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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended October 31, ~~2020~~2021

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

For the transition period from to .

COMMISSION FILE NUMBER 000-51277

GRANITE FALLS ENERGY, LLC

(Exact name of registrant as specified in its charter)


Minnesota		41-1997390
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

15045 Highway 23 SE, Granite Falls, MN 56241-0216

(Address of principal executive offices)

(320) 564-3100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Membership Units

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

Indicated by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ◻ Yes ⌧ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ⌧ Yes ◻ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ⌧ Yes ◻ No

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

Large Accelerated Filer ◻ Accelerated Filer ◻ Non-Accelerated Filer ⌧ Smaller Reporting Company ⌧☒ Emerging Growth Company ◻☐

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. ◻

Indicate by check mark whether the registrant ishas filed a ~~shell~~report ~~company~~on ~~(as~~and ~~defined~~attestation into ~~Rule~~its ~~12b-2~~management’s assessment of the ~~Exchange~~effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ~~◻ Yes ⌧ No~~ ☐

~~The~~Indicate ~~aggregate~~by ~~market~~check ~~value~~mark ofwhether the ~~20,094 membership units held by non-affiliates of the~~ registrant ~~(computed~~is bya ~~reference~~shell tocompany ~~the most recent offering price of $1,000 per unit of membership units) was $20,094,000~~ (as ofdefined ~~April 30,~~in ~~2020.~~Rule ~~The~~12b-2 membership units are not listed on an exchange or otherwise publicly traded. Additionally, the membership units are subject to significant restrictions on transfer under the registrant’s operating and member control agreement. The value of the ~~membership~~Exchange ~~units for this purpose has been based solely upon the initial offering price of the membership units~~Act). In determining this value, the registrant has assumed that all of its governors, chief executive officer, chief financial officer and beneficial owners of 5% or more of its outstanding membership units are affiliates, but this assumption shall not apply to or be conclusive for any other purpose. ☐ Yes ⌧ No

AsThe aggregate market value of ~~February 16~~the 20,059 ~~2021~~membership units held by non-affiliates of the registrant (computed by reference to the most recent sale price of $1,350 ~~there~~per ~~were~~unit of membership units) was $27,079,650 as of April 30,~~606~~ 2021. The membership units are not listed on an exchange or otherwise publicly traded. Additionally, the membership units are subject to significant restrictions on transfer under the registrant’s operating and member control agreement. The value of the membership units for this purpose has been based solely upon the initial offering price of the membership units. In determining this value, the registrant has assumed that all of its governors, chief executive officer, chief financial officer and beneficial owners of 5% or more of its outstanding membership units are affiliates, but this assumption shall not apply to or be conclusive for any other purpose.

As of January 31, 2022, there were 30,606 membership units outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant has incorporated by reference into Part III of this Annual Report on Form 10-K portions of its definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Annual Report (October 31, ~~2020~~2021). This proxy statement is referred to in this report as the ~~2021~~2022 Proxy Statement.

Table of Contents

INDEX


		Page Number
PART I		3
Item 1. Business		3
Item 1A. Risk Factors		2019
Item 1B. Unresolved Staff Comments		3219
Item 2. Properties		3220
Item 3. Legal Proceedings		3220
Item 4. Mine Safety Disclosures		3220
PART II		3220
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		3220
Item 6. Selected Financial Data		3422
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		3422
Item 8. Financial Statements and Supplementary Data		5232
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		7957
Item 9A. Controls and Procedures		7957
Item 9B. Other Information		8058
PART III		8058
Item 10. Directors, Executive Officers and Corporate Governance		8058
Item 11. Executive Compensation		8058
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		8058
Item 13. Certain Relationships and Related Transactions, and Director Independence		8058
Item 14. Principal Accountant Fees and Services		8058
PART IV		8159
Item 15. Exhibits, Financial Statement Schedules		8159
SIGNATURES		8564

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CAUTION REGARDING FORWARD LOOKING STATEMENTS

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

●

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

●

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

●

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

●

Fluctuations in the price of crude oil and gasoline;

●

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

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

●

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

●

Changes in fuel consumption due to decreased vehicle travel as a result of the COVID-19 or other factors.

●

Challenges created by the COVID-19 pandemic, including increased production costs, market barriers, and decreased demand for fuel.

●

Any effect on prices of distillers’ grains and ethanol resulting from actions in international markets;

●

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

●

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

●

Alternative fuel additives may be developed that are superior to, or cheaper than ethanol;

●

Changes or advances in plant production capacity or technical difficulties in operating our plants;

●

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

●

Changes in interest rates or the lack of credit availability;

●

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

●

Our ability to retain key employees and maintain labor relations;

●

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

●

Any delays in shipping our products by rail and corresponding decreases in our sales or production as a result of shipping delay and ethanol storage constraints;

●

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

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

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INDUSTRY AND MARKET DATA

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

AVAILABLE INFORMATION

Our principal executive offices are located at 15045 Highway 23 SE, Granite Falls, Minnesota 56241, and our telephone number is 320-564-3100. We make available free of charge on or through our Internet website, www.granitefallsenergy.com, all of our reports and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (SEC). The Securities and Exchange Commission also maintains an Internet site (http://www.sec.gov) through which the public can access our reports. We will provide electronic or paper copies of these documents free of charge upon request.

PART I

When we use the terms “Granite Falls Energy” or “GFE” or similar words in this Annual Report on Form 10-K, unless the context otherwise requires, we are referring to Granite Falls Energy, LLC and our operations at our ethanol production facility located in Granite Falls, Minnesota. When we use the terms “Heron Lake BioEnergy”, “Heron Lake”, or “HLBE” or similar words, unless the context otherwise requires, we are referring to Heron Lake BioEnergy, LLC and its wholly owned subsidiary, HLBE Pipeline Company, LLC, through which, HLBE holds a 100% interest in Agrinatural Gas, LLC. When we use the terms the “Company,” “we,” “us,” “our” or similar words in this Annual Report on Form 10-K, unless the context otherwise requires, we are referring to Granite Falls Energy, LLC and our consolidated wholly- and majority-owned subsidiaries.

ITEM 1.BUSINESS

Overview

Granite Falls Energy, LLC is a Minnesota limited liability company formed on December 29, 2000 for the purpose of constructing, owning and operating a fuel-grade ethanol plant located in Granite Falls, Minnesota.

InOur ~~July~~business ~~2013,~~consists weprimarily ~~acquired~~of ~~controlling~~the ~~interest~~production inand ~~Heron~~sale ~~Lake~~of ~~BioEnergy,~~ethanol ~~LLC~~and its co-products (~~“Heron~~wet, ~~Lake~~modified ~~BioEnergy”~~wet orand ~~“HLBE”)~~dried distillers’ grains, ~~which~~corn ~~owns~~oil anand ~~ethanol~~corn ~~plant~~syrup) locally, ~~located~~and ~~near~~throughout ~~Heron~~the ~~Lake,~~continental ~~Minnesota~~U.S. AsHowever, ofas ~~October~~markets 31allow, ~~2020,~~our weproducts ~~control~~can ~~approximately~~be, ~~50.7%~~and ofhave ~~HLBE’s~~been, ~~outstanding~~sold ~~membership~~in ~~units~~the ~~through~~export ~~our~~markets. Our ~~wholly~~revenues ~~owned~~from ~~subsidiary,~~operations ~~Project~~come ~~Viking,~~from ~~L.L.C. As~~three aprimary ~~result~~sources: sales of ~~our~~fuel ~~majority ownership~~ethanol, wesales ~~have~~of ~~the~~distillers’ ~~right~~grains toand ~~appoint~~sales ~~five~~of ~~(5)~~corn ofoil ~~the~~at ~~nine~~GFE’s ~~(9)~~ethanol ~~governors~~plant toand HLBE’s ~~board~~ethanol ~~of governors under its member control agreement~~plant.

OnHeron ~~November~~Lake 1BioEnergy, ~~2016,~~LLC we(“Heron ~~subscribed~~Lake toBioEnergy” ~~purchase~~or ~~1,500 capital units of Ring-neck Energy & Feed, LLC (~~“~~Ringneck~~HLBE”), atwhich aowns ~~price~~an ofethanol ~~$5,000~~plant ~~per~~located ~~unit~~near ~~for~~Heron aLake, ~~total of $7~~Minnesota,~~500,000~~ ~~and~~is ~~paid~~ a ~~subscription~~wholly ~~deposit~~owned subsidiary of ~~$750,000~~GFE. On ~~August~~In 2,July ~~2017~~2013, ~~GFE~~we ~~borrowed~~acquired ~~$7.5~~controlling ~~million~~interest ~~under~~in ~~its~~HLBE ~~credit~~through ~~facility with~~our wholly owned subsidiary Project ~~Hawkeye~~Viking, ~~LLC~~L.L.C (“Project ~~Hawkeye~~Viking”),. anPrior ~~affiliate~~to ofSeptember ~~Fagen~~29, ~~Inc.~~2021, ~~which~~GFE isheld a ~~member~~50.7% ofownership ~~GFE,~~interest ~~and~~in ~~paid $6,750,000 to Ringneck as payment of the remaining balance of GFE’s subscription~~HLBE. On ~~June~~September 1029, ~~2019~~2021, we ~~subscribed~~completed toa ~~purchase~~merger anin ~~additional~~which ~~100~~we ~~capital~~acquired ~~units~~the ofremaining ~~Ringneck~~non-controlling atinterest aof ~~price~~HLBE offor $514,000,000. ~~per~~As ~~unit for~~ a ~~total~~result of ~~$500~~the merger,~~000.~~ ~~Details~~GFE ~~regarding~~and ~~our~~Project ~~subscription~~Viking ~~for~~own ~~investment~~100% inof ~~Ringneck~~HLBE’s ~~are~~issued ~~provided~~and ~~below~~outstanding inmembership ~~the section titled “Investments~~units.~~” Details~~ ofThe ~~the~~merger ~~Project~~is ~~Hawkeye~~further ~~credit~~described ~~facility are provided below~~ in the section ~~below~~captioned ~~entitled~~ “~~ITEM~~Merger 7with ~~- MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Indebtedness - Granite Falls Energy - GFE’s Other Credit Arrangement~~HLBE.”

OnAppointment ~~June 29, 2018, we subscribed to purchase 20 preferred membership units~~ of ~~Harvestone~~Jeffrey ~~Group,~~Oestmann ~~LLC~~as (“Harvestone”) at a price of $100,000 per unit for a total of $2,000,000. We paid the $2,000,000 in connection with our subscription, which is reflected in our investing cash flows. Harvestone is a Delaware limited liability company that provides ethanol marketing, logistics, and trading services. Harvestone’s headquarters are located in Franklin, Tennessee. CEO

We appointed Jeffrey Oestmann, to serve as CEO, effective May 26, 2021. Oestmann has worked in the agriculture and bio-fuel sectors for approximately 27 years, most recently serving as head of bio-fuel operations for Syngenta, an agricultural science and technology company. Oestmann replaced Steve Christensen, who resigned as CEO of the Company effective May 26, 2021, pursuant to a separation agreement dated February 17, 2021. Oestmann serves as the CEO of both GFE and its wholly owned subsidiary HLBE. Additional information regarding Oestmann’s

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~~Harvestone~~employment isagreement ~~owned by several other ethanol producers~~ and ~~other~~Christensen’s ~~private~~separation ~~investors~~agreement ~~and~~are ~~expects~~available ~~that~~in ~~its primary business will be marketing and trading for member and non-member ethanol producers.~~ GFE’s ~~investment~~Form ~~was~~8-K ~~initially~~filed ~~sufficient~~with ~~to grant it~~ the ~~right~~SEC toMay ~~appoint one advisor to the advisory committee to the managers of Harvestone. In October 2019~~25, ~~Harvestone and its members amended the Limited Liability Company Agreement of Harvestone~~2021, which ~~resulted~~is inincorporated ~~the~~herein ~~removal~~by ~~of GFE’s right to appoint an advisor to the advisory committee to the managers of Harvestone~~reference. ~~Details regarding our subscription for investment in Harvestone are provided below in the section titled “Investments.”~~

~~Our~~Merger ~~business~~with consists primarily of the production and sale of ethanol and its co-products (wet, modified wet and dried distillers’ grains, corn oil and corn syrup) locally, and throughout the continental U.S. However, as markets allow, our products can be, and have been, sold in the export markets. Our revenues from operations come from three primary sources: sales of fuel ethanol, sales of distillers’ grains and sales of corn oil at GFE’s ethanol plant and HLBE~~’s ethanol plant.~~

~~The~~On ~~Company~~September 29, ~~and~~2021, ~~the~~we ~~ethanol~~completed ~~industry as~~ a ~~whole~~transaction, ~~experienced~~in ~~significant~~which ~~adverse~~GFE ~~conditions~~acquired ~~throughout~~the ~~2019~~remaining ~~and~~non-controlling ~~2020~~interest asof aHLBE. ~~result~~The structure of ~~industry-wide~~the ~~record~~transaction ~~low~~was ~~ethanol~~a ~~prices~~merger, ~~due~~in towhich ~~reduced~~Granite ~~demand~~Heron ~~and~~Merger ~~high~~Sub, ~~industry~~LLC, ~~inventory~~a ~~levels.~~wholly ~~These~~owned ~~conditions~~subsidiary ~~were~~of ~~exacerbated~~GFE by(“Merger ~~the~~Sub”), ~~COVID-19~~merged ~~pandemic~~with and ~~its~~into ~~ramifications.~~HLBE, ~~Due~~with toHLBE ~~the~~emerging ~~market~~from ~~risks~~the ~~and~~transaction ~~uncertainties~~as ~~related to~~ the ~~COVID-19~~surviving ~~pandemic,~~entity ~~HLBE~~and ~~extended~~as ~~its~~a ~~regularly~~wholly ~~scheduled~~owned ~~idle~~subsidiary of ~~ethanol~~GFE ~~production~~(the ~~operations~~“Merger”). Prior to ~~cover~~ the ~~period beginning on or about March 30~~Merger, ~~2020~~GFE ~~through~~directly ~~approximately May 31, 2020,~~ and ~~GFE~~indirectly ~~extended~~owned ~~its~~approximately ~~regularly~~50.7% ~~scheduled idle~~ of ~~ethanol~~HLBE’s ~~production~~issued ~~operations~~and tooutstanding ~~cover~~units. ~~the~~The ~~period~~balance ~~beginning~~of onHLBE’s orunits were ~~about~~owned ~~April~~by ~~3, 2020 through~~ approximately ~~May 18~~1,200 ~~2020~~investors. ~~Additionally,~~GFE inpaid ~~July~~$14 ~~2020,~~million ~~HLBE~~for ~~experienced~~the ~~major~~non-controlling ~~issues with its boiler~~interest, ~~which~~or ~~negatively~~approximately ~~impacted production~~$0.36405 ~~HLBE~~per ~~ordered~~unit. aAdditional ~~temporary~~information ~~boiler,~~regarding ~~which~~the ~~allowed~~Merger ~~operations~~is toavailable ~~continue~~ in ~~August 2020 until January 2021, when~~ HLBE’s ~~new~~Definitive ~~boiler~~Proxy ~~was~~Statement ~~placed~~filed ~~in service. Market conditions, coupled~~ with the ~~idle~~SEC ofAugust ~~our plants~~19, ~~resulted in lower production~~2021, ~~negative~~which ~~operating~~is ~~margins,~~incorporated ~~significantly~~herein ~~lower cash flow from operations and substantial net losses. We expect to have sufficient cash generated~~ by ~~continuing operations and availability on our credit facilities and other loans to fund our operations~~reference. ~~However,~~ should unfavorable operating conditions continue in the ethanol industry that prevent us from profitably operating our plant, we may need to seek additional debt or equity funding or further idle ethanol production altogether.

~~HLBE~~To ~~was~~finance ~~out~~the ofMerger ~~compliance~~and ~~with~~consolidate ~~its~~certain ~~debt~~existing ~~covenats~~debts, atGFE ~~its~~on ~~fiscal~~September ~~year~~27, ~~end. Although~~2021, ~~the~~finalized ~~lender~~loan ~~waived~~documents ~~this~~for ~~event,~~an ~~additional~~amended ~~noncompliance~~credit ~~and~~facility ~~forecasted~~(the ~~probable~~“2021 ~~future~~Credit ~~noncompliance~~Facility”) ~~has~~with ~~resulted~~AgCountry inFarm ~~the~~Credit ~~reclassification~~Services, ofPCA, ~~approximately~~AgCountry ~~$10~~Farm Credit Services,~~300,000~~ ofFLCA ~~long~~(“AgCountry”). ~~term~~CoBank ~~debt~~FCB (“CoBank”) serves as ~~current~~AgCountry’s ~~maturities~~administrative agent for the 2021 Credit Facility. ToThe ~~stay~~loan indocuments ~~business~~include an Amended and Restated Credit Agreement (the “Credit Agreement”), ~~HLBE~~which ~~will~~amends ~~need~~and toreplaces ~~obtain~~the ~~either~~Company’s ~~additional~~credit ~~equity~~agreement orwith ~~debt~~AgCountry ~~financing~~dated September 27, 2018. ~~There~~ isThe 2021 Credit Facility includes: the credit agreement, a ~~risk~~$20 ~~that~~million ~~CoBank~~revolving credit promissory note, asa ~~the~~$500,000 ~~administrative~~amended ~~agent~~and ~~for~~restated ~~our~~letter ~~lender~~of ~~Compeer~~credit promissory note, ~~may~~a ~~seek~~$20 tomillion ~~enforce~~amended ~~its~~and ~~security~~restated ~~interests~~revolving term promissory note, a $25 million single advance term promissory note, and ~~take~~a ~~control~~$2.4 ofmillion ~~HLBE’s~~single ~~assets~~advance term promissory note. IfAdditional ~~that~~information ~~were~~regarding tothe ~~happen,~~2021 ~~HLBE~~Credit ~~may~~Facility beis ~~faced~~available in GFE’s Form 8-K filed with the ~~prospects~~SEC ofOctober ~~either~~1, ~~ceasing~~2021, ~~operations~~which oris ~~seeking~~incorporated ~~Chapter~~herein 11by reference, and in the section below titled “~~reorganization”~~PART ~~bankruptcy~~II ~~protection~~- ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Credit Arrangements.”

The purpose of the Merger was to improve the financial stability of HLBE by allowing GFE to acquire HLBE’s non-controlling interest. In fiscal year 2020 and the first quarter of 2021, HLBE had experienced significant net losses due to several factors, including elevated corn prices, the breakdown of its ethanol plant boiler, and reduced demand for ethanol due to the COVID-19 pandemic. Due to these net losses, HLBE violated certain loan covenants related to working capital and net worth ratio, for which the HLBE obtained waivers from its lender. HLBE was in violation of such loan covenants as of October 31, 2020, and January 31, 2021. As a result of these loan covenant violations, there was substantial doubt about HLBE’s ability to continue operating as a going concern. Additional loan covenant violations would have allowed HLBE’s lender to accelerate certain loans and designate a substantial portion of HLBE’s debt due and payable. If HLBE’s loans became due and payable, there was a substantial risk HLBE would have lacked the cash on hand, borrowing capacity, and cash flows to repay the debt, and if that had occurred, HLBE could have been forced to cease operations or seek bankruptcy protection. GFE believes the Merger reduces the risk of future loan covenant violations because GFE is expected to have sufficient working capital and net worth to remain in compliance with its loan covenants.

On September 23, 2021, HLBE held a special meeting of its members, at which a majority in interest of HLBE’s members and a majority in interest of the non-controlling interest voted to authorize the Merger. The Merger was effective as of September 29, 2021, upon the filing of Articles of Merger with the Minnesota Secretary of State. HLBE is the surviving entity of the Merger. Upon completion of the Merger, 100% of the membership interests in Merger Sub were converted into and became 100% of the membership interest in HLBE, as the surviving entity in the Merger. As a result of the Merger, HLBE became a wholly owned subsidiary of GFE. GFE and Project Viking together own 100% of the HLBE’s issued and outstanding units.

Following the Merger, HLBE deregistered from the SEC and is no longer required to file annual, quarterly, or periodic reports with the SEC. By de-registering with the SEC, HLBE is expected to save approximately $300,000 in filing fees and regulatory costs on an annual basis. Upon completion of the Merger, each issued and outstanding unit of HLBE’s non-controlling interest was canceled and converted into the right to receive $0.36405 per unit. GFE has transferred $14 million to an exchange agent to hold in trust to be distributed pro-rata to the non-controlling interest unitholders. The non-controlling interest unitholders no longer own any units of HLBE or any rights as a member of the HLBE.

As part of the Merger, GFE and HLBE agreed to release, acquit, and discharge each other and all related parties from all claims, including, all liabilities, obligations, claims, litigation, actions, causes of action, suits, proceedings,

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executions, judgments, demands, damages, losses, duties, debts, dues, accounts, fees, costs, expenses and penalties, and agree not to initiate, maintain, prosecute or continue to maintain or prosecute any action, suit or proceeding, or seek to enforce any right or claim against the other or its related parties.

We expect minimal changes, if any, to the operations of GFE and HLBE as a result of the Merger, as both companies are expected to maintain their same operations under the same management. HLBE, which had been managed by GFE’s executive officers pursuant to the Management Services Agreement, will continue to be managed by GFE’s executive officers. As a result of the Merger, GFE’s Board of Governors has assumed managerial and oversight control over HLBE. On January 3, 2022, HLBE adopted an operating agreement that repealed, replaced, and superseded HLBE’s existing member control agreement. The HLBE operating agreement eliminates the HLBE board of governors and establishes GFE as the sole manager of HLBE.

HLBE Boiler Replacement

In July 2020, HLBE experienced significant operational issues with its boiler, which negatively impacted production. HLBE operated with temporary boilers from August 2020 through part of January 2021. HLBE determined that the purchase and installation of a new boiler would be more economical and efficient than attempted repairs to the failing boiler. On September 2, 2020, HLBE received notice of approval of the new boiler from the Minnesota Pollution Control Agency. As a result, HLBE abandoned the failing boiler at that time. The Company recorded the loss on disposal as a component of operating expenses during the fourth fiscal quarter of the fiscal year ended October 31, 2020 of approximately $1.8 million. The new boiler was placed in service in January 2021 at cost of approximately $5.2 million. The Company believes that the new boiler has improved HLBE’s operating efficiency.

COVID-19 Pandemic

After experiencing volatile and adverse conditions for much of the fiscal year 2020 due to the COVID-19 pandemic and its ramifications, the Company and the ethanol industry as a whole benefited from more favorable market conditions during our 2021 fiscal year.

The ethanol industry, including our Company, experienced significant adverse conditions throughout 2020 as a result of industry-wide record low ethanol prices due to reduced demand and high industry inventory levels caused, in large part, by the COVID-19 pandemic. Due to the market risks and uncertainties related to the COVID-19 pandemic, both GFE and HLBE idled their plants in the spring of 2020. Additionally, market conditions, coupled with the idling of our plants, resulted in lower production, negative operating margins, significantly lower cash flow from operations and substantial net losses in the fiscal year 2020. The ramifications of these net losses prompted GFE and HLBE to engage in the Merger.

Market conditions improved in fiscal year 2021, as vehicle travel and demand for transportation fuel, including the ethanol we produce, rebounded. The prices we received for a gallon of ethanol increased significantly in 2021, as compared to the prior year. As a result, we experienced greater production, positive operating margins, increased cash flow from operations, and net income for the fiscal year 2021, as compared to the previous year.

Our Facilities

Our business consists primarily of producing ethanol and its related co-products, including wet, modified and dried distillers’ grains, as well as corn oil. Our ethanol production operations are carried out at our ethanol plant located in Granite Falls, Minnesota and at the ethanol plant operated by HLBE located near Heron Lake, Minnesota.

The GFE plant has an annual nameplate production capacity of approximately 63 million gallons of denatured ethanol, but is currently permitted to produce up to 70 million gallons of undenatured ethanol on a twelve-month rolling sum basis. The HLBE plant has an approximate annual nameplate production capacity of approximately 65 million gallons of denatured ethanol, but is currently permitted to produce up to approximately 72.3 million gallons of undenatured fuel-grade ethanol on a twelve-month rolling sum basis. After experiencing major issues with the HLBE plant’s boiler, HLBE purchased and installed a new boiler, which was placed into service in January 2021 at cost of approximately $5.2 million. We intend to continue working toward increasing production at both the GFE and HLBE plants to take advantage of the additional production allowed pursuant to our permits as long as we believe it is profitable to do so.

HLBE is also the sole owner Agrinatural Gas, LLC (“Agrinatural”), through its wholly owned subsidiary, HLBE Pipeline Company, LLC. Agrinatural is a natural gas pipeline company that was formed to construct, own, and operate the natural gas pipeline that provides natural gas to HLBE’s ethanol production facility and other customers through a connection with the natural gas pipeline facilities of Northern Border Pipeline Company in Cottonwood County, Minnesota. Agrinatural owns approximately 190 miles of natural gas pipeline and provides natural gas to HLBE’s ethanol plant and other commercial, agricultural and residential customers through a connection with the natural gas pipeline facilities of Northern Border Pipeline Company. Agrinatural’s revenues are generated through natural gas distribution fees and sales. HLBE is its largest customer by volume and revenue. On October 18, 2019, HLBE Pipeline Company, LLC 5

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~~entered~~HLBE ~~into~~is analso ~~agreement~~the tosole ~~purchase~~owner ~~RES’s~~Agrinatural ~~27%~~Gas, LLC ~~non-controlling~~(“Agrinatural”), ~~interest~~through inits ~~Agrinatural~~wholly owned subsidiary, ~~which~~HLBE ~~became~~Pipeline ~~effective~~Company, LLC. Agrinatural onowns ~~December~~approximately ~~11,~~190 ~~2019.~~miles ~~Prior~~of natural gas pipeline and provides natural gas to ~~December~~HLBE’s ~~11,~~ethanol ~~2019,~~plant ~~Rural~~and ~~Energy~~other ~~Solutions~~commercial, ~~LLC~~agricultural ~~(“RES”)~~and ~~owned~~residential customers through a ~~27%~~connection ~~non-controlling~~with ~~interest~~the innatural gas pipeline facilities of Northern Border Pipeline Company. Agrinatural’s revenues are generated through natural gas distribution fees and sales. HLBE is its largest customer by volume and revenue.

Operating Segments

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

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

We currently do not have or anticipate we will have any other lines of business or other significant sources of revenue other than the sale of ethanol and its co-products, which include distillers’ grains and non-edible corn oil.

Financial Information

Please refer to “ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” for information about our revenue, profit and loss measurements, and total assets and liabilities and “ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” for our consolidated financial statements and supplementary data.

Principal Products

The principal products from ethanol production at GFE’s plant and HLBE’s plant, and from which we derive nearly all our revenue, are fuel-grade ethanol, distillers’ grains, and non-edible corn oil. In addition, HLBE’s plant also has miscellaneous other revenue generated by sales of corn syrup, a by-product of the ethanol production process, and revenues from Agrinatural’s natural gas pipeline operations. We did not introduce any new products or services as part of our ethanol production segment during our fiscal year ended October 31, ~~2020~~2021.

The table below shows the approximate percentage of our total revenue which is attributable to each of our principal products for each of the last two fiscal years.


	2021		2020
Ethanol	77.8	%	76.8	%
Distillers' Grains	15.9	%	17.9	%
Corn Oil	5.5	%	4.0	%
Misc. Other Revenue*	0.8	%	1.3	%


	2020		2019
Ethanol	76.8	%	77.4	%
Distillers' Grains	17.9	%	17.8	%
Corn Oil	4.0	%	3.6	%
Misc. Other Revenue*	1.3	%	1.2	%

*	Includes incidental sales of corn syrup at HLBE’s plant and revenues from natural gas pipeline operations at Agrinatural, net of intercompany eliminations for distribution fees paid by HLBE to Agrinatural for natural gas transportation services.

