.64% higher than during the six months ended April 30, 2011. The Company also experienced an increase in the number of tons of modified distillers grains sold of approximately 26,547 tons and a decrease in the number of tons of dried distillers grains sold of approximately 10,000 tons in the six months ended April 30, 2012 as compared to the same time period of 2011.

Cost of Goods Sold

Our costs of goods sold as a percentage of revenues were a 98.16% for the six months ended April 30, 2012 compared to 93.87% for the six months ended April 30, 2011. Our two largest costs of production are corn (82.19% of cost of goods sold for the six months ended April 30, 2012) and natural gas (5.18% of cost of goods sold for the six months ended April 30, 2012).

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Our average cost per bushel of corn was approximately 4.98% lower during the first six months of our 2012 fiscal year compared to the same period of 2011. During the six month period ended April 30, 2012, we used approximately 9,533,504 bushels of corn to produce our ethanol and distillers grains as compared to approximately 9,407,010 bushels for the same period in 2011.

We had gains related to corn derivative instruments of approximately $129,000 for the six months ended April 30, 2012, which decreased cost of sales. We had gains related to corn derivative instruments of approximately $612,000 for the six months ended April 30, 2011.

For the six month period ended April 30, 2012, we purchased 664,829 MMBTU's compared to 695,392 MMBTU's for the same period of 2011. Our average price per MMBTU of natural gas was $5.63 for the six month period ended April 30, 2012 compared to $5.36 for the same period of 2011. We had losses related to natural gas based derivative instruments of approximately $418,000 for the six months ended April 30, 2012, with no corresponding gains or losses in the same period of 2011.

Operating Expense

We had operating expense for the six months ended April 30, 2012 of $1,001,892 compared to operating expense of $908,893 for the same period of 2011. We experienced an increase of approximately $93,000 in our operating expenses for the six months ended April 30, 2012, compared to the same period of 2011. Management continues to pursue strategies to optimize efficiencies and maximize production. These efforts may result in a decrease in our operating expenses on a per gallon basis. However, because these expenses do not vary with the level of production at the plant, we expect our operating expenses to remain relatively steady.

Operating Profit

We had operating income for the six months ended April 30, 2012 of $355,204 compared to operating income of $3,609,322 for the same period of 2011. Our income from operations for the six months ended April 30, 2012, was 0.48% of our revenues compared to 4.90% for the same period of 2011. Our operating profit for the six months ended April 30, 2012, was lower due primarily to due to the decrease in the price we received for our ethanol.

Other Expense

We had total other expense (net) for the six months ended April 30, 2012 of $1,719,505 compared to other expense (net) of $1,727,198 for the same period of 2011. Our other expense for the six months ended April 30, 2012, consisted primarily of interest expense offset by derivative instrument gains.

Changes in Financial Condition for the Six Months Ended April 30, 2012

The following table highlights the changes in our financial condition for the six months ended April 30, 2012 from our previous fiscal year ended October 31, 2011:

	April 30, 2012 (Unaudited)		October 31, 2011*
Current Assets	$	12,601,285	$	15,695,180
Current Liabilities	$	5,173,726	$	7,741,800
Long-Term Debt and Liabilities	$	49,936,371	$	50,997,079
Members' Equity	$	49,183,260	$	51,071,799

* Derived from audited financial statements

Current Assets. The decrease in current assets was primarily the result of a decrease in our accounts receivables of $3,889,523 which was offset partially by an increase of $1,261,583 in cash and cash equivalents on April 30, 2012 as compared to October 31, 2011.

Current Liabilities. The decrease was due primarily to a decrease in our accounts payable at April 30, 2012 as compared to October 31, 2011 and a decrease in our current maturities of long-term debt as a result of our making payments against the outstanding principal balance of our loans with FNBO.

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Long-term Debt and Liabilities. Long-term debt decreased from $50,997,079 at October 31, 2011 to $49,936,371 at April 30, 2012, primarily because we continue to pay down our loans with FNBO.

Liquidity and Capital Resources

Based on financial forecasts performed by our management, we anticipate that we will have sufficient cash from our current credit facilities and cash from our operations to continue to operate the ethanol plant at capacity for the next 12 months. We do not currently anticipate seeking additional equity or debt financing in the near term. However, operating margins have narrowed and are expected to remain tight or non-existent through the end of our fiscal year. Should we experience unfavorable operating conditions in the future, we may have to secure additional debt or equity financing for working capital or other purposes.

We completed upgrades to the Company's Reverse Osmosis (RO) equipment and system during our second fiscal quarter. The cost for upgrading the RO system was approximately $267,000 and was funded from our operations. We also have construction in progress of approximately $114,000 at April 30, 2012 for maintenance and lime cake buildings which is expected to amount to approximately $350,000 and will be funded from operations. We do not currently anticipate any significant purchases of property and equipment that would require us to secure additional capital resources in the next 12 months.

The following table shows cash flows for the six months ended April 30, 2012 and 2011:

	Six Months Ended April 30
	2012	2011
	(unaudited)	(unaudited)
Net cash provided by operating activities	$5,182,921	$6,360,476
Net cash used in investing activities	(697,237)	(632,553)
Net cash used in financing activities	(3,224,101)	(5,015,231)

Cash Flow From Operations

We experienced a decrease of approximately $1,178,000 in our cash provided by operating activities for the six month period ended April 30, 2012, compared to the same period in 2011. This decrease was due to a net loss primarily driven by decreased prices for ethanol during the 2012 period. During the six months ended April 30, 2012, our capital needs were being adequately met through cash from our operating activities and our credit facilities.

Cash Flow From Investing Activities

We used approximately $65,000 more net cash for investing activities for the six month period ended April 30, 2012, as compared to the same period in 2011. This increase was primarily due to an increase in capital expenditures during the six months ended April 30, 2012.

Cash Flow From Financing Activities

We used approximately $1,791,000 less net cash for financing activities during the six months ended April 30, 2012 as compared to the same period in 2011. This decrease was primarily a result of a decrease in the amount we paid to FNBO towards the principal balance on our loans during the six months ended April 30, 2012 as compared to the same period in 2011. In addition, we paid a distribution in the amount of $500,000 to our members during the six months ended April 30, 2012.

Short-Term and Long-Term Debt Sources

On April 24, 2008, we entered into a Construction Loan Agreement (the “Agreement”) with FNBO for the purpose of funding a portion of the cost of the ethanol plant. With construction complete and the ethanol plant commencing operations, the construction loan converted to a $25,200,000 Fixed Rate Note, a $20,200,000 Variable Rate Note, a $5,000,000 Long-Term Revolving Note, a $5,000,000 line of credit and $5,600,000 to support the issuance of letters of credit by FNBO. As of April 30, 2012, the Company had $3,500,000 in letters of credit outstanding.

Fixed Rate Note

The Fixed Rate Note was initially for $25,200,000 with a variable interest rate that is fixed with an interest rate swap. We make monthly principal payments on the Fixed Rate Note for approximately $157,000 plus accrued interest. Interest will

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accrue on the Fixed Rate Note at the greater of the one-month LIBOR Rate, in effect from time to time, plus 300 basis points or 4%. The applicable interest rate was 4% at April 30, 2012. However, the Company entered into an interest rate swap agreement with FNBO, which fixes the interest rate on the Fixed Rate Note at 7.6% until June 2014. The outstanding balance on this note was approximately $21,246,000 and $22,209,000 at April 30, 2012 and October 31, 2011, respectively. A final balloon payment on the Fixed Rate Note of approximately $15,196,000 will be due February 26, 2015.

