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, 2018
	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
	Emerging Growth Company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 7, 2018 there were 4,813.50 membership units outstanding.

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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	12
Item 3. Quantitative and Qualitative Disclosures about Market Risk	19
Item 4. Controls and Procedures	21
PART II. OTHER INFORMATION	21
Item 1. Legal Proceedings	21
Item 1A. Risk Factors	21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3. Defaults Upon Senior Securities	21
Item 4. Mine Safety Disclosures	21
Item 5. Other Information	22
Item 6. Exhibits	22
SIGNATURES	22

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PART I    FINANCIAL INFORMATION

Item 1. Financial Statements

HIGHWATER ETHANOL, LLC

Condensed Balance Sheets

ASSETS	January 31, 2018			October 31, 2017
	(Unaudited)
Current Assets
Cash and cash equivalents	$	2,961,940		$	738,209
Derivative instruments	366,443			800,199
Accounts receivable	1,751,759			2,838,154
Inventories	6,982,751			7,380,706
Prepaids and other	78,043			90,133
Total current assets	12,140,936			11,847,401
Property and Equipment
Land and land improvements	12,647,512			12,647,512
Buildings	38,818,532			38,811,666
Office equipment	1,151,330			1,151,330
Equipment	74,683,029			74,364,700
Vehicles	74,094			74,094
Construction in progress	216,794			256,923
	127,591,291			127,306,225
Less accumulated depreciation	(57,393,621		)	(55,254,778		)
Net property and equipment	70,197,670			72,051,447
Other Assets
Investments	2,483,904			2,641,755
Deposits	191,457			191,457
Total other assets	2,675,361			2,833,212
Total Assets	$	85,013,967		$	86,732,060

LIABILITIES AND MEMBERS' EQUITY	January 31, 2018		October 31, 2017
	(Unaudited)
Current Liabilities
Accounts payable	$	2,531,223	$	2,765,060
Accrued expenses	1,001,416		1,175,100
Customer deposits	43,217		—
Current maturities of long-term debt	2,717,350		2,715,528
Total current liabilities	6,293,206		6,655,688
Long-Term Debt	9,200,645		7,942,403
Commitments and Contingencies
Members' Equity
Members' equity, 4,813.50 units issued and outstanding	69,520,116		72,133,969
Total Liabilities and Members’ Equity	$	85,013,967	$	86,732,060

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

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HIGHWATER ETHANOL, LLC

Condensed Unaudited Statements of Operations

	Three Months Ended
	January 31, 2018			January 31, 2017
Revenues	$	22,980,047		$	27,058,613
Cost of Goods Sold	23,031,743			22,866,803
Gross Profit (Loss)	(51,696		)	4,191,810
Operating Expenses	742,949			724,020
Operating Profit (Loss)	(794,645		)	3,467,790
Other Income (Expense)
Interest income	326			502
Other income	10,922			2,293
Interest expense	(173,578		)	(201,486		)
Income from equity method investments	3,780			21,076
Total other income (expense), net	(158,550		)	(177,615		)
Net Income (Loss)	$	(953,195	)	$	3,290,175
Weighted Average Units Outstanding	4,814			4,892
Net Income (Loss) Per Unit, Basic and Diluted	$	(198.02	)	$	672.56
Distributions Per Unit	$	345		$	345

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

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HIGHWATER ETHANOL, LLC

Condensed Unaudited Statements of Cash Flows

	Three Months Ended
	January 31, 2018			January 31, 2017
Cash Flows from Operating Activities
Net income (loss)	$	(953,195	)	$	3,290,175
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization	2,148,907			1,992,454
Distributions in excess of earnings from equity method investments	170,148			233,008
Gain on sale of asset	—			(6,593		)
Non-cash patronage income	(12,297		)	(12,297		)
Changes in assets and liabilities
Accounts receivable	1,086,395			986,802
Inventories	397,955			(373,828		)
Derivative instruments	433,757			99,517
Prepaids and other	12,090			(1,579		)
Customer deposits	43,217			—
Accounts payable	(199,422		)	(799,834		)
Accrued expenses	(173,684		)	(22,437		)
Net cash provided by operating activities	2,953,871			5,385,388
Cash Flows from Investing Activities
Capital expenditures	(319,482		)	(464,323		)
Proceeds from sale of asset	—			16,023
Net cash used in investing activities	(319,482		)	(448,300		)
Cash Flows from Financing Activities
Payments on long-term debt	(750,000		)	(3,641,374		)
Proceeds from long-term debt	2,000,000			—
Member distributions	(1,660,658		)	(1,687,740		)
Net cash used in financing activities	(410,658		)	(5,329,114		)
Net Increase (Decrease) in Cash and Cash Equivalents	2,223,731			(392,026		)
Cash and Cash equivalents – Beginning of Period	738,209			2,129,800
Cash and Cash equivalents – End of Period	$	2,961,940		$	1,737,774
Supplemental Cash Flow Information
Cash paid for interest	$	134,643		$	102,385
Supplemental Disclosure of Noncash Financing and Investing Activities
Capital expenditures included in accounts payable	$	9,800		$	64,571

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

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HIGHWATER ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

January 31, 2018

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.  The accompanying balance sheet and related notes as of October 31, 2017 are derived from the audited financial statements as of that date. These condensed 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, 2017, 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, 2018 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, primarily through third-party professional marketers, fuel ethanol and co-products of the fuel ethanol production process in the continental United States, Mexico and Canada.

Accounting Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The Company uses estimates and assumptions in accounting for significant matters, among others, the carrying value of property and equipment and related impairment testing, inventory valuation, and derivative instruments. Actual results could differ from those estimates and such differences may be material to the financial statements. The Company periodically reviews estimates and assumptions and the effects of revisions are reflected in the period in which the revision is made.

Revenue Recognition

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

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

Derivative Instruments

Derivatives are recognized in the balance sheet and the measurement of these instruments is at fair value. Margin amounts required by the broker are classified as deposits with broker within derivative instruments and any excess is classified as cash equivalents in the balance sheets. 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

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HIGHWATER ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

January 31, 2018

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.

The Company enters into corn and ethanol 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. Changes in fair market value of ethanol derivatives are included in revenues. Changes in fair market value of corn and natural gas derivatives are included in costs of goods sold.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and other working capital items approximate fair value at January 31, 2018 due to the short maturity nature of these instruments.

The Company believes the carrying value of the derivative instruments approximates fair value based on quoted market prices or 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 that rate is a market interest rate for these borrowings.

Equity Method Investments

The Company has a 6% investment interest in an unlisted company, Renewable Products Marketing Group, LLC (RPMG), who markets the Company’s ethanol. The Company also has a 7% ownership interest in Lawrenceville Tank, LLC (LT), which owns and operates a trans load/tank facility near Atlanta, Georgia. These investments are flow-through entities and are 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 statements of operations and added to the investment account. Distributions or dividends received from the investment are treated as a reduction of the investment account. The Company consistently follows the practice of recognizing the net income from equity method investments based on the most recent reliable data. Therefore, the net income which is reported in the Company's statement of operations for the quarter ended January 31, 2018 is based on the investee’s results of operations for the three month period ended December 31, 2017.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, which is the Company’s first quarter of fiscal year 2019. Early application is permitted one year earlier. The new standard allows for the amendment to be applied either retrospectively to each prior reporting period presented or retrospectively as a cumulative-effect adjustment as of the date of adoption. The Company is evaluating the effect that ASU 2014-09 will have on its financial statements and related disclosures, including which transition method it will adopt. The Company plans to complete its evaluation by October 31, 2018.

In January 2016, the FASB issued ASU No. 2016-01 (ASU2016-01), Financial Instruments-Overall (Subtopic 825-10), which is intended to make financial statement information on recognition, measurement, presentation, and disclosure of financial instrument more useful. ASU 2016-01 is effective for fiscal periods beginning after December 15, 2017. The Company is currently in the process of evaluating the impact that this new guidance will have on the financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  This ASU requires lessees to recognize a lease liability and a right-to-use asset for all leases, including operating leases, with a term greater than twelve months on its balance sheet.  This

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HIGHWATER ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

January 31, 2018

ASU is effective in annual and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted, and requires a modified retrospective transition method.  The Company is currently in the process of evaluating the impact that this new guidance will have on the financial statements.

In August 2016, the FASB issued ASU No. 2016-15 (ASU 2016-15), Statement of Cash Flows (Topic 230), which clarifies and provides guidance for specific cash flow issues. ASU 2016-15 is effective for fiscal periods beginning after December 15, 2017. The Company implemented ASU 2016-15 effective November 1, 2017. The effect was reclassifying Distributions from Equity Method Investments from Cash Flows from Investing Activities to Cash Flows from Operating Activities.

2. UNCERTAINTIES

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

3. INVENTORIES

Inventories consisted of the following at:

	January 31, 2018		October 31, 2017
Raw materials	$	1,751,939	$	2,130,668
Spare parts and supplies	3,115,239		2,938,262
Work in process	711,254		729,167
Finished goods	1,404,319		1,582,609
Total	$	6,982,751	$	7,380,706

4. DERIVATIVE INSTRUMENTS

As of January 31, 2018, the Company had entered into corn, ethanol and natural gas derivative instruments, which are required to be recorded as either assets or liabilities at fair value in the balance sheet. The Company uses these instruments to manage risks from changes in market rates and prices. They are not used for speculative purposes. 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 may designate the hedging instruments based upon the exposure being hedged as a fair value hedge or a cash flow hedge. The derivative instruments outstanding at January 31, 2018 are not designated as effective hedges for accounting purposes.

