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 January 31, 2013
	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 March 15, 2013, 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	23
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	25
SIGNATURES	26

2

PART I    FINANCIAL INFORMATION

Item 1. Financial Statements

HIGHWATER ETHANOL, LLC

Condensed Balance Sheets

ASSETS	January 31, 2013			October 31, 2012
	(Unaudited)
Current Assets
Cash and equivalents	$	2,457,585		$	1,431,996
Restricted cash	607,594			600,192
Restricted marketable securities	2,615			14,841
Accounts receivable	4,765,931			4,927,791
Inventories	4,637,921			4,146,426
Prepaids and other	90,819			64,362
Total current assets	12,562,465			11,185,608
Property and Equipment
Land and land improvements	6,847,696			6,847,696
Buildings	38,371,020			38,368,076
Office equipment	355,522			353,657
Plant and process equipment	60,806,516			60,803,735
Vehicles	41,994			41,994
Construction in progress	83,113			27,529
	106,505,861			106,442,687
Less accumulated depreciation	(21,561,963		)	(19,983,052		)
Net property and equipment	84,943,898			86,459,635
Other Assets
Investments in RPMG	1,512,475			1,512,475
Restricted marketable securities	1,518,000			1,518,000
Debt issuance costs, net	760,173			825,988
Deposits	195,727			195,727
Total other assets	3,986,375			4,052,190
Total Assets	$	101,492,738		$	101,697,433

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

3

HIGHWATER ETHANOL, LLC

Condensed Balance Sheets

LIABILITIES AND MEMBERS' EQUITY	January 31, 2013		October 31, 2012
	(Unaudited)
Current Liabilities
Accounts payable	$	2,057,732	$	2,016,384
Accrued expenses	729,515		631,109
Deferred revenue	233,123		—
Derivative instruments	1,075,210		1,113,554
Line of credit	2,100,000		—
Current maturities of long-term debt	2,943,756		2,901,330
Total current liabilities	9,139,336		6,662,377
Long-Term Debt	47,308,823		47,857,262
Other Liabilities	28,067		222,652
Derivative Instrument	242,953		422,937
Commitments and Contingencies	—		—
Members' Equity
Members' equity, 4,953 units outstanding	44,773,559		46,532,205
Total Liabilities and Members’ Equity	$	101,492,738	$	101,697,433

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
	January 31, 2013			January 31, 2012
	(Unaudited)			(Unaudited)
Revenues	$	43,201,533		$	39,827,576
Cost of Goods Sold	43,730,615			37,489,729
Gross Profit (Loss)	(529,082		)	2,337,847
Operating Expenses	528,522			515,115
Operating Profit (Loss)	(1,057,604		)	1,822,732
Other Income (Expense)
Interest income	33,669			35,510
Other income	1,608			50,089
Interest expense	(1,050,528		)	(1,101,414		)
Gain on derivative instrument	205,440			159,058
Income from equity investment	120,995			—
Total other expense, net	(688,816		)	(856,757		)
Net Income (Loss)	$	(1,746,420	)	$	965,975
Weighted Average Units Outstanding - Basic and Diluted	4,953			4,953
Net Income (Loss) Per Unit - Basic and Diluted	$	(352.60	)	$	195.03

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

5

HIGHWATER ETHANOL, LLC

Condensed Statements of Comprehensive Income (Loss)

	Three Months Ended			Three Months Ended
	January 31, 2013			January 31, 2012
	(Unaudited)			(Unaudited)
Net Income (Loss)	$	(1,746,420	)	$	965,975
Unrealized losses on restricted marketable securities	(12,226		)	(13,504		)
Comprehensive Income (Loss)	$	(1,758,646	)	$	952,471

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

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HIGHWATER ETHANOL, LLC

Condensed Statements of Cash Flows

	Three Months Ended			Three Months Ended
	January 31, 2013			January 31, 2012
	(Unaudited)			(Unaudited)
Cash Flows from Operating Activities
Net income (loss)	$	(1,746,420	)	$	965,975
Adjustments to reconcile net income (loss) to net cash provided by operations
Depreciation	1,578,911			1,562,572
Amortization included with interest expense	65,815			72,136
Interest payments made from restricted cash	—			33,638
Change in fair value of derivative instruments	102,353			254,695
Increase in restricted cash from net interest earned	(33,639		)	(33,638		)
Earnings from equity method investment	(120,995		)	—
Change in assets and liabilities
Restricted cash	26,237			(85,491		)
Accounts receivable, including members	161,860			2,103,062
Inventories	(491,495		)	(665,298		)
Derivative instruments	(320,681		)	(227,465		)
Prepaids and other	(26,457		)	5,720
Deferred revenue	233,123			543,673
Accounts payable, including members	41,348			(37,896		)
Accrued expenses	98,406			131,450
Net cash provided by (used in) operating activities	(431,634		)	4,623,133
Cash Flows from Investing Activities
Capital expenditures	(63,174		)	(98,900		)
Investment in RPMG	(73,590		)	(147,252		)
Net cash used in investing activities	(136,764		)	(246,152		)
Cash Flows from Financing Activities
Proceeds from line of credit	2,100,000			—
Payments on long-term debt	(506,013		)	(1,408,256		)
Net cash provided by (used for) financing activities	1,593,987			(1,408,256		)
Net Increase in Cash and Equivalents	1,025,589			2,968,725
Cash and equivalents – Beginning of Period	1,431,996			3,427,683
Cash and equivalents – End of Period	$	2,457,585		$	6,396,408
Supplemental Cash Flow Information
Cash paid for interest expense	$	953,704		$	999,319
Supplemental Disclosure of Noncash Financing and Investing Activities
Unrealized loss on restricted marketable securities	$	(12,226	)	$	(13,504	)
Capital expenditures included in accounts payable	$	—		$	38,501
Investment in RPMG included in accounts payable	$	—		$	34,001
Reduction in liabilities related to RPMG investment	$	194,585		$	—

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

7

HIGHWATER ETHANOL, LLC

Notes to Unaudited Condensed Financial Statements

January 31, 2013

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, 2012, 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 January 31, 2013 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 long-lived assets 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. The Company records deferred revenue when payments are received from customers prior to the shipment of the products purchased. 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 is 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

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HIGHWATER ETHANOL, LLC

Notes to Unaudited Condensed Financial Statements

January 31, 2013

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 January 31, 2013 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 containing variable interest rates and this rate is a market interest rate for these borrowings.

Investments

The Company has an investment interest in an unlisted company, Renewable Fuels Marketing Group, LLC (RPMG), who markets the Company's ethanol. This investment is a flow-through entity and is being accounted for by the equity method of accounting under which the Company's share of net income is recognized as income in the Company's income statement and added to the investment account. Distributions or dividends received from the investment are treated as a reduction of the investment account. The Company has a 7% interest in RPMG. The Company consistently follows the practice of recognizing the net income based on the most recent reliable data. Therefore, the net income which is reported in the Company's income statement for the quarter ended January 31, 2013 is based on the investee's results of operations for the three month period ended December 31, 2012.

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.

9

HIGHWATER ETHANOL, LLC

Notes to Unaudited Condensed Financial Statements

January 31, 2013

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
	January 31, 2013			Level 1			Level 2			Level 3
Restricted marketable securities - current	$	2,615		$	2,615		$	—		$	—
Restricted marketable securities - long-term	$	1,518,000		$	1,518,000		$	—		$	—
Derivative instrument - interest rate swap	$	(991,576	)	$	—		$	(991,576	)	$	—
Derivative instrument - corn contracts	$	(326,587	)	$	(326,587	)	$	—		$	—

	Fair Value as of			Fair Value Measurement Using
	October 31, 2012			Level 1			Level 2			Level 3
Restricted marketable securities - current	$	14,841		$	14,841		$	—		$	—
Restricted marketable securities - long-term	$	1,518,000		$	1,518,000		$	—		$	—
Derivative instrument - interest rate swap	$	(1,197,016	)	$	—		$	(1,197,016	)	$	—
Derivative instrument - corn contracts	$	(339,475	)	$	(339,475	)	$	—		$	—

The fair value of restricted marketable securities 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 January 31, 2013:

	Amortized Cost		Gross Unrealized Gains		Fair Value
Restricted marketable securities - Current
municipal obligations	$	2,595	$	20	$	2,615
Restricted marketable securities - Long-term    municipal obligations	1,506,522		11,478		1,518,000
Total restricted marketable securities	$	1,509,117	$	11,498	$	1,520,615

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 $11,498 and $23,724 included in accumulated other comprehensive income at January 31, 2013 and October 31, 2012, respectively.