Variable Rate Note

The Variable Rate Note was initially for $20,200,000. We make monthly interest only payments and we will remit quarterly excess cash flow payments to FNBO which will be applied first to interest and then to principal on the Variable Rate Note with a minimum annual principal reduction of $750,000. The minimum annual principal reduction of $750,000 has already been paid at the time of filing. The outstanding balance on this note was approximately $15,567,000 and $17,327,000 at April 30, 2012 and October 31, 2011, respectively.

Interest will accrue on the Variable Rate Note at the greater of the one-month LIBOR rate plus 350 basis points or 5%. The applicable interest rate at April 30, 2012, was 5%. A final balloon payment of approximately $12,567,000 will be due February 26, 2015.

Long-term Revolving Note

The Long-term Revolving Note was initially $5,000,000. The Company was required to make a $750,000 principal repayment on the Long-term Revolving Note prior to February 2012 and reduce the outstanding principal balance to zero as pf February 2013. FNBO has no obligation to advance any additional funds and will only advance such sums as approved in its sole discretion. The Long-term Revolving Note accrues interest monthly at the greater of the one-month LIBOR plus 350 basis points, or 4%. The applicable interest rate at April 30, 2012 was 4%. The payment to reduce the balance to zero was made in September 2011. The outstanding balance on this note was $0 at April 30, 2012 and October 31, 2011, respectively.

Line of Credit

The Company has a line of credit available equal to the amount of the Company's Borrowing Base, with a maximum limit of $5,000,000. The Company's Borrowing Base will vary and may at times be less than $5,000,000. Effective April 1, 2012, we entered into the Sixth Amendment of Construction Loan Agreement and the Fifth Amended and Restated Promissory Notes which extended our line of credit until April 1, 2013 and modified the interest rate thereon to the three (3) month LIBOR rate plus 350 basis points with no minimum interest rate, which was 3.97% at April 30, 2012. The line of credit requires monthly interest payments. As of April 30, 2012, the Company had not drawn on the line of credit and the Company had maximum availability of $5,000,000 under the line of credit at April 30, 2012.

Covenants and other Miscellaneous Financing Agreement Terms

The loan agreements are subject to various financial and non-financial covenants that limit distributions and debt and require minimum debt service coverage, net worth, and working capital requirements. We are currently in compliance with our loan covenants and anticipate being in compliance with these covenants through April 30, 2013. Additionally, we are limited to annual capital expenditures of $1,000,000 without prior approval of FNBO. We will also be prohibited from making distributions to our members without the prior approval of FNBO. In connection with the bank financing agreement, we executed a mortgage in favor of FNBO creating a first lien on our real estate and plant and a security interest in all personal property located on the property and assigned in favor of FNBO, all rents and leases to our property, our marketing contracts, our risk management services contract, and our natural gas, electricity, water service and grain procurement agreements.

We will continue to work with our lenders to try to ensure that the terms of our loan agreements are met going forward. However, we cannot provide any assurance that our actions will result in sustained profitable operations or that we will not be in violation of our loan covenants or in default on our principal payments in the future. Presently, we are meeting our liquidity needs and complying with our financial covenants and the other terms of our loan agreements as modified. Should unfavorable market conditions result in our violation of the terms or covenants of our loan and we fail to obtain a waiver of any such term or covenant, our primary lender could deem us in default of our loans and require us to immediately repay a significant portion or possibly the entire outstanding balance of our loans. In the event of a default, our lender could also elect to proceed with a foreclosure action on our plant.

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Capital Lease

On April 24, 2008, we entered into certain financing and credit arrangements with U.S. Bank National Association, as trustee (the “Trustee”) and the City of Lamberton, Minnesota (the “City”) in order to secure the proceeds from the sale of the solid waste facilities revenue bonds, Series 2008A (the “Bonds”) issued by the City in the aggregate principal amount of $15,180,000 pursuant to a trust indenture between the City and the Trustee (“Trust Indenture”). The City has undertaken the issuance of the Bonds to finance the acquisition and installation of certain solid waste facilities in connection with our ethanol plant to be located near Lamberton, Minnesota. Highwater received proceeds of approximately $14,876,000, after financing costs of approximately $304,000. The remaining proceeds were held as restricted cash or marketable securities based on anticipated use and are split between a project fund of approximately $11,527,000, a capitalized interest fund of approximately $1,831,000, and a debt service reserve fund of approximately $1,518,000. The Bonds mature on December 1, 2022 and bear interest at a rate of 8.5%.

Under this equipment lease agreement with the City, we started making interest payments on November 25, 2008 and monthly thereafter at an implicit interest rate of 8.5%. The monthly capital lease interest payments correspond to 1/6 the semi-annual interest payments due on the Bonds on the next interest payment date. Monthly capital lease payments for principal were originally scheduled to begin on November 25, 2009; however, the City amended the agreement in September 2008 which adjusted the start date for principal payments to begin on November 25, 2014. These payments will equal 1/12 the annual principal payments scheduled to become due on the corresponding bonds on the next principal payment date.

The Company has guaranteed that if such assessed lease payments are not sufficient for the required bond payments, the Company will provide such funds as are needed to fund the shortfall. The lease agreement is secured by substantially all business assets of the Company and is also subject to various financial and non-financial covenants that limit distributions and leverage and require minimum debt service coverage, net worth, and working-capital requirements.

Compliance with Environmental Law

We are subject to extensive air, water and other environmental regulations and we were required to obtain a number of environmental permits to construct and operate the plant. 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. Additionally, any changes that are made to the ethanol plant or its operations must be reviewed to determine if amended permits need to be obtained in order to implement these changes.

The National Pollutant Discharge Elimination System/State Disposal System (NPDES/SDS) permit, which regulates the water treatment, water disposal and stormwater systems at the facility, requires renewal every five years. We submitted a renewal application to the Minnesota Pollution Control Agency (“MPCA”) in 2011 and the NPDES/SDS permit was approved and signed by MPCA on November 9, 2011. Our NPDES/SDS permit is valid until October 31, 2016. The air emissions permit was approved by MPCA on February 14, 2012. The updated air emissions permit allows us to produce 58 million gallons per year of undenatured ethanol or 59.5 million gallons per year denatured ethanol.

Contracting Activity

Renewable Products Marketing Group, LLC markets our ethanol. Meadowland Farmers Co-op supplies our corn. CHS, Inc. markets our dried distillers grains. Each of these contracts is critical to our success and we are very dependent on each of these companies. Accordingly, the financial stability of these partners is critical to the successful operation of our business.

Butamax Advanced Biofuels

In November 2011, we signed a non-binding letter of intent with Butamax Advanced Biofuels for the purpose of discussing the possible implementation of biobutanol technology and commercial-scale production of biobutanol at our facility. Management is currently performing its due diligence and working with Butamax Advanced Biofuels to develop a scope of definitive agreements. However, there is no guarantee that definitive agreements to implement biobutanol technology will be executed.

Distribution

On March 1, 2012, the board of governors approved a distribution of $100.95 per unit for members of record as of that date. The distribution was paid in March 2012.