Commodity Contracts

As of January 31, 2018, the Company has open positions for 1,200,000 bushels of corn. Management expects all open positions outstanding as of January 31, 2018 to be realized within the next twelve months.

The following tables provide details regarding the Company's derivative instruments at January 31, 2018 and October 31, 2017:

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HIGHWATER ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

January 31, 2018

Instrument	Balance Sheet location	January 31, 2018			October 31, 2017
Corn, natural gas and ethanol futures contracts
In gain position		$	352,598		$	66,438
In loss position		(1,512,176		)	(1,668,043		)
Deposits with broker		1,526,021			2,401,804
	Current assets	$	366,443		$	800,199

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	2018			2017
Ethanol contracts	Revenues	$	(97,326	)	$	225,732
Corn contracts	Cost of goods sold	497,790			550,336
Natural gas contracts	Cost of goods sold	30,852			(3,140		)

5. FAIR VALUE MEASUREMENTS

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

	Fair Value as of			Fair Value Measurement Using
	January 31, 2018			Level 1			Level 2		Level 3
Derivative instruments - commodities	$	(1,159,578	)	$	(1,159,578	)	$	—	$	—

	Fair Value as of			Fair Value Measurement Using
	October 31, 2017			Level 1			Level 2		Level 3
Derivative instruments - commodities	$	(1,601,605	)	$	(1,601,605	)	$	—	$	—

The Company determines the fair values of commodities 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.

6. DEBT FINANCING

Long-term debt consists of the following at:

	January 31, 2018			October 31, 2017
Variable Rate Term Loan	$	9,000,000		$	9,750,000
Term Revolving Loan	3,000,000			1,000,000
Total	12,000,000			10,750,000
Less Debt Issuance Costs	(82,005		)	(92,069		)
Less amounts due within one year	(2,717,350		)	(2,715,528		)
Net long-term debt	$	9,200,645		$	7,942,403

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HIGHWATER ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

January 31, 2018

Bank Financing

On January 22, 2016, the Company entered into a Second Amended and Restated Credit Agreement with Compeer Financial, PCA f/k/a AgStar Financial Services, PCA, as administrative agent for several financial institutions ("Compeer") which amended the Amended and Restated Credit Agreement dated September 22, 2014. The Second Amended and Restated Credit Agreement decreased the Term Loan to $15,000,000, increased the Term Revolving Loan to $15,000,000 and eliminated the Revolving Line of Credit.

Term Loan

The Term Loan is for $15,000,000 with a variable interest rate based on the 30-day LIBOR rate plus 325 basis points with no minimum interest rate. The applicable interest rate at January 31, 2018 was 4.68%. Monthly principal payments are due on the Term Loan of approximately $250,000 plus accrued interest. Payments of all amounts outstanding are due on January 22, 2021. The outstanding balance on this note was $9,000,000 at January 31, 2018. The Company may convert the Term Loan to a fixed rate loan, subject to certain conditions as described in the Second Amended and Restated Credit Agreement and with the consent of Compeer.

Term Revolving Loan

The Term Revolving Loan is for up to $15,000,000 with a variable interest rate based on the 30-day LIBOR rate plus 325 basis points with no minimum interest rate. The applicable interest rate at January 31, 2018 was 4.68%. The availability under the Term Revolving Loan increases to $20,000,000 after the Term Loan is paid down to $10,000,000 so long as at least one or more of the participating banks agrees to raise its commitment. The Term Revolving Loan may be advanced, repaid and re-borrowed during the term. Monthly interest payments are due on the Term Revolving Loan. Payment of all amounts outstanding are due on January 22, 2023. The outstanding balance on this note was $3,000,000 at January 31, 2018. The Company also has $500,000 in letters of credit outstanding at January 31, 2018 which reduce the amount available under the Term Revolving Loan. The Company pays interest at a rate of 1.50% on amounts outstanding for the letters of credit. The Company is also required to pay unused commitment fees for the Term Revolving Loan as defined in the Second Amended and Restated Credit Agreement.

Debt Issuance Costs

Costs associated with the issuance of debt are recorded as debt issuance costs and are amortized over the term of the related debt by use of the effective interest method.

Covenants and other Miscellaneous Terms

The loan facility with Compeer is secured by substantially all business assets. The Company executed a mortgage creating a first lien on its real estate and plant and a security interest in all personal property located on the premises and assigned all rents and leases to property, marketing contracts, risk management services contract, and natural gas, electricity, water service and grain procurement agreements.

The Company is also subject to various financial and non-financial covenants that limit distributions and debt and require minimum debt service coverage, tangible net worth, and working capital requirements. The debt service coverage ratio is no less than 1.25:1.00 measured annually by comparing adjusted EBITDA to scheduled payments of principal and interest. The minimum working capital is $8,250,000, which is calculated as current assets plus the amount available for drawing under the Term Revolving Loan and undrawn amounts on outstanding letters of credit, less current liabilities, and is measured quarterly.

The Company is limited to annual capital expenditures of $5,000,000 without prior approval, incurring additional debt over certain amounts without prior approval, and making additional investments as described in the Amended and Restated Credit Agreement without prior approval of Compeer. The Company is allowed to make cash distributions to members as frequently as monthly in an amount equal to 75% of net income if working capital is greater than or equal to $8,250,000, or 100% of net income if working capital is greater than or equal to $11,000,000, or an unlimited amount if working capital is greater than or equal to $11,000,000 and the outstanding balance on the Term Loan is $0.

The estimated maturities of the long-term debt at January 31, 2018 are as follows:

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HIGHWATER ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

January 31, 2018

	Principal		Debt Issuance Costs			Total
January 2019	$	2,750,000	$	(32,650	)	$	2,717,350
January 2020	3,000,000		(27,998		)	2,972,002
January 2021	3,250,000		(21,357		)	3,228,643
January 2022	—		—			—
January 2023	3,000,000		—			3,000,000
Long-term debt	$	12,000,000	$	(82,005	)	$	11,917,995

7. COMMITMENTS AND CONTINGENCIES

Marketing Agreements

The Company has an ethanol marketing agreement with a marketer (RPMG) to purchase, market, and distribute all the ethanol produced by the Company. The Company also entered into a member control agreement with the marketer whereby the Company made capital contributions and became a minority owner of the marketer. The member control agreement became effective on February 1, 2011 and provides the Company a membership interest with voting rights. The marketing agreement will terminate if the Company ceases to be a member. The Company will assume certain of the member’s rail car leases if the agreement is terminated. The Company can sell its ethanol either through an index arrangement or at an agreed upon fixed price. The marketing agreement is perpetual until terminated according to the agreement.  The Company may be obligated to continue to market its ethanol through the marketer for a period of time. The amended agreement requires minimum capital amounts invested as required under the agreement.

The Company has a distillers grains marketing agreement with a marketer to market all the dried distillers grains produced at the plant. Under the agreement the marketer charges a maximum of $2.00 per ton and a minimum of $1.50 per ton price using 2% of the FOB plant price actually received by them for all dried distillers grains removed. The agreement will remain in effect unless otherwise terminated by either party with 120 days days notice. Under the agreement, the marketer is responsible for all transportation arrangements for the distribution of the dried distillers grains. The Company markets and sells its modified and wet distillers grains.

The Company has a crude corn oil marketing agreement with a marketer to market all corn oil to be produced at the plant. Under the agreement, the marketer will execute contracts with buyers after giving prior notice of the terms and conditions thereof to the Company and receiving direction from the Company to accept such contracts. The Company receives the actual price received from buyers less a marketing fee, actual freight and transportation costs and certain taxes related to the purchase, delivery or sale. The Company is required to provide corn oil meeting certain specifications as provided in the agreement and the agreement provides for a process for rejection of nonconforming corn oil. The agreement automatically renews for successive one-year terms unless terminated in accordance with the agreement.

Regulatory Agencies

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

Forward Contracts

At January 31, 2018, the Company had approximately 6,296,000 bushels of forward fixed basis corn contracts and 1,715,000 bushels of forward fixed price corn contracts valued at approximately $5,488,000. These purchase contracts are for various delivery periods through December 2018. At January 31, 2018, the Company had approximately 1,043,000 MMBTUs of forward fixed price natural gas purchase contracts valued at approximately $2,884,000 for various delivery periods through September 2019. In addition, at January 31, 2018, the Company had approximately 18,400 gallons of forward fixed price denaturant purchase contracts valued at $29,000 for various delivery periods through February 2018.

At January 31, 2018, the Company had approximately 8,050 tons of forward fixed price dried distillers grains sales contracts valued at $1,094,000 for various delivery periods through March 2018. In addition, at January 31, 2018, the Company had approximately 10,400 tons of forward fixed price modified distillers grains sales contracts valued at approximately $591,000 for delivery periods through September 2018. In addition, at January 31, 2018, the Company had approximately 575,000 pounds of forward fixed price corn oil sales contracts valued at approximately $121,000 for delivery periods through February 2018.

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

We prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition, and results of operations for the three month period ended January 31, 2018, 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, 2017.

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	Reduction or elimination of the Renewable Fuel Standard;
Ÿ	Volatile commodity and financial markets;
Ÿ	Changes in legislation benefiting renewable fuels;
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	Our inability to secure credit or obtain additional equity financing we may require in the future;
Ÿ	Our ability to retain key employees and maintain labor relations; and
Ÿ	Changes in the price of oil and gasoline.

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

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materials to, the Securities and Exchange Commission. The contents of our website are not incorporated by reference in this Quarterly Report on Form 10-Q.