Shown below are the contractual maturities of marketable securities with fixed maturities at January 31, 2013. Actual maturities may differ from contractual maturities because certain securities may contain early call or prepayment rights.

10

HIGHWATER ETHANOL, LLC

Notes to Unaudited Condensed Financial Statements

January 31, 2013

Due within 1 year	$	1,280,433
Due in 1 to 3 years	240,182
Total	$	1,520,615

5. INVENTORIES

Inventories consisted of the following at:

	January 31, 2013		October 31, 2012*
Raw materials	$	1,702,240	$	1,219,867
Spare parts and supplies	1,037,735		959,482
Work in process	1,360,794		1,362,851
Finished goods	537,152		604,226
Total	$	4,637,921	$	4,146,426

*Derived from Audited financial statements

6. DERIVATIVE INSTRUMENTS

As of January 31, 2013, the Company had entered into corn derivative instruments and an interest rate swap agreement, which are required to be recorded as either assets or liabilities at fair value in the condensed balance sheet. 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 derivative instruments outstanding at January 31, 2013 are not designated as effective hedges for accounting purposes.

Interest Rate Swap

At January 31, 2013, the Company had a notional amount of approximately $18,281,000 outstanding in the swap agreement that fixes the interest rate at 7.6% until June 2014.

Commodity Contracts

As of January 31, 2013, the Company has open positions for 1,280,000 bushels of corn. The Company has no open positions for natural gas as of January 31, 2013. Management expects all open positions outstanding as of January 31, 2013 to be realized within the next twelve months.

The following tables provide details regarding the Company's derivative instruments at January 31, 2013:

Instrument	Balance Sheet location	Assets		Liabilities
Interest rate swap	Derivative instruments	$	—	$	991,576
Corn contracts	Derivative instruments	$	—	$	326,587

The following tables provide details regarding the Company's derivative instruments at October 31, 2012:

Instrument	Balance Sheet location	Assets		Liabilities
Interest rate swap	Derivative instruments	$	—	$	1,197,016
Corn contracts	Derivative instruments	$	—	$	339,475

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:

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HIGHWATER ETHANOL, LLC

Notes to Unaudited Condensed Financial Statements

January 31, 2013

	Statement of	Three Months Ended January 31,
	Operations location	2013			2012
Interest rate swap	Other income (expense)	$	205,440		$	159,058
Corn contracts	Cost of goods sold	(39,948		)	6,526
Natural gas contracts	Cost of goods sold	(7,436		)	(227,604		)

7. DEBT FINANCING

Long-term debt consists of the following at:

	January 31, 2013		October 31, 2012*
Fixed rate note payable, see terms below	$	19,727,675	$	20,233,688
Variable rate note payable, see terms below	15,344,904		15,344,904
Capital lease	15,180,000		15,180,000
Total	50,252,579		50,758,592
Less amounts due within one year	2,943,756		2,901,330
Net long-term debt	$	47,308,823	$	47,857,262

*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 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 $168,000 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 January 31, 2013. A final balloon payment on the Fixed Rate Note of approximately $15,174,000 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 January 31, 2013. 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. A final balloon payment of approximately $13,107,000 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

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HIGHWATER ETHANOL, LLC

Notes to Unaudited Condensed Financial Statements

January 31, 2013

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 3.80% at January 31, 2013. The line of credit requires monthly interest payments. In April 2012, the Company extended the line of credit to April 2013. At January 31, 2013, the Company had $2,100,000 outstanding and the maximum availability was $5,000,000.

The loan agreements are secured by substantially all business assets and 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. As of January 31, 2013, the Company was not in compliance with the fixed charge coverage ratio. The Company subsequently received a waiver of this violation.

As of January 31, 2013, the Company has letters of credit outstanding of $3,000,000. The Company pays interest at a rate of 1.75% on amounts outstanding and the letters of credit are valid until January 2014.

Capital Lease

The Company has a lease agreement with the City of Lamberton, Minnesota for $15,180,000. During the quarter ended January 31, 2013, the Company was not in compliance with the fixed charge coverage ratio, working capital and net worth of the lease agreement. The Company subsequently received a waiver of these violations.

The estimated maturities of the long-term debt at January 31, 2013 over the next year are as follows:

2014	$	2,943,756
2015	4,081,386
2016	29,700,770
2017	1,541,667
2018 and thereafter	11,985,000
Long-term debt	$	50,252,579

8. COMMITMENTS AND CONTINGENCIES

Forward Contracts

The Company has forward contracts in place for natural gas purchases for approximately $1,258,000 through June 2013, which represents approximately 42.4% of the Company's projected usage for the corresponding time period.

Construction in Progress

The Company had construction in progress of approximately $83,000 at January 31, 2013 for certain projects. The additions are expected to amount to $124,000.

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 month period ended January 31, 2013, compared to the same period 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, 2012.

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:

Ÿ	Changes in the availability and price of corn and natural gas;
Ÿ	Volatile commodity and financial markets;
Ÿ	Our ability to comply with the financial covenants contained in our credit agreements with our lenders;
Ÿ	Our ability to profitably operate the ethanol plant and maintain a positive spread between the selling price of our products and our raw material costs;
Ÿ	Results of our hedging activities and other risk management strategies;
Ÿ	Ethanol and distillers grains supply exceeding demand and corresponding price reductions;
Ÿ	Our ability to generate cash flow to invest in our business and service our debt;
Ÿ	Changes in the environmental regulations that apply to our plant operations and changes in our ability to comply with such regulations;
Ÿ	Changes in our business strategy, capital improvements or development plans;
Ÿ	Changes in plant production capacity or technical difficulties in operating the plant;
Ÿ	Changes in general economic conditions or the occurrence of certain events causing an economic impact in the agriculture, oil or automobile industries;
Ÿ	Lack of transportation, storage and blending infrastructure preventing ethanol from reaching high demand markets;
Ÿ	Changes in federal and/or state laws or policies impacting the ethanol industry;
Ÿ	Changes and advances in ethanol production technology and the development of alternative fuels and energy sources and advanced biofuels;
Ÿ	Competition from alternative fuel additives;
Ÿ	Changes in interest rates and lending conditions;
Ÿ	Decreases in the price we receive for our ethanol and distillers grains;
Ÿ	Changes in legislation including the Renewable Fuel Standard;
Ÿ	Our inability to secure credit or obtain additional equity financing we may require in the future; and
Ÿ	Our ability to retain key employees and maintain labor relations.

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.

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Overview

Highwater Ethanol, LLC (“we,” “our,” “Highwater” or the “Company”) is a Minnesota limited liability company formed 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 above nameplate capacity 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 corn. The price of distillers grains has also 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. RPMG, Inc. ("RPMG") markets our ethanol. CHS, Inc. markets our dried distillers grains. Meadowland Farmers Co-op supplies our corn.

On January 25, 2013, we entered into the Seventh Amendment of Construction Loan Agreement which amended our Construction Loan Agreement originally dated April 24, 2008 with FNBO. The amendment waived our violations at October 31, 2012 of the fixed charge coverage ratio and the minimum net worth covenants. In addition, the amendment amended the calculation of the covenants measuring the fixed charge coverage ratio and the minimum net worth calculation.

On December 31, 2011, the Volumetric Ethanol Excise Tax Credit ("VEETC") expired. 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). 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. In 2012, the ethanol industry in the United States experienced increased competition from ethanol produced outside the United States which may have been due in part to the elimination of the tariff on foreign ethanol. Management believes that competition from ethanol imports will likely remain strong in 2013 and may affect our ability to sell our ethanol profitably. Management believes that the expiration of VEETC has had some impact on the amount of discretionary blending and may result in a decrease in domestic ethanol demand in the future.

The Federal Renewable Fuels Standard ("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. In addition, in August of 2012, governors from several states filed formal requests with the United States Environmental Protection Agency (the "EPA") to waive the requirements of the RFS. While the waiver requests have now been denied by the EPA and management does not believe that Congress will reduce or eliminate the RFS in the near future, if waivers were to be granted or the RFS were to be otherwise 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 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. In April 2012, the EPA approved the first E15 registrations approving twenty producers who have successfully registered their product to be used as E15. Finally, in June 2012, the EPA gave the final approval to allow the sale of 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. 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. In addition, different gasoline blendstocks may be required at certain times of the year in order to use E15 due to federal regulations related to fuel evaporative emissions. This may prevent E15 from being used during

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certain times of the year in various states. As a result, management believes that E15 may not have an immediate impact on ethanol demand in the United States.