23

Critical Accounting Estimates

Management uses various estimates and assumptions in preparing our financial statements in accordance with generally accepted accounting principles.  These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Our most critical accounting estimates, which require the greatest use of judgment by management, are designated as critical accounting estimates and include policies related to the carrying value of long-lived assets, inventory valuation and derivatives. An in-depth description of these can be found in our Annual Report on Form 10-K for the fiscal year ended October 31, 2011. Management has not changed the method of calculating and using estimates and assumptions in preparing our condensed financial statements in accordance with generally accepted accounting principles. There have been no changes in the policies for our accounting estimates for the quarter ended April 30, 2012.

We are exposed to the impact of market fluctuations associated with interest rates and commodity prices as discussed below. We use derivative financial instruments as part of an overall strategy to attempt to manage market risk.

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from holding a revolving line of credit and term loans which bear variable interest rates. We manage our floating rate debt using an interest rate swap. We entered into a fixed rate swap to alter our exposure to the impact of changing interest rates on our results of operations and future cash outflows for interest. We use the interest rate swap contract to separate interest rate risk management from the debt funding decision. As of April 30, 2012, our interest rate swap had a liability fair value of $1,573,292.

We expect to be exposed to market risk from changes in commodity prices. Exposure to commodity price risk results from our dependence on corn in the ethanol production process and the sale of ethanol. 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. 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.

For the three and six months ended April 30, 2012, we recorded a loss due to the change in fair value of our outstanding natural gas derivative positions of approximately $190,000 and $418,000, respectively. We recorded gains due to changes in the fair value of our outstanding corn derivative positions for the three and six months ended April 30, 2012 of approximately $123,000 and $129,000, respectively. We also recorded gains due to changes in the fair value of our interest rate swap for the three and six months ended April 30, 2012 of approximately $206,000 and $365,000, respectively.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Pursuant to the Instructions to Item 305(c) of Regulation S-K we are not required to provide information under this item.

Item 4.  Controls and Procedures

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

Our management, including our Chief Executive Officer (the principal executive officer), Brian Kletscher, along with our Chief Financial Officer (the principal financial officer), Mark Peterson, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of April 30, 2012. Based upon this review and evaluation, these officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission; and to ensure that the information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management including

24

our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

Our management, including our principal executive officer and principal financial officer, have reviewed and evaluated any changes in our internal control over financial reporting that occurred during the quarter ended April 30, 2012 and there has been no change that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

There have been no material changes in the risks that we face since the date when we filed our Annual Report on Form 10-K.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures.

None.

Item 5.Other Information

None.

25

Item 6. Exhibits.

(a) The following exhibits are filed as part of this report.

Exhibit No.	Exhibit
10.1	Fifth Amended and Restated Revolving Promissory Note between First National Bank of Omaha and Highwater Ethanol, LLC dated April 1, 2012.
10.2	Fifth Amended and Restated Revolving Promissory Note between First National Bank of Omaha and Highwater Ethanol, LLC dated April 1, 2012.
10.3	Sixth Amendment of Construction Loan Agreement between First National Bank of Omaha and Highwater Ethanol, LLC dated April 1, 2012.
31.1	Certificate Pursuant to 17 CFR 240.13a-14(a)*
31.2	Certificate Pursuant to 17 CFR 240.13a-14(a)*
32.1	Certificate Pursuant to 18 U.S.C. Section 1350*
32.2	Certificate Pursuant to 18 U.S.C. Section 1350*
101	The following financial information from Highwater Ethanol, LLC's Quarterly Report on Form 10-Q for the quarter ended April 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of April 30, 2012 and October 31, 2011, (ii) Condensed Statements of Operations for the three and six months ended April 30, 2012 and 2011, (iii) Condensed Statements of Cash Flows for the six months ended April 30, 2012 and 2011, and (iv) the Notes to Condensed Financial Statements.**

* Filed herewith.

** Furnished herewith.

SIGNATURES

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

		HIGHWATER ETHANOL, LLC
Date:	June 12, 2012	/s/ Brian Kletscher
		Brian Kletscher
		Chief Executive Officer
		(Principal Executive Officer)
Date:	June 12, 2012	/s/ Mark Peterson
		Mark Peterson
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

26

EX-10.1

FIFTH AMENDED AND RESTATED REVOLVING PROMISSORY NOTE

Omaha, Nebraska                                     $1,000,000.00

Note Date: April 1, 2012

Maturity Date: April 1, 2013

On or before April 1, 2013, HIGHWATER ETHANOL, LLC ("BORROWER"), promises to pay to the order of First Bank & Trust ("BANK") in care of FIRST NATIONAL BANK OF OMAHA at its headquarters in Omaha, Nebraska and in its capacity as the ADMINISTRATIVE AGENT for the BANKS under the AGREEMENT (as defined below), the principal sum hereof, which shall be One Million and No/100 Dollars ($1,000,000.00) or so much thereof as may have been advanced by BANK and shown on the records of the ADMINISTRATIVE AGENT to be outstanding under this FIFTH AMENDED AND RESTATED REVOLVING PROMISSORY NOTE ("REVOLVING PROMISSORY NOTE"). Interest on the principal balance from time to time outstanding will accrue at the rate provided for in the AGREEMENT, adjusting as provided for in the AGREEMENT. This REVOLVING PROMISSORY NOTE amends and restates that certain FOURTH AMENDED AND RESTATED REVOLVING PROMISSORY NOTE dated August 26, 2011 executed in favor of and delivered to BANK, but is not a novation thereof. Interest shall be calculated on the basis of a 360-day year, counting the actual number of days elapsed. Interest on the REVOLVING LOAN shall be payable monthly, in arrears.

The interest rate applicable to this REVOLVING NOTE is subject to reduction as provided for in Section 2.15 of the AGREEMENT.

This REVOLVING PROMISSORY NOTE is executed pursuant to that certain Construction Loan Agreement dated April 24, 2008 between BANKS and BORROWER (the Construction Loan Agreement, together with all amendments, modifications and supplements thereto and all restatements and replacements thereof is called the ("AGREEMENT"). The AGREEMENT, and any amendments or substitutions thereof or thereto, contains additional terms and conditions, including default and acceleration provisions, which are incorporated into this REVOLVING PROMISSORY NOTE by reference. All capitalized terms not otherwise defined herein shall have the same meanings as set forth in the AGREEMENT.

The aggregate unpaid principal amount hereof plus interest shall become immediately due and payable without demand or further action on the part of the ADMINISTRATIVE AGENT or BANK upon the occurrence of an EVENT OF DEFAULT as set forth under the AGREEMENT or any other LOAN DOCUMENT. If the maturity date of this REVOLVING PROMISSORY NOTE is accelerated as a consequence of an EVENT OF DEFAULT, then the AGENT shall have all the rights and remedies provided for in the AGREEMENT, the other LOAN DOCUMENTS or otherwise available at law or in equity. The rights, powers, privileges, options and remedies of AGENT provided in the AGREEMENT, the other LOAN DOCUMENTS or otherwise available at law or in equity shall be cumulative and concurrent,

and may be pursued singly, successively or together at the sole discretion of AGENT, and may be exercised as often as occasion therefor shall occur. No delay or discontinuance in the exercise of any right, power, privilege, option or remedy shall be deemed a waiver of such right, power, privilege, option or remedy, nor shall the exercise of any right, power, privilege, option or remedy be deemed an election of remedies or a waiver of any other right, power, privilege, option or remedy. Without limiting the generality of the foregoing, the ADMINISTRATIVE AGENT's waiver of an EVENT OF DEFAULT shall not constitute a waiver of acceleration in connection with any future EVENT OF DEFAULT. The ADMINISTRATIVE AGENT may rescind any acceleration of this REVOLVING PROMISSORY NOTE without in any way waiving or affecting any acceleration of this REVOLVING PROMISSORY NOTE in the future as a consequence of an EVENT OF DEFAULT. The ADMINISTRATIVE AGENT's acceptance of partial payment or partial performance shall not in any way affect or rescind any acceleration of this REVOLVING PROMISSORY NOTE made

by the ADMINISTRATIVE AGENT.