Overview

Highwater Ethanol, LLC (“we,” “our,” “Highwater Ethanol” or the “Company”) was formed as a Minnesota limited liability company organized on May 2, 2006, for the purpose of constructing, owning, and operating a 50 million gallon per year ethanol plant near Lamberton, Minnesota. Since August 2009, we have been engaged in the production of ethanol and distillers grains at the plant. We have been operating in excess of our nameplate capacity of 50 million gallons per year and anticipate we will continue to do so in the future. We have submitted an application to the Minnesota Pollution Control Agency to increase the emissions limits in our air permit.

Our operating results are largely driven by the prices at which we sell our ethanol and distillers grains as well as the 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. markets our ethanol. CHS, Inc. markets our dried distillers grains and corn oil and supplies our corn.

On November 15, 2017, our board of governors declared a cash distribution of $345 per membership unit for the holders of units of record at the close of business on that date for a total distribution of $1,660,658. We paid the distribution on December 18, 2017.

We expect to fund our operations during the next 12 months using cash flow from our continuing operations and our current credit facilities. However, should we experience unfavorable operating conditions in the ethanol industry that prevent us

from profitably operating the ethanol plant, we may need to seek additional funding.

Results of Operations for the Three Months Ended January 31, 2018 and 2017

The following table shows the results of our operations and the approximate percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our unaudited statements of operations for the three months ended January 31, 2018 and 2017:

	2018					2017
Statements of Operations Data	Amount (unaudited)			%		Amount (unaudited)			%
Revenues	$	22,980,047		100.00	%	$	27,058,613		100.00	%
Cost of Goods Sold	23,031,743			100.22	%	22,866,803			84.51	%
Gross Profit (Loss)	(51,696		)	(0.22	)%	4,191,810			15.49	%
Operating Expenses	742,949			3.24	%	724,020			2.67	%
Operating Profit (Loss)	(794,645		)	(3.46	)%	3,467,790			12.82	%
Other Income (Expense)	(158,550		)	(0.69	)%	(177,615		)	(0.66	)%
Net Income (Loss)	$	(953,195	)	(4.15	)%	$	3,290,175		12.16	%

The following table shows the sources of our revenue for the three months ended January 31, 2018 and 2017:

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	2018				2017
Revenue Sources	Amount (Unaudited)		%		Amount (Unaudited)		%
Ethanol Sales	$	17,860,058	77.72	%	$	22,321,483	82.49	%
Modified Distillers Grains Sales	704,658		3.07	%	567,298		2.10	%
Dried Distillers Grains Sales	3,612,082		15.72	%	3,256,176		12.03	%
Corn Oil Sales	803,249		3.49	%	913,656		3.38	%
Total Revenues	$	22,980,047	100.00	%	$	27,058,613	100.00	%

Revenue

Ethanol

Our total revenues were lower for the three months ended January 31, 2018, as compared to the three months ended January 31, 2017. Revenue from ethanol sales decreased by approximately 20.00% during the three months ended January 31, 2018, as compared to the three months ended January 31, 2017, due primarily to a decrease in the average price per gallon of ethanol sold. The average price per gallon of ethanol sold for the three months ended January 31, 2018 was approximately 19.18% lower than the average price we received for the three months ended January 31, 2017. Ethanol prices were lower for the three months ended January 31, 2018 due to record levels of domestic production.

    Ethanol prices will likely continue to generally be directionally consistent with changes in corn and energy prices. If corn and gasoline prices decrease, that could have a significant negative impact on the price of ethanol particularly if ethanol stocks were to remain at current high levels. The institution of tariffs by the Chinese and Brazilian governments on ethanol produced in the U.S. has resulted in a decline in ethanol prices. However, if China or Brazil were to lower or eliminate those tariffs, or if demand from other foreign markets were to increase, that could have a positive effect on ethanol prices. Further an increase in domestic usage due to seasonal driving demand could also contribute to an increase in ethanol prices.

The number of gallons of ethanol sold during the three months ended January 31, 2018 decreased by 0.37% compared to the number of gallons of ethanol sold for the three months ended January 31, 2017 due to decreased production of ethanol due to extremely cold weather experienced in early January 2018 in our local area. However, management anticipates that the amount of ethanol produced for the three months ended January 31, 2018, will remain relatively consistent in the future.

We had (losses) gains related to ethanol based derivative instruments of approximately ($97,000) and $226,000 for the three months ended January 31, 2018 and 2017, respectively.

Distillers Grains

Revenue from distillers grains sales increased by approximately 12.90% during the three months ended January 31, 2018, as compared to the three months ended January 31, 2017. This is primarily a result of higher dried and modified distillers grains prices for the three months ended January 31, 2018, as compared to the three months ended January 31, 2017. For the three months ended January 31, 2018, the average price per ton of dried distillers grains sold was approximately 24.23% higher than the average price we received during the three months ended January 31, 2017, due to price increases in the protein market that correlate to the price of soybean meal. For the three months ended January 31, 2018, the average price per ton of modified distillers grains sold was approximately 7.20% higher than during the three months ended January 31, 2017, due to increased demand in our local area.

Distillers grains prices typically change in proportion to corn prices and availability of corn. Domestic demand for distillers grains could remain low due to expansion of production capacity in the ethanol industry or if corn prices decline and end-users switch to lower priced alternatives. Changes in foreign demand also impact distillers grains prices. Historically, China has been a significant consumer of exported distillers grains. However, an anti-dumping investigation by the Chinese government into distillers grains produced in the United States and the imposition by China of anti-dumping and anti-subsidy duties on distillers grains produced in the U.S. has had a negative effect on export demand from China resulting in lower distillers grains prices.

The tons of dried distillers grains sold decreased by approximately 7.60% during the three months ended January 31, 2018, as compared to the three months ended January 31, 2017. The tons of modified distillers grains sold during the three months ended January 31, 2018, increased by approximately 15.87% as compared to the three months ended January 31, 2017. The overall

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tons of distillers grains produced decreased somewhat due to decreased ethanol production due to extremely cold weather. However, management anticipates that the overall amount of distillers grains produced for the three months ended January 31, 2018, will remain relatively consistent in the future.

At January 31, 2018, we have approximately 8,050 tons of forward dried distiller grains sales contracts valued at $1,094,000 for various delivery periods through March 2018. In addition, at January 31, 2018, the Company had approximately 10,400 tons of forward fixed price modified distillers grains sales contracts valued at approximately $591,000 for delivery periods through September 2018.

Corn Oil

Revenue from corn oil sales decreased by approximately 12.09% during the three months ended January 31, 2018, as compared to the three months ended January 31, 2017. This is primarily a result of lower corn oil prices during the three months ended January 31, 2018, as compared to the three months ended January 31, 2017. For the three months ended January 31, 2018, the average price per pound of corn oil we received was approximately 14.81% lower than during the three months ended January 31, 2017, due to decreased demand from the corn oil feed market. Management anticipates that corn oil prices in the future will be affected by changes in corn and energy prices and the status of the biodiesel blenders' tax credit.

    The pounds of corn oil sold during the three months ended January 31, 2018, increased by approximately 5.51% as compared to the the three months ended January 31, 2017 due to our corn oil extraction equipment running more efficiently.

At January 31, 2018, we had approximately 575,000 pounds of forward fixed price corn oil sales contracts valued at approximately $121,000 for delivery periods through February 2018.

Cost of Goods Sold

Our two largest costs of production are corn (65.11% of cost of goods sold for the three months ended January 31, 2018) and natural gas (7.10% of cost of goods sold for the three months ended January 31, 2018). Our total cost of goods sold was approximately the same during the three months ended January 31, 2018, as compared to the three months ended January 31, 2017.

Corn

Our average price per bushel of corn for the three months ended January 31, 2018 decreased by approximately 2.68% per bushel, as compared to the three months ended January 31, 2017, due to lower corn prices.

Management expects there to be an adequate corn supply available in our area to operate the ethanol plant and that prices during our 2018 fiscal year may remain lower due to the large corn crop which was harvested in the fall of 2017. However, corn prices will likely remain volatile in the future depending on weather conditions, supply and demand, stocks and other factors and could significantly impact our costs of production.

We used approximately 4.80% less bushels of corn in the three months ended January 31, 2018, as compared to the three months ended January 31, 2017, due to decreased production of ethanol due to extremely cold weather.

At January 31, 2018, we have approximately 6,296,000 bushels of forward fixed basis corn purchase contracts and 1,715,000 bushels of forward fixed price corn contracts valued at approximately $5,488,000 for various delivery periods through December 2018. For the three months ended January 31, 2018 and 2017, we had gains related to corn derivative instruments of approximately $498,000 and $550,000, respectively.

Natural Gas

Our average price per MMBTU of natural gas was approximately 0.71% lower for the three months ended January 31, 2018, as compared to the three months ended January 31, 2017. Natural gas prices were lower due to increased volumes of natural gas in storage. Management anticipates that natural gas prices may rise due to an increase in natural gas demand due to winter weather conditions. In addition, natural gas prices may increase if the natural gas industry experiences production problems during our 2018 fiscal year.

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For the three months ended January 31, 2018, we purchased approximately 0.90% less natural gas as compared to the three months ended January 31, 2017. This decrease in natural gas usage is primarily due to less gallons of ethanol produced due to extremely cold weather.

At January 31, 2018, we have approximately 1,043,000 MMBTUs of forward natural gas sales contracts valued at approximately $2,884,000 for various delivery periods through September 2019. For the three months ended January 31, 2018 and 2017, we had gains (losses) related to natural gas derivative instruments of approximately $31,000 and ($3,000), respectively.