The European Union recently concluded an anti-dumping investigation related to ethanol produced in the United States and exported to Europe. As a result of this investigation, the European Union has imposed a tariff of $83.03 per metric ton on ethanol which is produced in the United States and exported to Europe. This tariff could result in a decrease of exports of ethanol to Europe which could negatively impact the market price of ethanol in the United States.

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. A decision on the appeal is expected in the near future. If the CARB is successful in its appeal, the reinstatement of the California LCFS could become permanent which could negatively impact demand for corn-based ethanol and result in decreased ethanol prices.

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.

Much of the United States experienced drought conditions in 2012 which resulted in a limited corn supply and increased corn prices. Higher corn prices have not been offset by ethanol prices which has resulted in tighter operating margins. These tighter operating margins have resulted in some ethanol plants slowing or even halting production altogether. Management believes that an adequate corn supply will be available in our area unless we experience unfavorable weather conditions or other factors which adversely affect yields from the 2013 crop. Corn prices will also likely continue to be volatile and should we experience unfavorable operating conditions that prevent us from profitably operating the ethanol plant, we may need to reduce production at our plant.

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 January 31, 2013 and 2012

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 January 31, 2013 and 2012:

	2013					2012
Income Statement Data	Amount			%		Amount			%
	(unaudited)					(unaudited)
Revenue	$	43,201,533		100.00	%	$	39,827,576		100.00	%
Cost of Goods Sold	43,730,615			101.22	%	37,489,729			94.13	%
Gross Profit (Loss)	(529,082		)	(1.22	)%	2,337,847			5.87	%
Operating Expenses	528,522			1.22	%	515,115			1.29	%
Operating Profit (Loss)	(1,057,604		)	(2.45	)%	1,822,732			4.58	%
Other Expense	(688,816		)	(1.59	)%	(856,757		)	(2.15	)%
Net Income (Loss)	$	(1,746,420	)	(4.04	)%	$	965,975		2.43	%

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

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The following table shows the sources of our revenue for the three months ended January 31, 2013.

Revenue Sources	Amount (Unaudited)		Percentage of Total Revenues (Unaudited)
Ethanol Sales	$	32,483,442	75.19	%
Modified Distillers Grains Sales	3,371,463		7.80	%
Dried Distillers Grains Sales	7,346,628		17.01	%
Total Revenues	$	43,201,533	100.00	%

The following table shows the sources of our revenue for the three months ended January 31, 2012.

Revenue Sources	Amount (Unaudited)		Percentage of Total Revenues (Unaudited)
Ethanol Sales	$	32,569,169	81.78	%
Modified Distillers Grains Sales	1,135,769		2.85	%
Dried Distillers Grains Sales	6,122,638		15.37	%
Total Revenues	$	39,827,576	100.00	%

Our total revenues were higher for the three month period ended January 31, 2013 compared to the same period in 2012 primarily due to an increase in the price of modified and dried distillers grains.

We experienced an increase in the gallons of ethanol sold in the three month period ended January 31, 2013 as compared to the three month period ended January 31, 2012. The gallons of ethanol we sold during the three month period ended January 31, 2013 increased by approximately 2.4% as compared to the number of gallons of ethanol we sold for the three months ended January 31, 2012. The average ethanol sales price per gallon we received for the three month period ended January 31, 2013 was approximately 2.6% lower than the average price we received for the same period of 2012.

Management attributes this decrease in the average price we received for our ethanol 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 that ethanol prices will continue to change in relation to corn and energy prices and anticipates continued volatility in the price of ethanol. Operating margins were negative during the first two months of our first fiscal quarter. However, operating margins improved towards the end of our first fiscal quarter. Management anticipates that our results of operations for our 2013 fiscal year will continue to be affected by volatility in the commodity markets and that we may continue to experience tight or even negative operating margins. Should we experience unfavorable operating conditions that prevent us from profitably operating the ethanol plant, we may need to reduce production at our plant.

Distillers grains represent a larger portion of our revenues during the three months ended January 31, 2013 compared to the same period of 2012. Management believes that this is a result of the higher modified and dried distillers grains prices we received during our first fiscal quarter of 2013 compared to the same period of 2012. For the three months ended January 31, 2013, the average price per ton that we received for our modified distillers grains was approximately 53.3% higher than during the three months ended January 31, 2012. For the three months ended January 31, 2013, the average price per ton that we received for our dried distillers grains was approximately 30.3% higher than the average price we received during the three months ended January 31, 2012. We also experienced an increase in the number of tons of modified distillers grains sold of approximately 12,000 tons and a decrease in the number of tons of dried distillers grains sold of approximately 3,000 tons during the three months ended January 31, 2013 compared to the same period of 2012.

Management attributes the increase in the average price we received for our distillers grains to lower corn stocks due to the drought conditions experienced in the United States and foreign exports. We have also experienced an increase in demand for modified distillers grains due to a limited supply. Management anticipates that distillers grains prices will remain strong and continue to follow corn prices until at least the 2013 corn harvest.

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Cost of Goods Sold

Our two largest costs of production are corn (84.7% of cost of goods sold for the three months ended January 31, 2013) and natural gas (3.8% of cost of goods sold for the three months ended January 31, 2013).

Our average price per bushel corn for the three months ended January 31, 2013 increased by approximately 19.1% per bushel compared to the same period in 2012. We used approximately 5,138,000 bushels of corn in the three month period ended January 31, 2013 as compared to approximately 4,994,000 bushels for the same period in 2012. During the three month period ended January 31, 2013, we sold more gallons of ethanol and more tons of distillers grains as compared to the same period in 2012.

Management attributes higher corn prices to increased market prices in response to drought conditions in the United States in 2012 which resulted in a drop in yields and a limited supply. Management believes that an adequate corn supply will be available in our area to operate the ethanol plant. However, corn prices will also likely continue to be high and remain volatile at least until the 2013 crop is harvested and perhaps beyond depending on weather conditions and other factors. If we experience unfavorable operating conditions that prevent us from profitably operating the ethanol plant, we may need to reduce or halt production at our plant.

In the ordinary course of business, we entered into forward purchase contracts for our commodity purchases. At January 31, 2013, we have no forward corn purchase contracts. We had losses related to corn derivative instruments of approximately $40,000 for the three months ended January 31, 2013, which increased cost of sales. We had gains related to corn derivative instruments of approximately $7,000 for the three months ended January 31, 2012.

For the three month period ended January 31, 2013, we purchased approximately 361,000 MMBTU's compared to 349,000 MMBTU's for the same period of 2012. Our average price per MMBTU of natural gas was $4.64 for the three month period ended January 31, 2013 compared to $5.92 for the same period of 2012. Management attributes this decrease in the average price we paid for our natural gas with strong natural gas supplies which have kept natural gas prices low.

At January 31, 2013, we have forward natural gas purchase contracts for various delivery periods through June 2013 for approximately $1,258,000. We had losses related to natural gas based derivative instruments of approximately $7,000 for the three months ended January 31, 2013. We had losses related to natural gas based derivative instruments of approximately $228,000 for the three months ended January 31, 2012.

Operating Expense

We had operating expenses for the three months ended January 31, 2013 of $528,522 as compared to operating expenses of $515,115 for the same period of 2012. We continue 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 January 31, 2013 of $1,057,604 which is approximately 2.45% of our revenues compared to a profit of $1,822,732 which was approximately 4.58% of our revenues for the three months ended January 31, 2012. This decrease in our operating income is primarily due to an increase in the price of corn which was not offset by ethanol prices which resulted in negative operating margins for the first two months of our first fiscal quarter.

Other Expense

We had total other expense for the three months ended January 31, 2013 of $688,816 compared to other expense of $856,757 for the three months ended January 31, 2012. Our other expense for the three months ended January 31, 2013 consisted primarily of interest expense. The net decrease in other expense is due to a decrease in interest expense resulting from our continuing to make scheduled payments on our debt, an increase in gain on derivative instruments related to our debt, and an increase in income from an investment for the three months ended January 31, 2013 compared to the same period of 2012.

Changes in Financial Condition for the Three Months Ended January 31, 2013

The following table highlights the changes in our financial condition for the three months ended January 31, 2013 from our previous fiscal year ended October 31, 2012:

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	January 31, 2013 (Unaudited)		October 31, 2012
Current Assets	$	12,562,465	$	11,185,608
Current Liabilities	$	9,139,336	$	6,662,377
Long-Term Debt and Liabilities	$	47,700,838	$	48,502,851

Current Assets. The increase in current assets was primarily the result of an increase in our cash and equivalents and an increase in inventory at January 31, 2013 as compared to October 31, 2012.