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Ethanol

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

●

an octane enhancer in fuels;

●

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

●

a non-petroleum-based gasoline substitute; and

●

as a renewable fuel to displace consumption of imported oil.

Ethanol produced in the U.S. is primarily used for blending with unleaded gasoline and other fuel products as an octane enhancer or fuel additive. Ethanol is most commonly sold as E10 (10% ethanol and 90% gasoline), which is the blend of ethanol approved by the U.S. Environmental Protection Agency (“EPA”) for use in all American automobiles. Increasingly, ethanol is also available as E85, a higher percentage ethanol blend (85% ethanol and 15% gasoline) approved by the EPA for use in flexible fuel vehicles. Additionally, ethanol is available as E15 (15% ethanol and 85% gasoline), which is approved by the EPA for use in model year 2001 and newer cars, light-duty trucks, medium-duty passenger vehicles, and all flex-fuel vehicles.

Distillers’ Grains

The principal co-product of the ethanol production process is distillers’ grains, a high protein and high-energy animal feed ingredient primarily marketed to the dairy and beef industries. Dry mill ethanol processing creates three primary forms of distillers’ grains: wet distillers’ grains, modified wet distillers’ grains, and dried distillers’ grains with solubles. Most of the distillers’ grains that we sell are in the form of dried distillers’ grains and modified/wet distillers’ grains. Modified/wet distillers’ grains are processed corn mash that has been dried to approximately 50% moisture ~~and has a shelf life of approximately 7 days~~. Modified/wet distillers’ grains are often sold to nearby markets. Dried distillers’ grains with solubles are corn mash that has been dried to approximately 10% to 12% moisture. It has an almost indefinite shelf life and may be sold and shipped to any market and fed to almost all types of livestock.

Corn Oil

We also extract non-edible crude corn oil during the thin stillage evaporation process immediately prior to production of distillers’ grains. The corn oil that we produce is not food grade corn oil and therefore cannot be used for human consumption. Corn oil is used primarily as a biodiesel feedstock and as a supplement for animal feed.

Principal Product Markets

As described below in “Distribution of Principal Products”, we market and distribute all of GFE’s and HLBE’s ethanol, distillers’ grains, and corn oil through professional third party marketers. Our marketers make all decisions, in consultation with management, with regard to where our products are marketed ~~and we have little control over the marketing decisions they make~~.

Our ethanol, distillers’ grains and corn oil are primarily sold in the domestic market; however, as markets allow, our products can be, and have been, sold in the export markets. We expect our ethanol and distillers’ grains marketers to explore all markets for our products, including export markets. We believe that there is some potential for increased international sales of our products. Nevertheless, due to high transportation costs, and the fact that we are not located near a major international shipping port, we expect a majority of our products to continue to be marketed and sold domestically.

Ethanol Markets

The success of our sales efforts in the ethanol markets will depend primarily upon the efforts of Eco-Energy, Inc. (“Eco-Energy”), which buys and markets our ethanol. There are local, regional, national, and international markets for ethanol. The principal markets for our ethanol are petroleum terminals in the continental U.S. The principal purchasers of ethanol are generally wholesale gasoline distributors or blenders.

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

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

We expect a majority of our ethanol to continue to be marketed and sold domestically. Over our past fiscal year, U.S. exports of ethanol have ~~increased~~decreased slightly, ~~with~~according ~~Canada~~to ~~receiving~~the U.S. Department of Agriculture (the ~~largest~~“USDA”). ~~percentage~~Importers of U.S. ethanol ~~produced~~include inCanada, South Korea, China, Brazil, India, Mexico, the United ~~States~~Kingdom, Nigeria, and ~~Brazil~~the Netherlands. The decrease in ~~second~~ethanol ~~place.~~exports ~~India~~is due to various factors, ~~Korea~~including a decrease in trading with Brazil, ~~Netherlands~~which had been one of the top two largest importers of U.S. ethanol, ~~Colombia~~prior to the expiration of a Brazilian import quota. The USDA projects that U.S. ethanol exports will increase slightly in 2022 due to both volume and price gains due, ~~Mexico~~in part, ~~and~~to ~~Philippines~~increased ~~were~~renewable ~~also~~fuel ~~top~~blending ~~destinations~~requirements in the United Kingdom, India, and other nations. Ethanol export demand is more unpredictable than domestic demand and tends to fluctuate over time as it is subject to monetary and political forces in other nations. For example, a strong U.S. dollar is a force that may negatively impact ethanol exports from the United States. Additionally, the imposition of tariffs and duties on ethanol imported from the U.S., as well as increased production of ethanol and similar fuels in other countries, can also negatively impact domestic export demand.

~~Due~~U.S. toethanol ~~the~~exports ~~ongoing~~to ~~COVID-19~~China ~~pandemic~~increased ~~demand~~during ~~for transportation fuels including~~ the ~~fuel~~2021 ~~ethanol~~fiscal ~~we manufacture substantially decreased in 2020~~year. ~~Lockdowns,~~During ~~closures, and other social distancing measures imposed in response to~~ the ~~pandemic~~12 ~~caused~~months ~~many~~ended ~~individuals~~October ~~to work from home~~31, ~~forego travel~~2021, ~~and~~the ~~otherwise~~U.S. ~~reduce~~exported ~~fuel~~approximately ~~consumption~~3.14 ~~Between~~million ~~March~~barrels ~~and~~of ~~November~~fuel ~~2020, the~~ ethanol ~~industry~~to ~~experienced~~China. This is an ~~estimated~~increase ~~production~~from ~~decline~~virtually ofzero 2fuel ~~billion gallons. Economists estimated the~~ ethanol ~~industry~~exports ~~suffered~~to $8China ~~billion~~ in ~~losses~~the in 2020 ~~due,~~and in2019 ~~large~~fiscal ~~part,~~years. toWhile ~~the~~China’s ~~effects~~official oftariffs ~~the~~on ~~pandemic~~U.S. Weethanol ~~were~~remains ~~not~~high, ~~immune~~early ~~from~~last ~~these~~year ~~conditions~~such ~~and~~tariffs ~~experienced~~were ~~decrease~~reduced ~~demand~~from ~~and~~an ~~high~~effective ~~inventory~~rate ~~levels~~ of ~~ethanol. In 2020, we experienced a 26.4~~70% ~~decrease in the volume of ethanol sold, year-over-year. We expect ethanol demand~~ to ~~increase~~45% infor ~~2021,~~importers ~~however~~who ~~there~~applied isfor notariff ~~guarantee this will occur~~exclusions.

~~Exports~~The increase in ethanol exports to China ~~have~~followed ~~been~~the ~~negligible~~execution ~~during~~of ~~fiscal~~a ~~years~~“phase ~~2020~~one” ~~and~~trade ~~2019.~~agreement ~~This~~with ~~reduction~~China. isThe ~~due~~agreement, tosigned ~~China’s~~by ~~increase~~former ofPresident ~~the~~Donald ~~tariff~~Trump on ~~ethanol~~January ~~imported~~15, ~~from~~2020, ~~the~~includes ~~U.S.~~a tocommitment ~~45%~~by asChina ofto ~~April~~purchase 2,agricultural ~~2018~~products, ~~compared~~including toethanol, over the ~~previous~~course ~~30%~~of ~~tariff~~two ~~imposed~~years. inWhile ~~2017,~~this ~~and~~agreement appears positive for the ~~subsequent~~industry, ~~increase~~China’s actual purchases of ~~the~~U.S. ~~45%~~agricultural ~~tariff~~products tohave ~~70%~~fallen asbelow ofthe ~~July~~levels 6,set ~~2018~~in the phase one agreement. ItThere is ~~unclear~~no ~~when~~guarantee ~~the~~that ~~tariffs~~exports of ethanol to China will becontinue ~~reduced,~~or ifincrease. ~~ever~~Further, ~~and~~President ~~therefore,~~Joe ~~this~~Biden ~~tariff~~may isenter ~~likely~~into toadditional ~~continue~~or todifferent ~~have~~trade aagreements ~~negative~~or ~~impact~~may onotherwise take positions that affect the export ~~market~~of ~~demand~~U.S. ethanol to China and ~~prices~~other ~~for~~international ~~ethanol~~markets. ~~produced~~U.S. intrade ~~the~~policy ~~United~~towards ~~States~~China may change, and we cannot now predict whether or how China may consider changing its tariffs against our products.

On January 15, 2020, President Trump signed a “phase one” trade agreement with China. The agreement includes a commitment by China to purchase agricultural products over the course of two years, including ethanol. While this agreement appeared positive for the industry, exports to China remained negligible during fiscal year 2020. There is no guarantee that the agreement will be fully implemented, nor is there a guarantee that exports to China return to pre-tariff levels. Joe Biden became the President on January 20, 2021. He is believed to be evaluating whether and how to continue various tariffs including those levied against certain Chinese imports to the United States. Although U.S. trade policy towards China may change, we cannot now predict whether or how China may consider changing its tariffs against our products.

In December 2020, Brazil’s import quota on imported ethanol expired. As a result, imports of U.S. ethanol are subject to a 20% tariff. Under the original, expired import quota, the 20% tariff on U.S. ethanol imports was levied only after the import level exceeded 150 million liters, or 39.6 million gallons per quarter. The import quota was initially set to expire in September 2019. In September 2019, Brazil raised the import quota to 187.5 million liters, or 49.5 million gallons, per quarter, before the imports become subject to the 20% tariff. U.S. exports to Brazil have decreased from our 2019 fiscal year to our 2020 fiscal year. The tariff has had and likely will continue to have a negative impact on the export market demand and prices for ethanol produced in the United States.

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

Distillers’ Grains Markets

We sell distillers’ grains (“DDGS”) as animal feed for beef and dairy cattle, poultry, and hogs. Most of the distillers’ grains that we sell are in the form of dried distillers’ grains. Currently, the U.S. ethanol industry exports a significant amount of dried distillers’ grains, which may increase as worldwide acceptance grows. ~~According to the U.S. Grains Council, total~~

According to the U.S. Grains Council, total U.S. distiller’s grains exports through October 2021 increased compared to distiller’s grains exports for the same period last year. Top export markets include Mexico, Vietnam, Korea, Indonesia, Turkey, Thailand, and the European Union and United Kingdom. Driven by strong exports to Mexico, Vietnam, Turkey, and Canada, exports of U.S. distiller’s grains increased more than 10% from the previous 12-month period, according to the U.S. Grains Council. Historically, the United States ethanol industry exported a significant amount of

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Udistillers’ grains to China and Vietnam.S. ~~distiller~~However, during 2016, China began an anti-dumping and countervailing duty investigation related to distillers’s grains ~~exports~~imported ~~through~~from ~~October~~the ~~2020~~U.S. ~~increased~~which ~~compared~~contributed to ~~distiller~~a decline in distillers’s grains ~~exports~~shipped ~~for~~to China. In January 2017, the ~~same~~Chinese ~~period~~issued ~~last~~final ~~year~~tariffs on U.S. ~~Top~~distillers’ ~~export~~grains. ~~markets~~The ~~include~~Chinese ~~Mexico,~~distillers’ ~~Vietnam,~~grains ~~Korea,~~anti-dumping ~~Indonesia,~~tariffs ~~Turkey,~~range ~~Thailand,~~from 42.2% to 53.7% and the ~~European~~anti-subsidy ~~Union~~tariffs ~~and~~range ~~United~~from ~~Kingdom~~11.2% to 12%. The imposition of these duties has resulted in a significant decline in demand from this top importer requiring U.S. producers to seek out alternative markets. There is no guarantee that distillers’ grains exports to China will return to pre-tariff levels.

~~Historically,~~On ~~the~~January ~~United States ethanol industry exported a significant amount of distillers’ grains to China and Vietnam. However~~15, ~~during 2016~~2020, ~~China~~then ~~began~~President anTrump ~~anti-dumping~~signed ~~and~~a ~~countervailing~~“phase ~~duty~~one” ~~investigation~~trade ~~related~~agreement towith ~~distillers’ grains imported from the U~~China.S. ~~which~~The ~~contributed~~agreement toincludes a ~~decline~~commitment inby ~~distillers’~~China ~~grains shipped~~ to ~~China~~purchase ~~during~~agricultural ~~2016. In~~products ~~January~~over ~~2017~~two years, ~~the~~including ~~Chinese issued final tariffs on U.S.~~ distillers’ grains. The ~~Chinese~~agreement ~~distillers’~~will ~~grains~~also ~~anti-dumping~~provide ~~tariffs range from 42~~U.~~2% to 53~~S.7% ~~and~~manufacturers ~~the anti-subsidy tariffs range from 11.2% to 12%. The imposition~~ of ~~these~~DDGS ~~duties~~with ~~has resulted in~~ a ~~significant~~streamlined ~~decline~~process infor ~~demand~~registration ~~from~~and ~~this~~licensing ~~top~~in ~~importer~~order ~~requiring~~to facilitate U.S. ~~producers to seek out alternative markets. While~~ exports to China. ~~increased~~While ~~during~~this ~~fiscal~~agreement ~~year~~appears ~~2020~~positive ~~compared~~for tothe ~~fiscal year 2019~~industry, ~~exports~~there tois ~~China~~no ~~remain~~guarantee ~~substantially~~that ~~below~~ the ~~pre-tariff~~agreement ~~export~~will ~~levels.~~be ~~There~~fully implemented, nor is nothere a guarantee that ~~distillers’ grains~~ exports to China ~~will~~ return to pre-tariff levels.

OnWe ~~January~~also ~~15,~~sell ~~2020,~~modified ~~President~~wet ~~Trump~~distillers’ ~~signed~~grains, awhich ~~“phase~~has ~~one” trade agreement with China. The agreement includes~~ a ~~commitment~~much bysmaller, ~~China~~more tolocal ~~purchase~~market ~~agricultural~~and ~~products~~makes ~~over~~the ~~two~~timing ~~years,~~of ~~including~~its ~~distillers’~~sale ~~grains~~critical. ~~The~~Further, ~~agreement~~because ~~will~~of ~~also~~its ~~provide~~moisture ~~U.S.~~content, ~~manufacturers~~the ofmodified ~~DDGS~~wet ~~with~~distillers’ agrains ~~streamlined~~are ~~process~~heavier ~~for registration~~ and ~~licensing~~more indifficult ~~order~~ to ~~facilitate U~~handle.S. ~~exports~~The tocustomer ~~China.~~must ~~While~~be ~~this~~close ~~agreement~~enough ~~appears~~to ~~positive~~justify ~~for~~ the ~~industry,~~additional ~~there~~handling isand noshipping ~~guarantee~~costs. ~~that~~As ~~the~~a ~~agreement will be fully implemented~~result, ~~nor~~modified iswet ~~there~~distillers’ agrains ~~guarantee~~are ~~that~~principally ~~exports~~sold only to ~~China~~local ~~return~~feedlots toand ~~pre-tariff~~livestock ~~levels~~operations.

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

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

Corn Oil Markets

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

Distribution of Principal Products

GFE’s ethanol plant is located near Granite Falls, Minnesota, in Chippewa County. It is served by the TC&W Railway which provides connection to the Canadian Pacific and Burlington Northern Santa Fe Railroads. The completion of our rail loop during our 2012 fiscal year enables us to load unit trains. Our site is in close proximity to major highways that connect to major population centers such as Minneapolis, Minnesota; Chicago, Illinois; and Detroit, Michigan.

HLBE’s ethanol plant is located near Heron Lake, Minnesota. It is served by the Union Pacific Railroad. HLBE’s site is also in close proximity to major highways that connect to major population centers such as Minneapolis, Minnesota; Chicago, Illinois; and Detroit, Michigan.

Ethanol Distribution

Eco-Energy is the ethanol marketer for both the GFE plant and HLBE plant. Pursuant to our marketing agreements, Eco-Energy purchases and markets the entire ethanol output of GFE’s and HLBE’s ethanol plants. Under GFE’s ethanol marketing agreement, GFE is responsible for securing all of the rail cars necessary for the transport of ethanol by rail except for 59 rail cars leased to GFE by Eco-Energy. Under HLBE’s ethanol marketing agreement, Eco-Energy arranges for the transportation of HLBE’s ethanol. GFE and HLBE pay Eco-Energy a marketing fee per gallon of ethanol sold, as well as a fixed lease fee for rail cars leased from Eco-Energy. The marketing fee and timing of payments by Eco-Energy were negotiated based on prevailing market-rate conditions for comparable ethanol marketing services. Our marketing contracts were amended for an effective date of January 1, 2022, and an expiration date of December 31, 2023. The contracts will automatically renew for an additional two years unless either party gives written 90-day notice.

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The term of our agreements with Eco-Energy originally expired on December 31, 2020. The term of our agreements with Eco-Energy agreements were automatically extended for one year, pursuant to a provision in the agreements which provide for automatic renewals for additional consecutive terms of one year unless either party provides written notice to the other party at least 90 days prior to the end of the then-current term.

Distillers’ Grains Distribution

RPMG, Inc. (“RPMG”) is the distillers’ grains marketer for our Granite Falls plant. Pursuant to GFE’s distillers’ grains marketing agreement, RPMG markets all the distillers’ grains produced at the Granite Falls plant. The contract commenced on February 1, 2011, with an initial term of one year, and will continue in effect until terminated by either party at its unqualified option, by providing written notice of not less than 90 days to the other party.

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Gavilon Ingredients, LLC (“Gavilon”) is the distillers’ grains marketer for HLBE. Under HLBE’s distillers’ grains marketing agreement, Gavilon purchases all of the distillers’ grains produced at our Heron Lake ethanol plant in exchange for a service fee. The contract commenced on November 1, 2013 with an initial term of six months, and will continue to remain in effect until terminated by either party at its unqualified option, by providing written notice of not less than 60 days to the other party.

Corn Oil Distribution

RPMG is also the corn oil marketer for both the GFE plant and the HLBE plant. Currently, RPMG markets our corn oil, which is used primarily as a biodiesel feedstock and as a supplement for animal feed. We pay RPMG a commission based on each pound of corn oil sold by RPMG under these marketing agreements. The contract for GFE commenced on April 29, 2010, and the contract for HLBE commenced on November 1, 2013. Both contracts have an initial term of one year, and will continue in effect until terminated by either party at its unqualified option, by providing written notice of not less than 90 days to the other party.

Dependence on One or a Few Major Customers

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

Seasonality of Ethanol Sales

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

Pricing of Corn and Ethanol

We expect that ethanol sales will represent our primary revenue source and corn will represent our primary component of cost of goods sold. Therefore, changes in the price at which we can sell the ethanol we produce and the price at which we buy corn for our ethanol plants present significant operational risks inherent in our business. Trends in ethanol prices and corn prices are subject to a number of factors and are difficult to predict.

The price and availability of corn is subject to significant fluctuations depending upon a number of factors that affect commodity prices in general, including crop conditions, yields, domestic and global stocks, weather, federal policy and foreign trade. With the volatility of the weather and commodity markets, we cannot predict the future price of corn. Historically, ethanol prices have tended to correlate with corn prices, wholesale gasoline prices, with demand for and the price of ethanol increasing as supplies of petroleum decreased or appeared to be threatened, crude oil prices increased and wholesale gasoline prices increased. However, the prices of both ethanol and corn do not always follow historical trends.

9If a period of high corn prices were to be sustained for some time, such pricing may reduce our ability to operate profitably because of the higher cost of operating our plants. Corn prices increased significantly during the 12 months ended October 31, 2021, due in part to the improved domestic economy, increased demand from China, and drought in South America’s corn-growing regions. Because the market price of ethanol is not directly related to corn prices, we, like most ethanol producers, are not able to compensate for increases in the cost of corn through adjustments in our prices for our ethanol although we do tend to see increases in the prices of our distillers’ grains during times of higher corn prices. Given that ethanol sales comprise a majority of our revenues, our inability to adjust our ethanol prices can result in a negative impact on our profitability during periods of high corn prices.

Ethanol prices were higher during fiscal year 2021 compared to fiscal year 2020. The increase in ethanol prices was due primarily to the rebound in demand for transportation fuel as the effects of the COVID-19 pandemic subsided. Management expects demand and prices for ethanol to be volatile in 2022, with factors including, but not limited to,

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~~Generally~~inflation, ~~higher~~federal ~~corn~~infrastructure ~~prices~~legislation, ~~will~~extreme ~~produce~~weather ~~lower~~events, ~~profit~~and ~~margins~~additional ~~and,~~surges ~~therefore,~~in ~~negatively~~COVID-19 ~~affect~~infections ~~our~~contributing ~~financial~~to ~~performance~~market volatility. If aAccording ~~period~~to ofEIA ~~high~~forecasts, ~~corn~~ethanol ~~prices~~production ~~were~~is projected to beincrease ~~sustained~~slightly ~~for~~in ~~some time~~2022, ~~such~~and ~~pricing~~demand ~~may~~is ~~reduce~~also ~~our~~expected ~~ability~~ to ~~operate~~increase ~~profitably~~slightly. ~~because~~However, ofthere ~~the~~is ~~higher~~no ~~cost~~guarantee that either of ~~operating~~these ~~our~~forecasts ~~plants~~will occur. ~~Corn~~ ~~prices~~Ethanol ~~have~~exports ~~trended~~decreased ~~higher~~slightly ~~during~~in ~~December~~2021, ~~2020~~compared ~~and~~to ~~January~~the ~~2021~~previous year, inand ~~part~~are ~~due~~expected to ~~large~~increase ~~purchases~~slightly byin ~~China~~2022, inaccording to the ~~world~~USDA. ~~and~~However, ~~U.S.~~tariffs, ~~marketplaces.~~international ~~Because~~competition, the ~~market~~lingering ~~price~~effects of ~~ethanol~~COVID-19, isinternational ~~not~~conflicts, ~~directly~~and ~~related~~other tofactors ~~corn~~could ~~prices,~~adversely weaffect the export market, ~~like~~and ~~most~~there ~~ethanol~~is ~~producers,~~no ~~are~~guarantee ~~not~~that ~~able~~the toexport ~~compensate~~market ~~for~~will ~~increases~~improve in ~~the~~2022. ~~cost~~U.S. ofgas ~~corn~~demand ~~through~~increased ~~adjustments~~moderately year over year in ~~our~~2021, ~~prices~~due ~~for~~primarily ~~our~~to ~~ethanol~~the ~~although~~rebound wefrom dothe ~~tend~~COVID-19 pandemic. Ethanol consumption is projected to ~~see~~increase ~~increases~~slightly in ~~the~~2022; ~~prices~~however, ofthere ~~our~~is ~~distillers’~~no ~~grains~~guarantee ~~during~~that ~~times~~this ofprojection ~~higher~~will ~~corn~~be ~~prices~~accurate. ~~Given~~A ~~that~~continued ~~ethanol~~or ~~sales~~further ~~comprise~~decrease ain ~~majority~~demand offor ~~our~~either ~~revenues,~~gasoline ~~our~~or ~~inability~~ethanol toblends ~~adjust~~would ~~our~~adversely impact the price of ethanol, ~~prices~~which ~~can~~could result in a ~~negative~~material ~~impact~~adverse effect on our ~~profitability~~business, ~~during~~results ~~periods~~ of ~~high~~operations ~~corn~~and ~~prices~~financial condition.

Ethanol prices were lower during fiscal year 2020 compared to fiscal year 2019. Ethanol prices were lower during the fiscal year ended October 31, 2020 due primarily to effects of the COVID-19 pandemic, which resulted in reduced demand and high inventory levels. Management expects additional volatility for the price of ethanol in 2021. According to EIA forecasts, ethanol production is projected to increase slightly in 2021, and demand is also expected to increase slightly. However, there is no guarantee that either of these forecasts will occur. While exports improved slightly in 2020, tariffs and international competition continued to adversely affect the export market, and there is no guarantee that the export market will improve in 2021. U.S. gas demand decreased significantly year over year in 2020, due primarily to the COVID-19 pandemic. Ethanol consumption is projected to increase slightly in 2021; however, there is no guarantee that this projection will be accurate. A continued or further decrease in demand for either gasoline or ethanol blends would adversely impact the price of ethanol, which could result in a material adverse effect on our business, results of operations and financial condition.

Sources and Availability of Raw Materials

The primary raw materials used in the production of ethanol at our plants are corn and natural gas. Our plants also require significant and uninterrupted amounts of electricity and water.

Corn

Ethanol production requires substantial amounts of corn. The cost of corn represented approximately 7180.68% and 7371.46% of our cost of goods sold for the years ended October 31, ~~2020~~2021 and ~~2019~~2020, respectively. At GFE’s current production rate of approximately 5660.23 million gallons of undenatured ethanol per year, the GFE plant requires approximately 1920.14 million bushels of corn per year. The HLBE ethanol plant requires approximately 1621.38 million bushels of corn per year to operate at its current production rate of approximately 4765.96 million gallons of undenatured ethanol per year.

GFE ~~had~~purchases ~~an exclusive~~ corn ~~storage~~directly ~~and~~from grain ~~handling~~elevators, ~~agreement~~farmers, ~~with~~and ~~Farmers~~local ~~Cooperative~~dealers ~~Elevator~~within ~~(“FCE”),~~approximately a80 ~~member~~miles of ~~GFE.~~Granite ~~Under~~Falls, ~~the agreement~~Minnesota, ~~GFE~~and ~~had~~accepts ~~agreed~~delivery toof ~~purchase~~corn ~~all~~at ofits ~~the~~Granite Falls plant. HLBE purchases its corn ~~needed~~directly ~~for~~from ~~the~~grain ~~operation~~elevators, offarmers, ~~the~~and ~~plant~~local ~~from~~dealers ~~FCE.~~within ~~The~~approximately ~~price~~80 miles of ~~the~~Heron ~~corn~~Lake, ~~purchased~~Minnesota. ~~was~~Neither ~~the~~GFE’s ~~bid~~nor ~~price~~HLBE’s ~~FCE~~members ~~establishes~~are ~~for~~obligated to deliver corn to the ~~plant~~Granite ~~plus~~Falls aplant ~~set~~or ~~fee~~Heron ~~per~~Lake ~~bushel~~plant.

OnGFE ~~February~~and 27HLBE generally purchase corn through spot cash, ~~2017~~fixed-price forward, ~~GFE~~ basis only, and ~~FCE~~futures ~~executed~~only ancontracts. ~~amendment~~Our tofixed-price forward contracts specify the amount of corn, ~~storage~~the price and ~~grain~~the ~~handling~~time ~~agreement. Pursuant~~period toover which the ~~terms~~corn ofis ~~the~~to ~~amendment,~~be ~~GFE~~delivered. These ~~and~~forward ~~FCE~~contracts ~~agreed~~are at fixed prices indexed to ~~amend~~Chicago ~~the~~ Board of Trade (“CBOT”) prices. Our plants corn ~~storage~~requirements ~~and~~can ~~grain~~be ~~handling~~contracted ~~agreement to~~in ~~accelerate~~advance under fixed-price forward contracts or options. The parameters of these contracts are based on the ~~termination~~local ~~date~~supply and demand situation and the seasonality of the ~~agreement~~price. For delayed pricing contracts, producers will deliver corn to ~~midnight~~either ~~August~~the 31GFE or HLBE plant, ~~2017. In~~but ~~exchange~~the pricing for that corn and the ~~early~~related ~~termination,~~payment ~~GFE~~will ~~paid~~occur anat ~~early~~a ~~termination~~later ~~fee~~date. toWe ~~FCE~~may also purchase a portion of ~~approximately~~our ~~$255,000~~corn inon ~~August~~a ~~2017~~spot basis. ~~Prior~~ toFor ~~the~~our ~~amendment~~spot purchases, ~~the~~GFE ~~termination~~and ~~date~~HLBE ofpost ~~the~~ daily corn ~~storage~~bids ~~and~~so ~~grain~~that ~~handling~~corn ~~agreement was set~~producers can sell to ~~expire~~directly to our plants on ~~November~~a ~~2017~~spot basis.