Operating Expense

We had operating expenses for the three months ended January 31, 2018 of $742,949, as compared to operating expenses of $724,020 for the three months ended January 31, 2017. Management attributes this increase in operating expenses primarily to an increase in professional fees and IT expenses for the three months ended January 31, 2018, as compared to the three months ended January 31, 2017. Management continues to pursue strategies to optimize efficiencies and maximize production. These efforts may result in a decrease in our operating expenses on a per gallon basis. However, because these expenses do not vary with the level of production at the plant, we expect our operating expenses to remain relatively steady.

Operating Profit (Loss)

We had a loss from operations for the three months ended January 31, 2018 of $794,645, which is approximately (3.46%) of our revenues, compared to a profit of $3,467,790, which was approximately 12.82% of our revenues, for the three months ended January 31, 2017. This decrease in our operating income is primarily due to a decrease in the price we received for our ethanol relative to the price we paid for corn.

Other Income (Expense)

We had total other expense for the three months ended January 31, 2018 of $158,550, as compared to total other expense of $177,615 for the three months ended January 31, 2017. Our other expense for the three months ended January 31, 2018, consisted primarily of interest expense offset by income from investments. This decrease in other expense is primarily due to a decrease in interest expense in 2018.

Changes in Financial Condition for the Threee Months Ended January 31, 2018

The following table highlights the changes in our financial condition for the three months ended January 31, 2018 from our previous fiscal year ended October 31, 2017:

	January 31, 2018		October 31, 2017
Current Assets	$	12,140,936	$	11,847,401
Current Liabilities	6,293,206		6,655,688
Long-Term Debt	9,200,645		7,942,403

Current Assets

The increase in current assets is primarily the result of increases in cash and cash equivalents which was offset partially by decreases in derivative instruments, accounts receivable and inventories at January 31, 2018, as compared to October 31, 2017.

Current Liabilities

The decrease in current liabilities is due primarily to decreases in accounts payable and accrued expenses which were partially offset by increases in customer deposits and current maturities of long-term debt at January 31, 2018, as compared to October 31, 2017.

Long-Term Debt

Long-term debt increased at January 31, 2018, as compared to October 31, 2017, primarily due to borrowing on our Term Revolving Loan for corn purchases.

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Liquidity and Capital Resources

Our primary sources of liquidity are our Term Revolving Loan and cash generated from operations. Based on financial forecasts prepared 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, changes in corn prices significantly affect our cost of goods sold. If 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 we 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 do not currently anticipate that we will need to secure additional capital resources for any other significant purchases of property and equipment in the next 12 months.

The following table shows cash flows for the three months ended January 31, 2018 and 2017:

	2018			2017
	(unaudited)			(unaudited)
Net cash provided by operating activities	$	2,953,871		$	5,385,388
Net cash used in investing activities	(319,482		)	(448,300		)
Net cash used in financing activities	(410,658		)	(5,329,114		)

Cash Flow From Operations

We experienced a decrease in our cash provided by operating activities for the three months ended January 31, 2018, as compared to the same period in 2017. This decrease was primarily due to the net loss experienced for the three months ended January 31, 2018, as compared to net income for the same period in 2017.

Cash Flow From Investing Activities

We used less cash in investing activities for the three month period ended January 31, 2018, as compared to the same period in 2017. This change was primarily due to a decrease in capital expenditures during the three months ended January 31, 2018.

Cash Flow From Financing Activities

We used less cash for financing activities during the three months ended January 31, 2018, as compared to the same period in 2017. This decrease was the result of decreased payments and increased borrowings on long-term debt and distributing less cash to our members during the three months ended January 31, 2018, as compared to the same period in 2017.

Short-Term and Long-Term Debt Sources

On January 22, 2016, we entered into a Second Amended and Restated Credit Agreement with Compeer Financial f/k/a AgStar Financial Services, PCA ("Compeer"). In connection therewith, as of the same date, we executed Second Amended and Restated Term Notes, Second Amended and Restated Term Revolving Notes, an Amended and Restated Security Agreement and a Second Amended and Restated Mortgage, Security Agreement, Assignment of Leases and Fixture Financing Statement. The Second Amended and Restated Credit Agreement decreased the Term Loan to $15,000,000, increased the Term Revolving Loan to $15,000,000 and eliminated the Revolving Line of Credit. Subsequent to the fiscal year end, on November 29, 2017, Compeer waived our violation, at October 31, 2017, of the $5,000,000 limitation on annual capital expenditures as set forth in the Second Amended and Restated Credit Agreement.

Term Loan

The Term Loan is for $15,000,000 with a variable interest rate based on the 30-day LIBOR rate plus 325 basis points with no minimum interest rate. The applicable interest rate at January 31, 2018 was 4.68%. Monthly principal payments are due on the Term Loan of approximately $250,000 plus accrued interest. Payments of all amounts outstanding are due on January 22, 2021. The outstanding balance on this note was $9,000,000 at January 31, 2018. We may convert the Term Loan to a fixed rate loan, subject to certain conditions as described in the Second Amended and Restated Credit Agreement and with the consent of AgStar.

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Term Revolving Loan

The Term Revolving Loan is for up to $15,000,000 with a variable interest rate based on the 30-day LIBOR rate plus 325 basis points with no minimum interest rate. The applicable interest rate at January 31, 2018 was 4.68%. The availability under the Term Revolving Loan increases to $20,000,000 after the Term Loan is paid down to $10,000,000 so long as at least one or more of the participating banks agrees to raise its commitment. The Term Revolving Loan may be advanced, repaid and re-borrowed during the term. Monthly interest payments are due on the Term Revolving Loan with payment of all amounts outstanding due on January 22, 2023. The outstanding balance on this note was $3,000,000 at January 31, 2018. We also have $500,000 in letters of credit outstanding at January 31, 2018 which reduce the amount available under the Term Revolving Loan. We pay interest at a rate of 1.50% on amounts outstanding for the letters of credit. We are also required to pay unused commitment fees for the Term Revolving Loan as defined in the Second Amended and Restated Credit Agreement.

Covenants and other Miscellaneous Financing Agreement Terms

The loan facility with Compeer is secured by substantially all business assets. We executed a mortgage in favor of Compeer creating a first lien on our real estate and plant and a security interest in all personal property located on the premises and assigned in favor of Compeer, 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 are also subject to various financial and non-financial covenants that limit distributions and debt and require minimum debt service coverage, tangible net worth, and working capital requirements. Our debt service coverage ratio is no less than 1.25:1.00 measured annually by comparing our adjusted EBITDA to our scheduled payments of principal and interest. Our minimum working capital is $8,250,000, which is calculated as current assets plus the amount available for drawing under our Term Revolving Loan and undrawn amounts on outstanding letters of credit, less current liabilities, and is measured quarterly.

We are limited to annual capital expenditures of $5,000,000 without prior approval, incurring additional debt over certain amounts without prior approval, and making additional investments as described in the Amended and Restated Credit Agreement without prior approval of Compeer. We are allowed to make cash distributions to members as frequently as monthly in an amount equal to 75% of net income if working capital is greater than or equal to $8,250,000, or 100% of net income if working capital is greater than or equal to $11,000,000, or an unlimited amount if working capital is greater than or equal to $11,000,000 and there is no outstanding balance on the Term Loan.

Presently, we are meeting our liquidity needs and complying with our financial covenants and the other terms of our loan agreements with Compeer. We will continue to work with Compeer 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. 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, Compeer 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, Compeer could also elect to proceed with a foreclosure action on our plant.

Butamax Letter of Intent

In November 2011, we signed a non-binding letter of intent with Butamax Advanced Biofuels, L.L.C. ("Butamax") for the purpose of exploring the possible implementation of biobutanol technology and commercial-scale production of biobutanol at our facility. We completed Phase 1 of the project in April 2014 with the installation of a corn oil separation system at our plant. However, Phase 2 of the project, the implementation of biobutanol technology, is dependent upon completion and execution of separate definitive agreements related to biobutanol production and negotiations related to Phase 2 of the project are currently on hold.  We may never enter into those definitive agreements with Butamax and, therefore, may never convert our ethanol facility to a biobutanol facility.

Capital Expenditures

We do not currently anticipate making significant capital expenditures during our 2018 fiscal year.

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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. Accounting estimates that are the most important to the presentation of our results of operations and financial condition, and which require the greatest use of judgment by management, are designated as our critical accounting estimates. We have the following critical accounting estimates:

Long-Lived Assets

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.  Impairment testing for assets requires various estimates and assumptions, including an allocation of cash flows to those assets and, if required, an estimate of the fair value of those assets.  Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. These valuations require the use of management's assumptions, which do not reflect unanticipated events and circumstances that may occur.  Given the significant assumptions required and the possibility that actual conditions will differ, we consider the assessment of carrying value of property and equipment to be a critical accounting estimate.

Inventory Valuation

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

Derivatives

We are exposed to market risks from changes in interest rates, corn, natural gas, and ethanol prices. We may seek to minimize these commodity price fluctuation risks through the use of derivative instruments. In the event we utilize derivative instruments, we will attempt to link these instruments to financing plans, sales plans, market developments, and pricing activities. Such instruments in and of themselves can result in additional costs due to unexpected directional price movements.

We have entered into corn commodity-based derivatives, natural gas derivatives and ethanol derivatives in order to protect cash flows from fluctuations caused by volatility in commodity prices. In practice, as markets move, we actively attempt to manage our risk and adjust hedging strategies as appropriate. We do not use hedge accounting which could match the gain or loss on our hedge positions to the specific commodity contracts being hedged. Instead, we use fair value accounting for our hedge positions, which means that as the current market price of our hedge position changes, the gains and losses are immediately recognized in our statement of operation. The immediate recognition of hedging gains and losses under fair value accounting can cause net income (loss) 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.

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.