Current Liabilities. The increase in current liabilities was due primarily to our having drawn $2,100,000 on our line of credit at January 31, 2013 as compared to having no outstanding balance at October 31, 2012 and an increase in our deferred revenue at January 31, 2013 as compared to October 31, 2012 as a result of customer prepayments for distillers grains.

Long-term Debt and Liabilities. Long-term debt decreased from $47,857,262 at October 31, 2012 to $47,308,823 at January 31, 2013 primarily due to scheduled principal repayments on our loans with FNBO. The other liability amounts include the long-term portion for the interest rate swap.

Liquidity and Capital Resources

Based on financial forecasts performed by our management, we anticipate that we will have sufficient cash on hand, 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 were negative during the first two months of our first fiscal quarter of our fiscal year 2013 as a result of higher corn prices which were not offset by ethanol prices. These tighter operating margins have resulted in some ethanol plants slowing or even halting production altogether. Management believes that an adequate corn supply will be available in our area to operate the ethanol plant. However, corn prices will also likely continue to be high until the 2013 corn crop is harvested and perhaps beyond. Increases in the price of corn significantly increase our cost of goods sold. If these increases in cost of goods sold are not offset by corresponding increases in the prices we receive from the sale of our products, these increases in cost of goods sold can have a significant negative impact on our financial performance. 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 due to a limited corn supply. If we continue to experience unfavorable operating conditions in the ethanol industry that prevent us from profitably operating the ethanol plant, we could have difficulty maintaining our liquidity and we may have to secure additional debt or equity financing for working capital or other purposes.

We are currently exploring the installation of corn oil extraction technology at our plant. If we decide to proceed, we anticipate we would need to secure additional financing to do so. We do not yet know what amount of financing would be needed or upon what terms we would be able to secure such financing.

The following table shows cash flows for the three months ended January 31, 2013 and 2012:

	Three Months Ended January 31,
	2013	2012
	(unaudited)	(unaudited)
Net cash provided by (used in) operating activities	$(431,634)	$4,623,133
Net cash used in investing activities	(136,764)	(246,152)
Net cash provided by (used in) financing activities	1,593,987	(1,408,256)

Cash Flow From Operations

We experienced a decrease of approximately $5,055,000 in our cash provided by operating activities for the three month period ended January 31, 2013, compared to the same period in 2012. This decrease was due to a net loss primarily driven by an increase in the price of corn that was not offset by ethanol prices during the period ended January 31, 2013. During the three months ended January 31, 2013, our capital needs were being adequately met through cash on hand and our credit facilities.

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Cash Flow From Investing Activities

We used approximately $110,000 less net cash for investing activities for the three month period ended January 31, 2013, as compared to the same period in 2012. This change was primarily due to a decrease in our cash investment in RPMG during the three months ended January 31, 2013.

Cash Flow From Financing Activities

We were provided approximately $1,594,000 net cash from financing activities during the three months ended January 31, 2013 as compared to using approximately $1,408,000 for financing activities during the same period in 2012. This change was primarily a result of our having drawn $2,100,000 against our line of credit during the three months ended January 31, 2013 as compared to having no outstanding balance on our line of credit for the same period in 2012. We also paid less to FNBO towards the principal balance on our loans during the three months ended January 31, 2013 as compared to the same period in 2012.

Short-Term and Long-Term Debt Sources with FNBO

On April 24, 2008, we entered into a Construction Loan Agreement (the “Agreement”) with 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 January 31, 2013, we have $3,000,000 in letters of credit outstanding.

On January 25, 2013, we entered into the Seventh Amendment of Construction Loan Agreement which amended our Construction Loan Agreement originally dated April 24, 2008 with FNBO. The amendment waived our violations at October 31, 2012 of the fixed charge coverage ratio and the minimum net worth covenants. In addition, FNBO amended the calculation of the covenant measuring the fixed charge coverage ratio for six quarters beginning November 1, 2012 through April 30, 2014 as follows: 0.65:1.00 at January 31, 2013 and April 30, 2013, 0.80:1.00 at July 31, 2013 and October 31, 2013 and 1.05:1.00 at January 31, 2014 and April 30, 2014. The fixed charge coverage ratio shall revert to 1.10:1.00 at July 31, 2014 and at the end of each fiscal quarter thereafter. The net worth calculation is amended as of November 1, 2012 to $41,250,000 to be measured quarterly.

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 $168,000 plus accrued interest. Interest will 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 January 31, 2013. However, we 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 $19,728,000 and $20,234,000 at January 31, 2013 and October 31, 2012, respectively. A final balloon payment on the Fixed Rate Note of approximately $15,174,000 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 outstanding balance on this note was approximately $15,345,000 at January 31, 2013 and October 31, 2012, 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 January 31, 2013, was 5%. A final balloon payment of approximately $13,107,000 will be due February 26, 2015.

Long-term Revolving Note

The Long-term Revolving Note was initially $5,000,000. We were 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 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

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applicable interest rate at January 31, 2013 was 4%. The payment to reduce the balance to zero was made in September 2011. The outstanding balance on this note was $0 at January 31, 2013 and October 31, 2012, respectively.

Line of Credit

We have a line of credit available equal to the amount of the Borrowing Base, with a maximum limit of $5,000,000. The Borrowing Base will vary and may at times be less than $5,000,000. Our line of credit expires on April 1, 2013 and accrues interest at the three-month LIBOR rate plus 350 basis points with no minimum interest rate, which was 3.80% at January 31, 2013. The line of credit requires monthly interest payments. The outstanding balance on this note was $2,100,000 as of January 31, 2013.

Covenants and other Miscellaneous Financing Agreement Terms

The financing agreement with FNBO is 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. FNBO amended the calculation of the covenant measuring the fixed charge coverage ratio for six quarters beginning November 1, 2012 through April 30, 2014 as follows: 0.65:1.00 at January 31, 2013 and April 30, 2013, 0.80:1.00 at July 31, 2013 and October 31, 2013 and 1.05:1.00 at January 31, 2014 and April 30, 2014. The fixed charge coverage ratio shall revert to 1.10:1.00 at July 31, 2014 and at the end of each fiscal quarter thereafter. The net worth calculation is amended as of November 1, 2012 to $41,250,000 to be measured quarterly. At January 31, 2013, we were not in compliance with the fixed charge coverage ratio as amended. We subsequently received a waiver of this violation.

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 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 FNBO 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, other than noted above, complying with our financial covenants and the other terms of our loan agreements with FNBO. 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, FNBO 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.

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 undertook the issuance of the Bonds to finance the acquisition and installation of certain solid waste facilities in connection with our ethanol plant near Lamberton, Minnesota. We received proceeds of approximately $14,876,000, after deducting 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 the capital 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 of 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.

We have guaranteed that if such assessed capital lease payments are not sufficient for the required bond payments, we will provide such funds as are needed to fund the shortfall. The capital 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. During the quarter ended January 31,

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2013, we were not in compliance with the fixed charge coverage ratio, the working capital covenant and the net worth covenant in the capital lease agreement. We subsequently received waivers of these violations. We will continue to work with the Trustee to obtain waivers of future violations of covenants in the capital lease. However, if we fail to obtain a waiver, the Trustee and the City could deem us to be in default and elect to exercise their available remedies which could include requiring us to immediately repay the outstanding balance.

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.

Contracting Activity

RPMG, Inc. 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.

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, 2012. 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 January 31, 2013.

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 January 31, 2013, our interest rate swap had a liability fair value of $991,576.

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.

22

For the three months ended January 31, 2013, we recorded losses due to the change in fair value of our outstanding natural gas derivative positions of approximately $7,000. We recorded losses due to changes in the fair value of our outstanding corn derivative positions for the three months ended January 31, 2013 of approximately $40,000. We also recorded gains due to changes in the fair value of our interest rate swap for the three months ended January 31, 2013 of approximately $205,000.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Interest Rate Risk

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from a term loan (the "Variable Rate Note") and a line of credit bearing a variable interest rate.  As of January 31, 2013, we had $15,344,904 outstanding on our Variable Rate Note. 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 January 31, 2013 was 5%. If we were to experience a 10% adverse change in LIBOR, the annual effect such change would have on our income statement, based on the amount we had outstanding on our Variable Rate Note of January 31, 2013, would be approximately $77,000. At January 31, 2013, we had $2,100,000 outstanding on our line of credit. Interest will accrue on the line of credit at the three-month LIBOR rate plus 350 basis points with no minimum interest rate. The applicable interest rate at January 31, 2013 was 3.80%. If we were to experience a 10% adverse change in LIBOR, the annual effect such change would have on our income statement, based on the amount we had outstanding on our line of credit as of January 31, 2013, would be approximately $8,000.