OnIn ~~June 1~~addition, ~~2017,~~both ~~GFE~~plants’ ~~began~~facilities ~~posting~~have ~~bids~~sufficient ~~for the purchase of~~ corn ~~directly~~storage ~~from grain elevators~~capacity, ~~farmers,~~with ~~and~~the ~~local~~capability ~~dealers~~to ~~within~~store approximately 8020 days ~~miles~~ of ~~Granite Falls, Minnesota. On September 1, 2017, GFE began accepting delivery of~~ corn supply at ~~its Granite Falls plant. Typically,~~ HLBE ~~purchases its corn directly from grain elevators, farmers,~~ and ~~local dealers within~~ approximately 8020 ~~miles~~days of ~~Heron~~corn ~~Lake,~~supply ~~Minnesota.~~at ~~Neither~~the GFE’s ~~nor HLBE’s members are obligated to deliver corn to the Granite Falls~~ plant ~~or Heron Lake plant~~.

GFE and HLBE generally purchase corn through spot cash, fixed-price forward, basis only, and futures only contracts. Our fixed-price forward contracts specify the amount of corn, the price and the time period over which the corn is to be delivered. These forward contracts are at fixed prices indexed to Chicago Board of Trade (“CBOT”) prices. Our plants corn requirements can be contracted in advance under fixed-price forward contracts or options. The parameters of these contracts are based on the local supply and demand situation and the seasonality of the price. For delayed pricing contracts, producers will deliver corn to either the GFE or HLBE plant, but the pricing for that corn and the related payment

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will occur at a later date. We may also purchase a portion of our corn on a spot basis. For our spot purchases, GFE and HLBE post daily corn bids so that corn producers can sell to directly to our plants on a spot basis.

In addition, both plants’ facilities have sufficient corn storage capacity, with the capability to store approximately 8 days of corn supply at HLBE and approximately 18 days of corn supply at the GFE plant.

We compete with ethanol producers in close proximity for the supplies of corn we will require to operate our plants. There are 8 ethanol plants within an approximate 50 mile radius of HLBE’s plant and 5 ethanol plants within an approximate 50 mile radius of the GFE plant. The existence of other ethanol plants, particularly those in close proximity to our plants, increase the demand for corn and may result in higher costs for supplies of corn. We also compete with other users of corn, including ethanol producers regionally and nationally, producers of food and food ingredients for human consumption (such as high fructose corn syrup, starches, and sweeteners), producers of animal feed and industrial users.

Since corn is the primary raw material we use to produce our products, the availability and cost of corn can have a significant impact on the profitability of our operations. Corn prices were ~~slightly~~significantly ~~lower~~higher during our ~~2020~~2021 fiscal year, as compared to our ~~2019~~2020 fiscal year. If ~~we or the industry experience~~ unfavorable conditions occur during our ~~2021~~2022 fiscal year, the price we pay for corn and the availability of corn near our plants could be negatively impacted. If we experience a localized shortage of corn, we may be forced to purchase corn from producers who are farther away from our ethanol plants which can increase our transportation costs.

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Utilities

Natural Gas

Natural gas is a significant input to our manufacturing process. The cost of natural gas represented approximately 54.25% and 5.62% of our cost of ~~sales~~goods sold for the years ended October 31, ~~2020~~2021 and ~~2019~~2020, respectively.

We do not anticipate any problems securing the natural gas we require to continue to operate our plants at capacity during our 2021 fiscal year or beyond. At GFE’s plant, we pay Center Point Energy/Minnegasco a per unit fee to move the natural gas through the pipeline, and we have guaranteed to move a minimum of 1,500,000 MMBTU annually through December 31, 2025, which is the ending date of the agreement. GFE also has an agreement with Kinetic Energy Group. On our behalf, Kinetic Energy Group procures contracts with various natural gas vendors to supply the natural gas necessary to operate the GFE plant. We determined that sourcing our natural gas from a variety of vendors is more cost-efficient than using an exclusive supplier.

HLBE has a facilities agreement with Northern Border Pipeline Company, which allows HLBE to access an existing interstate natural gas pipeline located approximately 16 miles north from its plant. HLBE has entered into a firm natural gas transportation agreement with its indirectly wholly owned subsidiary, Agrinatural. Under the terms of the firm natural gas transportation agreement, Agrinatural will provide natural gas to the HLBE plant with a specified price per MMBTU for a term ending on October 31, 2021, with an automatic renewal option for an additional five year period. HLBE also has a base agreement for the sale and purchase of natural gas with Constellation NewEnergy—Gas Division, LLC (“Constellation”). HLBE buys all of its natural gas from Constellation and this agreement runs through March 31, 2022.

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

Electricity

Our plants require a continuous supply of electricity. We have agreements in place to supply electricity to our plants. Our GFE plant obtains electricity from Minnesota Valley Light and Power Cooperative, and our HLBE plant obtains electricity from Federated Rural Electric. We do not anticipate any problems securing the electricity that we require to continue to operate our plants at capacity during our 2022 fiscal year or beyond.

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electricity from Federated Rural Electric. We do not anticipate any problems securing the electricity that we require to continue to operate our plants at capacity during our 2021 fiscal year or beyond.

Water

We do not anticipate any problems securing the water that we require to continue to operate our plants at capacity during our ~~2021~~2022 fiscal year or beyond. GFE obtains the water necessary to operate its plant from the Minnesota River with an adjustable gravity-flow intake system.

HLBE obtains its water pursuant to an industrial water supply agreement with the City of Heron Lake and Jackson County, Minnesota.

Risk Management and Hedging

The profitability of our operations is highly dependent on the impact of market fluctuations associated with commodity prices. We use various derivative instruments as part of an overall strategy to manage market risk and to reduce the risk that our ethanol production will become unprofitable when market prices among our principal commodities and products do not correlate.

In order to mitigate our commodity and product price risks, we enter into hedging transactions, including forward corn, ethanol, distillers’ grains and natural gas contracts, in an attempt to partially offset the effects of price volatility for corn and ethanol. However, we are not always presented with an opportunity to lock in a favorable margin and our plant’s profitability may be negatively impacted during periods of high grain prices. We also enter into over-the-counter and exchange-traded futures, swaps and option contracts for corn, ethanol and distillers’ grains, designed to limit our exposure to increases in the price of corn and manage ethanol price fluctuations.

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corn and ethanol. However, we are not always presented with an opportunity to lock in a favorable margin and our plant’s profitability may be negatively impacted during periods of high grain prices. We also enter into over-the-counter and exchange-traded futures, swaps and option contracts for corn, ethanol and distillers’ grains, designed to limit our exposure to increases in the price of corn and manage ethanol price fluctuations.

Although we believe that our hedging strategies can reduce the risk of price fluctuations, the financial statement impact of these activities depends upon, among other things, the prices involved and our ability to physically receive or deliver the commodities involved. Our hedging activities could cause net income to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged. As corn and ethanol 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.

Hedging arrangements expose us to the risk of financial loss in situations where the counterparty to the hedging contract defaults or, in the case of exchange-traded contracts, where there is a change in the expected differential between the price of the commodity underlying the hedging agreement and the actual prices paid or received by us for the physical commodity bought or sold. There are also situations where the hedging transactions themselves may result in losses, as when a position is purchased in a declining market or a position is sold in a rising market. Hedging losses may be offset by a decreased cash price for corn and natural gas and an increased cash price for ethanol and distillers’ grains.

We have established a risk management committee which assists the board and our risk ~~management~~ manager to, among other things, establish appropriate policies and strategies for hedging and enterprise risk. We continually monitor and manage our commodity risk exposure and our hedging transactions as part of our overall risk management policy. As a result, we may vary the amount of hedging or other risk mitigation strategies we undertake, and we may choose not to engage in hedging transactions. Our ability to hedge is always subject to our liquidity and available capital.

Process Improvement

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

Patents, Trademarks, Licenses, Franchises and Concessions

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

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Competition

Ethanol Competition

Domestic Competition

We sell our ethanol in a highly competitive market. Ethanol is a commodity product where competition in the industry is predominantly based on price. On a national scale, we are in direct competition with numerous other ethanol producers. According to the Renewable Fuels Association (“RFA”), there are approximately 210 biorefineries with a total nameplate capacity of approximately 17.64 billion gallons of ethanol per year, with antwo additional ~~plant~~plants under expansion or construction with capacity to produce an additional 1626 million gallons.

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


		Nameplate Capacity
Company		(mmgy)
POET Biorefining		2,648
Valero Renewable Fuels		1,740
Archer Daniels Midland		1,674
Green Plains, Inc.		1,039
The Andersons		475


		Nameplate Capacity
Company		(mmgy)
POET Biorefining		1,794
Valero Renewable Fuels		1,730
Archer Daniels Midland		1,716
Green Plains, Inc.		1,128
Flint Hills Resources LP		840

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Source: Renewable Fuels Association

Each of the large ethanol producers above are capable of producing significantly more ethanol than we produce. These producers and other large producers are, among other things, capable of producing a significantly greater amount of ethanol or have multiple ethanol plants that may help them achieve certain benefits that we could not achieve with one ethanol plant. This could put us at a competitive disadvantage to other ethanol producers.

Larger ethanol producers may have an advantage over us from economies of scale and stronger negotiating positions with purchasers. ~~Large~~Many large producers own multiple ethanol plants and may have flexibility to run certain facilities while shutting or slowing down production at their other facilities. This added flexibility may allow these producers to compete more effectively, especially during periods when operating margins are unfavorable in the ethanol industry. Some large producers own ethanol plants in geographically diverse areas of the U.S. and as result, may be able to more effectively spread the risk they encounter related to feedstock prices. Some of our competitors are owned by subsidiaries of larger oil companies, such as Valero Renewable Fuels and ~~Flint~~POET ~~Hills Resources~~Biorefining. Because their parent oil companies are required to blend a certain amount of ethanol each year, these competitors may be able to operate their ethanol production facilities at times when it is unprofitable for us to operate our ethanol plant. Further, new products or methods of ethanol production developed by larger and better-financed competitors could provide them competitive advantages over us and harm our business.

Local Competition

A majority of the U.S. ethanol plants, and therefore, the greatest number of gallons of ethanol production capacity, are concentrated in the corn-producing states of Iowa, Nebraska, Illinois, Indiana, Minnesota, South Dakota, Ohio, Wisconsin, Kansas, and North Dakota. According to the RFA, Minnesota is one of the top producers of ethanol in the U.S. with 19 ethanol plants producing an aggregate of approximately 1.4 billion gallons of ethanol per year. Therefore, we face increased regional and local competition because of the location of our ethanol plant.

Eco-Energy markets ~~out~~our ethanol primarily on a regional and national basis. We compete with other ethanol producers both for markets in Minnesota and markets in other states. We believe that we are able to reach the best available markets through the use of our experienced marketer and by the rail delivery methods we use. We believe that we can compete favorably with other ethanol producers due to our proximity to ample grain, natural gas, electricity and water supplies at favorable prices.

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International Competition

In addition to intense competition with domestic producers of ethanol, we have faced increased competition from ethanol produced in foreign countries. Depending on feedstock prices, ethanol imported from foreign countries may be less expensive than domestically-produced ethanol. However, foreign demand, transportation costs and infrastructure constraints may temper the market impact on the United States. Ethanol imports have been lower in recent years and ethanol exports have been higher. However, if demand for imported ethanol were to increase again, demand for domestic ethanol may be reduced, which could lead to lower domestic prices and lower operating margins. Large international companies with much greater resources than ours have developed, or are developing, increased foreign ethanol production capacities. Many international suppliers produce ethanol primarily from inputs other than corn, such as sugar cane, and have cost structures that may be substantially lower than U.S. based ethanol producers including us. Many of these international suppliers are companies with much greater resources than us with greater production capacities.

Alternative Fuels and Other Fuel Additives Competition

Alternative fuels and alternative ethanol production methods are continually under development. New ethanol products or methods of ethanol production developed by larger and better-financed competitors could provide them competitive advantages over us and harm our business.

We anticipate increased competition from renewable fuels that do not use corn as the feedstock. Many of the current ethanol production incentives are designed to encourage the production of renewable fuels using raw materials other than corn. One type of ethanol production feedstock that is being explored is cellulose. Cellulose is found in wood chips, corn stalks and rice straw, amongst other common plants. Several companies and researchers have commenced pilot projects to study the feasibility of commercially producing cellulosic ethanol.

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A few companies have completed commercial scale cellulosic ethanol plants. If this technology can be profitably employed on a commercial scale, it could potentially lead to ethanol that is less expensive to produce than corn based ethanol. Cellulosic ethanol may also capture more government subsidies and assistance than corn based ethanol. This could decrease demand for our product or result in competitive disadvantages for our ethanol production process.

In addition to competing with ethanol producers, we also compete with producers of other gasoline oxygenates. Many gasoline oxygenates are produced by other companies, including oil companies. The major oil companies have significantly greater resources than we have to develop alternative products and to influence legislation and public perception of ethanol. Historically, as a gasoline oxygenate, ethanol primarily competed with two gasoline oxygenates, both of which are ether-based: MTBE (methyl tertiary butyl ether) and ETBE (ethyl tertiary butyl ether). While ethanol has displaced these two gasoline oxygenates, the development of ethers intended for use as oxygenates is continuing and we will compete with producers of any future ethers used as oxygenates.

A number of automotive, industrial and power generation manufacturers are developing alternative fuels and clean power systems using fuel cells, plug-in hybrids, electric cars or clean burning gaseous fuels. Electric car technology has recently grown in popularity, especially in urban areas. While there are currently a limited number of vehicle recharging stations, there has been increased focus on developing these recharging stations to make electric car technology more feasible and widely available in the future. Additional competition from these other sources of alternative energy, particularly in the automobile market, could reduce the demand for ethanol, which would negatively impact our profitability.

Distillers’ Grains Competition

The amount of distillers’ grains produced annually in North America has increased significantly as the number of ethanol plants increased. We compete with other producers of distillers’ grains products both locally and nationally, with more intense competition for sales of distillers’ grains among ethanol producers in close proximity to our ethanol plant. These competitors may be more likely to sell to the same markets that we target for our distillers’ grains.

Distillers’ grains are primarily used as an animal feed, competing with other feed formulations using corn and soybean meal. As a result, we believe that distillers’ grains prices are positively impacted by increases in corn and soybean prices. In fiscal year ~~2020~~2021, the U.S. ethanol industry ~~increased~~ exports of distillers’ grains. ~~However,~~increased ~~exports~~slightly ofcompared to the previous year. If distillers’ ~~grains~~grain ~~fell~~experts decrease in ~~2019~~the asfuture, ~~compared~~it tocould ~~2018,~~result ~~and~~in ~~the~~increased ~~2020~~competition ~~export~~among ~~levels~~ethanol ~~remain~~producers ~~below~~for ~~pre-2018~~sales ~~levels.~~of ~~The~~distillers’ ~~decline~~grains and could negatively impact distillers’ grains prices in ~~exports~~the U.S.

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increases the domestic supply of distillers’ grains, which has a corresponding negative impact on the price of distillers’ grains as compared to a comparable volume of corn. Continued decreases in distillers’ grains exports could result in increased competition among ethanol producers for sales of distillers’ grains and could negatively impact distillers’ grains prices in the U.S.

Corn Oil Competition

We compete with many ethanol producers for the sale of corn oil. Many ethanol producers have installed the equipment necessary to separate corn oil from the distillers’ grains they produce which has increased competition for corn oil sales and has resulted in lower market corn oil prices.

Government Ethanol Supports

The ethanol industry is dependent on several economic incentives to produce ethanol, the most significant of which is the federal Renewable Fuels Standard (the “RFS”). The RFS is a national program that does not require that any renewable fuels be used in any particular area or state, allowing refiners to use renewable fuel blends in those areas where it is most cost-effective. The RFS has been, and we expect will continue to be, a significant factor impacting ethanol usage.

Under the RFS, the EPA is ~~supposed~~required to pass an annual rule that establishes the number of gallons of different types of renewable fuels that must be used in the U.S. by refineries, blenders, distributors and importers which is called the renewable volume obligations (“RVOs”). The EPA has the authority to waive the mandates in whole or in part if one of two conditions is met: 1) there is inadequate domestic renewable fuel supply, or 2) implementation of the mandate requirement severely harms the economy or environment of a state, region or the United States.

The RFS sets the statutory RVO for corn-based ethanol at 15 billion gallons beginning in 2016 and each year thereafter through 2022. InUnder ~~May~~RFS ~~2020~~statute, the EPA ~~delivered its proposed rule to the White House Office of Management and Budget (“OMB”) to set 2021 RVOs. OMB~~ is required to ~~review~~finalize ~~the proposed rule before releasing it for public comment. The proposed 2021~~ RVOs ~~are still undergoing OMB review, and therefore, the proposed rule has neither been released~~ for ~~public comment or finalized. As~~ a ~~result,~~particular ~~the~~compliance ~~statutory~~year ~~November~~by 30 deadline was not met. The EPA Administrator has stated that the COVID-19 pandemic resulted in significant delays and that the EPA is analyzing various factors in setting 2021 RVOs in light of the pandemic.

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November 30 of the preceding year. The EPA, however, failed to propose or finalize an RVO for compliance years 2021 and 2022 prior to the statutory deadline.

On December 197, ~~2019~~2021, the EPA announced ~~the~~long-delayed ~~final~~blending ~~2020~~requirement ~~RVOs,~~under ~~setting~~ the ~~RVOs~~RFS. ~~for~~The ~~conventional~~EPA ~~ethanol~~proposed atRVOs 15of 17.013 billion gallons, ~~advanced~~for ~~biofuels~~2020, ~~at 5~~18.0952 billion gallons ~~and~~for ~~cellulosic~~2021, ~~ethanol~~and ~~at 0~~20.5977 billion gallons, for ~~overall~~2022. ~~RVOs~~Ethanol ofindustry advocates have denounced the proposal for significantly cutting the 2020 RVO, which was set in a 2019 final rule. The proposal reduces the 2020 blending requirement from 20.09 billion gallons ~~for~~to ~~2020~~17.13 ~~Although~~billion ~~this~~gallons, ~~final~~an ~~rule~~approximately ~~achieves~~15 percent decrease. For 2021, the ~~statutory~~EPA proposed to set the RVO for ~~conventional~~total ~~corn-based~~renewable ~~ethanol,~~fuel itat ~~reduces~~18.52 billion gallons. For 2022, the ~~overall~~proposed ~~RVOs~~RVO ~~below~~is 20.77 billion gallons, which the ~~overall~~EPA ~~statutory~~said is the highest level in the history of 30the ~~billion~~RFS ~~gallons~~program.

In a separate action also on December 7, 2021, the EPA proposed an action to deny 65 pending applications for small refinery exemptions. Because the denial of the small refinery exemptions reflects an updated interpretation of the Clean Air Act, and is a change from previous EPA practice, the agency is implementing a public notice-and-comment process and seeking input from stakeholders, the public, and from individual petitioning refineries.

Concurrently with the EPA’s RVO proposal and denial of small refinery exemptions, the USDA announced $800 million to support biofuel producers and infrastructure. This includes up to $700 million to provide economic relief to biofuel producers and restore renewable fuel markets affected by the pandemic. The trio of actions drew mixed reviews from ethanol industry advocates. The RFA criticized the EPA’s RVO proposal, describing it as an unprecedented and possibly illegal move to retroactively reduce already-finalized 2020 RFS requirements, but also noted the small refinery exemption denials and economic relief funding were beneficial to ethanol producers and farmers.

The following chart illustrates the potential U.S. ethanol demand based on the schedule of minimum usage established by the RFS program through the year 2022 (in billions of gallons):


						Maximum Amount of Corn-based
		Total Renewable Fuel	Cellulosic	Biodiesel	Advanced	Ethanol That Can Be Used to
Year	RVO Source	RVO	Ethanol RVO	RVO	Biofuel	Satisfy Total Renewable Fuel RVO
2017	RFS Statute	24.00	5.50	—	9.00	15.00
	EPA Final Rule(1)	19.28	0.31	2.00	4.28	15.00
2018	RFS Statute	26.00	7.00	—	11.00	15.00
	EPA Final Rule(2)	19.29	0.29	2.10	4.29	15.00
2019	RFS Statute	28.00	8.50	—	13.00	15.00
	EPA Final Rule(3)	19.92	0.42	2.10	4.92	15.00
2020	RFS Statute	30.00	10.50	—	15.00	15.00
	EPA ~~Final~~Proposed Rule(4)	2017.0913	0.5951	2.43	54.0963	1512.0050
2021	RFS Statute	33.00	13.50	—	18.00	15.00
	EPA Proposed Rule(5)	18.52	0.62	2.43	5.20	13.32
2022	RFS Statute	36.00	16.00	—	21.00	15.00
	EPA Proposed Rule(6)	20.77	0.77	2.76	5.77	15.00

(1)	Final EPA RFS RVOs for 2017 issued November 2016.

(2)	Final EPA RFS RVOs for 2018 issued November 2017.

(3)	Final EPA RFS RVOs for 2019 issued November 2018.

(4) ~~Final~~Proposed EPA RFS RVOs for 2020 issued December ~~2019~~2021.

15(5) Proposed EPA RFS RVOs for 2021 issued December 2021.

~~Table~~(6) ofProposed ~~Contents~~EPA RFS RVOs for 2022 issued December 2021.

Ethanol production capacity exceeded the EPA’s 2018 and 2019 RVOs that could be satisfied by corn-based ethanol. According to the RFS, if mandatory renewable fuel volumes are reduced by at least 20% for two consecutive years, the EPA is required to modify, or reset, statutory volumes through 2022. In October 2018, the Office of Management and Budget announced that the 20% thresholds “have been met or are expected to be met in the near future.” In May 2019, the EPA delivered a proposed RFS “reset” rule to the Office of Management and Budget. If the statutory RVOs are reduced as a result of reset, it could have an adverse effect on the market price and demand for ethanol which would negatively impact our financial performance.

Beginning in January 2016, various ethanol and agricultural industry groups petitioned a federal appeals court to hear a legal challenge to of the EPA’s decision to reduce the total renewable fuel volume requirements for 2014-2016 through use of its “inadequate domestic supply” waiver authority. On July 28, 2017, the U.S. Court of Appeals for the D.C. Circuit ruled in favor of the petitioners, concluding that the EPA erred in its exercise of “inadequate domestic supply” waiver authority by considering demand-side constraints. As a result, the Court vacated the EPA’s decision to reduce the total renewable fuel volume requirements for 2016, and remanded to the EPA to address the 2016 total renewable fuels volume requirements. In December 2019, the EPA announced that it is deferring action on this issue until an anticipated date in early 2020. While management believes the decision should benefit the ethanol industry overall by clarifying the EPA's waiver analysis is limited to consideration of supply-side factors only, no direct impact on the Company is expected from the decision.

Management anticipates that there will be further legal challenges to the EPA's reduction in the volume requirements, including the final rules for 2019 and 2020. However, if the EPA's decision to reduce the volume requirements under the RFS is allowed to stand, or if the volume requirements are further reduced, it could have an adverse effect on the market price and demand for ethanol which would negatively impact our financial performance.

Beyond the federal mandates, there are limited domestic markets for ethanol. Further, opponents of ethanol such as large oil companies will likely continue their efforts to repeal or reduce the RFS through lawsuits or lobbying of Congress. If such efforts are successful in further reducing or repealing the blending requirements of the RFS, a significant decrease in ethanol demand may result and could have a material adverse effect on our results of operations, cash flows and financial condition, unless additional demand from exports or discretionary or E85 blending develops.

Most ethanol that is used in the U.S. is sold in a blend called E10. E10 is a blend of 10% ethanol and 90% gasoline. E10 is approved for use in all standard vehicles. Estimates indicate that gasoline demand in the U.S. is approximately 140 billion gallons per year. Assuming that all gasoline in the U.S. is blended at a rate of 10% ethanol and 90% gasoline, the maximum demand for ethanol is 14.3 billion gallons per year. This is commonly referred to as the “blend wall,” which represents a theoretical limit where more ethanol cannot be blended into the national gasoline pool. This is a theoretical limit because it is believed that it would not be possible to blend ethanol into every gallon of gasoline that is being used in the U.S. and it discounts the possibility of additional ethanol used in higher percentage blends such as E15 and E85. These higher percentage blends may lead to additional ethanol demand if they become more widely available and accepted by the market.

There is growing availability of E85 for use in flexible fuel vehicles, however it is limited due to lacking infrastructure. In addition, the industry has been working to introduce E15 to the retail market since the EPA approved its use vehicles model year 2001 and newer. However, widespread adoption of E15 has been hampered by regulatory and infrastructure hurdles in many states, as well as consumer acceptance. Additionally, sales of E15 may be limited because: (i) it is not approved for use in all vehicles; (ii) the EPA requires a label that management believes may discourage consumers from using E15; and (iii) retailers may choose not to sell E15 due to concerns regarding liability. In addition, different gasoline blendstocks may have been required at certain times of the year in order to use E15 due to federal regulations related to fuel evaporative emissions. This prevented E15 from being used during certain times of the year in various states. However, on May 30, 2019, the EPA issued a final rule which allows E15 to be sold year-round. In June 2019, the American Fuel and Petrochemical Manufacturers association filed a lawsuit in the U.S. Court of Appeals for the District of Columbia challenging the final rule. Additionally, in August 2019, the Small Retailers Coalition filed a lawsuit in the U.S. Court of Appeals for the District of Columbia seeking review of the final rule. These legal challenges remain pending, and there is no guarantee that the final rule will be upheld. Legal challenges could create uncertainty for retailers desiring to implement or expand sales of E15. Additionally, although the year-round E15 rule is now final, there is no guarantee that retailers will implement the sale of year-round E15, nor is there a guarantee that the rule will result in an increase of ethanol sales.

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represents a theoretical limit where more ethanol cannot be blended into the national gasoline pool. This is a theoretical limit because it is believed that it would not be possible to blend ethanol into every gallon of gasoline that is being used in the U.S. and it discounts the possibility of additional ethanol used in higher percentage blends such as E15 and E85. These higher percentage blends may lead to additional ethanol demand if they become more widely available and accepted by the market.