Interest Rate Risk

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from our Term Loan and our Term Revolving Loan, each bearing a variable interest rate.  As of January 31, 2018, we had $9,000,000

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outstanding on the Term Loan and $3,000,000 outstanding on the Term Revolving Loan. Interest will accrue at the greater of the 30-day LIBOR rate plus 325 basis points. The applicable interest rate on these loans at January 31, 2018 was 4.68%. If we were to experience a 10% adverse change in the applicable interest rate, the annual effect such change would have on our income statement, based on the amount we had outstanding on our Term Loan and Term Revolving Loan at January 31, 2018, would be approximately $56,000.

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.”

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.

As of January 31, 2018, the fair values of our commodity-based derivative instruments are a net liability of approximately $1,200,000. As the prices of the hedged commodity moves in reaction to market trends and information, our statement of operations 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 protect the Company over the term of the contracts for the hedged amounts.

In the ordinary course of business, we enter into forward contracts for our commodity purchases. At January 31, 2018, we have approximately 6,296,000 bushels of forward fixed basis corn purchase contracts and 1,715,000 bushels of forward fixed price corn purchase contracts valued at approximately $5,488,000. These purchase contracts are for various delivery periods through December 2018. At January 31, 2018, we have approximately 1,043,000 MMBTUs of forward natural gas fixed price purchase contracts valued at approximately $2,884,000 for delivery periods through September 2019. In addition, at January 31, 2018, we have approximately 18,400 gallons of forward fixed price denaturant purchase contracts valued at approximately $29,000 for delivery periods through February 2018.

In the ordinary course of business, we enter into forward contracts for our commodity sales. At January 31, 2018, we have approximately 8,050 tons of forward fixed price dried distillers grains sales contracts valued at approximately $1,094,000 for delivery periods through March 2018. At January 31, 2018, we have approximately 10,400 tons of forward fixed price modified distillers grains sales contracts valued at approximately $591,000 for delivery periods through September 2018. In addition, at January 31, 2018, we have approximately 575,000 pounds of forward fixed price corn oil sales contracts valued at approximately $121,000 for delivery periods through February 2018.

At January 31, 2018, we have open futures positions for 1,200,000 bushels of corn. These derivatives have not been designated as effective hedges for accounting purposes and are forecasted to settle within the next twelve months. We recorded gains due to changes in the fair value of our outstanding corn derivative positions for the three months ended January 31, 2018 and 2017 of approximately $498,000 and $550,000, respectively. For the three months ended January 31, 2018, we recorded (losses) gains due to changes in the fair value of our outstanding ethanol derivative positions of approximately ($97,000) and $226,000, respectively. For the three months ended January 31, 2018 and 2017, we recorded gains (losses) due to the change in fair value of our outstanding natural gas derivative positions of approximately $31,000 and ($3,000), respectively.

As commodity 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, 2018 net of the forward and future contracts used to hedge our market risk for corn and natural gas usage requirements. The volumes are based on our expected use and sale of these commodities for a one year period from January 31, 2018. The results of this analysis, which may differ from actual results, are approximately as follows:

20

	Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)	Unit of Measure	Hypothetical Adverse Change in Price as of January 31, 2018		Approximate Adverse Change to Income
Natural Gas	1,499,390	MMBTU	10	%		$	449,517
Ethanol	59,500,000	Gallons	10	%		$	7,318,500
Corn	20,517,241	Bushels	10	%		$	6,606,552
DDGs	141,312	Tons	10	%		$	2,034,893

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, 2018.  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, 2018, 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.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

None.

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.

21

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, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of January 31, 2018 and October 31, 2017, (ii) Condensed Statements of Operations for the three months ended January 31, 2018 and 2017, (iii) Statements of Cash Flows for the three months ended January 31, 2018 and 2017, and (iv) the Notes to Condensed Financial Statements.**

* Filed herewith.

** Furnished herewith.

SIGNATURES

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

		HIGHWATER ETHANOL, LLC
Date:	March 7, 2018	/s/ Brian Kletscher
		Brian Kletscher
		Chief Executive Officer
		(Principal Executive Officer)
Date:	March 7, 2018	/s/ Lucas Schneider
		Lucas Schneider
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

22

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 7, 2018	/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 7, 2018	/s/ Lucas Schneider
		Lucas Schneider, Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

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

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

In connection with the quarterly report on Form 10-Q of Highwater Ethanol, LLC (the “Company”) for the quarter ended January 31, 2018, 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:	3/7/2018

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, 2018, 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:	3/7/2018

XML

Document and Entity Information Document - shares	3 Months Ended
	Jan. 31, 2018	Mar. 07, 2018
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, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding		4,814

XML

Condensed Balance Sheets - USD ($)	Jan. 31, 2018	Oct. 31, 2017
Current Assets
Cash and cash equivalents	$ 2,961,940	$ 738,209
Derivative instruments	366,443	800,199
Accounts receivable	1,751,759	2,838,154
Inventories	6,982,751	7,380,706
Prepaids and other	78,043	90,133
Total current assets	12,140,936	11,847,401
Property and Equipment
Land and land improvements	12,647,512	12,647,512
Buildings	38,818,532	38,811,666
Office equipment	1,151,330	1,151,330
Equipment	74,683,029	74,364,700
Vehicles	74,094	74,094
Construction in Progress	216,794	256,923
Gross property and equipment	127,591,291	127,306,225
Less accumulated depreciation	(57,393,621)	(55,254,778)
Net property and equipment	70,197,670	72,051,447
Other Assets
Investments	2,483,904	2,641,755
Deposits	191,457	191,457
Total other assets	2,675,361	2,833,212
Total Assets	85,013,967	86,732,060
Current Liabilities
Accounts payable	2,531,223	2,765,060
Accrued expenses	1,001,416	1,175,100
Customer deposits	43,217	0
Current maturities of long-term debt	2,717,350	2,715,528
Total current liabilities	6,293,206	6,655,688
Long-Term Debt	9,200,645	7,942,403
Commitments and Contingencies
Members' Equity
Members' equity, 4813.50 units issued and outstanding	69,520,116	72,133,969
Total Liabilities and Members’ Equity	$ 85,013,967	$ 86,732,060

XML

Condensed Balance Sheets Parenthetical - shares	Jan. 31, 2018	Oct. 31, 2017
Members' equity, units outstanding	4,813.5	4,813.5

XML

Condensed Statements of Operations - USD ($)	3 Months Ended
	Jan. 31, 2018	Jan. 31, 2017
Revenues	$ 22,980,047	$ 27,058,613
Cost of Goods Sold	23,031,743	22,866,803
Gross Profit	(51,696)	4,191,810
Operating Expenses	742,949	724,020
Operating Profit (Loss)	(794,645)	3,467,790
Other Income (Expense)
Interest income	326	502
Other income	10,922	2,293
Interest expense	(173,578)	(201,486)
Income from equity method investments	3,780	21,076
Total other income (expense), net	(158,550)	(177,615)
Net Income (Loss)	$ (953,195)	$ 3,290,175
Weighted Average Units Oustanding	4,814	4,892
Net Income (Loss) Per Unit, Basic and Diluted	$ (198.02)	$ 672.56
Distributions Per Unit	$ 345	$ 345

XML

Condensed Statements of Cash Flows - USD ($)	3 Months Ended
	Jan. 31, 2018	Jan. 31, 2017
Cash Flows from Operating Activities
Net Income (loss)	$ (953,195)	$ 3,290,175
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization	2,148,907	1,992,454
Distributions in excess of earnings from equity method investments	170,148	233,008
Gain on sale of asset	0	(6,593)
Non-cash patronage income	(12,297)	(12,297)
Change in assets and liabilities
Accounts receivable	1,086,395	986,802
Inventories	397,955	(373,828)
Derivative instruments	433,757	99,517
Prepaids and other	12,090	(1,579)
Customer deposits	43,217	0
Accounts payable	(199,422)	(799,834)
Accrued expenses	(173,684)	(22,437)
Net cash provided by operating activities	2,953,871	5,385,388
Cash Flows from Investing Activities
Capital expenditures	(319,482)	(464,323)
Proceeds from sale of asset	0	16,023
Net cash used in investing activities	(319,482)	(448,300)
Cash Flows from Financing Activities
Payments on long-term debt	(750,000)	(3,641,374)
Proceeds from long-term debt	2,000,000	0
Member distributions	(1,660,658)	(1,687,740)
Net cash used in financing activities	(410,658)	(5,329,114)
Net Increase (Decrease) in Cash and Cash Equivalents	2,223,731	(392,026)
Cash and cash equivalents – Beginning of Period	738,209	2,129,800
Cash and cash equivalents – End of Period	2,961,940	1,737,774
Supplemental Cash Flow Information
Cash paid for interest	134,643	102,385
Supplemental Disclosure of Noncash Financing and Investing Activities
Capital expenditures included in accounts payable	$ 9,800	$ 64,571

XML

Summary of Significant Accounting Policies

3 Months Ended

Jan. 31, 2018

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.  The accompanying balance sheet and related notes as of October 31, 2017 are derived from the audited financial statements as of that date. These condensed 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, 2017, 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, 2018 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, primarily through third-party professional marketers, fuel ethanol and co-products of the fuel ethanol production process in the continental United States, Mexico and Canada.

Accounting Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The Company uses estimates and assumptions in accounting for significant matters, among others, the carrying value of property and equipment and related impairment testing, inventory valuation, and derivative instruments. Actual results could differ from those estimates and such differences may be material to the financial statements. The Company periodically reviews estimates and assumptions and the effects of revisions are reflected in the period in which the revision is made.