The specifics of each note are discussed in greater detail in “Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”

In order to reduce the risk caused by interest rate fluctuations, we entered into an interest rate swap agreement. We use the interest rate swap agreement to limit exposure to increased interest rates. The fair value of this interest rate swap agreement 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 the interest rate swap held by us as of January 31, 2013 serves as an economic hedge, we do 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. As of January 31, 2013, our interest rate swap had a liability fair value of $991,576.

Commodity Price Risk

We expect to be exposed to market risk from changes in commodity prices.  Exposure to commodity price risk results from our dependence on corn and natural gas in the ethanol production process and the sale of ethanol and distillers grains. We may seek to minimize the risks from fluctuations in the prices of raw material inputs through the use of corn commodity-based and natural gas derivatives. 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.

In the ordinary course of business, we entered into forward purchase contracts for our natural gas purchases. At January 31, 2013, we have natural gas forward contracts for delivery periods through June 2013 for a total commitment of approximately $1,258,000. At January 31, 2013, we have open positions for 1,280,000 bushels of corn on the Chicago Board of Trade. These derivatives have not been designated as an effective hedge for accounting purposes. Corn derivatives are forecasted to settle within the next 12 months. We do not have any open positions for natural gas on the New York Mercantile Exchange at January 31, 2013. At January 31, 2013, we recorded a loss due to the change in fair value of our outstanding corn derivative positions of

23

approximately $40,000 and a loss due to changes in fair value of our outstanding natural gas derivative positions of approximately $7,000.

As corn prices move in reaction to market trends and information, our income statement will be affected depending on the impact such market movements have on the value of our derivative instruments. Depending on market movements, crop prospects and weather, these price protection positions may cause immediate adverse effects, but are expected to produce long-term positive growth for us.

A sensitivity analysis has been prepared to estimate our exposure to ethanol, distillers grains, corn and natural gas price risk. Market risk related to these factors is estimated as the potential change in income resulting from a hypothetical 10% adverse change in the average cost of our corn and natural gas prices and average ethanol and distillers grains prices as of January 31, 2013 of the forward and future contracts used to hedge our market risk for corn and natural gas usage requirements. The volumes are based on our expected use and sale of these commodities for a one year period from January 31, 2013. The results of this analysis, which may differ from actual results, are approximately as follows:

	Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)	Unit of Measure	Hypothetical Adverse Change in Price as of 1/31/13		Approximate Adverse Change to Income
Natural Gas	1,362,998	MMBTU	10	%		$	632,431
Ethanol	57,999,900	Gallons	10	%		$	12,817,978
Corn	20,279,685	Bushels	10	%		$	14,439,136
DDGs	157,457	Tons	10	%		$	3,883,834

Item 4.  Controls and Procedures

Disclosure Controls and Procedures

Our management is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other 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), Lucas Schneider, have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of January 31, 2013.  Based on this review and evaluation, these officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission; and to ensure that the information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended January 31, 2013, which were identified in connection with management’s evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

24

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

The following risk factor is provided due to material changes from the risk factors previously disclosed in our annual report on Form 10-K. The risk factor set forth below should be read in conjunction with the risk factors section and the Management's Discussion and Analysis section for the fiscal year ended October 31, 2012, included in our annual report on Form 10-K.

If exports to Europe are decreased due to the imposition by the European Union of a tariff on U.S. ethanol, ethanol prices may be negatively impacted. The European Union recently concluded an anti-dumping investigation related to ethanol produced in the United States and exported to Europe. As a result of this investigation, the European Union has imposed a tariff of $83.03 per metric ton on ethanol which is produced in the United States and exported to Europe. If exports of ethanol to Europe decrease as a result of this tariff, it could negatively impact the market price of ethanol in the United States. Any decrease in ethanol prices or demand may negatively impact our ability to profitably operate the ethanol plant.

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.

Item 6. Exhibits.

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

Exhibit No.	Exhibit
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 January 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of January 31, 2013 and October 31, 2012, (ii) Condensed Statements of Operations for the three months ended January 31, 2013 and 2012, (iii) Condensed Statements of Cash Flows for the three months ended January 31, 2013 and 2012, and (iv) the Notes to Condensed Financial Statements.**

* Filed herewith.

** Furnished herewith.

+ Confidential Treatment Requested

25

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:	March 15, 2013	/s/ Brian Kletscher
		Brian Kletscher
		Chief Executive Officer
		(Principal Executive Officer)
Date:	March 15, 2013	/s/ Lucas Schneider
		Lucas Schneider
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

26

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:	March 15, 2013	/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, Lucas Schneider, 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:	March 15, 2013	/s/ Lucas Schneider
		Lucas Schneider, Chief Financial Officer (Interim 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 January 31, 2013, 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:	March 15, 2013

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 January 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lucas Schneider, 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/ Lucas Schneider
Lucas Schneider, Chief Financial Officer
Dated:	March 15, 2013

XML

Inventories (Details) (USD $)	Jan. 31, 2013	Oct. 31, 2012
Inventories [Abstract]
Raw Materials	$ 1,702,240	$ 1,219,867
Spare parts and supplies	1,037,735	959,482
Work in Process	1,360,794	1,362,851
Finished Goods	537,152	604,226
Inventories	$ 4,637,921	$ 4,146,426

XML

Fair Value Measurements

3 Months Ended

Jan. 31, 2013

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
	January 31, 2013			Level 1			Level 2			Level 3
Restricted marketable securities - current	$	2,615		$	2,615		$	—		$	—
Restricted marketable securities - long-term	$	1,518,000		$	1,518,000		$	—		$	—
Derivative instrument - interest rate swap	$	(991,576	)	$	—		$	(991,576	)	$	—
Derivative instrument - corn contracts	$	(326,587	)	$	(326,587	)	$	—		$	—

	Fair Value as of			Fair Value Measurement Using
	October 31, 2012			Level 1			Level 2			Level 3
Restricted marketable securities - current	$	14,841		$	14,841		$	—		$	—
Restricted marketable securities - long-term	$	1,518,000		$	1,518,000		$	—		$	—
Derivative instrument - interest rate swap	$	(1,197,016	)	$	—		$	(1,197,016	)	$	—
Derivative instrument - corn contracts	$	(339,475	)	$	(339,475	)	$	—		$	—

The fair value of restricted marketable securities 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.

XML

Debt Financing Short Term Debt (Details) (USD $)	Jan. 31, 2013
Line of Credit [Member]
Line of Credit Facility [Line Items]
Debt Instrument, Interest Rate at Period End	3.80%
Line of Credit Facility, Amount Outstanding	$ 2,100,000
Line of Credit Facility, Maximum Borrowing Capacity	5,000,000
Letter of Credit [Member]
Line of Credit Facility [Line Items]
Line of Credit Facility, Amount Outstanding	3,000,000
Line of Credit Facility, Maximum Borrowing Capacity	$ 5,600,000
Debt Instrument, Interest Rate, Stated Percentage	1.75%