~~Obligated~~There ~~parties~~is ~~use~~growing ~~renewable~~availability ~~identification~~of ~~numbers~~E85 ~~(“RINs”)~~for touse ~~show~~in ~~compliance~~flexible ~~with~~fuel ~~RFS-mandated~~vehicles, ~~volumes.~~however ~~RINs~~it ~~are~~is ~~attached~~limited due to ~~renewable~~lacking ~~fuels~~infrastructure. byIn ~~producers~~addition, ~~and detached when~~ the ~~renewable~~industry ~~fuel~~has isbeen ~~blended~~working ~~with~~to ~~transportation~~introduce ~~fuel~~E15 orto ~~traded in~~ the ~~open~~retail market. ~~The~~since ~~market~~the ~~price~~EPA ofapproved ~~detached~~its ~~RINs~~use ~~affects~~in ~~the~~vehicles ~~price~~ of ~~ethanol~~model inyears ~~certain~~2001 ~~markets~~ and ~~influences~~newer. ~~the~~However, ~~purchasing~~widespread ~~decisions~~adoption ~~by obligated~~of ~~parties.~~E15 ~~Under~~has ~~the~~been ~~RFS,~~hampered ~~small~~by ~~refineries~~regulatory ~~may~~and ~~petition~~infrastructure ~~for~~hurdles ~~and~~in bemany ~~granted~~states, ~~temporary~~as ~~exemptions~~well ~~from~~as ~~the~~consumer ~~RVOs~~acceptance. ifAdditionally, ~~they~~sales ~~can~~of ~~demonstrate~~E15 ~~that~~may ~~compliance~~be ~~with~~limited ~~the~~because: ~~RVOs~~(i) ~~would~~it ~~cause~~is ~~disproportionate~~not ~~economic~~approved ~~hardship.~~for Onuse ~~December~~in ~~17,~~all ~~2020,~~vehicles; (ii) the EPA ~~released~~requires ~~data~~a onlabel ~~the~~that ~~number~~management ofbelieves ~~waivers~~may ~~filed,~~discourage ~~which~~consumers ~~indicated~~from ~~that,~~using asE15; ofand ~~December~~(iii) ~~17,~~retailers ~~2020,~~may 14choose ~~petitions~~not ~~for~~to ~~waivers~~sell ~~for~~E15 ~~the~~due ~~2020~~to ~~compliance~~concerns ~~year~~regarding ~~have been received~~liability. ~~For~~In ~~the~~addition, ~~2019~~different ~~compliance~~gasoline ~~year,~~blendstocks 32may ~~petitions~~ have been ~~received.~~required Toat ~~date,~~certain ~~all~~times of the ~~petitions~~year ~~received~~in ~~for~~order ~~both~~to ~~compliance~~use ~~years~~E15 ~~2020~~due ~~and~~to ~~2019~~federal ~~remain~~regulations ~~pending.~~related ~~Further,~~to ~~some~~fuel ~~petitions~~evaporative ~~remain pending from previous compliance years~~emissions. ~~Additionally,~~This 44prevented ~~petitions~~E15 ~~have~~from ~~been~~being ~~received~~used byduring ~~the~~certain ~~EPA~~times ~~for~~of the ~~2018 compliance~~ year. Toin ~~date,~~various 31states. ~~petitions~~While ~~have~~the ~~been~~EPA ~~approved,~~in ~~which~~2019 ~~have~~issued ~~exempted~~a ~~approximately~~final ~~1.43~~rule ~~billion~~that ~~RINs,~~allowed ~~which~~E15 isto ~~approximately~~be ~~13.42~~sold ~~billion gallons of gasoline and diesel~~year-round, ~~from meeting~~ the ~~RFS blending targets~~U.S. ItCourt isof ~~expected~~Appeals ~~that additional petitions~~ for ~~waivers for~~ the ~~2020~~District ~~compliance~~of ~~year~~Columbia ~~will~~struck bedown ~~received by~~ the ~~EPA.~~rule Itin isJuly ~~also~~2021, ~~expected~~dealing ~~that the EPA will approve~~ a significant ~~number~~setback ofto ~~these~~the ~~waiver~~ethanol ~~petitions~~industry, ~~thereby~~as ~~exempting~~the aruling ~~substantial~~is ~~number~~expected ofto ~~gallons~~lead ofto ~~gasoline~~a ~~and diesel from meeting the RFS blending targets. These exemptions~~ decrease in demand for ~~our~~renewable ~~products~~fuels, ~~which~~including ~~negatively~~the ~~impacts~~ ethanol ~~prices~~we ~~and our profitability~~produce.

OnObligated ~~May~~parties ~~29,~~use ~~2018,~~renewable ~~the~~identification ~~National~~numbers ~~Corn~~(“RINs”) ~~Growers~~to ~~Association,~~show ~~National~~compliance ~~Farmers~~with ~~Union,~~RFS-mandated ~~and~~volumes. ~~the~~RINs ~~RFA~~are ~~filed~~attached ato ~~petition~~renewable ~~with~~fuels ~~the~~by ~~U.S.~~producers ~~Court~~and ofdetached ~~Appeals~~when ~~for~~ the ~~10th~~renewable ~~Circuit~~fuel ~~challenging~~is ~~the~~blended ~~EPA’s~~with ~~grant~~transportation offuel ~~waivers~~or totraded ~~three~~in ~~specific~~the ~~refineries~~open market. The ~~petitioners~~market ~~are~~price ~~asking the U.S. Court~~ of ~~Appeals~~detached ~~for~~RINs ~~the~~affects ~~10th Circuit to reject~~ the ~~waivers~~price ~~granted~~of toethanol ~~three refineries located~~ in ~~Wynnewood,~~certain ~~Oklahoma,~~markets ~~Cheyenne, Wyoming,~~ and ~~Woods~~influences ~~Cross,~~the ~~Utah~~purchasing asdecisions anby obligated ~~abuse of EPA authority~~parties. ~~These~~Under ~~waived~~the ~~gallons~~RFS, ~~are~~small ~~not~~refineries ~~redistributed~~may topetition ~~obligated~~for ~~parties,~~ and inbe ~~effect,~~granted ~~reduce~~temporary ~~the~~exemptions ~~aggregate~~from ~~RVOs under~~ the ~~RFS. In~~RVOs ~~January~~if ~~2020,~~they ~~the~~can ~~court~~demonstrate ~~struck~~that ~~down~~compliance with the ~~exemptions~~RVOs aswould ~~improperly~~cause ~~issued~~disproportionate byeconomic ~~the EPA~~hardship. ~~The~~Small ~~court~~refineries ~~interpreted~~petitioned the ~~RFS~~EPA ~~statute~~for to32 ~~provide~~economic ~~that~~hardship ~~refineries~~exemptions ~~are~~in ~~only~~2019 ~~eligible~~and ~~for~~28 ~~relief~~economic ifhardship ~~they~~exemptions ~~have~~in ~~received~~2020. ~~uninterrupted,~~For ~~continuous extensions of~~ the ~~exemptions.~~2018 ~~Consistent~~compliance ~~with the ruling~~year, the EPA ~~denied~~granted ~~certain~~31 small refinery ~~exemption~~economic ~~petitions~~hardship ~~filed by oil refineries in 2020 seeking retroactive relief from their ethanol use requirements for prior years. However~~petitions, ~~HollyFrontier~~which ~~and~~resulted ~~Wynnewood Refining filed a petition~~ in the ~~U.S.~~exemption ~~Supreme Court in September 2020 seeking review~~ of ~~the~~approximately ~~January~~1.43 ~~2020~~billion ~~ruling~~RINs. InExemptions ~~January~~from ~~2021,~~RIN ~~the~~requirements ~~Supreme~~reduces ~~Court agreed to hear~~ the ~~appeal.~~amount ~~Oral~~of ~~arguments~~renewable ~~are~~fuel ~~expected~~that tomust be ~~scheduled~~blended ininto ~~spring~~gasoline ofand ~~2021.~~diesel ~~The~~supplies ~~Supreme~~and ~~Court’s~~thereby ~~decision~~reduces ~~could~~demand ~~result~~for inethanol. To the ~~overturning~~extent of the EPA’s ~~denial~~approves ofadditional ~~certain~~ small refinery ~~exemption~~exemptions, ~~petitions.~~it ~~Such~~will afurther ~~decision~~decrease ~~could~~demand ~~have~~for ~~sweeping~~the ~~negative~~ethanol ~~effects~~we onproduce, ~~the~~which ~~ethanol~~could ~~industry~~negatively ~~and~~affect our profitability.

AnOn ~~EPA~~June ~~final~~25, ~~rule~~2021, ~~released~~the inU.S. ~~December~~Supreme ~~2019~~Court ~~provides~~provided ~~that~~a ~~EPA~~significant ~~will~~setback ~~project~~for ~~exempt~~the ~~volumes~~ethanol ~~based~~industry, onissuing a ~~three-year~~ruling ~~average~~that ofwill ~~the~~make ~~relief~~it ~~recommended~~easier ~~by the Department of Energy (“DOE”)~~ for ~~years~~small ~~2016-2018,~~refineries ~~rather~~to ~~than~~secure ~~based on actual~~ exemptions ~~granted.~~from ~~For~~ the ~~2016 compliance year, the EPA said the DOE’s recommended relief was approximately 440 million RINs~~RVOs. The ~~EPA,~~case ~~however,~~was ~~actually~~brought ~~granted~~by ~~waivers~~a ~~for~~coalition ~~approximately~~of ~~790~~farm ~~million~~and ~~RINs.~~ethanol ~~Similarly~~groups, ~~the~~which ~~DOE’s~~challenged ~~2017~~the ~~compliance~~economic ~~year~~hardship ~~recommendation~~exemptions ~~was~~claimed ~~1.02~~by ~~billion~~certain ~~RINs,~~small asrefineries. ~~compared~~In toits decision, the ~~approximately 1~~U.82S. ~~billion~~Supreme ~~RINs~~Court ~~granted~~ruled ~~waivers~~against by the ~~EPA.~~farm ~~For~~and ~~the~~ethanol ~~2018 compliance year~~coalition, ~~the~~holding ~~DOE~~that ~~recommended~~small ~~the~~refineries ~~EPA~~could ~~approve~~apply ~~waivers~~ for ~~840~~an ~~million~~extension ~~RINs, as compared~~ to ~~the~~their ~~approximately~~hardship ~~1.43~~exemptions ~~billion~~from ~~RINs granted waivers by~~ the ~~EPA. The EPA~~RFS’s ~~final~~blending ~~rule~~requirements, ~~also~~even ~~announced~~if ~~its~~such ~~general~~refineries’ ~~policy~~exemptions ~~approach~~had ~~with~~previously ~~respect~~lapsed. toThe ~~small~~ruling ~~refinery~~overturned ~~waivers on~~ a ~~go-forward~~2020 ~~basis~~decision asfrom ~~consistent~~the ~~with~~United ~~DOE’s~~States ~~recommendations,~~Court ~~where~~of ~~appropriate.~~Appeals ~~The~~for ~~final rule fell short of~~ the ~~relief~~Tenth ~~that~~Circuit. ~~was~~The ~~urged~~Supreme byCourt’s ~~ethanol~~decision ~~producers.~~is Asexpected ato ~~result,~~increase ~~management~~the ~~expects~~availability ~~that~~of ~~small~~economic ~~refinery~~hardship exemptions ~~will~~for ~~continue~~small torefineries ~~have~~and athereby ~~negative~~decrease ~~effect on~~ demand for ~~our~~renewable ~~products~~fuels, ~~ethanol~~including ~~prices,~~the ~~and~~ethanol ~~our~~we ~~profitability~~produce.

Additional legal actions related to the RFS are underway. These include lawsuits challenging fuel volume waivers based on “inadequate domestic supply,” challenging the EPA’s lower threshold for granting small refinery exemptions, seeking broader, forward-looking remedy to account for the collective lost volumes caused by recent small refinery exemptions, alleging that the EPA and U.S. Department of Energy have improperly denied access to public records request by RFA, and challenging the Final 2019 Rule over the EPA’s failure to address small refinery exemptions in the rulemaking. If these legal actions, which generally seek to require the EPA to enforce the renewable fuel blending requirements of the RFS, are unsuccessful, there may negative impacts on the ethanol industry and our financial performance.

Compliance with Environmental Laws and Other Regulatory Matters

Our business subjects us to various federal, state, and local environmental laws and regulations, including: those relating to discharges into the air, water, and ground; the generation, storage, handling, use, transportation, and disposal of hazardous materials; and the health and safety of our employees. These laws and regulations require us to obtain and comply with numerous permits to construct and operate our ethanol plants, including water, air, and other environmental permits. The costs associated with obtaining these permits and meeting the conditions of these permits have increased our costs of construction and production.

Additionally, compliance with environmental laws and permit conditions in the future could require expensive pollution control equipment or operational changes to limit actual or potential impacts to the environment, as well as significant management time and expense. A violation of these laws, regulations or permit conditions can result in substantial fines, natural resource damage, criminal sanctions, permit revocations, and/or plant shutdown, any of which could have a material adverse effect on our operations. Although violations and environmental non-compliance still remain

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Our plants’ air permits require certain on-going performance testing to be completed periodically to ensure compliance with minor source emission limits. ~~On May 12, 2017, HLBE submitted a letter to the Minnesota Pollution Control Agency (“MPCA”) regarding the certain non~~Non-~~compliant~~compliance ~~results~~with ~~from~~ on-going performance testing ~~required~~may ~~under~~result ~~its~~in ~~air~~civil ~~permit.~~penalties ~~Since~~or ~~reporting~~other toenforcement ~~MPCA,~~actions ~~The~~by ~~Company cooperated with MPCA’s review of~~ the ~~non-compliant~~Minnesota ~~tests~~Pollution ~~and~~Control ~~maintained~~Agency ~~open communication with~~ (“MPCA ~~staff to resolve the matter~~”). On October 17, 2017, HLBE entered into a stipulation agreement with MPCA relating to the non-compliant test results. Under the stipulation agreement, HLBE agreed to pay a civil penalty of $63,500, which was paid in October 2017.

In the fiscal year ended October 31, ~~2020~~2021, GFE and HLBE incurred costs and expenses of approximately $~~200~~140,000 and $~~156~~235,000, respectively, complying with environmental laws. Although we have been successful in obtaining all of the permits currently required to operate our plants, any retroactive change in environmental regulations, either at the federal or state level, could require us to obtain additional or new permits or spend considerable resources in complying with such regulations. ~~For the fiscal year ended October 31, 2019, GFE and HLBE incurred costs and expenses of approximately $163,000 and $88,000 respectively.~~

OnIn ~~January 13,~~ 2015 ~~and March 30~~, ~~2015, HLBE and GFE, respectively, submitted efficient producer petitions to~~ the EPA~~. The~~ ~~EPA~~ awarded efficient producer pathway approval to HLBE and GFE ~~on March 12, 2015 and May 13, 2015, respectively~~. In the approval determinations, the EPA’s analysis indicated that HLBE achieved at least a 20.1% reduction and GFE achieved a 26.0% reduction in greenhouse gas (“GHG”) emissions for their non-grandfathered volumes compared to the baseline lifecycle GHG emissions. Pursuant to the award approval, HLBE and GFE are only authorized to generate RINs for each plant’s non-grandfathered volumes if each plant can demonstrate that all ethanol produced at the plant during an averaging period (defined as the prior 365 days or the number of days since the date EPA efficient producer pathway approval) meets the 20% GHG reduction requirement. To make these demonstrations, HLBE and GFE must develop compliance plans and keep certain records as specified in the approvals. Additionally, the EPA approvals require that HLBE and GFE register with the EPA as a renewable fuel producer for the non-grandfathered volumes. Although we believe GFE and HLBE will be able to maintain continuous compliance with the 20% reduction in GHG emissions requirement, there is no guarantee that we will do so. If GFE or HLBE do not maintain continuous compliance with the 20% reduction in GHG emissions requirement, we will not be able issue RINs for the non-grandfathered volumes of ethanol produced at the plants. As a result, we may be forced to rely on exports sales for these non-grandfathered volumes ethanol, which could adversely affect our operating margins, which, in turn could adversely affect our results of operations, cash flows and financial condition.

Pursuant to the award approval, HLBE and GFE are only authorized to generate RINs for each plant’s non-grandfathered volumes if each plant can demonstrate that all ethanol produced at the plant during an averaging period (defined as the prior 365 days or the number of days since the date EPA efficient producer pathway approval) meets the 20% GHG reduction requirement. To make these demonstrations, HLBE and GFE must develop compliance plans and keep certain records as specified in the approvals. Additionally, the EPA approvals require that HLBE and GFE register with the EPA as a renewable fuel producer for the non-grandfathered volumes. Although we believe GFE and HLBE will be able to maintain continuous compliance with the 20% reduction in GHG emissions requirement, there is no guarantee that we will do so. If GFE or HLBE do not maintain continuous compliance with the 20% reduction in GHG emissions requirement, we will not be able issue RINs for the non-grandfathered volumes of ethanol produced at the plants. As a result, we may be forced to rely on exports sales for these non-grandfathered volumes ethanol, which could adversely affect our operating margins, which, in turn could adversely affect our results of operations, cash flows and financial condition.Employees

~~The~~We ~~California~~compete ~~Air~~with ~~Resources~~ethanol ~~Board,~~producers ~~or CARB, has adopted a Low Carbon Fuel Standard, or LCFS, requiring a 10% reduction~~ in ~~average~~ ~~carbon~~close ~~intensity~~proximity offor ~~gasoline~~the ~~and~~personnel ~~diesel~~we ~~transportation~~will ~~fuels~~require ~~from~~to ~~2010~~operate toour ~~2020~~plants. ~~After~~The aexistence ~~series~~and development of ~~rulings~~other ~~that~~ethanol ~~temporarily~~plants ~~prevented~~will ~~CARB~~increase ~~from~~competition ~~enforcing~~for ~~these~~qualified ~~regulations~~managers, ~~the~~engineers, ~~federal~~operators ~~appellate court reversed the federal district court finding the LCFS constitutional~~ and ~~remanding~~other ~~the case back to federal district court to determine whether the LCFS imposes a burden on interstate commerce that is excessive in light of the local benefits~~personnel. OnWe ~~June~~also ~~30,~~compete ~~2014,~~for ~~the~~personnel ~~United~~with ~~States~~businesses ~~Supreme~~other ~~Court~~than ~~declined~~ethanol toproducers ~~hear the appeal of the federal appellate court ruling~~ and ~~CARB recently re-adopted the LCFS~~ with ~~some~~businesses ~~slight~~located ~~modifications.~~within ~~The~~the ~~LCFS~~Granite ~~could~~Falls ~~have a negative impact on demand for corn-based ethanol~~ and ~~result~~Heron inLake, ~~decreased~~Minnesota ~~ethanol prices affecting our ability to operate profitably~~communities.

~~Exports~~As toof ~~China have been negligible since~~ the ~~imposition~~date of athis ~~70%~~report, ~~tariff~~we inhave ~~July~~82 ~~2018.~~full-time Itemployees isat ~~unclear~~our ~~when~~two ~~the~~consolidated ~~tariffs~~ethanol ~~will be reduced~~plants, ifof ~~ever,~~which ~~and~~42 ~~therefore,~~are ~~this~~employed ~~tariff~~at ~~is likely to continue to have a negative impact on~~ the ~~export~~GFE ~~market~~plant ~~demand~~ and ~~prices~~40 ~~for~~are ~~ethanol~~employed ~~produced~~at in the ~~United~~HLBE ~~States~~plant. ~~Additionally,~~Of inour ~~December~~total ~~2020~~employees, ~~Brazil’s~~17 ~~import~~are ~~quota~~involved ~~exempting~~primarily ~~certain volumes of U.S. ethanol imports from a 20% tariff expired, which resulted~~ in ~~all~~management ~~imports~~and ofadministration ~~U.S.~~with ~~ethanol~~10 ~~becoming~~employees ~~subject~~at to the ~~20%~~GFE ~~tariff.~~plant ~~The import quota had already resulted in decreases of ethanol exported to Brazil,~~ and ~~the~~7 ~~expiration~~at of the ~~import~~HLBE ~~quota will likely result in further decreases~~plant. The ~~tariff~~remaining ~~and/or~~employees ~~import~~are ~~quota~~involved ~~has~~primarily ~~had~~in ~~and~~plant ~~likely~~operations. ~~will~~We ~~continue~~do tonot ~~have~~currently aanticipate ~~negative~~any ~~impact~~significant onchange in the ~~export~~number ~~market~~of ~~demand~~employees ~~and~~at ~~prices~~our ~~for ethanol produced in the United States~~plants.

GFE’s executive officers manage HLBE, pursuant to HLBE’s operating agreement adopted January 3, 2022, which appoints GFE as the sole manager of HLBE.

Financial Information about Geographic Areas

All of our operations are domiciled in the U.S. All of the products sold to our customers for fiscal years 2021 and 2020 were produced in the U.S. and all of our long-lived assets are domiciled in the U.S. We have engaged third-party professional marketers who decide where our products are marketed and we have no control over the marketing decisions made by our third-party professional marketers. These third-party marketers may decide to sell our products in countries other than the U.S. However, we anticipate that our products will primarily be sold in the United States.

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Employees

We compete with ethanol producers in close proximity for the personnel we will require to operate our plants. The existence and development of other ethanol plants will increase competition for qualified managers, engineers, operators and other personnel. We also compete for personnel with businesses other than ethanol producers and with businesses located within the Granite Falls and Heron Lake, Minnesota communities.Investments

AsGFE ofowns ~~the~~1,600 ~~date~~capital units of ~~this~~Ringneck ~~report~~Energy & Feed, weLLC ~~have~~(“Ringneck”) 82at ~~full-time~~a ~~employees~~price atof ~~our~~$5,000 ~~two~~per ~~consolidated~~unit ~~ethanol~~for ~~plants,~~a total of ~~which~~$8,000,000. Ringneck 42is ~~are~~a ~~employed~~South atDakota ~~the~~limited ~~GFE~~liability ~~plant~~company ~~and~~that 40has ~~are~~constructed ~~employed~~an at80 ~~the~~million ~~HLBE~~gallon per year ethanol manufacturing plant~~. Of~~ ~~our~~in ~~total~~outside ~~employees~~of Onida, 17South ~~are~~Dakota ~~involved~~in ~~primarily~~Sully inCounty. ~~management~~Construction has reached substantial completion and ~~administration~~the ~~with~~plant 10commenced ~~employees~~operations atin ~~the~~June 2019. GFE’s ~~plant~~investment ~~and~~is 7sufficient atto grant it the ~~HLBE~~right ~~plant~~to appoint one director to the board of directors of Ringneck, and GFE has appointed Jeffrey Oestmann, its CEO, to serve as its appointed director. The ~~remaining~~units ~~employees~~we acquired in Ringneck are ~~involved~~subject ~~primarily~~to inrestrictions ~~plant~~on ~~operations. We~~transfer; dotherefore, this should not ~~currently~~be ~~anticipate~~considered ~~any~~a ~~significant~~liquid ~~change~~investment. It inmay ~~the~~take ~~number~~a significant amount of ~~employees~~time atbefore we realize a return on our ~~plants~~investment, if we realize a return on the investment at all.

OnRingneck ~~July~~offered ~~31,~~its ~~2013,~~units ~~GFE~~pursuant ~~entered~~to ~~into~~ a ~~management~~private ~~services~~placement ~~agreement with HLBE~~memorandum. ~~Pursuant~~ ~~to the management services agreement~~Additionally, ~~GFE~~because ~~provides~~Ringneck ~~its~~did ~~chief~~not ~~executive~~conduct ~~officer,~~a ~~chief~~federally-registered ~~financial officer~~offering, ~~and~~we ~~commodity~~do ~~risk~~not ~~manager~~expect tothat ~~act~~information inabout ~~those~~Ringneck ~~positions~~will asbe ~~part-time~~available ~~officers~~via ~~and managers of HLBE. Each person providing management services to HLBE under~~ the ~~management~~SEC’s ~~services~~EDGAR ~~agreement~~filing ~~is subject to oversight by the HLBE board of governors~~system. ~~However~~ Therefore, ~~GFE’s~~it ~~chief~~may ~~executive~~be ~~officer~~difficult ~~is solely responsible~~ for ~~hiring~~our ~~and~~investors ~~firing~~to ~~persons~~obtain ~~providing~~information ~~management~~about ~~services under the management services agreement~~Ringneck.

~~The~~In ~~term~~connection ofwith ~~the~~our ~~management~~subscription ~~services~~in ~~agreement~~Ringneck, ~~automatically~~GFE entered ~~renews~~into ~~for~~a ~~successive~~credit ~~one-year~~facility with ~~terms~~Project ~~until~~Hawkeye, ~~either~~LLC ~~party~~(“Project ~~gives~~Hawkeye”) pursuant ~~the~~to ~~other~~which ~~party~~GFE ~~written~~borrowed $7.5 ~~notice~~million ofto ~~termination~~finance ~~prior~~the toinvestment ~~expiration~~in ofRingneck. Additional information regarding the ~~then current~~Project ~~term.~~Hawkeye ~~The~~credit ~~management~~facility ~~services~~are ~~agreement~~provided ~~may~~below ~~also~~in bethe ~~terminated~~section bybelow ~~either~~entitled ~~party~~Part ~~for~~II ~~cause~~- ~~under~~Item ~~certain circumstances~~8. Financial Statements, Note 10 - DEBT FACILITIES.

~~GFE~~On isJune ~~responsible~~29, ~~for~~2018, ~~and~~we ~~agreed~~subscribed to ~~directly~~purchase ~~pay~~20 ~~salary,~~preferred ~~wages,~~membership ~~and/or~~units ~~benefits~~of toHarvestone ~~the~~Group, ~~persons~~LLC ~~providing~~(“Harvestone”) ~~management~~at ~~services~~a ~~under~~price ~~the~~of ~~management~~$100,000 ~~services~~per ~~agreement. Under~~unit ~~the~~for ~~terms~~a total of ~~the~~$2,000,000. ~~management~~We ~~services~~paid ~~agreement~~the $2,000,000 ~~HLBE~~in ~~pays~~connection ~~GFE~~with ~~50%~~our ofsubscription, ~~the~~which ~~total~~is ~~salary,~~reflected ~~bonuses~~in ~~and~~our ~~other~~investing ~~expenses~~cash ~~and~~flows. ~~costs~~Harvestone ~~(including~~is ~~all~~a ~~benefits~~Delaware ~~and~~limited ~~tax~~liability ~~contributions)~~company ~~incurred~~that byprovides ~~GFE~~ethanol ~~for~~marketing, ~~the~~logistics, ~~three~~and ~~management~~trading ~~positions,~~services. ~~paid~~Harvestone’s onheadquarters anare ~~estimated~~located ~~monthly~~in ~~basis~~Franklin, ~~with~~Tennessee. aHarvestone ~~“true-up”~~is ~~following~~owned ~~the~~by ~~close~~several ofother ~~our~~ethanol ~~fiscal~~producers ~~year~~and other private investors.

~~Financial~~On ~~Information~~November ~~about~~15, ~~Geographic~~2021, Harvestone ~~Areas~~redeemed GFE’s 20 units for $3,000,000. As a result of the Harvestone redemption, GFE no longer owns any Harvestone units and has ceased to be a member of Harvestone. As a result of the ongoing negotiations as of fiscal year end, the Harvestone investment was impaired to $3,000,000 at October 31, 2021. The Company received and recorded the $3,000,000 redemption in November 2021.

~~All~~In ofAugust ~~our~~2004, ~~operations~~GFE ~~are~~entered ~~domiciled~~an electric service agreement with Minnesota Valley Cooperative Light and Power Association (“MVCLPA”) to supply electricity to the GFE plant. The MVCLPA electric service agreement entitles GFE to receive patronage dividends in the Uform of a special allocation of capital credits.S. ~~All~~The capital credits are recognized as a component of other income on the ~~products~~consolidated ~~sold~~statement toof ~~our~~operations. ~~customers~~Through ~~for~~the fiscal ~~years~~year ~~2020~~2021, ~~and~~GFE ~~2019~~has ~~were~~recognized ~~produced~~approximately in$3.2 million of investment income related to the UMVCLPA capital credits.S. ~~and~~Approximately ~~all~~$273,000 of ~~our~~GFE’s ~~long-lived~~capital ~~assets~~credits ~~are~~were ~~domiciled~~redeemed in March 2021, and as a result the Uinvestment balance was approximately $2.S9 million as of October 31, 2021. We ~~have~~MVCLPA ~~engaged~~generally ~~third-party~~redeems ~~professional~~its ~~marketers~~capital ~~who~~credits ~~decide~~on ~~where~~a ~~our~~first-in, ~~products~~first-out ~~are~~basis ~~marketed~~on a 13-year rotation, and wetherefore ~~have~~if noMVCLPA ~~control~~continues ~~over~~to be successful, managements expects the ~~marketing~~MVCLPA ~~decisions~~capital ~~made~~credits bywill ~~our~~continue ~~third-party~~to ~~professional~~be ~~marketers~~redeemed for cash payments to GFE. Additional ~~These~~information ~~third-party~~regarding ~~marketers~~the ~~may~~MVCLPA ~~decide~~capital tocredits ~~sell~~is ~~our~~provided ~~products~~below in ~~countries~~the ~~other~~section ~~than~~below ~~the~~entitled UPart II - Item 8.~~S. However~~ Financial Statements, weNote ~~anticipate~~1 ~~that~~- ~~our~~SUMMARY ~~products~~OF ~~will~~SIGNIFICANT ~~primarily~~ACCOUNTING bePOLICIES ~~sold~~- inPatronage ~~the~~Investment, ~~United~~and ~~States~~Part II - Item 8. Financial Statements, Note 2 - PATRONAGE INVESTMENT AND CORRECTION OF ERROR.