Unless prohibited by law, BORROWER will pay on demand all reasonable costs of collection, reasonable legal expenses and reasonable attorneys' fees and costs incurred or paid by BANK in collecting and/or enforcing this REVOLVING PROMISSORY NOTE. Furthermore, BANK reserves the right to offset without notice all funds held by BANK against debts owing to BANK by BORROWER.

All makers and endorsers hereby waive presentment, demand, protest and notice of dishonor, consent to any number of extensions and renewals for any period without notice; and consent to any substitution, exchange or release of collateral, and to the addition or releases of any other party primarily or secondarily liable.

[SIGNATURE PAGE FOLLOWS]

Executed as of the Note Date set forth above.

HIGHWATER ETHANOL, LLC, a

Minnesota limited liability company

By: /s/ Brian Kletscher

Brian Kletscher, Chief Executive

Officer/General Manager

EX-10.2

FIFTH AMENDED AND RESTATED REVOLVING PROMISSORY NOTE

Omaha, Nebraska$4,000,000.00

Note Date: April 1, 2012

Maturity Date: April 1, 2013

On or before April 1, 2013, HIGHWATER ETHANOL, LLC ("BORROWER"), promises to pay to the order of FIRST NATIONAL BANK OF OMAHA ("BANK") at its headquarters in Omaha, Nebraska the principal sum hereof, which shall be Four Million and No/100 Dollars ($4,000,000.00) or so much thereof as may have been advanced by BANK and shown on the records of BANK to be outstanding under this FIFTH AMENDED AND RESTATED REVOLVING PROMISSORY NOTE ("REVOLVING PROMISSORY NOTE") and the AGREEMENT (as defined below). This REVOLVING PROMISSORY NOTE amends and restates that certain FOURTH AMENDED AND RESTATED REVOLVING PROMISSORY NOTE dated August 26, 2011 executed in favor of and delivered to BANK, but is not a novation thereof. Interest on the principal balance from time to time outstanding will accrue at the rate provided for in the AGREEMENT, adjusting as provided for in the AGREEMENT. Interest shall be calculated on the basis of a 360-day year, counting the actual number of days elapsed. Interest on the REVOLVING LOAN shall be payable monthly, in arrears.

The interest rate applicable to this REVOLVING NOTE is subject to reduction as provided for in Section 2.15 of the AGREEMENT.

This REVOLVING PROMISSORY NOTE is executed pursuant to that certain Construction Loan Agreement dated April 24, 2008 between BANKS and BORROWER (the Construction Loan Agreement, together with all amendments, modifications and supplements thereto and all restatements and replacements thereof is called the ("AGREEMENT"). The AGREEMENT, and any amendments or substitutions thereof or thereto, contains additional terms and conditions, including default and acceleration provisions, which are incorporated into this REVOLVING PROMISSORY NOTE by reference. All capitalized terms not otherwise defined herein shall have the same meanings as set forth in the AGREEMENT.

The aggregate unpaid principal amount hereof plus interest shall become immediately due and payable without demand or further action on the part of BANK upon the occurrence of an EVENT OF DEFAULT as set forth under the AGREEMENT or any other LOAN DOCUMENT. If the maturity date of this REVOLVING PROMISSORY NOTE is accelerated as a consequence of an EVENT OF DEFAULT, then BANK shall have all the rights and remedies provided for in the AGREEMENT, the other LOAN DOCUMENTS or otherwise available at law or in equity. The rights, powers, privileges, options and remedies of BANK provided in the AGREEMENT, the other LOAN DOCUMENTS or otherwise available at law or in equity shall be cumulative and concurrent, and may be pursued singly, successively or together at the sole discretion of BANK, and may be exercised as often as occasion therefor shall occur. No delay or discontinuance in the exercise of any right, power, privilege, option or remedy shall be deemed a waiver of such right, power, privilege, option or remedy, nor shall the exercise of any right, power, privilege, option or remedy be deemed an election of remedies or a waiver of any other right, power, privilege, option or remedy. Without limiting the generality of the foregoing, BANK's waiver of an EVENT OF DEFAULT shall not constitute a waiver of acceleration in connection with any future EVENT OF DEFAULT. BANK may rescind any acceleration of this REVOLVING PROMISSORY NOTE without in any way waiving or affecting any acceleration of this REVOLVING PROMISSORY NOTE in the future as a consequence of an EVENT OF DEFAULT. BANK's acceptance of partial payment or partial performance shall not in any way affect or rescind any acceleration of this REVOLVING PROMISSORY NOTE made by BANK.

Unless prohibited by law, BORROWER will pay on demand all reasonable costs of collection, reasonable legal expenses and reasonable attorneys' fees and costs incurred or paid by BANK in collecting and/or enforcing this REVOLVING PROMISSORY NOTE. Furthermore, BANK reserves the right to offset without notice all funds held by BANK against debts owing to BANK by BORROWER.

All makers and endorsers hereby waive presentment, demand, protest and notice of dishonor, consent to any number of extensions and renewals for any period without notice; and consent to any substitution, exchange or release of collateral, and to the addition or releases of any other party primarily or secondarily liable.

[SIGNATURE PAGE FOLLOWS]

Executed as of the Note Date set forth above.

HIGHWATER ETHANOL, LLC, a

Minnesota limited liability company

By: /s/ Brian Kletscher

Brian Kletscher, Chief Executive

Officer/General Manager

EX-10.3

SIXTH AMENDMENT OF

CONSTRUCTION LOAN AGREEMENT

THIS SIXTH AMENDMENT OF CONSTRUCTION LOAN AGREEMENT ("Amendment") is made this 1^st day of April, 2012 between FIRST NATIONAL BANK OF OMAHA, a national banking association as a Bank and as the Administrative Agent and Collateral Agent for the Banks (in such capacities, "Bank"), the other Banks a party to the Loan Agreement referenced below and HIGHWATER ETHANOL, LLC, a Minnesota limited liability company ("Borrower"). This Amendment amends that certain Construction Loan Agreement dated April 24, 2008 between Bank, Banks and Borrower ("Loan Agreement").