XML

Debt Financing (Details) (USD $)	3 Months Ended
	Jan. 31, 2013	Feb. 26, 2015	Oct. 31, 2012
Debt Instrument [Line Items]
Long-term Debt and Capital Lease Obligations	$ 50,252,579		$ 50,758,592
Current maturities of long-term debt	2,943,756		2,901,330
Long-Term Debt	47,308,823		47,857,262
Notes Payable to Banks [Member] | Fixed Rate Note [Member]
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate	3.00%
Debt Instrument, Face Amount	25,200,000
Debt Instrument, Interest Rate at Period End	4.00%
Debt Instrument, Balloon Payment Amount		15,174,000
Debt Instrument, Periodic Payment, Principal	168,000
Debt Instrument, Interest Rate, Effective Percentage	4.00%
Long-term Debt	19,727,675		20,233,688
Notes Payable to Banks [Member] | Variable Rate Note [Member]
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate	3.50%
Debt Instrument, Face Amount	20,200,000
Debt Instrument, Interest Rate at Period End	5.00%
Debt Instrument, Excess Cash Flow Payments, Percentage	50.00%
Debt Instrument, Minimum Principal Reduction	750,000
Debt Instrument, Balloon Payment Amount		13,107,000
Debt Instrument, Interest Rate, Effective Percentage	5.00%
Long-term Debt	15,344,904		15,344,904
Notes Payable to Banks [Member] | Long-Term Revolving Note [Member]
Debt Instrument [Line Items]
Debt Instrument, Face Amount	5,000,000
Notes Payable to Banks [Member] | Long-Term Revolving Note, After Amendment [Member]
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate	3.50%
Debt Instrument, Face Amount	4,500,000
Debt Instrument, Periodic Redcution to Revolving Credit Facility	125,000
Debt Instrument, Interest Rate at Period End	4.00%
Debt Instrument, Excess Cash Flow Payments, Percentage	50.00%
Debt Instrument, Periodic Payment, Principal	750,000
Debt Instrument, Outstanding Balance	0
Capital Lease Obligations [Member]
Debt Instrument [Line Items]
Capital Lease Obligations	15,180,000		15,180,000
Line of Credit [Member]
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate	3.50%
Debt Instrument, Interest Rate at Period End	3.80%
Line of Credit Facility, Maximum Borrowing Capacity	5,000,000
Line of Credit Facility, Amount Outstanding	2,100,000
Productive Land [Member]
Debt Instrument [Line Items]
Capital Lease Obligations	$ 15,180,000

XML

Debt Financing Schedule of Maturities of Long-Term Debt (Details) (USD $)	Jan. 31, 2013	Oct. 31, 2012
Debt Financing [Abstract]
Long-term Debt, Maturities, Repayments of Principal in Next Rolling Twelve Months	$ 2,943,756
Long-term Debt, Maturities, Repayments of Principal in Rolling Year Two	4,081,386
Long-term Debt, Maturities, Repayments of Principal in Rolling Year Three	29,700,770
Long-term Debt, Maturities, Repayments of Principal in Rolling Year Four	1,541,667
Long-term Debt, Maturities, Repayments of Principal in Rolling Year Five	11,985,000
Long-term Debt and Capital Lease Obligations	$ 50,252,579	$ 50,758,592

XML

Commitments and Contingencies (Details) (USD $)	3 Months Ended
	Jan. 31, 2013	Oct. 31, 2012
Purchase Commitment, Excluding Long-term Commitment [Line Items]
Construction in Progress	$ 83,113	$ 27,529
Construction in Progress Expenditures Incurred but Not yet Paid	124,000
Natural Gas [Member]
Purchase Commitment, Excluding Long-term Commitment [Line Items]
Purchase Commitment, Remaining Minimum Amount Committed	$ 1,258,000
Product Usage, percentage	42.40%

XML

Uncertainties

3 Months Ended

Jan. 31, 2013

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.

XML

Condensed Balance Sheets (USD $)	Jan. 31, 2013	Oct. 31, 2012
Current Assets
Cash and equivalents	$ 2,457,585	$ 1,431,996
Restricted cash	607,594	600,192
Restricted marketable securities	2,615	14,841
Accounts receivable	4,765,931	4,927,791
Inventories	4,637,921	4,146,426
Prepaids and other	90,819	64,362
Total current assets	12,562,465	11,185,608
Property and Equipment
Land and land improvements	6,847,696	6,847,696
Buildings	38,371,020	38,368,076
Office equipment	355,522	353,657
Plant and process equipment	60,806,516	60,803,735
Vehicles	41,994	41,994
Construction in Progress	83,113	27,529
Gross property and equipment	106,505,861	106,442,687
Less accumulated depreciation	(21,561,963)	(19,983,052)
Net property and equipment	84,943,898	86,459,635
Other Assets
Investments in RPMG	1,512,475	1,512,475
Restricted Marketable Securities, Noncurrent	1,518,000	1,518,000
Debt issuance costs, net	760,173	825,988
Deposits	195,727	195,727
Total other assets	3,986,375	4,052,190
Total Assets	101,492,738	101,697,433
Current Liabilities
Accounts payable	2,057,732	2,016,384
Accrued expenses	729,515	631,109
Deferred revenue	233,123	0
Derivative instruments	1,075,210	1,113,554
Line of credit	2,100,000	0
Current maturities of long-term debt	2,943,756	2,901,330
Total Current Liabilities	9,139,336	6,662,377
Long-Term Debt	47,308,823	47,857,262
Other Liabilities	28,067	222,652
Derivative Instrument	242,953	422,937
Commitments and Contingencies	0	0
Members' Equity
Members' equity, 4,953 units outstanding	44,773,559	46,532,205
Total Liabilities and Members’ Equity	$ 101,492,738	$ 101,697,433

XML

Condensed Statements of Cash Flows (USD $)	3 Months Ended
	Jan. 31, 2013	Jan. 31, 2012
Cash Flows from Operating Activities
Net Income (Loss)	$ (1,746,420)	$ 965,975
Adjustments to reconcile net income (loss) to net cash provided by operations
Depreciation	1,578,911	1,562,572
Amortization included with interest expense	65,815	72,136
Interest payments made from restricted cash	0	33,638
Change in fair value of derivative instruments	102,353	254,695
Increase in restricted cash from net interest earned	(33,639)	(33,638)
Earnings from equity method investment	(120,995)	0
Change in assets and liabilities
Restricted cash	26,237	(85,491)
Accounts receivable, including members	161,860	2,103,062
Inventories	(491,495)	(665,298)
Derivative instruments	(320,681)	(227,465)
Prepaids and other	(26,457)	5,720
Deferred revenue	233,123	543,673
Accounts payable, including members	41,348	(37,896)
Accrued expenses	98,406	131,450
Net cash provided by (used in) operating activities	(431,634)	4,623,133
Cash Flows from Investing Activities
Capital expenditures	(63,174)	(98,900)
Investment in RPMG	(73,590)	(147,252)
Net cash used in investing activities	(136,764)	(246,152)
Cash Flows from Financing Activities
Proceeds from line of credit	2,100,000	0
Payments on long-term debt	(506,013)	(1,408,256)
Net cash provided by (used for) financing activities	1,593,987	(1,408,256)
Net Increase in Cash and Equivalents	1,025,589	2,968,725
Cash and equivalents – Beginning of Period	1,431,996	3,427,683
Cash and equivalents – End of Period	2,457,585	6,396,408
Supplemental Cash Flow Information
Cash paid for interest expense	953,704	999,319
Supplemental Disclosure of Noncash Financing and Investing Activities
Unrealized loss on restricted marketable securities	(12,226)	(13,504)
Capital expenditures included in accounts payable	0	38,501
Investment in RPMG included in accounts payable	0	34,001
Reduction in liabilities related to RPMG investment	$ 194,585	$ 0

XML

Fair Value Measurements (Details) (USD $)	Jan. 31, 2013	Oct. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable Securities, Restricted, Current	$ 2,615	$ 14,841
Restricted Marketable Securities, Noncurrent	1,518,000	1,518,000
Restricted Marketable Securities, Current [Member] | Fair Value, Measurements, Recurring [Member] | Estimate of Fair Value, Fair Value Disclosure [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable Securities, Restricted, Current	2,615	14,841
Restricted Marketable Securities, Current [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable Securities, Restricted, Current	2,615	14,841
Restricted Marketable Securities, Current [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable Securities, Restricted, Current	0	0
Restricted Marketable Securities, Current [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable Securities, Restricted, Current	0	0
Restricted Marketable Securities, Long-Term [Member] | Fair Value, Measurements, Recurring [Member] | Estimate of Fair Value, Fair Value Disclosure [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Restricted Marketable Securities, Noncurrent	1,518,000	1,518,000
Restricted Marketable Securities, Long-Term [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Restricted Marketable Securities, Noncurrent	1,518,000	1,518,000
Restricted Marketable Securities, Long-Term [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Restricted Marketable Securities, Noncurrent	0	0
Restricted Marketable Securities, Long-Term [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Restricted Marketable Securities, Noncurrent	0	0
Interest Rate Swap [Member] | Fair Value, Measurements, Recurring [Member] | Estimate of Fair Value, Fair Value Disclosure [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Assets	(991,576)	(1,197,016)
Interest Rate Swap [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Assets	0	0
Interest Rate Swap [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Assets	(991,576)	(1,197,016)
Interest Rate Swap [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Assets	0	0
Corn [Member] | Fair Value, Measurements, Recurring [Member] | Estimate of Fair Value, Fair Value Disclosure [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Assets	(326,587)	(339,475)
Corn [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Assets	(326,587)	(339,475)
Corn [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Assets	0	0
Corn [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Assets	$ 0	$ 0

XML

Restricted Marketable Securities Schedule of Held To Maturity Securities (Details) (USD $)	Jan. 31, 2013
Restricted Marketable Securities [Abstract]
Available-for-sale Securities, Debt Maturities, Due within 1 year	$ 1,280,433
Available-for-sale Securities, Debt Maturities, Due in 1 to 3 years	240,182
Marketable Securities, Restricted	$ 1,520,615

XML

Summary of Significant Accounting Policies

3 Months Ended

Jan. 31, 2013

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, 2012, 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 January 31, 2013 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 long-lived assets 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. The Company records deferred revenue when payments are received from customers prior to the shipment of the products purchased. 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 is 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 January 31, 2013 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 containing variable interest rates and this rate is a market interest rate for these borrowings.