~~Investments~~ITEM 1A.RISK FACTORS

OnNot ~~November 1, 2016, we subscribed to purchase 1,500 capital units of Ring-neck Energy & Feed, LLC (“Ringneck”) at a price of $5,000 per unit for a total of $7,500,000~~applicable. We paid a down payment of $750,000 in connection with our subscription, and signed a promissory note for $6,750,000 for the remaining balance of the subscription. By letter dated July 12, 2017, GFE was notified of Ringneck’s acceptance of GFE’s subscription and that payment of the balance of GFE’s subscription due under the promissory note was due no later than August 2, 2017. On August 2, 2017, GFE borrowed $7.5 million under its credit facility with Project Hawkeye, LLC (“Project Hawkeye”), an affiliate of Fagen, Inc., which is a member of GFE, and paid the remaining balance due on GFE’s subscription of $6,750,000 to Ringneck. Details of the Project Hawkeye credit facility are provided below in the section below entitled “PART II - ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Credit Arrangements.” On June 10, 2019, we subscribed to purchase an additional 100 capital units of Ringneck at a price of $5,000 per unit for a total of $500,000.

Ringneck is a South Dakota limited liability company that has constructed an 80 million gallon per year ethanol manufacturing plant in outside of Onida, South Dakota in Sully County. Construction has reached substantial completion and the plant commenced operations in June 2019. GFE’s investment is sufficient to grant it the right to appoint one director to the board of directors of Ringneck, and GFE has appointed Steve Christensen, its CEO, to serve as its appointed director. The units we acquired in Ringneck are subject to restrictions on transfer; therefore, this should not be considered

ITEM 1B.UNRESOLVED STAFF COMMENTS

Not applicable.

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aITEM ~~liquid investment~~2. ~~It may take a significant amount of time before we realize a return on our investment, if we realize a return on the investment at all.~~ PROPERTIES

~~Ringneck~~Our ~~offered~~Granite ~~its~~Falls ~~units~~ethanol ~~pursuant~~plant tois alocated ~~private~~approximately ~~placement~~three ~~memorandum.~~miles ~~Additionally~~east of Granite Falls, ~~because~~Minnesota ~~Ringneck~~in Chippewa County at the junction of Highways 212 and 23. The plant’s address is ~~not~~15045 ~~conducting~~Highway a23 ~~federally-registered~~SE, ~~offering~~Granite Falls, weMinnesota. doThe ~~not~~ethanol ~~expect~~plant ~~that~~sits ~~information~~on ~~about~~approximately ~~Ringneck~~200 ~~will~~acres. beThis ~~available~~site ~~via~~includes ~~the~~an ~~SEC’s~~administrative ~~EDGAR~~building ~~filing~~which ~~system~~serves as our headquarters. The ~~Therefore~~site also includes corn, itethanol, ~~may~~and bedistillers’ ~~difficult~~grains ~~for~~handling facilities. All of our ~~investors~~tangible toand ~~obtain~~intangible ~~information~~property, ~~about~~real ~~Ringneck~~and personal, serves as the collateral for our credit facilities with AgCountry.

InHLBE’s ~~connection~~ethanol ~~with~~plant ~~our~~is ~~subscription,~~sited ~~GFE entered~~on ~~into~~approximately a216 ~~credit~~acres ~~facility~~of ~~with Project~~land ~~Hawkeye pursuant~~located tonear ~~which~~Heron ~~GFE~~Lake, ~~borrowed $7~~Minnesota.5 The ~~million~~site toincludes ~~finance~~corn, ~~the~~coal, ~~investment~~ethanol, inand ~~Ringneck~~distillers’ grains storage and handling facilities. ~~Details~~The ofsite ~~the~~includes ~~Project~~administration ~~Hawkeye~~building ~~credit~~that ~~facility~~serves ~~are~~as ~~provided~~HLBE’s ~~below~~headquarters. The inplant’s ~~the~~address ~~section~~is ~~below~~91246 ~~entitled~~390th ~~“PART~~Avenue, IIHeron -Lake, ~~ITEM~~Minnesota 756137-3175. ~~MANAGEMENT~~All of HLBE’Ss ~~DISCUSSION~~tangible ~~AND~~and ~~ANALYSIS~~intangible OFproperty, ~~FINANCIAL~~real ~~CONDITION~~and ~~AND~~personal, ~~RESULTS~~serves OFas ~~OPERATIONS~~the -collateral ~~Credit~~for ~~Arrangements~~our credit facilities with AgCountry.”

OnHLBE’s ~~June~~wholly 29owned subsidiary, ~~2018~~Agrinatural, weproperty ~~subscribed~~consists ~~to purchase 20 preferred membership units~~ of ~~Harvestone~~190 ~~Group,~~miles ~~LLC (“Harvestone”) at a price~~ of ~~$100,000~~distribution ~~per~~main ~~unit~~pipelines ~~for~~and aservice ~~total of $2~~pipelines,~~000,000.~~ Wetogether ~~paid~~with the ~~$2,000,000~~associated ineasement ~~connection~~and ~~with~~land ~~our subscription~~rights, ~~which is reflected in our investing cash flows. Harvestone is~~ a ~~Delaware~~town ~~limited~~border ~~liability company that provides ethanol marketing~~station, ~~logistics,~~meters and ~~trading services. Harvestone’s headquarters are located in Franklin~~regulators, ~~Tennessee.~~office ~~Harvestone is owned by several other ethanol producers~~ and other ~~private~~equipment ~~investors~~ and ~~expects~~construction ~~that~~in ~~its primary business will be marketing and trading for member and non-member ethanol producers~~process. ~~Marketing~~All ~~and~~of ~~trading operations commenced in January 2019. GFE~~Agrinatural’s ~~investment~~real ~~was~~property ~~initially sufficient to grant it the right to appoint one advisor to the advisory committee to the managers of Harvestone,~~ and ~~GFE~~assets ~~had~~are ~~appointed~~subject ~~Erik Baukol, its Risk Manager,~~ to ~~serve~~mortgages ~~as its appointed advisor. In October 2019, Harvestone and its members amended the Limited Liability Company Agreement of Harvestone, which resulted~~ in ~~the~~favor ~~removal~~ of ~~GFE’s~~HLBE ~~right~~as tosecurity ~~appoint~~for anloan ~~advisor~~obligations toowed ~~the advisory committee~~ to ~~the managers of Harvestone~~HLBE.

~~The~~HLBE’s ~~units~~credit wefacilities ~~acquired in Harvestone~~ are ~~subject~~discussed toin ~~restrictions~~more ondetail ~~transfer;~~under ~~therefore,~~“ITEM ~~this should not be considered a liquid investment~~7. MANAGEMENT’S ItDISCUSSION ~~may~~AND ~~take~~ANALYSIS aOF ~~significant~~FINANCIAL ~~amount~~CONDITION ofAND ~~time~~RESULTS ~~before~~OF weOPERATIONS ~~realize a return on our investment, if we realize a return on the investment at all. Because Harvestone is not conducting a federally~~-~~registered~~ ~~offering,~~Credit ~~nor is it a registered reporting company with the SEC, we do not expect that information about Harvestone will be available via the SEC’s EDGAR filing system~~Arrangements”. ~~Therefore, it may be difficult for our investors to obtain information about Harvestone.~~

ITEM 1A3.~~RISK~~LEGAL ~~FACTORS~~PROCEEDINGS

~~You~~From ~~should~~time ~~carefully~~to ~~read~~time ~~and consider the risks and uncertainties below and the other information contained~~ in ~~this report. The risks and uncertainties described below are not~~ the ~~only~~ordinary ~~ones~~course weof ~~may~~business, ~~face. The~~Granite ~~following~~Falls ~~risks~~Energy, ~~together~~LLC ~~with additional risks and uncertainties not currently known to us~~ or ~~that~~its wesubsidiaries ~~currently~~may ~~deem~~be ~~immaterial~~named ~~could~~as ~~impair~~a ~~our~~defendant ~~financial~~in ~~condition~~legal ~~and~~proceedings ~~results~~related ofto ~~operation. If~~various ~~any~~issues, ofincluding ~~the~~workers’ ~~following~~compensation ~~risks actually occur~~claims, ~~our~~tort ~~results of operations~~claims, ~~cash~~or ~~flows~~contractual ~~and~~disputes. ~~the~~We ~~value~~are ofnot ~~our~~currently ~~units~~involved ~~could~~in beany ~~negatively~~material ~~impacted~~legal proceedings.

~~Risks~~ITEM ~~Relating~~4.MINE toSAFETY ~~Our Business~~DISCLOSURES

~~Our business is not significantly diversified, and we may not be able to adapt to changing market conditions or endure any decline in the ethanol industry~~None.

~~Our~~PART success depends on our ability to efficiently produce and sell ethanol, and, to a lesser extent, distillers’ grains and corn oil. We do not have any other lines of business or other sources of revenue if we are unable to operate our ethanol plants and manufacture ethanol and its related co-products. Further, all of our investments are in companies involved in the ethanol industry. Our majority owned subsidiary, HLBE, operates a natural gas pipeline through Agrinatural, its majority owned subsidiary. Before and after accounting for intercompany eliminations, revenues from Agrinatural’s represent less than 1% of our consolidated revenues. Therefore, Agrinatural does not produce significant revenue to rely upon if we are unable to produce and sell ethanol and its co-products, or if the market for those products declines. As result, if economic or political factors adversely affect the market for ethanol and its co-products, we have no other line of business to fall back on. Our lack of diversification means that we may not be able to adapt to changing market conditions, changes in regulation, increased competition or any significant decline in the ethanol industry. Our business would also be significantly harmed if the ethanol plants could not operate at full capacity for any extended period of time.II

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

Market Information

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

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

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~~Our~~So ~~profitability~~long ~~depends~~as ~~upon~~we ~~purchasing~~remain ~~corn~~a atpublicly ~~lower~~reporting ~~prices~~company, ~~and~~information ~~selling~~about ~~ethanol~~the atCompany ~~higher~~will ~~prices~~be ~~and~~publicly ~~because~~available through the ~~difference~~SEC’s ~~between~~filing ~~ethanol~~system. ~~and~~However, ~~corn~~if ~~prices~~at ~~can~~any ~~vary~~time ~~significantly~~we cease to be a publicly reporting company, we anticipate continuing to make information about the Company publicly available on our ~~financial~~website ~~results~~in ~~may~~order ~~also~~to ~~fluctuate~~continue ~~significantly~~operating the QMS.

The ~~results~~following oftable ~~our~~contains ~~ethanol~~historical ~~production~~information ~~business are highly impacted~~ by ~~commodity~~fiscal ~~prices.~~quarter ~~The~~for ~~substantial~~the ~~majority~~past oftwo ~~our~~fiscal ~~revenues~~years ~~are~~regarding ~~derived from~~ the ~~sale~~actual ofunit ~~ethanol.~~transactions ~~Our~~that ~~results~~were ofcompleted ~~operations and financial condition are significantly affected~~ by ~~the cost and supply of corn and natural gas as~~ our ~~gross~~unit-holders ~~profit~~during ~~relating to~~ the ~~sale~~periods ofspecified. We ~~ethanol~~believe isthis ~~principally~~most ~~dependent~~accurately onrepresents the ~~difference~~current ~~between~~trading ~~the~~value ~~price~~of ~~we receive for~~ the ~~ethanol~~Company’s ~~we produce and the cost of corn and natural gas that we must purchase~~units. The ~~Changes~~information inwas ~~the~~compiled ~~price and supply of corn and natural gas are subject to and determined~~ by ~~market~~reviewing ~~forces~~the ~~over~~completed ~~which~~unit wetransfers ~~have~~that nooccurred ~~control,~~on ~~such~~our asqualified ~~weather,~~matching ~~domestic~~service ~~and~~bulletin ~~global~~board ~~demand,~~during ~~shortages, export prices, and various governmental policies in~~ the ~~U.S. and~~ ~~around~~quarters ~~the world~~indicated.

As a result of price volatility for these commodities, our operating results may fluctuate substantially. Increases in corn or natural gas prices or decreases in ethanol, distillers’ grains and corn oil prices may make it unprofitable to operate our plants. No assurance can be given that we will be able to purchase corn and natural gas at, or near, current prices and that we will be able to sell ethanol, distillers’ grains and corn oil at, or near, current prices. Consequently, our results of operations and financial position may be adversely affected by increases in the price of corn or natural gas or decreases in the price of ethanol, distillers’ grains and corn oil.


Fiscal Quarter	Low Per Unit Price		High Per Unit Price		Total Units Traded
2020 1st	$	1,800	$	1,800	143
2020 2nd	$	1,800	$	1,800	5
2020 3rd	$	—	$	—	—
2020 4th	$	—	$	—	—
2021 1st	$	1,300	$	1,400	27
2021 2nd	$	1,200	$	1,350	22
2021 3rd	$	—	$	—	—
2021 4th	$	—	$	—	—

WeAs ~~seek~~a tolimited ~~minimize~~liability ~~the~~company, ~~risks~~we ~~from~~are ~~fluctuations~~required into restrict the ~~prices~~transfers of ~~corn~~our ~~and~~membership ~~natural~~units ~~gas~~in ~~through~~order ~~the~~to ~~use~~preserve ofour ~~hedging~~partnership ~~instruments~~tax status. ~~However,~~Our ~~these~~membership ~~hedging~~units ~~transactions~~may ~~also~~not ~~involve~~be ~~risks~~traded toon ~~our~~any ~~business. If~~established wesecurities ~~were~~market toor ~~experience~~readily ~~relatively~~traded ~~higher~~on ~~corn~~a ~~and~~secondary ~~natural~~market ~~gas~~(or ~~costs~~the ~~compared~~substantial toequivalent ~~the~~thereof). All ~~selling~~transfers ~~prices~~are ofsubject ~~our~~to ~~products~~a ~~for~~determination anthat ~~extended~~the ~~period~~transfer ofwill ~~time,~~not ~~the~~cause ~~value~~GFE ofto ~~our~~be ~~units~~deemed ~~may~~a bepublicly ~~reduced~~traded partnership.

~~Sustained~~Issuer ~~negative~~Repurchases ~~operating~~of ~~margins~~Equity ~~may require some ethanol producers to temporarily limit or cease production.~~Securities

~~Our~~We ~~ability~~did ~~and~~not ~~the~~make ~~ability~~any ofrepurchases other ethanol producers to operate profitably is largely determined by the spread between the price paid for corn and the price received for ethanol. If this spread is narrow or is negative for a sustained period, some ethanol producers may elect to temporarily limit or cease production until their possibility for profitability returns. Although we currently have no plans to limit or cease ethanol production, we may be required to do so if we experience a period of ~~sustained~~our ~~negative~~units ~~operating~~during ~~margins. In~~fiscal ~~such~~year ~~an event, we would still incur certain fixed costs, which would impact our financial performance~~2021.

~~Volatility~~Holders inof ~~oil and gas prices may materially affect ethanol pricing and demand.~~Record

~~Ethanol~~As ~~has~~of ~~historically~~January ~~traded at a discount to gasoline. When ethanol trades at a discount to gasoline it encourages discretionary blending~~31, ~~thereby increasing the demand for ethanol beyond required blending rates. Conversely~~2022, ~~when ethanol trades at a premium to gasoline,~~ there iswere ~~a disincentive for discretionary blending and ethanol demand is negatively impacted. Consequently~~1,000 ~~ethanol~~holders ~~pricing~~of ~~and~~record ~~demand~~of ~~may also be volatile, which makes it difficult to manage profit margins and which could result in a material adverse effect on~~ our ~~business,~~membership ~~results of operations and financial condition~~units.

IfAs ~~the supply~~ of ~~ethanol~~October 31, ~~exceeds~~2021 ~~the~~and ~~demand~~January ~~for~~31, ~~ethanol~~2022, ~~the~~there ~~price~~were weno ~~receive~~outstanding ~~for~~options ~~our~~or ~~ethanol~~warrants ~~and~~to ~~distillers’~~purchase, ~~grains~~or ~~may~~securities ~~decrease~~convertible for or into, our units.

Domestic ethanol production capacity has increased substantially over the past decade. However, demand for ethanol may not increase as quickly as expected or to a level that exceeds supply, or at all. Excess ethanol production capacity may result from decreases in the demand for ethanol or increased domestic production or imported supply. There are many factors affecting demand for ethanol, including regulatory developments and reduced gasoline consumption as a result of increased prices for gasoline or crude oil. Higher gasoline prices could cause businesses and consumers to reduce driving or acquire vehicles with more favorable gasoline mileage, or higher prices could spur technological advances, such as the commercialization of engines utilizing hydrogen fuel-cells, which could supplant gasoline-powered engines. There are a number of governmental initiatives designed to reduce gasoline consumption, including tax credits for hybrid vehicles and consumer education programs. Distributions

~~Because~~Granite ~~ethanol~~Falls production produces distillers’ grains as a co-product, increased ethanol production will also lead to increased production of distillers’ grains. An increase in the supply of distillers’ grains, without corresponding increases in demand, could lead to lower prices or an inability to sell our distillers’ grains production. A decline in the Energy

Distributions by GFE to its unit holders are in proportion to the number of units held by each unit holder. A unit holder’s distribution is determined by multiplying the number of units by distribution per unit declared. GFE’s board of governors has complete discretion over the timing and amount of distributions to our unit holders. However, GFE’s credit facility with AgCountry provides that we may not declare any distributions prior to fiscal year 2023 without the consent of our lender, and that subsequent distributions may be no greater than 50% of the Company’s net profit (determined according to GAAP) for prior fiscal year, or up to 75% of the Company’s net profit from the prior fiscal year if the Company’s working capital remains above $26 million; provided that we are and will remain in compliance with all of the covenants, terms and conditions of the credit facility. If our financial performance and loan covenants permit, we expect to make future cash distributions at times and in amounts that will permit our members to make income tax payments, along with distributions in excess of these amounts. Cash distributions are not assured, however, and in the future, we may not be in a position to make distributions. Under Minnesota law, we cannot make a distribution to a member if, after the distribution, we would not be able to pay our debts as they become due or our liabilities, excluding liabilities to our members on account of their capital contributions, would exceed our assets.

On December 22, 2021, the Board of Governors of the Company declared a cash distribution of $330.00 per membership unit to the holders of record of the Company’s units at the close of business on December 22, 2021, for a

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~~price~~total distribution of ~~distillers’~~$10,099,980, ~~grains~~which or the ~~distillers’~~Company ~~grains~~paid ~~market~~in ~~generally~~January ~~could~~2022. ~~have~~No adistributions ~~material~~were ~~adverse~~declared ~~effect~~or onpaid ~~our~~in ~~business,~~fiscal ~~results~~years of2021 ~~operations~~or ~~and financial condition~~2020.

~~Management~~Heron ~~expects~~Lake additional volatility for the price of ethanol in 2021. Ethanol production and demand are expected to increase slightly in 2021, but there is no guarantee that either projection will be accurate. While exports rose slightly in 2020, due to tariffs and international competition, exports have fallen overall in recent years, and it appears unlikely that the export market will improve in 2021. U.S. gas demand decreased substantially year over year in 2020, due primarily to the COVID-19 pandemic. A continued or further decrease in demand for either gasoline or ethanol blends would adversely impact the price of ethanol, which could result in a material adverse effect on our business, results of operations and financial condition.BioEnergy

~~The~~Prior ~~price~~to the merger, distributions by HLBE to its unit holders were in proportion to the number of ~~distillers’~~units ~~grains~~held isby ~~affected~~each unit holder. A unit holder's distribution was determined by multiplying the ~~price~~number of ~~other~~units ~~commodity~~by ~~products,~~distribution ~~such~~per asunit ~~soybeans,~~declared. ~~and~~HLBE’s ~~decreases~~board inof governors had complete discretion over the ~~price~~timing and amount of ~~these~~distributions ~~commodities~~to ~~could~~its ~~decrease~~unit holders. Distributions are restricted by certain loan covenants in our credit facility with AgCountry. Additionally, under Minnesota law, HLBE cannot make a distribution to a member if, after the ~~price~~distribution, it would not be able to pay its debts as they become due or its liabilities, excluding liabilities to its members on account of ~~distillers’~~their ~~grains~~capital contributions, would exceed its assets.

~~Distillers’~~No ~~grains~~distributions ~~compete~~were ~~with~~either ~~other~~declared ~~protein-based~~or ~~animal~~paid ~~feed products. The price of distillers’ grains may decrease when the price of competing feed products decrease. The prices of competing animal feed products are based~~ in ~~part~~2020 onor ~~the prices of the commodities from which they are derived~~2021. Downward pressure on commodity prices, such as soybeans, will generally cause the price of competing animal feed products to decline, resulting in downward pressure on the price of distillers’ grains. The price of distillers’ grains is not tied to production costs. However, decreases in the price of distillers’ grains would result in less revenue from the sale of distillers’ grains and could result in lower profit margins.

~~Historically,~~Unregistered ~~sales~~Sales ~~prices for distillers’ grains have been correlated with prices~~ of ~~corn.~~Equity However, recently, the price increase for this co-product has lagged behind increases in corn prices. In addition, our distillers’ grains co-product competes with products made from other feedstocks, the cost of which may not have risen as corn prices have risen. Consequently, the price we may receive for distillers’ grains may not rise as corn prices rise, thereby lowering our cost recovery percentage relative to corn.Securities

The ~~prices~~Company ofhad ~~ethanol~~no ~~and~~unregistered ~~distillers’~~sales ~~grains may decline as a result~~ of ~~trade~~securities ~~barriers~~during ~~imposed~~fiscal byyear ~~foreign countries with respect to ethanol and distillers’ grains originating in the U~~2021.~~S. and negatively affect our profitability.~~

AnSecurities ~~increasing~~Authorized ~~amount of our industry’s products are being exported. The U.S. ethanol industry was supported during our 2020 fiscal year with exports of ethanol which increased demand~~ for ~~our~~Issuance ~~ethanol.~~Under ~~However,~~Equity ~~export~~Compensation levels still remain lower than previous years’ levels, and there is no guarantee that export levels will improve or remain steady. If producers and exporters of ethanol and distillers’ grains are subjected to trade barriers when selling products to foreign customers, such as the tariffs and quotas currently in effect, there may be a reduction in the price of these products in the U.S. Declines in the price we receive for our products will lead to decreased revenues and may result in our inability to operate the ethanol plant profitably. Plans

IfAs ~~U.S.~~of ~~producers~~the ~~cannot~~date ~~satisfy import requirements imposed by countries importing distillers’ grains, export demand could be significantly reduced as a result. If export demand~~ of ~~distillers’~~this ~~grains~~annual ~~is significantly reduced as a result~~report, ~~the~~we ~~price~~had ofno ~~distillers’~~“equity ~~grains~~compensation inplans” ~~the~~(including ~~U.S.~~individual ~~would~~equity ~~likely~~compensation ~~continue~~arrangements) tounder ~~decline~~ which ~~would~~any ~~have~~of ~~a negative effect on~~ our ~~revenue~~equity ~~and~~securities ~~could~~are ~~impact~~authorized ~~our~~for ~~ability to profitably operate which could in turn reduce the value of our units~~issuance.

WeITEM ~~face~~6.SELECTED ~~intense~~FINANCIAL ~~competition that may result in reductions in the price we receive for our ethanol, increases in the prices we pay for our corn, or lower gross profits.~~DATA

~~Competition~~Not ~~in the ethanol industry is intense~~applicable. We face formidable competition in every aspect of our business from both larger and smaller producers of ethanol and distillers’ grains. Some larger producers of ethanol, such as Archer Daniels Midland, POET Biorefining, Cargill, Inc., Valero Energy Corporation, and Green Plains, Inc. have substantially greater financial, operational, procurement, marketing, distribution and technical resources than we have. We may not be able to compete with these larger entities. These larger ethanol producers may be able to affect the ethanol market in ways that are not beneficial to us which could affect our financial performance.

~~Additionally,~~ITEM smaller competitors, such as farmer-owned cooperatives and independent companies owned by farmers and investors, have business advantages, such as the ability to more favorably procure corn by operating smaller plants that may not affect the local price of corn as much as a larger-scale plant like ours or requiring their farmer-owners to sell them corn as a requirement of ownership7.MANAGEMENT’S ~~Because~~DISCUSSION ~~Minnesota~~AND isANALYSIS ~~one~~OF ofFINANCIAL ~~the~~CONDITION ~~top~~AND ~~producers~~RESULTS ofOF ~~ethanol in the U~~OPERATIONS.~~S., we~~

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

Until recently, oil companies, petrochemical refiners and gasoline retailers have not been engaged in ethanol production to a large extent. These companies, however, form the primary distribution networks for marketing ethanol through blended gasoline. During the past few years, several large oil companies have begun to penetrate the ethanol production market. If these companies increase their ethanol plant ownership or other oil companies seek to engage in direct ethanol production, such as Valero Renewable Fuels and Flint Hills Resources which are subsidiaries of larger oil companies, there may be a decrease in the demand for ethanol from smaller independent ethanol producers like us which could result in an adverse effect on our operations, cash flows and financial condition.General

We ~~also~~prepared ~~face~~the ~~increasing~~following ~~competition~~discussion ~~from~~and ~~international~~analysis ~~ethanol~~to ~~suppliers.~~help ~~Most~~readers ~~international~~better ~~ethanol~~understand ~~producers~~our ~~have~~financial ~~cost~~condition, ~~structures~~changes ~~that~~in ~~can~~our financial condition, and results of operations for the fiscal year ended October 31, 2021. This discussion should be ~~substantially~~read ~~lower~~in ~~than~~conjunction ~~ours~~with the consolidated financial statements included herewith and ~~therefore~~notes ~~can~~to ~~sell~~the ~~their~~consolidated ~~ethanol~~financial ~~for~~statements ~~substantially~~thereto ~~less~~and ~~than~~the werisk ~~can.~~factors contained herein.

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

WeOur ~~engage~~business consists primarily of the production and sale of ethanol and its co-products (wet, modified wet and dried distillers’ grains, corn oil and corn syrup) locally, and throughout the continental U.S. Our production operations are carried out at GFE’s plant located in ~~hedging~~Granite ~~transactions~~Falls, ~~which~~Minnesota ~~involve~~and ~~risks~~HLBE’s ~~that~~ethanol ~~could~~plant ~~harm~~near ~~our~~Heron ~~business~~Lake, Minnesota.