WHEREAS, pursuant to the Loan Agreement and the other Loan Documents, the Banks extended the Construction Loan, Revolving Loan and other financial accommodations and extensions of credit described in the Loan Agreement to Borrower, all as more fully described in the Loan Agreement;

WHEREAS, pursuant to that certain First Amendment of Construction Loan Agreement dated August 11, 2009, the Loan Termination Date applicable to the Revolving Promissory Note was extended to February 28, 2010, the interest rate applicable to the Revolving Loan was modified and the Loan Agreement was otherwise amended as provided for therein;

WHEREAS, pursuant to that certain Second Amendment of Construction Loan Agreement dated February 26, 2010, the Loan Termination Date of the Revolving Promissory Notes was extended to February 26, 2011 and the Loan Agreement was otherwise amended as provided for therein;

WHEREAS, pursuant to that certain Third Amendment of Construction Loan Agreement dated January 31, 2011, a portion of the Long Term Revolving Loan was converted to a debt service reserve, the repayment provisions applicable to the Variable Rate Loan were modified, the financial covenants were modified, the minimum interest rate applicable to the Variable Rate Loan was modified and the Loan Agreement was otherwise amended as provided for therein;

WHEREAS, pursuant to that certain Fourth Amendment of Construction Loan Agreement dated February 26, 2011, the Loan Termination Date applicable to the Revolving Loan was extended to August 28, 2011, the Commitments of the Banks with a Revolving Loan Commitment was modified and the Loan Agreement was otherwise amended as provided for therein;

WHEREAS, pursuant to that certain Fifth Amendment of Construction Loan Agreement dated August 26, 2011, the Loan Termination Date of the Revolving Loan was extended to April 1, 2012, the Revolving Loan Commitments of the Banks were re-allocated and the Loan Agreement was otherwise amended as provided for therein;

WHEREAS, the Borrower has requested and under the terms of this Amendment the Banks have agreed, to extend the Loan Termination Date of the Revolving Loan to April 1, 2013, to modify the interest rate charged on the Revolving Loan (including the deletion of the minimum interest rate applicable to the Revolving Loan) and to otherwise amend the Loan Agreement as provided for in this Amendment; and

WHEREAS, the parties hereto agree to amend the Loan Agreement as provided for in this Amendment.

NOW, THEREFORE, in consideration of the mutual covenants herein and other good and valuable consideration, the sufficiency and receipt of which is hereby acknowledged, the parties agree to amend the Loan Agreement as follows:

1.Capitalized terms used herein shall have the meaning given to such terms in the Loan Agreement, unless specifically defined herein.

2.Section 132 of the Loan Agreement is hereby amended to delete the reference to April 1, 2012 as the Loan Termination Date of the Revolving Promissory Notes executed and delivered by Borrower in favor of each Bank with a Revolving Loan Commitment and inserting in lieu thereof April 1, 2013. To further evidence such extension, Borrower shall execute in favor of each Bank with a Revolving Loan Commitment and deliver to Bank a Fifth Amended and Restated Revolving Promissory Notes dated of even date with this Amendment. From and after the date of this Amendment, any reference to the Revolving Notes in the Loan Agreement and the other Loan Documents shall be amended to refer to such Fifth Amended and Restated Revolving Promissory. Notes.

3.Section 2.10 of the Loan Agreement is hereby deleted in its entirety and the following is inserted in lieu thereof:

2.10INTEREST ON THE REVOLVING NOTES. Prior to maturity and subject to the incentive pricing provisions contained in Section 2.15 of this AGREEMENT, the interest rate on the REVOLVING LOAN is subject to change from time to time based on changes in the Three (3) Month LIBOR RATE. The LIBOR RATE will be adjusted and determined without notice to BORROWER as set forth herein, as of the date of the REVOLVING NOTES and on the first (1st) day of each calendar month hereafter ("Interest Rate Change Date") to the Three (3) Month LIBOR RATE which is published in The Wall Street Journal as the reported rate for the date that is two London Banking Days prior to each Interest Rate Change Date; the published LIBOR RATE will be rounded upwards to the next higher one one hundredth (1/100th) of one percent (1%). The interest rate change will not occur more often than each month on the first (1^st)day of each month. The Index currently is 0.47 % per annum. The interest rate to be applied to the unpaid principal balance of the REVOLVING LOAN will be calculated using a rate of 3.5 percentage points over the Index, adjusted if necessary for any maximum rate limitations described below, resulting in an initial rate of 3.97% per annum based on a year of 360 days. NOTICE: Under no circumstances will the interest rate on the REVOLVING LOAN be more than the maximum rate allowed by applicable law. Interest on the REVOLVING LOAN shall be payable monthly, in arrears, on the first day of each month. Upon or after the occurrence and during the continuation of any EVENT OF DEFAULT or after the LOAN TERMINATION DATE applicable to the REVOLVING LOAN, the principal amount of the REVOLVING LOAN shall bear interest at a rate per annum equal to six percent (6%) above the interest rate that would otherwise apply under this Section 2.10.

4.Section 2.15 of the Loan Agreement is hereby deleted in its entirety and the following is inserted in lieu thereof:

2.15     Incentive Pricing.    The interest rate applicable to the REVOLVING LOAN, VARIABLE RATE NOTES and the LONG TERM REVOLVING LOAN is subject to reduction commencing six months subsequent to CONSTRUCTION LOAN TERMINATION DATE, based on the most recent interim financial statements delivered by or on behalf of BORROWER to ADMINISTRATIVE AGENT; provided, however, that in no event shall the interest rate be less than 5% with respect to the VARIABLE RATE NOTES and the LONG TERM REVOLVING LOAN. In the event that BORROWER maintains the following ratios, measured quarterly, the interest rate will be reduced accordingly:

If INDEBTEDNESS to NET WORTH is less than:	Interest rate will be:
1.25 : 1.00	The one month LIBOR RATE plus 350 basis points with respect to the VARIABLE RATE NOTES and the LONG TERM REVOLVING NOTE provided that the interest rate on the VARIABLE RATE NOTES and the LONG TERM REVOLVING LOAN will not be less than 5%, and with respect to the REVOLVING LOAN, the 90 day LIBOR RATE plus [450] basis points
1.05 : 1.00	The one month LIBOR RATE plus 325 basis points with respect to the VARIABLE RATE NOTES and the LONG TERM REVOLVING LOAN provided that the interest rate on the VARIABLE RATE NOTES and the LONG TERM REVOLVING LOAN will note be less than 5%, and with respect to the REVOLVING LOAN, the 90 day LIBOR RATE plus [425] basis points
0.85 : 1.00	The one month LIBOR RATE plus 300 basis points with respect to the VARIABLE RATE NOTES and the LONG TERM REVOLVING LOAN provided that the interest rate on the VARIABLE RATE NOTES and the LONG TERM REVOLVING LOAN will note be less than 5%, and with respect to the REVOLVING LOAN, the 90 day LIBOR RATE plus [400] basis points
0.65 : 1.00	The one month LIBOR RATE plus 275 basis points with respect to the VARIABLE RATE NOTES and the LONG TERM REVOLVING LOAN provided that the interest rate on the VARIABLE RATE NOTES and the LONG TERM REVOLVING LOAN will note be less than 5%, and with respect to the REVOLVING LOAN, the 90 day LIBOR RATE plus [375] basis points

5.    Except as modified and amended herein, all other terms, provisions, conditions and obligations imposed under the terms of the Loan Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and affirmed by Borrower. To the extent necessary, the provisions of the Loan Agreement and the other Loan Documents are hereby amended to be consistent with the terms of this Amendment. The modifications and amendments contained in this Amendment will become effective on the date of this Amendment except as otherwise specifically provided for above.