Investments

The Company has an investment interest in an unlisted company, Renewable Fuels Marketing Group, LLC (RPMG), who markets the Company's ethanol. This investment is a flow-through entity and is being accounted for by the equity method of accounting under which the Company's share of net income is recognized as income in the Company's income statement and added to the investment account. Distributions or dividends received from the investment are treated as a reduction of the investment account. The Company has a 7% interest in RPMG. The Company consistently follows the practice of recognizing the net income based on the most recent reliable data. Therefore, the net income which is reported in the Company's income statement for the quarter ended January 31, 2013 is based on the investee's results of operations for the three month period ended December 31, 2012.

XML

Condensed Balance Sheets Parenthetical	Jan. 31, 2013	Oct. 31, 2012
Members' equity, 4,953 units outstanding	4,953	4,953

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Restricted Marketable Securities (Tables)

3 Months Ended

Jan. 31, 2013

Restricted Marketable Securities [Abstract]

Restricted Marketable Securities

	Amortized Cost		Gross Unrealized Gains		Fair Value
Restricted marketable securities - Current
municipal obligations	$	2,595	$	20	$	2,615
Restricted marketable securities - Long-term    municipal obligations	1,506,522		11,478		1,518,000
Total restricted marketable securities	$	1,509,117	$	11,498	$	1,520,615

Contractual Maturities of Marketable Securities

Due within 1 year	$	1,280,433
Due in 1 to 3 years	240,182
Total	$	1,520,615

XML

Document and Entity Information Document	3 Months Ended
	Jan. 31, 2013	Mar. 15, 2013
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	Jan. 31, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding		4,953

XML

Inventories (Tables)

3 Months Ended

Jan. 31, 2013

Inventory Disclosure [Abstract]

Schedule of Inventory

	January 31, 2013		October 31, 2012*
Raw materials	$	1,702,240	$	1,219,867
Spare parts and supplies	1,037,735		959,482
Work in process	1,360,794		1,362,851
Finished goods	537,152		604,226
Total	$	4,637,921	$	4,146,426

XML

Condensed Statements of Operations (USD $)	3 Months Ended
	Jan. 31, 2013	Jan. 31, 2012
Revenues	$ 43,201,533	$ 39,827,576
Cost of Goods Sold	43,730,615	37,489,729
Gross Profit (Loss)	(529,082)	2,337,847
Operating Expenses	528,522	515,115
Operating Profit (Loss)	(1,057,604)	1,822,732
Other Income (Expense)
Interest income	33,669	35,510
Other income	1,608	50,089
Interest expense	(1,050,528)	(1,101,414)
Gain on derivative instrument	205,440	159,058
Income from equity investment	120,995	0
Total other expense, net	(688,816)	(856,757)
Net Income (Loss)	$ (1,746,420)	$ 965,975
Weighted Average Units Outstanding Basic and Diluted	4,953	4,953
Net Income (Loss) Per Unit Basic and Diluted	$ (352.60)	$ 195.03

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Derivative Instruments

3 Months Ended

Jan. 31, 2013

Derivative Instruments [Abstract]

Derivative Instruments

DERIVATIVE INSTRUMENTS

As of January 31, 2013, the Company had entered into corn derivative instruments and an interest rate swap agreement, which are required to be recorded as either assets or liabilities at fair value in the condensed balance sheet. 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 derivative instruments outstanding at January 31, 2013 are not designated as effective hedges for accounting purposes.

Interest Rate Swap

At January 31, 2013, the Company had a notional amount of approximately $18,281,000 outstanding in the swap agreement that fixes the interest rate at 7.6% until June 2014.

Commodity Contracts

As of January 31, 2013, the Company has open positions for 1,280,000 bushels of corn. The Company has no open positions for natural gas as of January 31, 2013. Management expects all open positions outstanding as of January 31, 2013 to be realized within the next twelve months.

The following tables provide details regarding the Company's derivative instruments at January 31, 2013:

Instrument	Balance Sheet location	Assets		Liabilities
Interest rate swap	Derivative instruments	$	—	$	991,576
Corn contracts	Derivative instruments	$	—	$	326,587

The following tables provide details regarding the Company's derivative instruments at October 31, 2012:

Instrument	Balance Sheet location	Assets		Liabilities
Interest rate swap	Derivative instruments	$	—	$	1,197,016
Corn contracts	Derivative instruments	$	—	$	339,475

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 January 31,
	Operations location	2013			2012
Interest rate swap	Other income (expense)	$	205,440		$	159,058
Corn contracts	Cost of goods sold	(39,948		)	6,526
Natural gas contracts	Cost of goods sold	(7,436		)	(227,604		)

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Inventories

3 Months Ended

Jan. 31, 2013

Inventories [Abstract]

Inventories

INVENTORIES

Inventories consisted of the following at:

	January 31, 2013		October 31, 2012*
Raw materials	$	1,702,240	$	1,219,867
Spare parts and supplies	1,037,735		959,482
Work in process	1,360,794		1,362,851
Finished goods	537,152		604,226
Total	$	4,637,921	$	4,146,426

*Derived from Audited financial statements

XML

Restricted Marketable Securities (Details) (USD $)	Jan. 31, 2013	Oct. 31, 2012
Schedule of Available-for-sale Securities [Line Items]
Accumulated Other Comprehensive Income (Loss), Available-for-sale Securities Adjustment, Net of Tax	$ 11,498	$ 23,724
Available-for-sale Securities, Amortized Cost Basis	1,509,117
Available-for-sale Securities, Gross Unrealized Gains	11,498
Marketable Securities, Restricted, Current	2,615	14,841
Restricted Marketable Securities, Noncurrent	1,518,000	1,518,000
Marketable Securities, Restricted	1,520,615
Restricted Marketable Securities, Current [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Amortized Cost Basis	2,595
Available-for-sale Securities, Gross Unrealized Gains	20
Marketable Securities, Restricted, Current	2,615
Restricted Marketable Securities, Long-Term [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Amortized Cost Basis	1,506,522
Available-for-sale Securities, Gross Unrealized Gains	11,478
Restricted Marketable Securities, Noncurrent	$ 1,518,000

XML

Derivative Instruments (Tables)

3 Months Ended

Jan. 31, 2013

Derivative Instruments [Abstract]

Schedule of Derivatives Instruments Statements of Financial Performance and Financial Position

The following tables provide details regarding the Company's derivative instruments at January 31, 2013:

Instrument	Balance Sheet location	Assets		Liabilities
Interest rate swap	Derivative instruments	$	—	$	991,576
Corn contracts	Derivative instruments	$	—	$	326,587

The following tables provide details regarding the Company's derivative instruments at October 31, 2012:

Instrument	Balance Sheet location	Assets		Liabilities
Interest rate swap	Derivative instruments	$	—	$	1,197,016
Corn contracts	Derivative instruments	$	—	$	339,475

Schedule of Other Derivatives Not Designated as Hedging Instruments, Statements of Financial Performance and Financial Position

	Statement of	Three Months Ended January 31,
	Operations location	2013			2012
Interest rate swap	Other income (expense)	$	205,440		$	159,058
Corn contracts	Cost of goods sold	(39,948		)	6,526
Natural gas contracts	Cost of goods sold	(7,436		)	(227,604		)

XML

Accounting Policies

3 Months Ended

Jan. 31, 2013

Summary of Significant Accounting Policies [Abstract]

Accounting Estimates

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 long-lived assets 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

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. The Company records deferred revenue when payments are received from customers prior to the shipment of the products purchased. 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

Derivative Instruments

Derivatives are recognized in the balance sheet and the measurement of these instruments is 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

Fair Value of Financial Instruments

The carrying value of cash, accounts receivable, and accounts payable, and other working capital items approximate fair value at January 31, 2013 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 containing variable interest rates and this rate is a market interest rate for these borrowings.