Revenue Recognition

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

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

Derivative Instruments

Derivatives are recognized in the balance sheet and the measurement of these instruments is at fair value. Margin amounts required by the broker are classified as deposits with broker within derivative instruments and any excess is classified as cash equivalents in the balance sheets. 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.

The Company enters into corn and ethanol 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. Changes in fair market value of ethanol derivatives are included in revenues. Changes in fair market value of corn and natural gas derivatives are included in costs of goods sold.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and other working capital items approximate fair value at January 31, 2018 due to the short maturity nature of these instruments.

The Company believes the carrying value of the derivative instruments approximates fair value based on quoted market prices or 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 that rate is a market interest rate for these borrowings.

Equity Method Investments

The Company has a 6% investment interest in an unlisted company, Renewable Products Marketing Group, LLC (RPMG), who markets the Company’s ethanol. The Company also has a 7% ownership interest in Lawrenceville Tank, LLC (LT), which owns and operates a trans load/tank facility near Atlanta, Georgia. These investments are flow-through entities and are 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 statements of operations and added to the investment account. Distributions or dividends received from the investment are treated as a reduction of the investment account. The Company consistently follows the practice of recognizing the net income from equity method investments based on the most recent reliable data. Therefore, the net income which is reported in the Company's statement of operations for the quarter ended January 31, 2018 is based on the investee’s results of operations for the three month period ended December 31, 2017.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, which is the Company’s first quarter of fiscal year 2019. Early application is permitted one year earlier. The new standard allows for the amendment to be applied either retrospectively to each prior reporting period presented or retrospectively as a cumulative-effect adjustment as of the date of adoption. The Company is evaluating the effect that ASU 2014-09 will have on its financial statements and related disclosures, including which transition method it will adopt. The Company plans to complete its evaluation by October 31, 2018.

In January 2016, the FASB issued ASU No. 2016-01 (ASU2016-01), Financial Instruments-Overall (Subtopic 825-10), which is intended to make financial statement information on recognition, measurement, presentation, and disclosure of financial instrument more useful. ASU 2016-01 is effective for fiscal periods beginning after December 15, 2017. The Company is currently in the process of evaluating the impact that this new guidance will have on the financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  This ASU requires lessees to recognize a lease liability and a right-to-use asset for all leases, including operating leases, with a term greater than twelve months on its balance sheet.  This ASU is effective in annual and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted, and requires a modified retrospective transition method.  The Company is currently in the process of evaluating the impact that this new guidance will have on the financial statements.

In August 2016, the FASB issued ASU No. 2016-15 (ASU 2016-15), Statement of Cash Flows (Topic 230), which clarifies and provides guidance for specific cash flow issues. ASU 2016-15 is effective for fiscal periods beginning after December 15, 2017. The Company implemented ASU 2016-15 effective November 1, 2017. The effect was reclassifying Distributions from Equity Method Investments from Cash Flows from Investing Activities to Cash Flows from Operating Activities.

XML

Uncertainties

3 Months Ended

Jan. 31, 2018

Risks and 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

Inventories

3 Months Ended

Jan. 31, 2018

Inventories [Abstract]

Inventories

INVENTORIES

Inventories consisted of the following at:

	January 31, 2018		October 31, 2017
Raw materials	$	1,751,939	$	2,130,668
Spare parts and supplies	3,115,239		2,938,262
Work in process	711,254		729,167
Finished goods	1,404,319		1,582,609
Total	$	6,982,751	$	7,380,706

XML

Derivative Instruments

3 Months Ended

Jan. 31, 2018

Derivative Instruments [Abstract]

Derivative Instruments

DERIVATIVE INSTRUMENTS

As of January 31, 2018, the Company had entered into corn, ethanol and natural gas derivative instruments, which are required to be recorded as either assets or liabilities at fair value in the balance sheet. The Company uses these instruments to manage risks from changes in market rates and prices. They are not used for speculative purposes. 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 may designate the hedging instruments based upon the exposure being hedged as a fair value hedge or a cash flow hedge. The derivative instruments outstanding at January 31, 2018 are not designated as effective hedges for accounting purposes.

Commodity Contracts

As of January 31, 2018, the Company has open positions for 1,200,000 bushels of corn. Management expects all open positions outstanding as of January 31, 2018 to be realized within the next twelve months.

The following tables provide details regarding the Company's derivative instruments at January 31, 2018 and October 31, 2017:

Instrument	Balance Sheet location	January 31, 2018			October 31, 2017
Corn, natural gas and ethanol futures contracts
In gain position		$	352,598		$	66,438
In loss position		(1,512,176		)	(1,668,043		)
Deposits with broker		1,526,021			2,401,804
	Current assets	$	366,443		$	800,199

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	2018			2017
Ethanol contracts	Revenues	$	(97,326	)	$	225,732
Corn contracts	Cost of goods sold	497,790			550,336
Natural gas contracts	Cost of goods sold	30,852			(3,140		)

XML

Fair Value Measurements

3 Months Ended

Jan. 31, 2018

Fair Value Measurements [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

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

	Fair Value as of			Fair Value Measurement Using
	January 31, 2018			Level 1			Level 2		Level 3
Derivative instruments - commodities	$	(1,159,578	)	$	(1,159,578	)	$	—	$	—

	Fair Value as of			Fair Value Measurement Using
	October 31, 2017			Level 1			Level 2		Level 3
Derivative instruments - commodities	$	(1,601,605	)	$	(1,601,605	)	$	—	$	—

The Company determines the fair values of commodities 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

3 Months Ended

Jan. 31, 2018

Debt Financing [Abstract]

Debt Financing

DEBT FINANCING

Long-term debt consists of the following at:

	January 31, 2018			October 31, 2017
Variable Rate Term Loan	$	9,000,000		$	9,750,000
Term Revolving Loan	3,000,000			1,000,000
Total	12,000,000			10,750,000
Less Debt Issuance Costs	(82,005		)	(92,069		)
Less amounts due within one year	(2,717,350		)	(2,715,528		)
Net long-term debt	$	9,200,645		$	7,942,403

Bank Financing

On January 22, 2016, the Company entered into a Second Amended and Restated Credit Agreement with Compeer Financial, PCA f/k/a AgStar Financial Services, PCA, as administrative agent for several financial institutions ("Compeer") which amended the Amended and Restated Credit Agreement dated September 22, 2014. The Second Amended and Restated Credit Agreement decreased the Term Loan to $15,000,000, increased the Term Revolving Loan to $15,000,000 and eliminated the Revolving Line of Credit.

Term Loan

The Term Loan is for $15,000,000 with a variable interest rate based on the 30-day LIBOR rate plus 325 basis points with no minimum interest rate. The applicable interest rate at January 31, 2018 was 4.68%. Monthly principal payments are due on the Term Loan of approximately $250,000 plus accrued interest. Payments of all amounts outstanding are due on January 22, 2021. The outstanding balance on this note was $9,000,000 at January 31, 2018. The Company may convert the Term Loan to a fixed rate loan, subject to certain conditions as described in the Second Amended and Restated Credit Agreement and with the consent of Compeer.

Term Revolving Loan

The Term Revolving Loan is for up to $15,000,000 with a variable interest rate based on the 30-day LIBOR rate plus 325 basis points with no minimum interest rate. The applicable interest rate at January 31, 2018 was 4.68%. The availability under the Term Revolving Loan increases to $20,000,000 after the Term Loan is paid down to $10,000,000 so long as at least one or more of the participating banks agrees to raise its commitment. The Term Revolving Loan may be advanced, repaid and re-borrowed during the term. Monthly interest payments are due on the Term Revolving Loan. Payment of all amounts outstanding are due on January 22, 2023. The outstanding balance on this note was $3,000,000 at January 31, 2018. The Company also has $500,000 in letters of credit outstanding at January 31, 2018 which reduce the amount available under the Term Revolving Loan. The Company pays interest at a rate of 1.50% on amounts outstanding for the letters of credit. The Company is also required to pay unused commitment fees for the Term Revolving Loan as defined in the Second Amended and Restated Credit Agreement.

Debt Issuance Costs

Costs associated with the issuance of debt are recorded as debt issuance costs and are amortized over the term of the related debt by use of the effective interest method.

Covenants and other Miscellaneous Terms

The loan facility with Compeer is secured by substantially all business assets. The Company executed a mortgage creating a first lien on its real estate and plant and a security interest in all personal property located on the premises and assigned all rents and leases to property, marketing contracts, risk management services contract, and natural gas, electricity, water service and grain procurement agreements.

The Company is also subject to various financial and non-financial covenants that limit distributions and debt and require minimum debt service coverage, tangible net worth, and working capital requirements. The debt service coverage ratio is no less than 1.25:1.00 measured annually by comparing adjusted EBITDA to scheduled payments of principal and interest. The minimum working capital is $8,250,000, which is calculated as current assets plus the amount available for drawing under the Term Revolving Loan and undrawn amounts on outstanding letters of credit, less current liabilities, and is measured quarterly.

The Company is limited to annual capital expenditures of $5,000,000 without prior approval, incurring additional debt over certain amounts without prior approval, and making additional investments as described in the Amended and Restated Credit Agreement without prior approval of Compeer. The Company is allowed to make cash distributions to members as frequently as monthly in an amount equal to 75% of net income if working capital is greater than or equal to $8,250,000, or 100% of net income if working capital is greater than or equal to $11,000,000, or an unlimited amount if working capital is greater than or equal to $11,000,000 and the outstanding balance on the Term Loan is $0.