6.    Borrower certifies and reaffirms by its execution hereof that the representations and warranties set forth in the Loan Agreement and the other Loan Documents are true as of this date, and that no Event of Default under the Loan Agreement or any other Loan Document, and no event which, with the giving of notices or passage of time or both, would become such an Event of Default, has occurred as of execution hereof.

7.    This Amendment may be executed simultaneously in several counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument.

8.    Borrower will comply with all terms and conditions of this Amendment and any other documents executed pursuant hereto and will, when requested by Bank execute and deliver such further documents and instruments necessary to consummate the transactions contemplated hereby and shall take such other actions as may be reasonably required or appropriate to evidence or carry out the intent and purposes of this

Amendment or to show the ability to carry out the intent and purposes of this Amendment.

[SIGNATURE PAGES FOLLOW]

IN WITNESS WHEREOF, the parties have executed and delivered this Amendment on the date first written above.

HIGHWATER ETHANOL, LLC

By: /s/ Brian Kletscher

Brian Kletscher, Chief Executive

Officer/General Manager

FIRST NATIONAL BANK OF OMAHA,

in its capacity as a BANK,

ADMINISTRATIVE AGENT AND

COLLATERAL AGENT

By: /s/ Jeremy Reineke

Jeremy Reineke, Vice President

EX-31.1

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

(SECTION 302 CERTIFICATION)

I, Brian Kletscher, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Highwater Ethanol, LLC;

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

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

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

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

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

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

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

5. The registrant's other certifying 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:	June 12, 2012	/s/ Brian Kletscher
		Brian Kletscher, Chief Executive Officer (Principal Executive Officer)

EX-31.2

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

(SECTION 302 CERTIFICATION)

I, Mark Peterson, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Highwater Ethanol, LLC;

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

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

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

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

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

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

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

5. The registrant's other certifying 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:	June 12, 2012	/s/ Mark Peterson
		Mark Peterson, Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

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

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

In connection with the quarterly report on Form 10-Q of Highwater Ethanol, LLC (the “Company”) for the quarter ended April 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian Kletscher, 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.

/s/ Brian Kletscher
Brian Kletscher, Chief Executive Officer
Dated:	June 12, 2012

EX-32.2

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

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

In connection with the quarterly report on Form 10-Q of Highwater Ethanol, LLC (the “Company”) for the quarter ended April 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark Peterson, 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.

/s/ Mark Peterson
Mark Peterson, Chief Financial Officer
Dated:	June 12, 2012

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Fair Value Measurements

6 Months Ended

Apr. 30, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

The following table provides information on those assets measured at fair value on a recurring basis.

	Fair Value as of			Fair Value Measurement Using
	April 30, 2012			Level 1		Level 2			Level 3
Restricted marketable securities - current	$	42,081		$	42,081	$	—		$	—
Restricted marketable securities - long-term	$	1,518,000		$	1,518,000	$	—		$	—
Derivative instrument - interest rate swap	$	(1,573,292	)	$	—	$	(1,573,292	)	$	—

	Fair Value as of			Fair Value Measurement Using
	October 31, 2011			Level 1			Level 2			Level 3
Restricted marketable securities - current	$	66,319		$	66,319		$	—		$	—
Restricted marketable securities - long-term	$	1,518,000		$	1,518,000		$	—		$	—
Derivative instrument - interest rate swap	$	(1,938,496	)	$	—		$	(1,938,496	)	$	—
Derivative instrument - corn contracts	$	(200,812	)	$	(200,812	)	$	—		$	—

The fair value of restricted marketable securities, which is a municipal debt obligation, is based on quoted market prices in an active market. The Company determined the fair value of the interest rate swap by using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each instrument and observable market-based inputs. The analysis reflects the contractual terms of the swap agreement, including the period to maturity and uses observable market-based inputs and uses the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The Company determines the fair value of the corn contracts by obtaining the fair value measurements from an independent pricing service based on dealer quotes and live trading levels from the Chicago Board of Trade.

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Uncertainties

6 Months Ended

Apr. 30, 2012

Uncertainties [Abstract]

Uncertainties

UNCERTAINTIES

The Company derives substantially all of its revenues from the sale of ethanol and distillers grains. These products are commodities and the market prices for these products display substantial volatility and are subject to a number of factors which are beyond the control of the Company. The Company's most significant manufacturing inputs are corn and natural gas. The price of these commodities is also subject to substantial volatility and uncontrollable market factors. In addition, these input costs do not necessarily fluctuate with the market prices for ethanol and distillers grains. As a result, the Company is subject to significant risk that its operating margins can be reduced or eliminated due to the relative movements in the market prices of its products and major manufacturing inputs. As a result, market fluctuations in the price of or demand for these commodities can have a significant adverse effect on the Company's operations, profitability, and availability of cash flows to make loan payments and maintain compliance with the loan agreement.

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Condensed Balance Sheets (USD $)	Apr. 30, 2012	Oct. 31, 2011
Current Assets
Cash and equivalents	$ 4,689,266	$ 3,427,683
Restricted cash	34,213	465,720
Restricted marketable securities	42,081	66,319
Accounts receivable	3,604,328	7,493,851
Inventories	4,135,991	4,167,870
Prepaids and other	95,406	73,737
Total current assets	12,601,285	15,695,180
Property and Equipment
Land and land improvements	6,820,842	6,813,722
Buildings	37,997,211	37,965,861
Office equipment	349,729	346,259
Equipment	60,697,581	60,209,552
Vehicles	41,994	41,994
Construction in progress	113,951	138,714
Gross property and equipment	106,021,308	105,516,102
Less accumulated depreciation	(16,833,918)	(13,704,182)
Net property and equipment	89,187,390	91,811,920
Other Assets
Investments in RPMG	605,000	605,000
Restricted marketable securities	1,518,000	1,518,000
Debt issuance costs, net	961,914	1,103,740
Deposits	195,727	195,547
Total other assets	3,280,641	3,422,287
Total Assets	105,069,316	110,929,387
Current Liabilities
Accounts payable	1,449,039	2,489,769
Accrued expenses	730,109	511,933
Deferred revenue	141,139	0
Derivative instruments	797,333	1,020,599
Current maturities of long-term debt	2,056,106	3,719,499
Total Current Liabilities	5,173,726	7,741,800
Long-Term Debt	49,936,371	50,997,079
Derivative Instrument	775,959	1,118,709
Commitments and Contingencies	0	0
Members' Equity
Members' equity, 4,953 units outstanding	49,183,260	51,071,799
Total Liabilities and Members’ Equity	$ 105,069,316	$ 110,929,387