Investments

Investments

The Company has an investment interest in an unlisted company, Renewable Fuels Marketing Group, LLC (RPMG), who markets the Company's ethanol. This investment is a flow-through entity and is being accounted for by the equity method of accounting under which the Company's share of net income is recognized as income in the Company's income statement and added to the investment account. Distributions or dividends received from the investment are treated as a reduction of the investment account. The Company has a 7% interest in RPMG. The Company consistently follows the practice of recognizing the net income based on the most recent reliable data. Therefore, the net income which is reported in the Company's income statement for the quarter ended January 31, 2013 is based on the investee's results of operations for the three month period ended December 31, 2012.

XML

Debt Financing

3 Months Ended

Jan. 31, 2013

Debt Financing [Abstract]

Debt Financing

DEBT FINANCING

Long-term debt consists of the following at:

	January 31, 2013		October 31, 2012*
Fixed rate note payable, see terms below	$	19,727,675	$	20,233,688
Variable rate note payable, see terms below	15,344,904		15,344,904
Capital lease	15,180,000		15,180,000
Total	50,252,579		50,758,592
Less amounts due within one year	2,943,756		2,901,330
Net long-term debt	$	47,308,823	$	47,857,262

*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 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 $168,000 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 January 31, 2013. A final balloon payment on the Fixed Rate Note of approximately $15,174,000 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 January 31, 2013. 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. A final balloon payment of approximately $13,107,000 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 3.80% at January 31, 2013. The line of credit requires monthly interest payments. In April 2012, the Company extended the line of credit to April 2013. At January 31, 2013, the Company had $2,100,000 outstanding and the maximum availability was $5,000,000.

The loan agreements are secured by substantially all business assets and 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. As of January 31, 2013, the Company was not in compliance with the fixed charge coverage ratio. The Company subsequently received a waiver of this violation.

As of January 31, 2013, the Company has letters of credit outstanding of $3,000,000. The Company pays interest at a rate of 1.75% on amounts outstanding and the letters of credit are valid until January 2014.

Capital Lease

The Company has a lease agreement with the City of Lamberton, Minnesota for $15,180,000. During the quarter ended January 31, 2013, the Company was not in compliance with the fixed charge coverage ratio, working capital and net worth of the lease agreement. The Company subsequently received a waiver of these violations.

The estimated maturities of the long-term debt at January 31, 2013 over the next year are as follows:

2014	$	2,943,756
2015	4,081,386
2016	29,700,770
2017	1,541,667
2018 and thereafter	11,985,000
Long-term debt	$	50,252,579

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Commitments and Contingencies

3 Months Ended

Jan. 31, 2013

Commitments and Contingencies [Abstract]

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES

Forward Contracts

The Company has forward contracts in place for natural gas purchases for approximately $1,258,000 through June 2013, which represents approximately 42.4% of the Company's projected usage for the corresponding time period.

Construction in Progress

The Company had construction in progress of approximately $83,000 at January 31, 2013 for certain projects. The additions are expected to amount to $124,000.

XML

Fair Value Measurements (Tables)

3 Months Ended

Jan. 31, 2013

Fair Value Measurements [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

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

	Fair Value as of			Fair Value Measurement Using
	January 31, 2013			Level 1			Level 2			Level 3
Restricted marketable securities - current	$	2,615		$	2,615		$	—		$	—
Restricted marketable securities - long-term	$	1,518,000		$	1,518,000		$	—		$	—
Derivative instrument - interest rate swap	$	(991,576	)	$	—		$	(991,576	)	$	—
Derivative instrument - corn contracts	$	(326,587	)	$	(326,587	)	$	—		$	—

	Fair Value as of			Fair Value Measurement Using
	October 31, 2012			Level 1			Level 2			Level 3
Restricted marketable securities - current	$	14,841		$	14,841		$	—		$	—
Restricted marketable securities - long-term	$	1,518,000		$	1,518,000		$	—		$	—
Derivative instrument - interest rate swap	$	(1,197,016	)	$	—		$	(1,197,016	)	$	—
Derivative instrument - corn contracts	$	(339,475	)	$	(339,475	)	$	—		$	—

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Summary of Significant Accounting Policies (Details)	3 Months Ended
	Jan. 31, 2013 gal
Investor [Member]
Product Information [Line Items]
Equity Method Investment, Ownership Percentage	7.00%
Ethanol [Member]
Product Information [Line Items]
Annual Production Capacity	50,000,000

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Derivative Instruments Balance Sheet (Details) (USD $)	Jan. 31, 2013	Oct. 31, 2012
Interest Rate Swap [Member] | Assets [Member]
Derivatives, Fair Value [Line Items]
Derivative Assets	$ 0	$ 0
Interest Rate Swap [Member] | Other Liabilities [Member]
Derivatives, Fair Value [Line Items]
Derivative Liability, Fair Value, Net	991,576	1,197,016
Corn [Member]
Derivatives, Fair Value [Line Items]
Nonmonetary Notional Amount of Price Risk Derivative Instruments Not Designated as Hedging Instruments, Sale Contracts	1,280,000
Corn [Member] | Assets [Member]
Derivatives, Fair Value [Line Items]
Derivative Assets	0	0
Corn [Member] | Other Liabilities [Member]
Derivatives, Fair Value [Line Items]
Derivative Liability, Fair Value, Net	$ 326,587	$ 339,475

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Condensed Statements of Comprehensive Income (Loss) (USD $)	3 Months Ended
	Jan. 31, 2013	Jan. 31, 2012
Net Income (Loss)	$ (1,746,420)	$ 965,975
Unrealized loss on restricted marketable securities	(12,226)	(13,504)
Comprehensive Income (Loss)	$ (1,758,646)	$ 952,471

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Restricted Marketable Securities

3 Months Ended

Jan. 31, 2013

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 January 31, 2013:

	Amortized Cost		Gross Unrealized Gains		Fair Value
Restricted marketable securities - Current
municipal obligations	$	2,595	$	20	$	2,615
Restricted marketable securities - Long-term    municipal obligations	1,506,522		11,478		1,518,000
Total restricted marketable securities	$	1,509,117	$	11,498	$	1,520,615

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 $11,498 and $23,724 included in accumulated other comprehensive income at January 31, 2013 and October 31, 2012, respectively.

Shown below are the contractual maturities of marketable securities with fixed maturities at January 31, 2013. Actual maturities may differ from contractual maturities because certain securities may contain early call or prepayment rights.

Due within 1 year	$	1,280,433
Due in 1 to 3 years	240,182
Total	$	1,520,615

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Derivative Instruments Income Statement (Details) (USD $)	3 Months Ended
	Jan. 31, 2013	Jan. 31, 2012
Interest Rate Swap [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Notional Amount of Interest Rate Cash Flow Hedge Derivatives	$ 18,281,000
Derivative, Fixed Interest Rate	7.60%
Not Designated as Hedging Instrument [Member] | Interest Rate Swap [Member] | Other Income [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative Instruments, Gain (Loss) Recognized in Income, Net	205,440	159,058
Not Designated as Hedging Instrument [Member] | Corn [Member] | Cost of Sales [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative Instruments, Gain (Loss) Recognized in Income, Net	(39,948)	6,526
Not Designated as Hedging Instrument [Member] | Natural Gas [Member] | Cost of Sales [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative Instruments, Gain (Loss) Recognized in Income, Net	$ (7,436)	$ (227,604)

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Debt Financing (Tables)

3 Months Ended

Jan. 31, 2013

Debt Financing [Abstract]

Schedule of Long-term Debt

	January 31, 2013		October 31, 2012*
Fixed rate note payable, see terms below	$	19,727,675	$	20,233,688
Variable rate note payable, see terms below	15,344,904		15,344,904
Capital lease	15,180,000		15,180,000
Total	50,252,579		50,758,592
Less amounts due within one year	2,943,756		2,901,330
Net long-term debt	$	47,308,823	$	47,857,262

Schedule of Maturities of Long-term Debt

2014	$	2,943,756
2015	4,081,386
2016	29,700,770
2017	1,541,667
2018 and thereafter	11,985,000
Long-term debt	$	50,252,579