WeThe ~~are~~GFE ~~exposed~~plant tohas ~~market~~an ~~risk~~annual ~~from~~production ~~changes~~capacity inof ~~commodity~~approximately ~~prices. Exposure~~63 tomillion ~~commodity~~gallons ~~price~~of ~~risk~~denatured ~~results~~ethanol, ~~from~~but ~~our~~is ~~dependence~~currently onpermitted ~~corn~~to ~~and~~produce ~~natural~~up ~~gas in the ethanol production process. We seek~~ to ~~minimize~~70 ~~the~~million ~~risks~~gallons ~~from fluctuations in the prices~~ of ~~corn,~~undenatured ~~natural gas and~~ ethanol ~~through~~on ~~the~~a ~~use~~twelve ofmonth ~~hedging~~rolling ~~instruments~~sum basis. The ~~effectiveness~~HLBE ofplant ~~our~~has ~~hedging~~an ~~strategies~~approximate isannual ~~dependent~~production oncapacity ~~the price~~ of ~~corn,~~65 ~~natural~~million ~~gas~~gallons ~~and~~of denatured ethanol, ~~and~~but ~~our~~is ~~ability~~currently topermitted ~~sell~~production ~~sufficient~~capacity ~~products~~ to ~~use~~produce ~~all~~approximately of72 ~~the~~million ~~corn~~gallons ~~and~~of ~~natural~~undenatured ~~gas~~ethanol ~~for~~on ~~which~~a wetwelve-month ~~have~~rolling ~~futures~~sum ~~contracts~~basis. ~~Our~~ We ~~hedging~~intend ~~activities~~to ~~may~~continue ~~not~~working ~~successfully~~toward ~~reduce~~increasing ~~the~~production ~~risk~~to ~~caused~~take byadvantage ~~price~~of ~~fluctuation~~the ~~which~~additional ~~may~~production ~~leave~~allowed uspursuant ~~vulnerable~~ to ~~high~~our ~~corn~~permits ~~and~~as ~~natural~~long ~~gas~~as ~~prices,~~we asbelieve ~~well~~it asis ~~low~~profitable ~~ethanol~~to ~~prices~~do so.

~~Operational~~HLBE ~~difficulties~~also atowns ~~our~~a ~~plants~~100% ~~could~~interest ~~negatively~~in ~~impact~~Agrinatural, ~~our~~which is a natural gas distribution and sales ~~volumes~~company located in Heron Lake, Minnesota that owns approximately 190 miles of natural gas pipeline and ~~could~~provides ~~cause~~natural usgas to ~~incur~~HLBE’s ~~substantial~~ethanol ~~losses~~plant and other commercial, agricultural and residential customers through a connection with the natural gas pipeline facilities of Northern Border Pipeline Company. Agrinatural's revenues are generated through natural gas distribution fees and sales.

We have experienced operational difficulties at our plants in the past that have resulted in scheduled and unscheduled downtime or reductions in the number of gallons of ethanol we produce. Some of the difficulties we have experienced relate to production problems, repairs required to our plants’ equipment and equipment maintenance, the installation of new equipment and related testing, and our efforts to improve and test our air emissions. Our revenues are driven in large part by the number of gallons of ethanol and the number of tons of distillers’ grains we produce. If our ethanol plants do not efficiently produce our products in high volumes, our business, results of operations, and financial condition may be materially adversely affected.22

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Plan of Operations Through October 31, 2022

~~Our~~During ~~operations~~the ~~are~~twelve ~~also~~months ~~subject~~ended toOctober ~~operational~~31, ~~hazards~~2021, ~~inherent~~the inCompany ~~our~~and the ethanol industry as a whole benefited from improved market conditions, as the effects of the COVID-19 pandemic subsided and demand for transportation fuel rebounded. Due to ~~manufacturing~~the reduction in ~~general~~demand for transportation fuel, ~~such~~the asethanol ~~equipment~~industry ~~failures,~~experienced ~~fires,~~record-low ~~explosions,~~ethanol ~~abnormal~~prices ~~pressures,~~in ~~blowouts~~2020, ~~pipeline~~and ~~ruptures~~we experienced prolonged negative operating margins, ~~transportation~~significantly ~~accidents~~lower cash flow from operations and ~~natural~~substantial ~~disasters~~net losses. ~~Some~~Economists ofestimated ~~these~~the ~~operational~~ethanol ~~hazards~~industry ~~may~~suffered ~~cause~~$8 ~~personal~~billion ~~injury~~in orlosses ~~loss~~in of2020 ~~life~~due, ~~severe~~in ~~damage~~large part, to orthe ~~destruction~~effects of ~~property~~the pandemic, according to the Journal of Agricultural and ~~equipment~~Food orIndustrial ~~environmental~~Organization. ~~damage~~In the 2021 fiscal year, ~~and~~the ~~may~~Company ~~result~~experienced inincreased ~~suspension~~market ofprices ~~operations~~for our principal prices and improved profitability, as compared to the ~~imposition~~fiscal ofyear ~~civil~~ended orOctober ~~criminal~~31, ~~penalties~~2020. ~~The~~However, ~~occurrence~~the ofpandemic ~~any~~is ofongoing ~~these~~and ~~operational~~various ~~hazards~~dynamic ~~may~~factors, ~~materially~~including ~~adversely~~the ~~affect~~spread ~~our~~of ~~business~~new coronavirus variants, ~~results~~make ofit ~~operations~~difficult ~~and~~to ~~financial~~forecast ~~condition.~~the ~~Further,~~long-term effects of the pandemic on our ~~insurance~~industry ~~may~~as ~~not~~a bewhole ~~adequate~~and toour ~~fully~~Company ~~cover~~specifically. Further, tangential effects of the ~~potential~~COVID-19 ~~operational~~pandemic, ~~hazards~~including ~~described~~supply ~~above~~chain orbottlenecks, welabor ~~may~~market ~~not~~volatility, beand ~~able~~price toincreases ~~renew~~of ~~this~~raw ~~insurance~~materials onmay ~~commercially~~adversely ~~reasonable~~affect ~~terms~~our oroperations atand ~~all~~profitability.

~~Our~~It ~~operations~~is ~~and~~possible ~~financial~~that ~~performance~~even ~~could~~after bethe ~~adversely~~pandemic ~~affected~~subsides, bythere ~~infrastructure~~will ~~disruptions~~be permanent changes to social and ~~lack~~economic patterns that will reduce demand for ethanol. For example, increased adoption of ~~adequate~~“work ~~transportation~~from home” policies or tele-commuting, and ~~storage~~the ~~infrastructure~~use invirtual ~~certain~~meetings, ~~areas~~may permanently reduce business travel and thereby reduce the demand for transportation fuel, including the ethanol we produce.

WeOver ~~ship~~the ~~our~~next ~~ethanol~~year, towe ~~our~~will ~~customers~~continue ~~primarily~~our byfocus ~~the~~on ~~railroad~~operational ~~adjacent~~improvements toat our ~~plant sites~~plants. WeThese ~~also~~operational ~~have~~improvements ~~the~~include ~~potential~~exploring methods to ~~receive~~improve ~~inbound~~ethanol ~~corn~~yield ~~via~~per ~~the~~bushel ~~railroad. Our customers require appropriate transportation~~ and ~~storage~~increasing ~~capacity~~production tooutput ~~take~~at ~~delivery~~our ofplants, ~~the~~continued ~~products~~emphasis weon ~~produce.~~safety ~~Without~~and ~~the~~environmental ~~appropriate~~regulation, ~~flow~~reducing ofour ~~natural~~operating ~~gas~~costs, toand optimizing our ~~plants,~~margin weopportunities ~~may~~through ~~not~~prudent berisk-management ~~able~~ policies.

23In addition, we expect to continue to conduct routine maintenance and repair activities at the ethanol plants to maintain current plant infrastructure, as well as some small capital projects to improve operating efficiency. We anticipate using cash we generate from our operations and our credit facilities for each plant to finance these plant upgrade projects.

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to run at desired production levels or at all. Therefore, our business is dependent on the continuing availability of rail, highway and related infrastructure. Any disruptions in this infrastructure network, whether caused by labor difficulties, earthquakes, storms, other natural disasters, human error or malfeasance or other reasons, could have a material adverse effect on our business. We rely upon third-parties to maintain the rail lines from our plants to the national rail network, and any failure on their part to maintain the lines could impede our delivery of products, impose additional costs on us and could have a material adverse effect on our business, results of operations and financial condition.

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

●The ~~additional~~principal ~~rail~~factors ~~capacity;~~affecting our results of operations and financial conditions are the market prices for corn, ethanol, distillers’ grains and natural gas, as well as governmental programs designed to create incentives for the use of corn-based ethanol.

● additional storage facilities for ethanol;

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

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

● growth in service stations equipped to handle ethanol fuels.

~~The~~Our ~~substantial~~operations ~~investments~~are ~~that~~highly ~~will~~dependent beon ~~required~~commodity prices, especially prices for corn, ethanol, distillers’ grains and natural gas. As a result, our operating results can fluctuate substantially due to volatility in these ~~infrastructure~~commodity ~~changes~~markets. The price and ~~expansions~~availability ~~may~~of ~~not~~corn beis ~~made~~subject onto significant fluctuations depending upon a ~~timely~~number ~~basis~~of factors that affect commodity prices in general, ifincluding atcrop ~~all~~conditions, yields, domestic and ~~decisions~~global ~~regarding~~stocks, ~~these~~weather, ~~infrastructure~~federal ~~improvements~~policy and foreign trade. Natural gas prices are ~~outside~~influenced by severe weather in the summer and winter and hurricanes in the spring, summer and fall. Other factors include North American exploration and production, and the amount of ~~our~~natural ~~control~~gas in underground storage during injection and withdrawal seasons. ~~Significant~~Ethanol ~~delay~~prices orare ~~failure~~sensitive to ~~improve~~world ~~the~~crude ~~infrastructure~~oil ~~that~~supply ~~facilitates~~and demand, domestic gasoline supply and demand, the ~~distribution~~price ~~could~~of ~~curtail~~crude ~~more~~oil, ~~widespread~~gasoline ~~ethanol~~and ~~demand~~corn, orthe ~~reduce~~price ~~prices~~of ~~for~~substitute ~~our~~fuels ~~products~~and inoctane ~~certain~~enhancers, ~~areas~~refining capacity and utilization, ~~which~~government ~~would~~regulation ~~have~~and aincentives ~~material~~and ~~adverse~~consumer ~~effect~~demand for alternative fuels. Distillers’ grains prices are impacted by livestock numbers on ~~our~~feed, ~~business~~prices for feed alternatives and supply, ~~results~~which ofis ~~operations~~associated orwith ~~financial~~ethanol ~~condition~~plant production.

~~Rail~~In ~~logistical~~the ~~problems~~ethanol ~~may~~industry, ~~result~~it is generally expected that 2.8 gallons of denatured ethanol will be produced for each bushel of grain processed in ~~delays~~the production cycle. Because the market price of ethanol is not always directly related to corn, at times ethanol prices may lag price movements in ~~shipments~~corn prices and corn-ethanol price spread (the difference between the price per gallon of ethanol and the price per bushel of grain divided by 2.8) may be tightly compressed or negative. If the corn-ethanol spread is compressed or negative for sustained period, it is possible that our ~~products~~operating ~~which~~margins ~~could~~will ~~negatively~~decline ~~impact~~or become negative and our ~~financial~~ethanol ~~performance~~plants may not generate adequate cash flow for operations. In such cases, we may reduce or cease production at our ethanol plants in order to minimize our variable costs and optimize cash flow.

~~There~~For the ~~has~~fiscal ~~been~~year anended ~~increase~~October in31, ~~rail~~2021 compared ~~traffic congestion throughout the U.S. primarily due~~ to fiscal ~~the~~year ~~increase~~ended inOctober ~~cargo trains carrying shale oil. From time to time~~31, periodic high demand and unusually adverse weather conditions may cause rail congestion resulting in rail delays and rail logistical problems. Although we have not been materially affected by prior rail congestion period2020, ~~future periods of congestion may affect~~ our ~~ability~~average toprice ~~operate~~per ~~our~~gallon ~~plants~~of ~~at full capacity due to~~ ethanol ~~storage~~sold ~~capacity~~increased ~~constraints,~~by ~~which~~approximately 65%. inEthanol ~~turn~~prices ~~could~~were ~~have~~higher aduring ~~negative~~the ~~effect~~fiscal onyear ~~our~~ended ~~financial performance.~~

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October 31, 2021, due primarily to the fact that the effects of the COVID-19 pandemic subsided in the fiscal year 2021, resulting in increased demand for transportation fuel, including the ethanol we produce. While demand for transportation fuel has increased, it is possible that new coronavirus variants, additional government lockdowns, or other factors could reduce demand for transportation fuel and thereby decrease the price of the ethanol we produce. Additionally, the continued issuance hardship exemptions from the RVOs may further decrease domestic demand for ethanol. Management believes that the ethanol outlook will remain volatile in the fiscal year 2022.

~~Our~~Exports ~~business,~~of ~~and~~ethanol ~~our~~decreased ~~industry~~slightly asin aour ~~whole~~fiscal year 2021, ~~could~~after beincreasing ~~adversely~~slightly ~~affected~~each byof anthe ~~outbreak~~previous oftwo ~~disease~~fiscal years. Export demand for ethanol is less consistent compared to domestic demand which can lead to ethanol price volatility. The decrease in ethanol exports is due to various factors, ~~epidemic~~including ora ~~pandemic~~decrease in trading with Brazil, ~~such~~which ashad been one of the ~~global~~top ~~COVID-19~~two ~~pandemic,~~largest orimporters ~~similar~~of ~~public~~U.S. ~~threat~~ethanol, ordue ~~fear~~to the expiration of ~~such~~a anBrazilian ~~event~~import quota. The USDA projects that U.S. ethanol exports will increase slightly in 2022 due to both volume and price gains due, in part, to increased renewable fuel blending requirements in the United Kingdom, India, and other nations.

~~The~~On ~~global~~September ~~outbreak~~1, of2017, ~~the~~Brazil’s ~~COVID-19~~Chamber ~~pandemic~~of ~~has~~Foreign ~~had~~Trade imposed a ~~negative~~20% ~~impact~~tariff on ~~our~~U.S. ~~revenues~~ethanol ~~and~~imports ~~operating~~in ~~results,~~excess ~~which~~of ~~could~~150 ~~worsen~~million ~~and/~~liters, or ~~continue~~39.6 ~~for~~million agallons, ~~significant~~per ~~period of time~~quarter. ~~This~~The ~~outbreak~~tariff ~~has~~was ~~resulted~~renewed in ~~disruptions~~September ~~and damage to our business~~2019, ~~caused~~but by the ~~negative~~import ~~impact~~quota towas ~~our~~raised ~~ability~~ to ~~obtain~~187.5 ~~cost~~million ~~effective raw materials~~liters, ~~supplies~~or ~~and~~49.5 ~~component~~million ~~parts necessary to operate our ethanol~~gallons, ~~distillers’~~per ~~grains,~~quarter. ~~corn~~In ~~oil,~~December ~~or natural gas business~~2020, the ~~negative~~import ~~impact~~quota ~~on our ability to operate our facility should COVID-19 spread more broadly within Minnesota or the Midwest~~expired, thereby ~~creating~~subjecting anall ~~increased~~Brazilian ~~risk~~imports of ~~exposure~~U.S. toethanol ~~our workforce which cannot operate our facility remotely, and the negative impact~~ to ~~our~~a ~~ability~~20% totariff. ~~market~~These ~~and~~tariffs ~~sell our products to markets which~~ have ~~slowed~~had orand ~~shut~~will ~~down altogether. It is~~ likely ~~that effect such as these will~~ continue to ~~negatively~~have ~~impact~~a ~~our~~negative ~~revenues,~~impact ~~operating~~on ~~results,~~the ~~and~~export ~~business~~market asdemand ~~a whole. Mitigation efforts have not~~ and ~~will~~prices ~~not~~for ~~completely~~ethanol ~~prevent~~produced ~~our~~in ~~business from being adversely affected, and~~ the ~~longer~~United ~~the~~States. ~~pandemic~~Any ~~impacts~~decrease ~~supply~~in ~~and~~U.S. ~~demand~~ethanol ~~and~~exports ~~the~~could ~~more~~adversely ~~broadly~~impact the ~~pandemic~~market ~~spreads,~~price itof isethanol ~~more~~unless ~~likely~~domestic ~~that~~demand ~~the~~increases ~~impact~~or onadditional ~~our~~foreign ~~business,~~markets ~~revenues~~are ~~and operating results will become increasingly negative~~developed.

WeU.S. ~~depend~~ethanol exports to China increased during the 2021 fiscal year, following the execution of a “phase one” trade agreement with China. The agreement, signed by former President Donald Trump on ~~our~~January ~~management~~15, ~~and~~2020, ~~key~~includes ~~employees~~a commitment by China to purchase agricultural products, ~~and~~including ethanol, over the ~~loss~~course of ~~these~~two ~~relationships~~years. There ~~could~~is, ~~negatively~~however, ~~impact~~no ~~our~~guarantee ~~ability~~that exports of ethanol to ~~operate~~China ~~profitably~~will continue or increase. Additionally, the imposition of tariffs and duties on ethanol imported from the U.S., as well as increased production of ethanol and similar fuels in other countries, can also negatively impact domestic export demand.

~~Our~~Corn ~~success~~prices ~~depends~~increased significantly in ~~part~~fiscal onyear ~~our~~2021, ~~ability~~due toin ~~attract~~part ~~and~~to ~~retain~~the ~~competent~~improved ~~personnel.~~domestic ~~For~~economy ~~our~~as ~~ethanol~~well ~~plants,~~as weincreased ~~must~~demand ~~hire~~from ~~qualified~~China ~~managers, operations personnel, accounting staff~~ and ~~others,~~drought ~~which can be challenging~~ in aSouth ~~rural~~America’s ~~community~~corn-growing regions. ~~Further,~~ ~~our~~Corn ~~current~~prices ~~employees~~remained ~~may~~above ~~decide~~$5 toper ~~end~~bushel ~~their employment with us. Competition~~ for ~~employees~~most inof the ~~ethanol~~year ~~industry is intense,~~ and wepeaked ~~may~~above ~~not~~$7 beper ~~able~~bushel toin ~~attract~~May ~~and retain qualified personnel~~2021.

The latest USDA supply and demand projections estimate the 2020-2021 ending corn stocks at approximately 1.24 billion bushels, and project the 2021-2022 U.S. corn production to be approximately 15.1 billion bushels, which is slightly less than the 2020-2021 production, with corn consumption for ethanol and co-products slightly higher at approximately 5.3 billion bushels, suggesting higher corn prices into fiscal 2022. In fiscal year 2021, China substantially increased its purchase of U.S. corn reducing U.S. inventories and increasing prices. Increases in domestic ethanol production in fiscal year 2021, also contributed to elevated corn prices. Weather, world supply and demand, current and anticipated stocks, agricultural policy and other factors can contribute to volatility in corn prices. If corn prices rise, it will have a negative effect on our operating margins unless the price of ethanol and our other primary products outpace rising corn prices.

Distillers’ grain prices increased in 2021 compared to 2020, due to increased supply as a result of increased production. Top export markets include Mexico, Vietnam, South Korea, Indonesia, Turkey, Thailand, and Canada. Export demand from China, historically one of the largest importers of U.S. produced distillers’ grains, has significantly declined. In 2017, China imposed significant anti-dumping and anti-subsidies on distillers’ grains imported from the U.S. which resulted in significant declines in exports of U.S. distillers’ grains to China. The imposition of these duties has resulted in a significant decline in demand from this top importer requiring U.S. producers to seek out alternative markets. Exports to China remain substantially below the pre-tariff export levels, and there is no guarantee that distillers’ grains exports to China will return to pre-tariff levels.

On January 15, 2020, President Trump signed a “phase one” trade agreement with China. The agreement includes a commitment by China to purchase agricultural products over the next two years, including distillers’ grains. The agreement will also provide U.S. manufacturers of DDGS with a streamlined process for registration and licensing in order to facilitate U.S. exports to China. While this agreement appears positive for the industry, there is no guarantee that the agreement will be fully implemented, nor is there a guarantee that exports to China return to pre-tariff levels.

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WeManagement ~~are~~anticipates ~~highly~~distillers’ ~~dependent~~grains onprices ~~our~~will ~~management~~remain ~~team~~steady toduring ~~operate~~ our ~~ethanol~~2022 ~~plants. We~~fiscal ~~may~~year, ~~not~~unless beadditional ~~able~~domestic todemand ~~replace these individuals should they decide to cease their employment with us,~~ or ifother ~~they~~foreign ~~become~~markets ~~unavailable for any other reason~~develop. ~~Any~~ ~~loss~~Domestic ofdemand ~~these~~for ~~officers~~distillers’ ~~and~~grains ~~key~~could ~~employees~~remain ~~may~~low ~~prevent~~if uscorn ~~from~~prices ~~operating~~decline ~~the ethanol plants profitably~~ and ~~could~~end-users ~~decrease~~switch ~~the~~to ~~value~~lower ofpriced ~~our units~~alternatives.

~~Technology~~Corn inoil ~~our~~prices ~~industry~~increased ~~evolves~~significantly ~~rapidly,~~in ~~potentially~~fiscal ~~causing~~year ~~our plants to become obsolete~~2021, ~~and~~due wein ~~must~~part ~~continue~~ to ~~enhance~~elevated ~~the~~corn ~~technology~~prices ofand ~~our~~strong ~~plants~~demand orfor ~~our~~biodiesel ~~business~~and ~~may~~livestock ~~suffer~~feed.

WeGiven ~~expect~~the ~~that~~inherent ~~technological~~volatility ~~advances~~ in ~~the~~ethanol, ~~processes~~distillers’ ~~and~~grains, ~~procedures~~non-food ~~for~~grade ~~processing~~corn ~~ethanol~~oil, ~~will~~grain ~~continue~~and tonatural ~~occur.~~gas Itprices, iswe ~~possible~~cannot ~~that~~predict ~~those advances could make~~ the ~~processes~~likelihood ~~and procedures~~ that wethe ~~utilize~~spread atbetween ~~our~~ ethanol, ~~plants~~distillers’ ~~less efficient or obsolete. These advances could also allow our competitors to produce ethanol at a lower cost than we are able. If we are unable to adopt or incorporate technological advances~~grains, ~~our~~non-food ~~ethanol~~grade ~~production~~corn ~~methods~~oil and ~~processes~~grain ~~could~~prices bein ~~less~~future ~~efficient~~periods ~~than~~will ~~those~~be ofconsistent ~~our~~compared ~~competitors, which could cause our ethanol plants~~ to ~~become~~historical ~~uncompetitive~~periods.

~~Failures~~Results of ~~our~~Operations ~~information~~for ~~technology~~the ~~infrastructure~~Fiscal ~~could~~Years ~~have~~Ended aOctober 31, ~~material~~2021 ~~adverse~~and ~~effect~~2020 ~~on operations.~~

WeThe ~~utilize~~following ~~various~~table ~~software~~shows ~~applications~~the ~~and~~results ~~other~~of ~~information technology that are critically important to~~ our ~~business~~ operations. ~~We rely on information technology networks~~ and ~~systems, including~~ the ~~Internet,~~percentage toof ~~process~~revenues, ~~transmit~~costs ~~and store electronic and financial information, to manage a variety~~ of ~~business~~goods ~~processes and activities~~sold, ~~including~~operating ~~production,~~expenses ~~manufacturing, financial, logistics, sales, marketing~~ and ~~administrative~~other ~~functions.~~items ~~We depend on our information technology infrastructure~~ to ~~communicate~~total ~~internally~~revenues ~~and~~in ~~externally~~our ~~with~~audited ~~employees,~~consolidated ~~customers,~~statements ~~suppliers and others. We also use information technology networks and systems to comply with regulatory, legal and tax requirements. These information technology systems, some~~ of ~~which~~operations ~~are~~for ~~managed by third parties, may be susceptible to damage, disruptions or shutdowns due to failures during~~ the ~~process~~fiscal ofyears ~~upgrading~~ended ~~or replacing software~~October 31, ~~databases~~2021 or components thereof, power outages, hardware failures, computer viruses, attacks by computer hackers or other cybersecurity risks, telecommunication failures, user errors, natural disasters, terrorist attacks or other catastrophic events. If any of our significant information technology systems suffer severe damage, disruption or shutdown, and ~~our~~2020 ~~disaster~~(amounts ~~recovery and business continuity plans do not effectively resolve the issues~~ in athousands): ~~timely manner, our product sales, financial condition and results of operations may be materially and adversely affected.~~


	Fiscal Year Ended October 31,
	2021				2020
Statement of Operations Data	Amount		%		Amount		%
Revenue	$	309,615	100.0	%	$	164,954	100.0	%
Cost of Goods Sold		282,847	91.4	%		176,031	106.7	%
Gross Profit (Loss)		26,768	8.6	%		(11,077)	(6.7)	%
Operating Expenses		8,127	2.6	%		8,581	5.2	%
Goodwill Impairment		—	—	%		1,372	0.8	%
Operating Income (Loss)		18,641	6.0	%		(21,030)	(12.7)	%
Other Income, net		7,389	2.4	%		463	0.3	%
Net Income (Loss)		26,030	8.4	%		(20,567)	(12.4)	%
Less: Net (Income) Loss Attributable to Non-controlling Interest		(2,373)	(0.8)	%		7,289	4.4	%
Net Income (Loss) Attributable to Granite Falls Energy, LLC	$	23,657	6.7	%	$	(13,278)	(8.0)	%

~~A cyber attack or other information security breach could have a material adverse effect on our operations and result in financial losses.~~ Revenues

WeOur ~~are~~revenues ~~regularly~~from ~~the~~operations ~~target~~come offrom ~~attempted~~three ~~cyber~~primary ~~and~~sources: ~~other~~sales ~~security~~of ~~threats~~fuel ~~and must continuously monitor and develop our information technology networks and infrastructure to prevent~~ethanol, ~~detect,~~sales ~~address and mitigate the risk~~ of ~~unauthorized~~distillers’ ~~access,~~grains ~~misuse, computer viruses~~ and ~~other~~sales ~~events~~of ~~that~~corn ~~could~~oil. ~~have~~Our aremaining ~~security~~consolidated ~~impact. If~~revenues we are ~~unable~~attributable to ~~prevent~~miscellaneous ~~cyber attacks and~~ other ~~information~~revenue ~~security~~from ~~breaches,~~incidental wesales ~~may~~of ~~encounter~~corn ~~significant~~syrup ~~disruptions~~at inHLBE’s ~~our~~plant ~~operations~~and ~~which~~revenues ~~could~~generated ~~adversely~~from ~~impact~~natural ~~our~~gas ~~business,~~pipeline ~~financial condition and results of~~ operations orat ~~result in the unauthorized disclosure of confidential information~~Agrinatural. ~~Such breaches may also harm our reputation, result in financial losses or subject us to litigation or other costs or penalties.~~

~~Competition~~The ~~from~~following table shows the ~~advancement~~sources of ~~alternative~~our ~~fuels~~consolidated ~~may~~revenue ~~lessen~~and the ~~demand~~approximate percentage of revenues from those sources to total revenues in our audited consolidated statements of operations for ~~ethanol.~~the fiscal year ended October 31, 2021 (amounts in thousands):

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


	Fiscal Year Ended October 31, 2021
Revenue Sources	Sales Revenue		% of Total Revenues
Ethanol sales	$	240,875	77.8	%
Distillers' grains sales		49,186	15.9	%
Corn oil sales		17,148	5.5	%
Miscellaneous other		2,406	0.8	%
Total Revenues	$	309,615	100.0	%

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

We have entered into agreements with a third parties to market our supply of ethanol, distillers’ grains and corn oil. Our marketers are independent businesses that we do not control. We cannot be certain that our marketers will market

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orThe ~~sell~~following ~~our~~table ~~ethanol,~~shows ~~distillers’~~the ~~grains~~sources ~~and~~of ~~corn oil effectively. Our agreements with~~ our ~~marketers~~consolidated dorevenue ~~not~~and ~~contain~~the ~~requirements~~approximate ~~that a certain~~ percentage of ~~sales~~revenues ~~are~~from ofthose ~~our~~sources ~~products,~~to ~~nor~~total dorevenues ~~the~~in ~~agreements~~our ~~restrict~~audited ~~the~~consolidated ~~marketer’s~~statements ~~ability~~of tooperations ~~choose~~for the ~~alternative~~fiscal ~~sources~~year ~~for~~ended ~~ethanol~~October 31, ~~distillers’~~2020 ~~grains~~(amounts orin ~~corn oil.~~thousands):

Our success in achieving revenue from the sale of ethanol, distillers’ grains and corn oil will depend upon the continued viability and financial stability of our marketers. Our marketers may choose to devote their efforts to other producers or reduce or fail to devote the necessary resources to provide effective sales and marketing support of our products. We believe that our financial success will continue to depend in large part upon the success of our marketers in operating their businesses.