The estimated maturities of the long-term debt at January 31, 2018 are as follows:

	Principal		Debt Issuance Costs			Total
January 2019	$	2,750,000	$	(32,650	)	$	2,717,350
January 2020	3,000,000		(27,998		)	2,972,002
January 2021	3,250,000		(21,357		)	3,228,643
January 2022	—		—			—
January 2023	3,000,000		—			3,000,000
Long-term debt	$	12,000,000	$	(82,005	)	$	11,917,995

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Commitments and Contingencies

3 Months Ended

Jan. 31, 2018

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES

Marketing Agreements

The Company has an ethanol marketing agreement with a marketer (RPMG) to purchase, market, and distribute all the ethanol produced by the Company. The Company also entered into a member control agreement with the marketer whereby the Company made capital contributions and became a minority owner of the marketer. The member control agreement became effective on February 1, 2011 and provides the Company a membership interest with voting rights. The marketing agreement will terminate if the Company ceases to be a member. The Company will assume certain of the member’s rail car leases if the agreement is terminated. The Company can sell its ethanol either through an index arrangement or at an agreed upon fixed price. The marketing agreement is perpetual until terminated according to the agreement.  The Company may be obligated to continue to market its ethanol through the marketer for a period of time. The amended agreement requires minimum capital amounts invested as required under the agreement.

The Company has a distillers grains marketing agreement with a marketer to market all the dried distillers grains produced at the plant. Under the agreement the marketer charges a maximum of $2.00 per ton and a minimum of $1.50 per ton price using 2% of the FOB plant price actually received by them for all dried distillers grains removed. The agreement will remain in effect unless otherwise terminated by either party with 120 days days notice. Under the agreement, the marketer is responsible for all transportation arrangements for the distribution of the dried distillers grains. The Company markets and sells its modified and wet distillers grains.

The Company has a crude corn oil marketing agreement with a marketer to market all corn oil to be produced at the plant. Under the agreement, the marketer will execute contracts with buyers after giving prior notice of the terms and conditions thereof to the Company and receiving direction from the Company to accept such contracts. The Company receives the actual price received from buyers less a marketing fee, actual freight and transportation costs and certain taxes related to the purchase, delivery or sale. The Company is required to provide corn oil meeting certain specifications as provided in the agreement and the agreement provides for a process for rejection of nonconforming corn oil. The agreement automatically renews for successive one-year terms unless terminated in accordance with the agreement.

Regulatory Agencies

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

Forward Contracts

At January 31, 2018, the Company had approximately 6,296,000 bushels of forward fixed basis corn contracts and 1,715,000 bushels of forward fixed price corn contracts valued at approximately $5,488,000. These purchase contracts are for various delivery periods through December 2018. At January 31, 2018, the Company had approximately 1,043,000 MMBTUs of forward fixed price natural gas purchase contracts valued at approximately $2,884,000 for various delivery periods through September 2019. In addition, at January 31, 2018, the Company had approximately 18,400 gallons of forward fixed price denaturant purchase contracts valued at $29,000 for various delivery periods through February 2018.

At January 31, 2018, the Company had approximately 8,050 tons of forward fixed price dried distillers grains sales contracts valued at $1,094,000 for various delivery periods through March 2018. In addition, at January 31, 2018, the Company had approximately 10,400 tons of forward fixed price modified distillers grains sales contracts valued at approximately $591,000 for delivery periods through September 2018. In addition, at January 31, 2018, the Company had approximately 575,000 pounds of forward fixed price corn oil sales contracts valued at approximately $121,000 for delivery periods through February 2018.

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Accounting Policies

3 Months Ended

Jan. 31, 2018

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

Revenue Recognition

Revenue Recognition

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

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

Derivative Instruments

Derivative Instruments

Derivatives are recognized in the balance sheet and the measurement of these instruments is at fair value. Margin amounts required by the broker are classified as deposits with broker within derivative instruments and any excess is classified as cash equivalents in the balance sheets. 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.

The Company enters into corn and ethanol 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. Changes in fair market value of ethanol derivatives are included in revenues. Changes in fair market value of corn and natural gas derivatives are included in costs of goods sold.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and other working capital items approximate fair value at January 31, 2018 due to the short maturity nature of these instruments.

The Company believes the carrying value of the derivative instruments approximates fair value based on quoted market prices or 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 that rate is a market interest rate for these borrowings.

Investments

Equity Method Investments

The Company has a 6% investment interest in an unlisted company, Renewable Products Marketing Group, LLC (RPMG), who markets the Company’s ethanol. The Company also has a 7% ownership interest in Lawrenceville Tank, LLC (LT), which owns and operates a trans load/tank facility near Atlanta, Georgia. These investments are flow-through entities and are 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 statements of operations and added to the investment account. Distributions or dividends received from the investment are treated as a reduction of the investment account. The Company consistently follows the practice of recognizing the net income from equity method investments based on the most recent reliable data. Therefore, the net income which is reported in the Company's statement of operations for the quarter ended January 31, 2018 is based on the investee’s results of operations for the three month period ended December 31, 2017.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, which is the Company’s first quarter of fiscal year 2019. Early application is permitted one year earlier. The new standard allows for the amendment to be applied either retrospectively to each prior reporting period presented or retrospectively as a cumulative-effect adjustment as of the date of adoption. The Company is evaluating the effect that ASU 2014-09 will have on its financial statements and related disclosures, including which transition method it will adopt. The Company plans to complete its evaluation by October 31, 2018.

In January 2016, the FASB issued ASU No. 2016-01 (ASU2016-01), Financial Instruments-Overall (Subtopic 825-10), which is intended to make financial statement information on recognition, measurement, presentation, and disclosure of financial instrument more useful. ASU 2016-01 is effective for fiscal periods beginning after December 15, 2017. The Company is currently in the process of evaluating the impact that this new guidance will have on the financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  This ASU requires lessees to recognize a lease liability and a right-to-use asset for all leases, including operating leases, with a term greater than twelve months on its balance sheet.  This ASU is effective in annual and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted, and requires a modified retrospective transition method.  The Company is currently in the process of evaluating the impact that this new guidance will have on the financial statements.

In August 2016, the FASB issued ASU No. 2016-15 (ASU 2016-15), Statement of Cash Flows (Topic 230), which clarifies and provides guidance for specific cash flow issues. ASU 2016-15 is effective for fiscal periods beginning after December 15, 2017. The Company implemented ASU 2016-15 effective November 1, 2017. The effect was reclassifying Distributions from Equity Method Investments from Cash Flows from Investing Activities to Cash Flows from Operating Activities.

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Inventories (Tables)

3 Months Ended

Jan. 31, 2018

Inventories [Abstract]

Schedule of Inventory

	January 31, 2018		October 31, 2017
Raw materials	$	1,751,939	$	2,130,668
Spare parts and supplies	3,115,239		2,938,262
Work in process	711,254		729,167
Finished goods	1,404,319		1,582,609
Total	$	6,982,751	$	7,380,706

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Derivative Instruments (Tables)

3 Months Ended

Jan. 31, 2018

Derivative Instruments [Abstract]

Schedule of Derivatives Instruments Statements of Financial Performance and Financial Position

Instrument	Balance Sheet location	January 31, 2018			October 31, 2017
Corn, natural gas and ethanol futures contracts
In gain position		$	352,598		$	66,438
In loss position		(1,512,176		)	(1,668,043		)
Deposits with broker		1,526,021			2,401,804
	Current assets	$	366,443		$	800,199

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	2018			2017
Ethanol contracts	Revenues	$	(97,326	)	$	225,732
Corn contracts	Cost of goods sold	497,790			550,336
Natural gas contracts	Cost of goods sold	30,852			(3,140		)

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Fair Value Measurements (Tables)

3 Months Ended

Jan. 31, 2018

Fair Value Measurements [Abstract]

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

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

	Fair Value as of			Fair Value Measurement Using
	January 31, 2018			Level 1			Level 2		Level 3
Derivative instruments - commodities	$	(1,159,578	)	$	(1,159,578	)	$	—	$	—

	Fair Value as of			Fair Value Measurement Using
	October 31, 2017			Level 1			Level 2		Level 3
Derivative instruments - commodities	$	(1,601,605	)	$	(1,601,605	)	$	—	$	—

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Debt Financing (Tables)

3 Months Ended

Jan. 31, 2018

Debt Financing [Abstract]

Schedule of Long-term Debt

	January 31, 2018			October 31, 2017
Variable Rate Term Loan	$	9,000,000		$	9,750,000
Term Revolving Loan	3,000,000			1,000,000
Total	12,000,000			10,750,000
Less Debt Issuance Costs	(82,005		)	(92,069		)
Less amounts due within one year	(2,717,350		)	(2,715,528		)
Net long-term debt	$	9,200,645		$	7,942,403

Schedule of Maturities of Long-term Debt

	Principal		Debt Issuance Costs			Total
January 2019	$	2,750,000	$	(32,650	)	$	2,717,350
January 2020	3,000,000		(27,998		)	2,972,002
January 2021	3,250,000		(21,357		)	3,228,643
January 2022	—		—			—
January 2023	3,000,000		—			3,000,000
Long-term debt	$	12,000,000	$	(82,005	)	$	11,917,995

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Summary of Significant Accounting Policies (Details) gal in Millions	3 Months Ended
	Jan. 31, 2018 gal
Ethanol [Member]
Product Information [Line Items]
Annual Production Capacity	50

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Summary of Significant Accounting Policies Investment (Details)	Jan. 31, 2018
Renewable Fuels Marketing Group (RPMG) [Member]
Schedule of Equity Method Investments [Line Items]
Equity Method Investment, Ownership Percentage	6.00%
Lawrenceville Tank, LLC [Member]
Schedule of Equity Method Investments [Line Items]
Equity Method Investment, Ownership Percentage	7.00%