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Condensed Statements of Cash Flows (USD $)	6 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Cash Flows from Operating Activities
Net Income (Loss)	$ (1,364,301)	$ 1,882,124
Adjustments to reconcile net income to net cash provided by operations
Depreciation and amortization	3,271,562	3,277,377
Interest payments made from restricted cash	67,276	11,220
Change in fair value of derivative instruments	(114,065)	(113,314)
Increase in restricted cash from net interest earned	(67,276)	(33,638)
Change in assets and liabilities
Restricted cash	431,507	(114,450)
Accounts receivable, including members	3,889,523	1,760,962
Inventories	31,879	(56,171)
Derivative instruments	(451,951)	(492,516)
Prepaids and other	(21,849)	383,138
Deferred revenue	141,139	0
Accounts payable, including members	(848,699)	(94,229)
Accrued expenses	218,176	(50,027)
Net cash provided by operating activities	5,182,921	6,360,476
Cash Flows from Investing Activities
Capital expenditures	(515,984)	(425,581)
Investment in RPMG	(181,253)	(206,972)
Net cash used in investing activities	(697,237)	(632,553)
Cash Flows from Financing Activities
Payments on long-term debt	(2,724,101)	(5,015,231)
Member distributions	(500,000)	0
Net cash used in financing activities	(3,224,101)	(5,015,231)
Net Increase (Decrease) in Cash	1,261,583	712,692
Cash – Beginning of Period	3,427,683	3,856,173
Cash – End of Period	4,689,266	4,568,865
Supplemental Cash Flow Information
Cash paid for interest expense	1,968,783	2,129,360
Supplemental Disclosure of Noncash Financing and Investing Activities
Unrealized gains (losses) on restricted marketable securities	(24,238)	(37,741)
Capital expenditures included in accounts payable	1,613	93,886
Investment in RPMG included in accounts payable	$ 0	$ 398,028

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Summary of Significant Accounting Policies

6 Months Ended

Apr. 30, 2012

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations.  These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company's audited financial statements for the year ended October 31, 2011, contained in the Company's Form 10-K.

In the opinion of management, the interim condensed financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary for fair presentation of the Company's financial position as of April 30, 2012 and the results of operations and cash flows for all periods presented.

Nature of Business

Highwater Ethanol, LLC, (a Minnesota Limited Liability Company) operates a 50 million gallon per year ethanol plant in Lamberton, Minnesota. The Company produces and sells fuel ethanol and distillers grains, a co-product of the fuel ethanol production process, in the continental United States, Mexico and Canada.

Accounting Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with 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, among others, the carrying value of property and equipment and related impairment testing, inventory valuation, and derivative instruments. Actual results could differ from those estimates and such differences may be material to the financial statements. The Company periodically reviews estimates and assumptions and the effects of revisions are reflected in the period in which the revision is made.

Revenue Recognition

The Company generally sells ethanol and related products pursuant to marketing agreements. The Company's products are shipped FOB shipping point. Revenues are recognized when the customer has taken title and has assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured. For ethanol sales, title transfers when loaded into the rail car and for distiller's grains when the loaded rail cars leave the plant facility.

In accordance with the Company's agreements for the marketing and sale of ethanol and related products, marketing fees and freight due to the marketers are deducted from the gross sales price at the time incurred. Revenue is recorded net of these marketing fees and freight as they do not provide an identifiable benefit that is sufficiently separable from the sale of ethanol and related products.

Derivative Instruments

Derivatives are recognized in the balance sheet and the measurement of these instruments are 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 recognized currently in earnings.

Contracts are evaluated 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 as derivatives, therefore, are not marked to market in our financial statements.

In order to reduce the risk caused by interest rate fluctuations, the Company entered into an interest rate swap agreement. This contract is used with the intention to limit exposure to increased interest rates. The fair value of this contract is based on widely accepted valuation techniques including discounted cash flow analysis which includes observable market-based inputs. The fair value of the derivative is continually subject to change due to changing market conditions. Although this serves as an economic hedge, the Company does not formally designate this instrument as a hedge and, therefore, records in earnings adjustments caused from marking the instrument to market on a monthly basis.

The Company entered into corn commodity-based and natural gas derivatives in order to protect cash flows from fluctuations caused by volatility in prices. These derivatives 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. Corn and natural gas derivative changes in fair market value are included in costs of goods sold.

Fair Value of Financial Instruments

The carrying value of cash, accounts receivable, and accounts payable, and other working capital items approximate fair value at April 30, 2012 due to the short maturity nature of these instruments.

The carrying value of restricted cash and restricted marketable securities approximate their fair value based on quoted market prices at year end. The Company believes the carrying value of the derivative instruments approximates fair value based on widely accepted valuation techniques including discounted cash flow analysis which includes observable market-based inputs.

The Company believes the carrying amount of the long-term debt approximates the fair value due to a significant portion of total indebtedness contains variable interest rates and this rate is a market interest rate for these borrowings.

Investments

The Company entered into a capital contribution agreement with their ethanol marketer for $605,000 and became a minority owner in February 2011, which is being accounted for using the cost method.

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Balance Sheet Parenthetical	Apr. 30, 2012	Oct. 31, 2011
Members' equity, 4,953 units outstanding	4,953	4,953

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Document and Entity Information Document	6 Months Ended
	Apr. 30, 2012	Jun. 12, 2012
Entity Information [Line Items]
Entity Registrant Name	HIGHWATER ETHANOL LLC
Entity Central Index Key	0001371451
Current Fiscal Year End Date	--10-31
Entity Filer Category	Non-accelerated Filer
Document Type	10-Q
Document Period End Date	Apr. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Common Stock, Shares Outstanding		4,953

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Condensed Statements of Operations (USD $)	3 Months Ended		6 Months Ended
	Apr. 30, 2012	Apr. 30, 2011	Apr. 30, 2012	Apr. 30, 2011
Revenues	$ 33,771,321	$ 37,394,958	$ 73,598,897	$ 73,664,456
Cost of Goods Sold	34,752,072	34,960,815	72,241,801	69,146,241
Gross Profit (Loss)	(980,751)	2,434,143	1,357,096	4,518,215
Operating Expenses	486,777	471,601	1,001,892	908,893
Operating Profit (Loss)	(1,467,528)	1,962,542	355,204	3,609,322
Other Income (Expense)
Interest income	1,346	710	36,856	37,898
Other income	75	50,566	50,164	50,566
Interest expense	(1,070,314)	(1,287,161)	(2,171,728)	(2,452,242)
Gain (loss) on derivative instrument	206,145	110,820	365,203	636,580
Total other expense, net	(862,748)	(1,125,065)	(1,719,505)	(1,727,198)
Net Income (Loss)	$ (2,330,276)	$ 837,477	$ (1,364,301)	$ 1,882,124
Weighted Average Units Oustanding	4,953	4,953	4,953	4,953
Net Income (Loss) Per Unit	$ (470.48)	$ 169.08	$ (275.45)	$ 380.00
Distributions Per Unit	$ 100.95	$ 0	$ 100.95	$ 0

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Derivative Instruments

6 Months Ended

Apr. 30, 2012

Derivative Instruments [Abstract]

Derivative Instruments

DERIVATIVE INSTRUMENTS

As of April 30, 2012, the Company had entered into corn and natural gas derivative instruments and an interest rate swap agreement, which are required to be recorded as either assets or liabilities at fair value in the statement of financial position. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the derivative instrument and the related change in value of the underlying hedged item. The Company must designate the hedging instruments based upon the exposure being hedged as a fair value hedge, a cash flow hedge or a hedge against foreign currency exposure. The Company had no corn or natural gas derivative instruments outstanding at April 30, 2012.

Interest Rate Swap

At April 30, 2012, the Company had a notional amount of approximately $19,896,000 outstanding in the swap agreement that fixes the interest rate at 7.6% until June 2014.

Corn and Natural Gas Contracts

As of April 30, 2012, the Company has no open positions for corn or natural gas.