	Fiscal Year Ended October 31, 2020
Revenue Sources	Sales Revenue		% of Total Revenues
Ethanol sales	$	126,605	76.8	%
Distillers' grains sales		29,673	17.9	%
Corn oil sales		6,590	4.0	%
Miscellaneous other		2,086	1.3	%
Total Revenues	$	164,954	100.0	%

IfOur ~~our~~total ~~marketers~~consolidated ~~breach~~revenues ~~their~~increased ~~contracts~~by orapproximately do87.7% ~~not~~for ~~have~~ the ~~ability,~~fiscal ~~for~~year ~~financial~~ended orOctober ~~other~~31, ~~reasons~~2021, toas ~~market~~compared ~~all of the ethanol we produce or~~ to ~~market~~ the ~~co-products~~fiscal ~~produced~~year ~~at our plants~~2020, wedue ~~may not have any readily available alternative means~~ to ~~sell~~increases ~~our~~in ~~products.~~both ~~Our~~the ~~lack~~prices ofreceived afor ~~sales force~~ and ~~reliance~~in onthe ~~these~~quantities ~~third~~sold ~~parties to sell and market most~~ of our ~~products may place us at a competitive disadvantage. Our failure to sell all of our~~ ethanol, ~~and~~distillers’ ~~co-products~~grains, ~~may result in lower revenues~~ and ~~reduced~~corn ~~profitability~~oil.

WeThe ~~are~~following ~~exposed~~table toreflects ~~credit~~quantities ~~risk~~of ~~resulting~~our ~~from~~three ~~non-payment~~primary byproducts ~~significant~~sold ~~customers.~~and the average net prices received for the fiscal years ended October 31, 2021 and 2020 (quantities in thousands):

We have a concentration of credit risk because GFE sells all of the ethanol, distillers’ grains, and corn oil produced to two customers and HLBE sells all of its ethanol, distillers’ grains, and corn oil produced to three customers. Although we typically receive payments timely and within the terms of our marketing agreements with these customers, we continually monitor this credit risk exposure. These customers accounted for approximately 100.0% of GFE’s revenue for the years ended October 31, 2020 and 2019, and approximately 96.7% and 96.8% of GFE’s outstanding accounts receivable balance at October 31, 2020 and 2019, respectively. At HLBE, these customers accounted for approximately 96.4% and 97.5% of HLBE’s revenue for the years ended October 31, 2020 and 2019, respectively, and approximately 81.2% and 98.1% of HLBE’s outstanding accounts receivable balance at October 31, 2020 and 2019, respectively. The inability of a third party to pay our accounts receivable may cause us to experience losses and may adversely affect our liquidity and our ability to make our payments when due.


	Fiscal Year Ended October 31, 2021			Fiscal Year Ended October 31, 2020
Product	Quantity Sold (in thousands)	Avg. Net Price		Quantity Sold (in thousands)	Avg. Net Price
Ethanol (gallons)	126,746	$	1.90	105,172	$	1.20
Distillers' grains (tons)	288	$	170.75	240	$	123.43
Corn oil (pounds)	35,963	$	0.48	27,528	$	0.24

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

~~Certain~~Total ~~individuals~~revenues ~~believe~~from ~~that~~sales ~~the use~~ of ethanol ~~will~~increased ~~have~~by aapproximately ~~negative~~90.3% ~~impact~~for onfiscal ~~gasoline~~year ~~prices~~2021 atcompared to the ~~pump.~~fiscal ~~Some~~year ~~also~~2020 ~~believe~~due ~~that~~primarily ~~ethanol adds~~ to ~~air~~an ~~pollution~~approximately ~~and~~20.5% ~~harms~~increase ~~car~~in ~~and~~the ~~truck~~volumes ~~engines.~~sold ~~Still~~from ~~other~~period ~~consumers~~to ~~believe~~period, ~~that~~coupled ~~the~~with ~~process~~an ofapproximately ~~producing~~58.3% ~~ethanol~~increase ~~actually~~in ~~uses~~the ~~more~~average ~~fossil~~price ~~energy,~~per ~~such~~gallon aswe ~~oil~~received ~~and~~for ~~natural~~our ~~gas,~~ethanol. ~~than~~The ~~the~~increase ~~amount~~in ofprice ~~energy~~is ~~that~~primarily isdue ~~produced.~~to ~~These~~an ~~consumer~~increase ~~beliefs~~in ~~could~~demand ~~potentially~~for betransportation ~~wide-spread~~fuel, ~~and~~including ~~may~~the beethanol ~~increasing~~we produce, as a result of ~~recent~~the ~~efforts~~larger toeconomic ~~increase~~rebound from the ~~allowable~~COVID-19 ~~percentage~~pandemic. The increase in the quantity of ethanol ~~that~~sold ~~may~~was bedue ~~blended~~primarily ~~for~~to ~~use~~our inincreased ~~conventional~~production ~~automobiles. If~~in ~~consumers~~fiscal ~~choose~~year ~~not~~2021 compared to ~~buy~~the ~~ethanol~~prior ~~based~~year, ondue ~~these~~to ~~beliefs,~~the itfact ~~would~~that ~~affect~~we operated our plants throughout the ~~demand~~2021 fiscal year and idled them for a portion of the ~~ethanol~~2020 wefiscal ~~produce~~year. ~~which~~Management ~~could~~anticipates ~~negatively~~steady ~~affect~~ethanol production and sales during our ~~profitability~~2022 ~~and~~fiscal ~~financial~~year, ~~condition~~as compared to our 2021 fiscal year.

~~Risks~~We ~~Related~~occasionally engage in hedging activities with respect to ~~Regulation~~our ethanol sales. We recognize the gains or losses that result from the changes in the value of these derivative instruments in revenues as the changes occur. At October 31, 2021, GFE had fixed and ~~Governmental~~basis ~~Action~~contracts for forward ethanol sales for various delivery periods through December 2021 valued at approximately $19.6 million, and HLBE had fixed and basis contracts for forward ethanol sales for various delivery periods through December 2021 valued at approximately $18.7 million. Separately, ethanol derivative instruments resulted in a gain of approximately $210,000 during the fiscal year ended October 31, 2021, and a loss of approximately $350,000 during the fiscal year ended October 31, 2020.

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

WeTotal ~~are~~revenues ~~subject~~from tosales ~~various federal, state and local environmental laws and regulations, including those relating to the discharge~~ of ~~materials~~distillers’ ~~into~~grains ~~the~~increased ~~air,~~approximately ~~water and ground~~65.8% ~~Certain~~for ~~aspects~~fiscal ofyear ~~our~~2021 ~~operations~~compared ~~require environmental permits and controls~~ to ~~prevent~~fiscal ~~and~~year ~~reduce~~2020. ~~air~~The ~~and~~increase ~~water~~in ~~pollution,~~distillers' ~~and~~grains ~~these~~revenues ~~permits~~is ~~are~~primarily ~~subject~~attributable to ~~modification,~~an ~~renewal~~approximately ~~and~~20.0% ~~revocation~~increase byin ~~issuing authorities including~~ the ~~Minnesota~~tons ~~Pollution Control Agency. We could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions and third-party claims for property damage and personal injury as a result~~ of ~~violations~~distillers’ ofgrains orsold ~~liabilities~~during ~~under~~fiscal ~~environmental~~year ~~laws~~2021 orcompared ~~non-compliance~~to ~~with~~fiscal ~~environmental~~year ~~permits.~~2020, Wecoupled ~~could also incur substantial costs and experience increased operating expenses as a result of operational changes to comply~~ with ~~environmental~~an ~~laws,~~approximately ~~regulations~~38.3% ~~and~~increase ~~permits.~~in Wethe ~~have~~average ~~previously~~price ~~incurred~~per ~~substantial~~ton ~~costs~~we ~~relating~~received tofor our ~~air~~distillers’ ~~emissions~~grains ~~permit~~from ~~and~~period ~~expect additional costs relating~~ to ~~this permit in the future~~period.

~~Our~~The ~~plants’~~increase ~~air~~in ~~permits~~the ~~require~~market ~~certain~~price ~~on-going~~of ~~performance~~distillers’ ~~testing~~grains is due to beincreased ~~completed~~demand ~~periodically~~for tolivestock ~~ensure~~feed ~~compliance~~and ~~with~~higher ~~minor~~prices ~~source~~for ~~emission~~soybean ~~limits~~meal, which is a competitive product to distillers’ grains. The increase in total tons of distillers’ grains sold during fiscal year 2021 compared to the fiscal year On2020 was ~~May~~due 12increased production at both plants, ~~2017~~as a result of operating the plants year-round in the fiscal year 2021, ~~HLBE~~after ~~submitted~~the aplants ~~letter~~for portions of the fiscal year 2020 due to the ~~MPCA~~effects ~~regarding~~of the COVID-19 pandemic and HLBE’s boiler malfunction. Management anticipates steady distillers’ grains production during our 2022 fiscal year, as compared to our 2021 fiscal year.

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~~results~~At ~~of certain non-compliant tests. On~~ October 17 31, ~~2017~~2021, ~~HLBE~~GFE ~~entered~~had ~~into~~forward acontracts ~~stipulation~~to ~~agreement~~sell ~~with~~approximately ~~the~~$1.3 ~~MPCA~~million ~~relating~~of todistillers’ ~~these~~grains ~~non-compliant~~for ~~tests. Under~~delivery ~~the~~through ~~stipulation~~November ~~agreement~~2021, and HLBE ~~agreed~~had forward contracts to ~~pay~~sell aapproximately ~~civil~~$1.6 ~~penalty~~million of ~~$63,500,~~distillers’ ~~which~~grains ~~was~~for ~~paid~~delivery inthrough ~~October~~December ~~2017~~2021.

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

~~Because~~Separating ~~federal~~the ~~and~~corn ~~state~~oil ~~regulation~~from ~~heavily~~our ~~influence~~distillers’ grains decreases the ~~supply~~total tons of ~~and~~distillers’ ~~demand~~grains that we sell; however, our corn oil has a higher per ton value than our distillers’ grains. Total revenues from sales of corn oil increased by approximately 160.2% for ~~ethanol~~fiscal year 2021 compared to the fiscal year 2020. This increase is attributable to an approximately 30.6% increase in pounds sold from period to period, ~~changes~~coupled with an approximately 100% increase in ~~government~~the ~~regulation~~average ~~that~~price ~~adversely~~per ~~affect~~pound of corn oil sold from period to period. Management attributes the increase in corn oil prices to increased demand orfor ~~supply~~biodiesel ~~will~~and ~~have~~livestock feed. Management attributes the increase in corn oil sales during fiscal year 2021 as compared to 2020 primarily to increased production at the plants as a ~~material~~result ~~adverse~~of ~~effect~~the onGFE ~~our~~plant ~~business~~and HLBE plant being idled during portions of the fiscal year 2020 as a result of the COVID-19 pandemic and HLBE’s boiler malfunction.

~~Various~~Although ~~federal~~management ~~and~~believes ~~state~~that ~~laws,~~corn ~~regulations~~oil ~~and~~prices ~~programs~~will ~~impact~~remain ~~the~~relatively ~~supply~~steady, ofprices ~~and~~may ~~demand~~decrease ~~for~~if ~~ethanol. We~~there ~~believe the most important of these~~ is ~~the~~an ~~RFS,~~oversupply ~~which sets minimum national volume standards for use~~ of ~~cellulosic,~~corn ~~biomass-based~~oil ~~diesel~~production ~~and~~resulting ~~total~~from ~~advanced~~increased ~~renewable~~production ~~fuels.~~rates ~~The~~at ~~RFS helps support a market for~~ ethanol ~~that~~plants ~~might~~or ~~disappear~~if ~~without~~biodiesel ~~this~~producers ~~incentive.~~begin Into ~~the~~utilize ~~case~~lower-priced ofalternatives ~~the~~such ~~RFS,~~as ~~while~~soybean itoil ~~creates~~or aif ~~demand~~biodiesel ~~for~~blenders’ ~~ethanol,~~tax ~~the~~credit ~~existence~~is ofnot ~~specific~~renewed ~~categories of renewable fuels also creates a demand for these types of renewable fuels~~ and ~~will~~biodiesel ~~likely~~production ~~provide an incentive for companies to further develop these products to capitalize on that demand~~declines. ~~In these circumstances, the RFS may also reduce demand for ethanol in favor of the renewable fuels for which specific categories exist.~~

ByAt ~~statute,~~October ~~the RFS requires that 16.55 billion gallons be sold or dispensed in 2013~~31, ~~increasing to 36.0 billion gallons by 2022~~2021, ~~but~~GFE ~~caps~~had ~~the~~forward ~~amount of~~ corn~~-based~~ ~~ethanol~~oil ~~that~~sales ~~can~~contracts ~~be used~~ to ~~meet~~sell ~~the~~approximately ~~renewable fuels blending requirements at 15~~$1.07 ~~billion~~million ~~gallons~~ for ~~2015~~delivery ~~and~~through ~~thereafter. The final 2021 RVOs have not yet been released. On~~ December 192021, ~~2019,~~and ~~the~~HLBE ~~EPA~~had ~~announced~~forward ~~final RVO requirements for the RFS for calendar year 2020. The~~ corn~~-based~~ ~~biofuel~~oil ~~requirement~~sales ~~was~~contracts ~~set at 15.0 billion gallons, equating~~ to ~~the~~sell ~~statutory~~approximately ~~requirement level as originally set by Congress when the RFS was enacted~~$1.5 ~~However,~~million ~~the overall RVOs were set at 20.09 billion gallons~~ for ~~2020,~~delivery ~~more~~through ~~than~~December ~~20% below the overall statutory level of 30 billion gallons, due to decreases in the RVOs for cellulosic ethanol and advanced biofuels~~2021. ~~The 2019 and 2018 standards were also more than 20% below the overall statutory level.~~

~~According~~Cost to the RFS, if mandatory renewable fuel volumes are reduced by at least 20% for two consecutive years, the EPA is required to modify, or reset, statutory volumes through 2022. In October 2018, the Office of ~~Management~~Goods and Budget announced that the 20% thresholds “have been met or are expected to be met in the near future.” In May 2019, the EPA delivered a proposed RFS “reset” rule to the Office of Management and Budget. If the statutory RVOs are reduced as a result of reset, it could have an adverse effect on the market price and demand for ethanol which would negatively impact our financial performance. Current ethanol production capacity exceeds the 2020 RVO standard which can be satisfied by corn-based ethanol. Reduction of blending requirements could reduce the demand for and price of ethanol. If demand for ethanol decreases, it could materially adversely affect our business, results of operations and financial condition.Sold

~~Additionally~~Our cost of goods sold increased by approximately 60.7% for the fiscal year ended October 31, ~~opponents~~2021, as compared to the fiscal year ended October 31, 2020. However, cost of ~~ethanol~~goods ~~such~~sold, as ~~large~~a ~~oil~~percentage ~~companies~~of ~~will~~revenues, ~~likely~~decreased ~~continue~~to approximately ~~their~~91.4% for ~~efforts~~the fiscal year ended October 31, 2021, as compared to ~~repeal~~approximately or106.7% ~~reduce~~for the ~~RFS~~2020 ~~through~~fiscal ~~lawsuits~~year ordue ~~lobbying~~to an improved margin between the price of ~~Congress~~ethanol and the price of corn. Approximately ~~Successful~~90% ~~reduction~~of orour ~~repeal~~total costs of goods sold is attributable to ethanol production. As a result, the ~~blending~~cost ~~requirements~~of goods sold per gallon of ethanol produced for the ~~RFS~~fiscal ~~could~~year ~~have~~ended anOctober ~~adverse~~31, ~~effect~~2021 onwas ~~the~~approximately ~~market~~$2.23 ~~price~~per ~~and~~gallon ~~demand~~of ~~for~~ethanol sold compared to approximately $1.67 per gallon of ethanol ~~which~~sold ~~would~~for ~~negatively~~the ~~impact~~fiscal ~~our~~year ~~financial~~ended ~~performance.~~October 31, 2020.

~~Under~~The ~~the~~following ~~RFS,~~table ~~small~~shows ~~refineries~~the ~~may~~costs ~~petition~~of ~~for~~corn and benatural ~~granted~~gas ~~temporary~~(our ~~exemptions~~two ~~from~~largest ~~the~~single ~~RVOs~~components ifof ~~they~~costs ~~can~~of ~~demonstrate~~goods ~~that compliance with the RVOs would cause disproportionate economic hardship. On December 17~~sold), ~~2020,~~as ~~the~~well ~~EPA~~as ~~released~~all ~~data~~other oncomponents ~~the~~of ~~number~~cost of ~~waivers~~goods ~~filed~~sold, which ~~indicated~~includes ~~that~~processing ingredients, asdepreciation ~~of December 17~~expense, ~~2020~~electricity, 14and ~~petitions for waivers for the 2020 compliance year have been received. For the 2019 compliance year~~wages, 32salaries ~~petitions~~and ~~have~~benefits ~~been~~of ~~received.~~production ~~To date~~personnel, ~~all~~and of the ~~petitions~~approximate ~~received~~percentage ~~for~~of ~~both~~costs ~~compliance~~of ~~years~~those ~~2020~~components ~~and~~to ~~2019~~total ~~remain~~costs ~~pending.~~of ~~Further,~~goods ~~some~~sold ~~petitions~~in ~~remain~~our ~~pending~~audited ~~from~~consolidated ~~previous~~statements ~~compliance~~of ~~years.~~operations ~~Additionally, 44 petitions have been received by the EPA~~ for the ~~2018~~fiscal ~~compliance~~ year. Toended ~~date,~~October 31 ~~petitions have been approved~~, ~~which~~2021 ~~have~~(amounts ~~exempted~~in ~~approximately 1.43 billion RINs, which is approximately 13.42 billion gallons of gasoline and diesel, from meeting the RFS blending targets. It is expected that~~ thousands):


	Fiscal Year Ended October 31, 2021
	Cost		% of Cost of Goods Sold
	(in thousands)
Corn costs	$	228,483	80.8	%
Natural gas costs		12,618	4.5	%
All other components of costs of goods sold		41,746	14.8	%
Total Cost of Goods Sold	$	282,847	100.0	%

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~~additional~~The ~~petitions~~following ~~for~~table ~~waivers~~shows ~~for~~ the ~~2020~~costs ~~compliance~~of ~~year~~corn, ~~will~~natural begas ~~received~~and byall ~~the~~other ~~EPA.~~components Itof iscost ~~also~~of ~~expected~~goods ~~that~~sold and the ~~EPA~~approximate ~~will~~percentage ~~approve~~of acosts ~~significant number~~ of ~~these~~those ~~waiver~~components ~~petitions,~~to ~~thereby~~total ~~exempting~~costs aof ~~substantial~~goods ~~number~~sold ofin ~~gallons~~our ofaudited ~~gasoline~~consolidated ~~and~~statements ~~diesel~~of ~~from~~operations ~~meeting~~for the ~~RFS~~fiscal ~~blending~~year ~~targets.~~ended ~~These~~October ~~exemptions decrease demand for our products~~31, ~~which~~2020 ~~negatively~~(amounts ~~impacts~~in ~~ethanol prices and our profitability.~~thousands):

On May 29, 2018, the National Corn Growers Association, National Farmers Union, and the RFA filed a petition with the U.S. Court of Appeals for the 10th Circuit challenging the EPA’s grant of waivers to three specific refineries. The petitioners are asking the U.S. Court of Appeals for the 10th Circuit to reject the waivers granted to three refineries located in Wynnewood, Oklahoma, Cheyenne, Wyoming, and Woods Cross, Utah as an abuse of EPA authority. These waived gallons are not redistributed to obligated parties, and in effect, reduce the aggregate RVOs under the RFS. In January 2020, the court struck down the exemptions as improperly issued by the EPA. The court interpreted the RFS statute to provide that refineries are only eligible for relief if they have received uninterrupted, continuous extensions of the exemptions. Consistent with the ruling, the EPA denied certain small refinery exemption petitions filed by oil refineries in 2020 seeking retroactive relief from their ethanol use requirements for prior years. However, HollyFrontier and Wynnewood Refining filed a petition in the U.S. Supreme Court in September 2020 seeking review of the January 2020 ruling. In January 2021, the Supreme Court agreed to hear the appeal. Oral arguments are expected to be scheduled in spring of 2021. The Supreme Court’s decision could result in the overturning of the EPA’s denial of certain small refinery exemption petitions. Such a decision could have sweeping negative effects on the ethanol industry and our profitability.


	Fiscal Year Ended October 31, 2020
	Cost		% of Cost of Goods Sold
	(in thousands)
Corn costs	$	126,289	71.8	%
Natural gas costs		9,209	5.2	%
All other components of costs of goods sold		40,533	23.0	%
Total Cost of Goods Sold	$	176,031	100.0	%

AnCorn EPA final rule released in December 2019 provides that EPA will project exempt volumes based on a three-year average of the relief recommended by the Department of Energy (“DOE”) for years 2016-2018, rather than based on actual exemptions granted. For the 2016 compliance year, the EPA said the DOE’s recommended relief was approximately 440 million RINs. The EPA, however, actually granted waivers for approximately 790 million RINs. Similarly, the DOE’s 2017 compliance year recommendation was 1.02 billion RINs, as compared to the approximately 1.82 billion RINs granted waivers by the EPA. For the 2018 compliance year, the DOE recommended the EPA approve waivers for 840 million RINs, as compared to the approximately 1.43 billion RINs granted waivers by the EPA. The EPA’s final rule also announced its general policy approach with respect to small refinery waivers on a go-forward basis as consistent with DOE’s recommendations, where appropriate. This final rule fell short of the relief that was urged by ethanol producers. As a result, management expects that small refinery exemptions will continue to have a negative effect on demand for our products, ethanol prices, and our profitability. Costs

~~The~~Our ~~EPA~~cost ~~imposed~~of ~~E10~~goods ~~“blend~~sold ~~wall”~~related ifto ~~not~~corn ~~overcome~~increased ~~will~~approximately ~~have~~80.9% for our 2021 fiscal year compared to our 2020 fiscal year, due to an ~~adverse~~approximately ~~effect~~19.1% onincrease ~~demand~~in the number of bushels of corn processed from period to period, coupled with an approximately 51.9% increase in the average price per bushel paid for corn from period to period. The corn-ethanol price spread (the difference between the price per gallon of ethanol and the price per bushel of grain divided by 2.8) for our 2021 fiscal year was $0.04 more than the corn-ethanol price spread we experienced for the same period of 2020.

WeFor ~~believe~~our ~~that~~fiscal ~~the~~years ~~E10~~ended ~~“blend~~October ~~wall”~~31, is2021 ~~one~~and of2020, ~~the~~our ~~most~~plants ~~critical~~processed ~~governmental~~approximately ~~policies~~42.2 ~~currently~~million ~~facing~~and ~~the ethanol industry~~35.4 ~~The~~million ~~“blend~~bushels ~~wall” issue arises because~~ of ~~several~~corn, ~~conflicting requirements~~respectively. ~~First,~~This ~~the renewable fuels standards dictate a continuing~~ increase in ~~the~~corn ~~amount~~consumption ofwas ~~ethanol~~due ~~blended~~primarily ~~into~~to the ~~national~~fact ~~gasoline~~that ~~supply.~~we ~~Second,~~idled ~~the~~production ~~EPA~~at ~~mandates~~our aplants ~~limit of 10% ethanol inclusion~~ in ~~non-flex fuel vehicles, and~~ the ~~E85~~fiscal ~~vehicle~~year ~~marketplace~~2020 ~~is struggling to grow~~ due to ~~lacking~~the ~~infrastructure.~~effects ~~The~~of ~~EPA~~the ~~policy~~COVID-19 ofpandemic ~~10%~~ and the ~~RFS~~boiler ~~increasing~~malfunction ~~blend rate are~~ at ~~odds,~~HLBE’s ~~which is sometimes referred to as the “blend wall~~plant.” Management ~~While~~anticipates ~~the~~steady ~~issue~~corn isconsumption ~~being~~during ~~considered~~our by2022 ~~the~~fiscal ~~EPA,~~year ~~there~~compared ~~have~~to ~~been~~our no2021 ~~regulatory~~fiscal changes that would reconcile the conflicting requirements. In 2011, the EPA allowed the use of E15, gasoline which is blended at a rate of 15% ethanol and 85% gasoline, in vehicles manufactured in the model year ~~2001~~provided ~~and later. Management believes~~ that ~~many~~we ~~gasoline~~can ~~retailers~~achieve ~~will~~operating ~~refuse~~margins ~~to provide E15 due to the fact~~ that ~~not~~allow ~~all~~us ~~standard vehicles will be allowed~~ to ~~use~~continue ~~E15 and due~~ to ~~the~~operate ~~labeling requirements~~ the ~~EPA~~ethanol ~~may~~plants ~~impose.~~at ~~As a result, the approval of E15 may not significantly increase demand for ethanol~~capacity.

InThe ~~addition,~~increase ~~different gasoline blendstocks may have been required at certain times of the year~~ in ~~order~~our tocost ~~use~~per ~~E15~~bushel ~~due to federal regulations related to fuel evaporative emissions. This prevented E15 from being used during certain times~~ of ~~the~~corn ~~year~~was ~~in various states. However, on May 30, 2019, the EPA issued~~ a ~~final~~result ~~rule which allows E15 to be sold year-round. In June 2019, the American Fuel and Petrochemical Manufacturers association filed a lawsuit in the U.S. Court~~ of ~~Appeals~~elevated ~~for~~corn ~~the~~prices ~~District~~caused ofprimarily ~~Columbia~~by ~~challenging~~export ~~the final rule. Additionally~~demand, inincluding ~~August~~demand ~~2019, the Small Retailers Coalition filed a lawsuit in the U.S. Court of Appeals~~ for ~~the~~corn ~~District~~from ofChina ~~Columbia~~and ~~seeking~~South ~~review of the final rule~~America. ~~There~~Due ~~is no guarantee that the final rule will be upheld. Legal challenges could create uncertainty for retailers desiring~~ to ~~implement~~these ~~or expand sales of E15. Additionally~~factors, ~~although~~management ~~the~~anticipates ~~year-round E15 rule is now final, there is no guarantee~~ that ~~retailers~~corn ~~will~~prices ~~implement the sale of year-round E15, nor is there a guarantee that the rule~~ will ~~result~~be inhigher anduring ~~increase~~our of2022 ~~ethanol~~fiscal ~~sales~~year.

From time to time, we enter into forward purchase contracts for our corn purchases. At October 31, 2021, GFE had forward corn purchase contracts for approximately 4.9 million bushels for deliveries through December 2022 and HLBE had forward corn purchase contracts for approximately 3.2 million bushels for deliveries through December 2022.

Our corn derivative positions resulted in a loss of approximately $8.2 million and $2.4 million for the fiscal years ended October 31, 2021, and October 31, 2020, respectively, which increased our cost of goods sold. We recognize the gains or losses that result from the changes in the value of our derivative instruments from corn in cost of goods sold as the changes occur. As corn prices fluctuate, the value of our derivative instruments are impacted, which affects our financial performance. We anticipate continued volatility in our cost of goods sold due to the timing of the changes in value of the derivative instruments relative to the cost and use of the commodity being hedged.