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Inventories (Details) - USD ($)	Jan. 31, 2018	Oct. 31, 2017
Inventories [Abstract]
Raw Materials	$ 1,751,939	$ 2,130,668
Spare parts and supplies	3,115,239	2,938,262
Work in Process	711,254	729,167
Finished Goods	1,404,319	1,582,609
Total	$ 6,982,751	$ 7,380,706

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Derivative Instruments Balance Sheet (Details)	3 Months Ended
	Jan. 31, 2018 USD ($) bu	Oct. 31, 2017 USD ($)
Derivatives, Fair Value [Line Items]
Deposits with broker	$ 1,526,021	$ 2,401,804
Derivative instruments	366,443	800,199
Commodity [Member]
Derivatives, Fair Value [Line Items]
In gain position	352,598	66,438
In loss position	$ (1,512,176)	$ (1,668,043)
Corn [Member] | Commodity Contract [Member]
Derivatives, Fair Value [Line Items]
Derivative, Nonmonetary Notional Amount, Mass | bu	1,200,000

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Derivative Instruments Income Statement (Details) - Not Designated as Hedging Instrument [Member] - USD ($)	3 Months Ended
	Jan. 31, 2018	Jan. 31, 2017
Ethanol [Member] | Sales [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative Instruments, Gain (Loss) Recognized in Income, Net	$ (97,326)	$ 225,732
Corn [Member] | Cost of Sales [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative Instruments, Gain (Loss) Recognized in Income, Net	497,790	550,336
Natural Gas [Member] | Cost of Sales [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative Instruments, Gain (Loss) Recognized in Income, Net	$ 30,852	$ (3,140)

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Fair Value Measurements (Details) - Commodity [Member] - Fair Value, Measurements, Recurring [Member] - USD ($)	Jan. 31, 2018	Oct. 31, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Instruments - commodities	$ (1,159,578)	$ (1,601,605)
Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Instruments - commodities	(1,159,578)	(1,601,605)
Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Instruments - commodities	0	0
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Instruments - commodities	$ 0	$ 0

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Debt Financing (Details) - USD ($)	3 Months Ended
	Jan. 31, 2018	Oct. 31, 2017	Jan. 22, 2016
Debt Instrument [Line Items]
Long-term Debt, Gross	$ 12,000,000	$ 10,750,000
Debt Issuance Costs, Net	(82,005)	(92,069)
Current maturities of long-term debt	(2,717,350)	(2,715,528)
Long-Term Debt	$ 9,200,645	7,942,403
Ratio of Indebtedness to Net Capital	1.25
AgStar Financial Services, PCA [Member] | Letter of Credit [Member]
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate	3.25%
Letters of Credit Outstanding, Amount	$ 500,000
Letter of Credit, Interest Rate at Period End	1.50%
AgStar Financial Services, PCA [Member] | Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate	3.25%
Notes Payable to Banks [Member] | AgStar Financial Services, PCA [Member]
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate	3.25%
Notes Payable to Banks [Member] | AgStar Financial Services, PCA [Member] | Term Loan [Member]
Debt Instrument [Line Items]
Long-term Debt	$ 9,000,000	9,750,000
Debt Instrument, Face Amount			$ 15,000,000
Line of Credit Facility, Interest Rate at Period End	4.68%
Debt Instrument Conditional balance	$ 10,000,000
Debt Instrument, Periodic Payment, Principal	250,000
Notes Payable to Banks [Member] | AgStar Financial Services, PCA [Member] | Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Long-term Debt	3,000,000	$ 1,000,000
Debt Instrument, Face Amount	$ 15,000,000
Line of Credit Facility, Interest Rate at Period End	4.68%
Debt Instrument, conditional credit line availability	$ 20,000,000
Line of Credit Facility, Maximum Borrowing Capacity			$ 15,000,000
Working Capital Requirement	8,250,000
Debt Instrument, Annual Capital Expenditure Limit	5,000,000
Long-term Line of Credit, Noncurrent	3,000,000
Minimum [Member] | Notes Payable to Banks [Member] | AgStar Financial Services, PCA [Member] | Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Working Capital Requirement	$ 8,250,000
Debt Instrument, Restrictive Covenants	0.75
Maximum [Member] | Notes Payable to Banks [Member] | AgStar Financial Services, PCA [Member] | Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Working Capital Requirement	$ 11,000,000
Debt Instrument, Restrictive Covenants	1

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Debt Financing Short Term Debt (Details) - AgStar Financial Services, PCA [Member] - USD ($)	3 Months Ended
	Jan. 31, 2018	Jan. 22, 2016
Letter of Credit [Member]
Line of Credit Facility [Line Items]
Debt Instrument, Basis Spread on Variable Rate	3.25%
Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Debt Instrument, Basis Spread on Variable Rate	3.25%
Notes Payable to Banks [Member]
Line of Credit Facility [Line Items]
Debt Instrument, Basis Spread on Variable Rate	3.25%
Notes Payable to Banks [Member] | Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Working Capital Requirement	$ 8,250,000
Line of Credit Facility, Maximum Borrowing Capacity		$ 15,000,000
Line of Credit Facility, Interest Rate at Period End	4.68%
Line of Credit Facility, Current Borrowing Capacity	$ 0

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Debt Financing Schedule of Maturities of Long-Term Debt (Details) - USD ($)	Jan. 31, 2018	Oct. 31, 2017
Line of Credit Facility [Line Items]
Long-term Debt, Gross, Maturities, Repayments of Principal in Next Rolling Twelve Months	$ 2,750,000
Debt Issuance Costs, Accumulated Amortization in Next Rolling Twelve Months	32,650
Long-term Debt, Maturities, Repayments of Principal in Next Rolling Twelve Months	2,717,350
Long-term Debt, Gross, Maturities, Repayments of Principal in Rolling Year Two	3,000,000
Debt Issuance Costs, Accumulated Amortization in Rolling Year Two	27,998
Long-term Debt, Maturities, Repayments of Principal in Rolling Year Two	2,972,002
Long-term Debt, Gross, Maturities, Repayments of Principal in Rolling Year Three	3,250,000
Debt Issuance Costs, Accumulated Amortization in Rolling Year Three	21,357
Long-term Debt, Maturities, Repayments of Principal in Rolling Year Three	3,228,643
Long-term Debt, Gross, Maturities, Repayments of Principal in Rolling Year Four	0
Debt Issuance Costs, Accumulated Amortization in Rolling Year Four	0
Long-term Debt, Maturities, Repayments of Principal in Rolling Year Four	0
Long-term Debt, Gross, Maturities, Repayments of Principal in Rolling Year Five	3,000,000
Debt Issuance Costs, Accumulated Amortization in Rolling Year Five	0
Long-term Debt, Maturities, Repayments of Principal in Rolling Year Five	3,000,000
Long-term Debt, Gross	12,000,000	$ 10,750,000
Long-term Debt and Capital Lease Obligations	11,917,995
Debt Issuance Costs, Net	$ (82,005)	$ (92,069)
Revolving Credit Facility [Member] | Notes Payable to Banks [Member] | AgStar Financial Services, PCA [Member]
Line of Credit Facility [Line Items]
Line of Credit Facility, Interest Rate at Period End	4.68%

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Commitments and Contingencies (Details)	Jan. 31, 2018 USD ($) MMBTU bu gal
Supply Commitment [Line Items]
Purchase Commitment, Remaining Minimum Amount Committed, Volume | gal	18,400
Corn [Member]
Supply Commitment [Line Items]
Purchase Commitment, Remaining Minimum Amount Committed, Volume | bu	1,715,000
Financial Instruments, Owned, Physical Commodities, at Fair Value	$ 5,488,000
Natural Gas [Member]
Supply Commitment [Line Items]
Purchase Commitment, Remaining Minimum Amount Committed, Energy | MMBTU	1,043,000
Financial Instruments, Owned, Physical Commodities, at Fair Value	$ 2,884,000
Denaturant [Member]
Supply Commitment [Line Items]
Financial Instruments, Owned, Physical Commodities, at Fair Value	$ 29,000
Basis [Member] | Corn [Member]
Supply Commitment [Line Items]
Purchase Commitment, Remaining Minimum Amount Committed, Volume | bu	6,296,000

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Commitments and Contingencies Sales Commitments (Details)	3 Months Ended	12 Months Ended
	Jan. 31, 2018 USD ($) T lb	Oct. 31, 2017
Derivative [Line Items]
Related Party Contract Termination notice		120 days
Distillers Grain [Member]
Derivative [Line Items]
Derivative, Nonmonetary Notional Amount, Mass | T	8,050
Commodity Contract Asset, Current	$ 1,094,000
Modified Distillers Grain [Member]
Derivative [Line Items]
Derivative, Nonmonetary Notional Amount, Mass | T	10,400
Commodity Contract Asset, Current	$ 591,000
Corn Oil [Member]
Derivative [Line Items]
Derivative, Nonmonetary Notional Amount, Mass | lb	575,000
Commodity Contract Asset, Current	$ 121,000

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Commitments and Contingencies Related Parties Commitment (Details) - USD ($)	12 Months Ended
	Oct. 31, 2017	Jan. 31, 2018
Related Party Transaction [Line Items]
Related Party Contract Termination notice	120 days
Affiliated Entity [Member]
Related Party Transaction [Line Items]
Related Party Transaction, Fees, Percentage of Total		2.00%
Affiliated Entity [Member] | Maximum [Member]
Related Party Transaction [Line Items]
Related Party Transaction, Marketing Expense, Per Unit	$ 2.00
Affiliated Entity [Member] | Minimum [Member]
Related Party Transaction [Line Items]
Related Party Transaction, Marketing Expense, Per Unit	$ 1.50