The following tables provide details regarding the Company's derivative instruments at April 30, 2012:

Instrument	Balance Sheet location	Assets		Liabilities
Interest rate swap	Derivative instruments	$	—	$	1,573,292

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

	Statement of	Three Months Ended April 30,
	Operations location	2012			2011
Interest rate swap	Other income (expense)	$	206,145		$	110,820
Corn contracts	Cost of goods sold	122,905			555,817
Natural gas contracts	Cost of goods sold	(190,412		)	—
	Statement of	Six Months Ended April 30,
	Operations location	2012			2011
Interest rate swap	Other income (expense)	$	365,203		$	636,580
Corn contracts	Cost of goods sold	129,431			612,273
Natural gas contracts	Cost of goods sold	(418,016		)	—

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Inventories

6 Months Ended

Apr. 30, 2012

Inventories [Abstract]

Inventories

INVENTORIES

Inventories consisted of the following at:

	April 30, 2012		October 31, 2011*
Raw materials	$	1,111,189	$	1,957,121
Spare parts and supplies	716,429		487,128
Work in process	1,202,185		1,139,783
Finished goods	1,106,188		583,838
Total	$	4,135,991	$	4,167,870

*Derived from Audited financial statements

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Debt Financing

6 Months Ended

Apr. 30, 2012

Debt Financing [Abstract]

Debt Financing

DEBT FINANCING

Long-term debt consists of the following at:

	April 30,		October 31,*
	2011		2011
Fixed rate note payable, see terms below	$	21,245,714	$	22,209,080
Variable rate note payable, see terms below	15,566,763		17,327,498
Capital lease	15,180,000		15,180,000
Total	51,992,477		54,716,578
Less amounts due within one year	2,056,106		3,719,499
Net long-term debt	$	49,936,371	$	50,997,079

*Derived from Audited financial statements

Bank Financing

The Company has two promissory notes including a $25,200,000 Fixed Rate Note and a $20,200,000 Variable Rate Note. The Company also had a $5,000,000 Long-Term Revolving Note which was paid in full in 2011. The promissory notes are described in the credit agreement and below. The credit agreement also provided a revolving loan for $5,000,000 and supports the issuance of letters of credit up to $5,600,000, all of which are secured by substantially all assets.

Fixed Rate Note

The Fixed Rate Note was initially $25,200,000 and has a variable interest rate that is fixed with an interest rate swap. The Company makes monthly principal payments on the Fixed Rate Note of approximately $157,000 plus accrued interest. Interest accrues on the Fixed Rate Note at the greater of the one-month LIBOR rate plus 300 basis points or 4%, which was 4% at April 30, 2012. A final balloon payment on the Fixed Rate Note of approximately $15,196,000 will be due February 26, 2015.

Variable Rate Note

The Variable Rate Note was initially $20,200,000. The Company makes monthly payments of interest only. Interest accrues on the Variable Rate Note at the greater of the one-month LIBOR rate plus 350 basis points or 5%, which was 5% at April 30, 2012. The Company also makes quarterly 50% excess cash flow payments which are first applied to interest and then to principal on the Variable Rate Note with a minimum annual principal reduction of $750,000 which has been made at the time of this filing. A final balloon payment of approximately $12,567,000 will be due February 26, 2015.

Long-term Revolving Note

The Long-Term Revolving Note was initially $5,000,000 and was reduced to $4,500,000 pursuant to the terms of the third amendment to the loan documents with FNBO. The amount available on the Long-Term Revolving Note was set to decline annually by the greater of $125,000 or 50% of the excess cash flow, as defined by the third amendment. The Company was also required to make a $750,000 principal repayment on the Long-Term Revolving Note prior to February 2012 and reduce the outstanding principal balance to zero as of February 1, 2013. The payments to reduce the Long-Term Revolving Note balance to zero as required by February 1, 2013 were made in September 2011. The Long-Term Revolving Note accrues interest monthly at the greater of the one-month LIBOR plus 350 basis points or 4%.

Line of Credit

The Company's Line of Credit accrues interest at the 90 day LIBOR plus 350 basis points which was 3.97% at April 30, 2012. The line of credit requires monthly interest payments. In April 2012, the Company extended the line of credit to April 2013. At April 30, 2012, there are no borrowings outstanding and the maximum availability was $5,000,000.

As of April 30, 2012, the Company has letters of credit outstanding of $3,500,000. The Company pays interest at a rate of 1.75% on amounts outstanding and the letters of credit are valid until August 2012.

The estimated maturities of the long-term debt at April 30, 2012 are as follows:

2013	$	2,056,106
2014	3,555,143
2015	33,234,561
2016	1,574,167
2017 and thereafter	11,572,500
Long-term debt	$	51,992,477

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Commitments and Contingencies

6 Months Ended

Apr. 30, 2012

Commitments and Contingencies [Abstract]

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES

Marketing Agreements

The Company entered into an ethanol marketing agreement with their current marketer to purchase, market, and distribute all the ethanol produced by the Company. The Company also entered into a member control agreement with the marketer whereby the Company made capital contributions and became a minority owner. The buy-in commitment was $605,000 and as of April 30, 2012, the Company has paid this commitment in full.  The member control agreement became effective on February 1, 2011 and provided the Company a membership interest with voting rights. The marketing agreement would terminate if the Company ceases to be a member.  The Company would assume certain of the member's rail car leases if the agreement is terminated.

Regulatory Agencies

The Company is subject to oversight from regulatory agencies regarding environmental concerns which arise in the ordinary course of its business.

Construction in Progress

The Company had construction in progress of approximately $114,000 at April 30, 2012 for the maintenance and lime cake buildings. The additions are expected to amount to $350,000.

Forward Contracts

The Company has forward contracts in place for natural gas purchases for approximately $2,405,000 through March 2013, which represents approximately 48.81% of the Company's projected usage for the corresponding time period. In addition, the Company has forward corn contracts in place for approximately 290,000 bushels through June 2012.

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Condensed Statements of Comprehensive Income (Loss) (USD $)	6 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Net Income (Loss)	$ (1,364,301)	$ 1,882,124
Other Comprehensive Income
Unrealized gains (losses) on restricted marketable securities	(24,238)	(37,741)
Comprehensive Income (Loss)	$ (1,388,539)	$ 1,844,383

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Restricted Marketable Securities

6 Months Ended

Apr. 30, 2012

Restricted Marketable Securities [Abstract]

Restricted Marketable Securities

RESTRICTED MARKETABLE SECURITIES

The cost and fair value of the Company's restricted marketable securities consist of the following at April 30, 2012:

	Amortized Cost		Gross Unrealized Gains		Fair Value
Restricted marketable securities - Current
municipal obligations	$	42,081	$	—	$	42,081
Restricted marketable securities - Long-term    municipal obligations	1,467,036		50,963		1,518,000
Total restricted marketable securities	$	1,509,117	$	50,963	$	1,560,081

The long-term restricted marketable securities relate to the debt service reserve fund required by the capital lease agreement. The Company had unrealized gains of $50,963 and $75,202 included in accumulated other comprehensive income at April 30, 2012 and October 31, 2011, respectively.

Shown below are the contractual maturities of marketable securities with fixed maturities at April 30, 2012. Actual maturities may differ from contractual maturities because certain securities may contain early call or prepayment rights.

Due within 1 year	$	—
Due in 1 to 3 years	1,560,081
Total	$	1,560,081