Natural Gas Costs

For our 2021 fiscal year, we experienced an increase of approximately 37.0% in our overall natural gas costs compared to our 2020 fiscal year. Management attributes the increase in natural gas costs to an increase in production, as we operated out plants throughout the year in the 2021 fiscal year after idling our plants for portions of the 2020 fiscal year. Further, natural gas prices spiked in early 2021 due to severe weather in Texas and other areas that disrupted the production and transportation of natural gas. Management anticipates higher natural gas prices during the winter months due to the typical seasonal natural gas cost increases experienced during the winter months.

Operating Expense

Operating expenses include wages, salaries and benefits of administrative employees at the plants, insurance, professional fees and similar costs. Operating expenses as a percentage of revenues decreased to 2.6% of revenues for our fiscal year ended October 31, 2021 compared to 5.2% of revenues for our fiscal year ended October 31, 2020. This

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~~The~~decrease ~~California~~was ~~Low~~primarily ~~Carbon~~due ~~Fuel~~to ~~Standard~~a ~~may~~significant ~~decrease~~increase ~~demand~~in ~~for~~revenues ~~corn~~and ~~based~~the ~~ethanol~~recognition ~~which~~of ~~could~~the ~~negatively~~approximately ~~impact~~$1.8 ~~our~~million ~~profitability~~loss on disposal of assets related to HLBE’s boiler during the 2020 fiscal year.

~~California~~Our ~~passed~~efforts ato ~~Low~~optimize ~~Carbon~~efficiencies ~~Fuels~~and ~~Standard~~maximize ~~(“LCFS”)~~production ~~which~~may ~~requires~~result ~~that renewable fuels used~~ in ~~California~~a ~~must~~decrease ~~accomplish certain reductions~~ in ~~greenhouse~~our ~~gases~~operating ~~which~~expenses ~~reductions~~on ~~are measured using~~ a ~~lifecycle~~per ~~analysis~~gallon basis. ~~Management~~Additionally, ~~believes~~because ~~that~~HLBE ~~these~~has ~~regulations~~de-registered ~~could~~from ~~preclude~~the ~~corn~~SEC ~~based~~and ~~ethanol~~is ~~produced~~no inlonger ~~the~~required ~~Midwest~~to ~~from~~file ~~being~~SEC ~~used~~reports inas ~~California. California represents~~ a ~~significant~~result ~~ethanol~~of ~~demand~~the ~~market.~~Merger, Ifwe ~~the~~expect ~~ethanol~~our ~~industry~~operating isexpenses ~~unable~~related to ~~supply~~certain ~~corn~~filing ~~based~~fees ~~ethanol~~and toregulatory ~~California,~~costs itto ~~could~~decrease. ~~significantly~~However, ~~reduce~~due ~~demand~~to ~~for~~inflation, ~~the~~labor ~~ethanol~~shortages, weor ~~produce.~~other ~~This~~unforeseen ~~could~~issues, ~~result~~it inis apossible ~~reduction~~that of our ~~revenues~~operating ~~and~~expenses ~~negatively~~will ~~impact~~remain ~~our~~steady ~~ability~~or toincrease ~~profitably~~during ~~operate~~our ~~the~~2022 ~~ethanol~~fiscal ~~plant~~year.

Operating Income (Loss)

~~Meeting~~Our operating margin increased approximately $39.7 million during the ~~requirements~~past year as we recorded operating income of ~~evolving~~approximately ~~environmental,~~$18.6 ~~health~~million ~~and~~in ~~safety~~our ~~laws~~fiscal ~~and~~year ~~regulations~~ended October 31, ~~and~~2021, compared with an operating loss of approximately $21.0 million in ~~particular~~our ~~those~~fiscal ~~related~~year toended ~~climate~~October ~~change~~31, ~~could~~2020. ~~adversely~~The ~~affect~~increase in our ~~financial~~operating ~~performance~~income resulted largely from increased prices for all our principal products coupled with increased production at both our plants.

~~When~~Other ~~the EPA released its final regulations on RFS~~Income, these regulations grandfathered our plants at their current production capacity for the generation of RINs for compliance with RFS. Any expansion of our plants beyond the grandfathered volumes must meet a threshold of a 20% reduction in GHG emissions from a 2005 baseline measurement for the ethanol to be eligible to generate RINS for compliance with the RFS mandate.Net

InWe ~~2015,~~had ~~our~~net ~~plants~~other ~~were~~income ~~awarded~~for ~~“efficient~~our ~~producer”~~fiscal ~~status~~year ~~under~~ended ~~the~~October 31, ~~pathway~~2021 ~~petition program for the non-grandfathered volumes~~ of ~~ethanol~~approximately ~~produced at our plants~~$7.4 ~~Pursuant~~million compared to ~~the~~net ~~award~~other ~~approval,~~income ~~HLBE~~of ~~and~~approximately ~~GFE~~$463,000 ~~are~~for ~~only~~our ~~authorized~~fiscal toyear ~~generate~~ended ~~RINs~~October 31, ~~for~~2020. ~~each~~We ~~plant’s~~had ~~non-grandfathered~~more ~~volumes~~other ifincome ~~each~~during ~~plant~~fiscal ~~can~~year ~~demonstrate~~2021 ~~that~~compared ~~all~~to ~~ethanol~~fiscal ~~produced~~year at2020 due ~~the~~in ~~plant~~part ~~during~~to an ~~averaging~~increase ~~period~~in ~~(defined~~investment asincome during the ~~prior~~2021 ~~365~~fiscal ~~days~~year, or the ~~number~~PPP ofloan ~~days~~forgiveness ~~since~~income ~~the~~recognized ~~date~~during ~~EPA~~fiscal ~~efficient~~year ~~producer~~2021, ~~pathway~~and ~~approval)~~the ~~meets~~recognition of the ~~20%~~MVCPLA ~~GHG~~patronage ~~reduction~~capital ~~requirement~~credit income.

~~Although~~Changes ~~we believe GFE and HLBE will be able to maintain continuous compliance with the 20% reduction~~ in ~~GHG~~ ~~emissions~~Financial ~~requirement~~Condition ~~as presently operated, there is no guarantee that we will not have to install carbon dioxide mitigation equipment or take other steps unknown to us~~ at this time in order to comply with the efficient producer requirements or other future law or regulation. Continued compliance with the efficient producer GHG reduction requirements or compliance with future law or regulation of carbon dioxideOctober 31, ~~could~~2021 ~~be costly~~ and ~~may prevent us from operating our plants as profitably, which may have an adverse impact on our operations, cash flows and financial position.~~2020

IfThe wefollowing ~~fail~~table tohighlights ~~comply with~~ the ~~20%~~changes ~~reduction~~ in ~~GHG~~ ~~emissions~~our ~~requirement,~~financial wecondition ~~will~~at ~~not~~October 31, be2021 ~~able~~compared to ~~generate RINs for our non-grandfathered volumes of ethanol~~October 31, ~~which~~2020 ~~could~~(amounts ~~adversely~~in ~~affect our operating margins.~~thousands):

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


	October 31, 2021		October 31, 2020
Current Assets	$	64,814	$	31,715
Total Assets	$	145,137	$	116,198
Current Liabilities	$	30,024	$	31,252
Long-Term Debt, less current portion	$	27,621	$	5,876
Operating lease, long-term liabilities	$	12,102	$	15,755
Other Long-Term Liabilities	$	1,468	$	1,422
Members' Equity attributable to Granite Falls Energy, LLC	$	73,922	$	52,112
Non-controlling Interest	$	—	$	9,780

~~Risks~~Total ~~Related~~assets increased by approximately $28.9 million and current assets increased by approximately $33.1 million at October 31, 2021 compared to October 31, 2020. The increase in total assets was primarily due to an increase in cash, accounts receivable, and inventory in the ~~Units~~2021 period.

~~There~~Total iscurrent noliabilities ~~public~~decreased ~~market~~by ~~for~~approximately ~~our~~$1.2 ~~units~~million ~~and~~at noOctober ~~public~~31, ~~market~~2021 iscompared ~~expected~~to October 31, 2020. This decrease was mainly due to ~~develop~~a decrease in current maturities of long-term debt, which occurred because certain HLBE debt was classified as current as of October 31, 2020, due to loan covenant violations, was reclassified as long-term debt as of October 31, 2021. The decrease in current maturities of long-term debt was partially offset by an increase in accounts payable.

~~There~~Long-term isdebt, noless ~~established~~current ~~public trading market for our units~~portion, ~~and~~totaled weapproximately do$27.6 ~~not~~million ~~expect~~at ~~one~~October 31, to2021, ~~develop~~which inis ~~the~~approximately ~~foreseeable future~~$21. We7 ~~have~~million ~~established~~greater ~~through~~than ~~FNC~~our Aglong-term ~~Stock~~debt, ~~LLC,~~less acurrent ~~Unit Trading Bulletin Board~~portion, aat ~~private online matching service~~October 31, ~~in order to facilitate trading among our members~~2020. The ~~Unit~~increase ~~Trading~~is ~~Bulletin~~primarily ~~Board~~due ~~has been designed~~ to ~~comply~~the ~~with~~execution ~~federal~~of ~~tax~~the ~~laws~~2021 ~~and~~Credit ~~IRS regulations establishing a “qualified matching service~~Facility,” aswhich ~~well~~provided asloans ~~state~~to ~~and~~finance ~~federal securities laws. The Unit Trading Bulletin Board does not automatically affect matches between potential sellers and buyers and it is~~ the ~~sole~~acquisition ~~responsibility~~ of ~~sellers~~HLBE’s ~~and~~non-controlling ~~buyers~~interest toand ~~contact each other~~ to ~~make~~fund acontinued ~~determination as to whether an agreement to transfer units may be reached~~operations.

Members’ equity attributable to Granite Falls Energy, LLC at October 31, 2021 increased by approximately $21.8 million compared to October 31, 2020. The increase was due primarily to the net income attributable to Granite Falls Energy, LLC for the 2021 fiscal year.

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There ~~are~~was ~~detailed~~no ~~timelines~~non-controlling ~~that~~interest ~~must~~at beOctober ~~followed under the Unit Trading Bulletin Board Rules and Procedures with respect to offers and sales of membership units. All transactions must comply with the Unit Trading Bulletin Board Rules~~31, ~~our member control agreement~~2021, ~~and~~due ~~are subject~~ to ~~approval~~the ~~by our board of governors. As a result~~Merger, ~~units~~in ~~held~~which byGFE ~~our~~acquired ~~members~~HLBE’s ~~may~~remaining ~~not~~approximately ~~be easily resold and members may be required to hold their units indefinitely~~49.3% ~~Even~~non-controlling ~~if members are able to resell our units, the price may be less than the members’ investment in the units or may otherwise be unattractive to the member~~interest.

~~There~~Liquidity ~~are~~and ~~significant~~Capital ~~restrictions on the transfer of our units.~~Resources

ToOur ~~protect~~principal ~~our~~sources ~~status~~of asliquidity aconsist ~~partnership~~of ~~for~~cash ~~tax~~provided ~~purposes~~by ~~and to assure that no public trading market in our units develops~~operations, ~~our~~cash ~~units are subject to significant restrictions~~ on ~~transfer~~hand, and ~~transfers~~available ~~are~~borrowings ~~subject~~under ~~to approval by~~ our ~~board~~credit offacility ~~governors. All transfers of units must comply~~ with ~~the transfer provisions of our member control agreement and the unit transfer policy adopted by our board of governors~~AgCountry. Our ~~board~~principal uses of ~~governors~~cash ~~will~~are ~~not~~to ~~approve~~purchase ~~transfers~~raw ~~which~~materials ~~could~~necessary ~~cause us~~ to ~~lose~~operate ~~our tax status or violate federal or state securities laws. As a result of~~ the ~~provisions~~ethanol ~~of our member control agreement~~plants, ~~members~~capital ~~may~~expenditures ~~not be able~~ to ~~transfer~~maintain ~~their units~~ and ~~may~~upgrade beour ~~required~~plants, to ~~assume~~make ~~the~~debt ~~risks~~service ofpayments, ~~the~~and ~~investment~~to ~~for~~make andistribution ~~indefinite~~payments ~~period~~to ofour ~~time~~members.

~~There~~We isdo nonot ~~assurance~~currently anticipate any significant purchases of property and equipment that would require us to secure additional capital in the next twelve months. For our 2022 fiscal year, we ~~will~~anticipate becompletion ~~able~~of several small capital projects to ~~make~~maintain ~~distributions~~current plant infrastructure and improve operating efficiency. We expect to have sufficient cash generated by continuing operations and availability on our ~~unit~~credit ~~holders~~facilities and other loans to fund our operations and complete our capital expenditures during our 2022 fiscal year. However, ~~which~~should ~~means~~unfavorable operating conditions occur in the ethanol industry that ~~holders~~prevent ~~could~~us ~~receive~~from ~~little~~profitably operating our plants, we may need to seek additional debt or noequity ~~return~~funding onor ~~their~~idle ~~investment~~ethanol production.

~~Distributions~~Management ofcontinues ~~our~~to ~~net~~evaluate ~~cash~~conditions ~~flow~~in ~~may be made at~~ the ~~sole~~ethanol ~~discretion~~industry ofand ~~our~~explore ~~board~~opportunities ~~of governors, subject~~ to ~~the~~improve ~~provisions of~~ the ~~Minnesota~~efficiency ~~Limited Liability Company Act, our member control agreement~~ and ~~restrictions~~profitability ~~imposed~~of ~~by lender under~~ our ~~credit~~operations ~~facilities.~~which ~~Our~~may ~~credit~~require ~~facilities~~additional ~~currently~~capital ~~limit our ability~~ to ~~make~~supplement ~~distributions to our members. If our financial performance and loan covenants permit, we expect to make~~ cash ~~distributions~~generated atfrom ~~times~~operations and ~~in amounts that will permit~~ our ~~members~~current ~~to make income tax payments, along with distributions in excess of these amounts. However, our board may elect to retain cash for operating purposes,~~ debt ~~retirement, plant improvements or expansion~~. Although we have made distributions in the past, there is no guarantee that we will be in a financial position to pay distributions in the future, that the terms of our credit facility will allow us to make distributions to our members, or that distributions, if any, will be at times or in amounts to permit our members to make income tax payments. Consequently, members may receive little or no return on their investment in the units.

~~Risks~~Year ~~Related~~Ended toCompared ~~Tax~~October ~~Issues~~31, in2021 ato ~~Limited~~Year ~~Liability~~Ended ~~Company~~October 31, 2020

~~EACH~~The ~~UNIT~~following ~~HOLDER~~table ~~SHOULD~~summarizes ~~CONSULT~~cash ~~THE~~flows ~~INVESTOR’S~~for ~~OWN~~the ~~TAX~~fiscal ~~ADVISOR~~years ~~WITH~~ended ~~RESPECT TO THE FEDERAL AND STATE TAX CONSEQUENCES OF AN INVESTMENT IN GRANITE FALLS ENERGY,~~October ~~LLC~~31 ~~AND~~(amounts ~~ITS~~in ~~IMPACT ON THE INVESTOR’S TAX REPORTING OBLIGATIONS AND LIABILITY.~~thousands):

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


	2021		2020
Net cash provided by (used in) operating activities	$	19,867	$	(3,647)
Net cash used in investing activities	$	(4,258)	$	(5,826)
Net cash provided by financing activities	$	1,748	$	9,479
Net increase in cash, cash equivalents and restricted cash	$	17,357	$	6

WeOperating ~~consider~~Cash Granite Falls Energy, LLC to be a partnership for federal income tax purposes. This means that we will not pay any federal income tax, and our members will pay tax on their share of our net income. If we are unable to maintain our partnership tax treatment or qualify for partnership taxation for whatever reason, then we may be taxed as a corporation. We cannot assure you that we will be able to maintain our partnership tax classification. For example, there might be changes in the law or our company that would cause us to be reclassified as a corporation. As a corporation, we would be taxed on our taxable income at rates of up to 35% for federal income tax purposes (21% beginning after December 31, 2017). Further, distributions would be treated as ordinary dividend income to our unit holders to the extent of our earnings and profits. These distributions would not be deductible by us, thus resulting in double taxation of our earnings and profits. This would also reduce the amount of cash we may have available for distributions.Flows

~~Your~~During ~~tax~~the ~~liability~~fiscal ~~from~~year ~~your~~ended ~~allocated~~October 31, ~~share~~2021, ofnet ~~our~~cash ~~taxable~~provided ~~income~~by ~~may~~operating ~~exceed~~activities ~~any~~increased ~~cash~~by ~~distributions~~approximately ~~you~~$20.6 ~~receive~~million compared to the fiscal year ended October 31, ~~which~~2020. ~~means~~This ~~that~~increase ~~you~~was ~~may~~due ~~have~~primarily to ~~satisfy~~an ~~this~~approximately ~~tax~~$46.6 ~~liability~~million ~~with~~increase ~~your~~in ~~personal~~net ~~funds~~income, which was partially offset an approximately $12.7 million decrease in accounts receivable, approximately $7.0 million decrease in inventory, and an approximately $6.9 million decrease in commodity derivative instruments.

AsInvesting aCash partnership for federal income tax purposes, all of our profits and losses “pass-through” to our unit holders. You must pay tax on your allocated share of our taxable income every year. You may incur tax liabilities from allocations of taxable income for a particular year or in the aggregate that exceed any cash distributions you receive in that year or in Flows

Cash used in investing activities was approximately $1.6 million less during fiscal year 2021 as compared to fiscal year 2020. During fiscal year 2021, we used approximately $4.3 million of cash related capital expenditures at the GFE and HLBE plants. Comparatively, during fiscal year 2020, we used approximately $5.8 million for capital expenditures at the GFE and HLBE plants.

Financing Cash Flows

We were provided with approximately $1.7 million by financing activities during fiscal year 2021, compared to being provided with approximately $9.5 million by financing activities during fiscal year 2020. The decrease was primarily attributable to the fact that we used approximately $14.0 million to acquire the non-controlling interest in fiscal year 2021, compared with using approximately $2.0 million to acquired non-controlling interest in fiscal year 2020. Additionally, in fiscal year 2021, we had proceeds on long-term debt of approximately $36.2 million and made payments on long-term debt of approximately $21.0 million, as compared with fiscal year 2020, when we had proceeds on long-term debt of approximately $66.3 million and made payments of long-term debt of approximately $56.8 million.

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~~the~~Credit aggregate. This may occur because of various factors, including but not limited to, accounting methodology, the specific tax rates you face, and payment obligations and other debt covenants that restrict our ability to pay cash distributions. If this occurs, you may have to pay income tax on your allocated share of our taxable income with your own personal funds.Arrangements

~~You~~On ~~may~~September ~~not~~27, be2021, ~~able~~GFE finalized loan documents for an amended credit facility (the “2021 Credit Facility”) with AgCountry. CoBank serves as AgCountry’s administrative agent for the 2021 Credit Facility. We entered into the 2021 Credit Facility to ~~fully~~finance ~~deduct~~the ~~your~~acquisition ~~share~~of HLBE’s non-controlling interest and consolidate certain debts of ~~our~~GFE ~~losses~~and orHLBE. The ~~your~~loan ~~interest~~documents ~~expense~~include an Amended and Restated Credit Agreement (the “Credit Agreement”), which amends and replaces the Company’s credit agreement with AgCountry dated September 27, 2018.

ItAs isof ~~likely~~October ~~that~~31, ~~your~~2021, ~~interest~~GFE inhad usindebtedness ~~will~~consisting beof ~~treated~~the asfollowing aloans ~~“passive~~and ~~activity”~~agreements: ~~for federal income tax purposes. In~~ the ~~case~~Credit ofAgreement, ~~unit~~a ~~holders~~$20 ~~who~~million ~~are~~revolving ~~individuals~~credit orpromissory ~~personal~~note, ~~services~~a ~~corporations~~$500,000 ~~this~~amended ~~means~~and ~~that~~restated aletter ~~unit holder’s share~~ of ~~any~~credit ~~loss~~promissory ~~incurred~~note, bya us$20 ~~will~~million beamended ~~deductible~~and ~~only~~restated ~~against~~revolving ~~the~~term ~~holder’s~~promissory ~~income or gains from other passive activities~~note, ~~e.g., S corporations and partnerships that conduct~~ a ~~business~~$25 inmillion ~~which~~single ~~the~~advance ~~holder~~term ispromissory ~~not~~note, a ~~material participant~~$2.4 ~~Some~~million ~~closely~~single ~~held~~advance Cterm ~~corporations~~promissory ~~have~~note, ~~more favorable passive loss limitations. Passive activity losses that are disallowed in any taxable year are suspended~~ and ~~may~~the beProject ~~carried~~Hawkeye ~~forward~~credit ~~and used as an offset against passive activity income in future years~~facility. ~~Upon~~During ~~disposition~~the offiscal ayear ~~taxpayer’s~~2021, ~~entire~~two ~~interest~~SBA inPaycheck aProtection ~~passive~~Program ~~activity~~loans to anHLBE ~~unrelated~~and ~~person~~two inSBA aPaycheck ~~taxable~~Protection ~~transaction,~~Program ~~suspended~~loans ~~losses with respect~~ to ~~that~~GFE ~~activity~~were ~~may~~forgiven ~~then~~in ~~be deducted~~full.

~~Interest~~Additional ~~paid~~information onregarding ~~any~~our ~~borrowings~~credit ~~incurred~~arrangements tois ~~purchase~~available ~~units may not be deductible~~ in ~~whole~~Part orII in- ~~part~~Item ~~because~~8. ~~the~~Financial ~~interest~~Statements, ~~must~~Note be10 ~~aggregated~~- ~~with~~DEBT ~~other~~FACILITIES, ~~items of income~~ and ~~loss~~Note ~~that~~16 ~~the~~COMMITMENTS ~~unit~~AND ~~holder has independently experienced from passive activities and subjected to limitations on passive activity losses~~CONTINGENCIES.

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

~~Although~~We wecurrently ~~expect~~have ~~that~~no aoff-balance ~~number~~sheet ~~of our members may qualify for the Qualified Business Income Deduction (“QBID”), you may not qualify for the QBID~~arrangements.

~~Your~~Critical ~~ownership~~Accounting of our units may qualify you for the QBID. Pursuant to the Tax Cuts and Jobs Act of 2017, the QBID allows for a deduction of up to 20% of the qualified business income (“QBI”) of an owner of a pass-through entity. QBI generally includes the net amount of qualified income, gain, deduction, and loss from a domestic trade or business in which the taxpayer is an owner. The calculation of the QBID depends on a variety of factors, with the most significant factor being the taxpayer’s taxable income. For married persons filing jointly with taxable income equal to or less than the threshold amount, which is subject to adjustment for inflation, of $315,000 ($157,500 for taxpayers filing single), a taxpayer’s QBID is the lesser of: (1) 20% of the taxpayer’s QBI, or (2) 20% of the taxpayer’s taxable income less their net capital gains. For married persons filing jointly with taxable income exceeding the above-referenced threshold amounts, the QBID is subject to further limitations, such as limitations based on the amount of W-2 wages paid with respect to that entity or business, the unadjusted basis of qualified property in the business, and the type of trade or business. Because the impact of this deduction is dependent upon your particular tax situation, you should consult your own tax advisor on your eligibility for the QBID. There is no guarantee that you will qualify for the QBID.Estimates

~~Preparation~~Management uses estimates and assumptions in preparing our financial statements in accordance with generally accepted accounting principles in the United States of ~~your~~America. ~~tax~~These ~~returns~~estimates ~~may~~and beassumptions ~~complicated~~affect the reported amounts of assets and ~~expensive~~liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Our significant accounting policies are summarized in Part II - Item 8. Financial Statements, Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

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

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

The IRS may audit our tax returns and may disagree with the positions that we take on our returns or any Schedule K-1. If any of the information on our partnership tax return or a Schedule K-1 is successfully challenged by the IRS, the character and amount of items of income, gains, losses, deductions or credits in a manner allocable to some or all our unit holders may change in a manner that adversely affects those unit holders. This could result in adjustments on unit

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~~holders’~~ITEM ~~tax returns and in additional tax liabilities, penalties and interest to you~~8.FINANCIAL AnSTATEMENTS ~~audit~~AND ofSUPPLEMENTARY ~~our tax returns could lead to separate audits of your personal tax returns, especially if adjustments are required.~~DATA

ITEM 1B.UNRESOLVED STAFF COMMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Governors and Members of

Granite Falls Energy, LLC and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Granite Falls Energy, LLC and Subsidiaries (the Company) as of October 31, 2021 and 2020, and the related consolidated statements of operations, members’ equity, and cash flows for each of the years in the two-year period ended October 31, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended October 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters.

Boulay PLLP (PCAOB ID 542)

We have served as the Company’s auditor since 2002.

Minneapolis, Minnesota

January 31, 2022

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Consolidated Balance Sheets


ASSETS	October 31, 2021		October 31, 2020
Current Assets
Cash and cash equivalents	$	29,295,657	$	11,423,427
Restricted cash		1,641,123		2,156,694
Accounts receivable		12,028,397		3,386,068
Inventory		20,749,831		13,791,805
Commodity derivative instruments		39,076		56,050
Prepaid expenses and other current assets		1,059,604		901,384
Total current assets		64,813,688		31,715,428

Property and Equipment, net		49,716,246		54,965,983

Investments		14,518,331		9,799,384

Operating lease right of use asset		15,755,395		19,383,654

Other Assets		333,254		333,254

Total Assets	$	145,136,914	$	116,197,703

LIABILITIES AND MEMBERS' EQUITY
Current Liabilities
Checks drawn in excess of bank balances	$	—	$	692,984
Current maturities of long-term debt		5,046,429		12,954,538
Accounts payable		19,445,954		12,294,097
Commodity derivative instruments		732,801		816,478
Accrued expenses		1,145,326		865,883
Operating lease, current liabilities		3,653,131		3,628,259
Total current liabilities		30,023,641		31,252,239

Long-Term Debt, less current portion		27,621,428		5,876,318

Operating lease, long-term liabilities		12,102,264		15,755,395

Other Long-Term Liabilities		1,467,848		1,421,924

Commitments and Contingencies

Members' Equity
Members' equity attributable to Granite Falls Energy, LLC consists of 30,606 units authorized, issued and outstanding at October 31, 2021 and 2020		73,921,733		52,111,525
Non-controlling interest		—		9,780,302
Total members' equity		73,921,733		61,891,827

Total Liabilities and Members' Equity	$	145,136,914	$	116,197,703

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

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Consolidated Statements of Operations


	Fiscal Year Ended October 31,
	2021		2020

Revenues	$	309,615,376	$	164,953,841

Cost of Goods Sold		282,847,152		176,031,094

Gross Profit (Loss)		26,768,224		(11,077,253)

Operating Expenses		8,127,172		8,580,559

Goodwill Impairment		—		1,372,473

Operating Income (Loss)		18,641,052		(21,030,285)

Other Income (Expense)
Other income, net		2,911,096		497,272
Interest income		5,456		45,991
Interest expense		(802,340)		(552,500)
Investment income		2,091,952		471,800
Patronage investment - correction of error		3,182,690		—
Total other income, net		7,388,854		462,563

Net Income (Loss)	$	26,029,906	$	(20,567,722)

Less: Net (Income) Loss Attributable to Non-controlling Interest		(2,372,825)		7,289,429

Net Income (Loss) Attributable to Granite Falls Energy, LLC	$	23,657,081	$	(13,278,293)

Weighted Average Units Outstanding - Basic and Diluted		30,606		30,606

Amounts attributable to Granite Falls Energy, LLC:

Net Income (Loss) Per Unit - Basic and Diluted	$	772.96	$	(433.85)

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

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Consolidated Statement of Changes in Members’ Equity


	Members' Equity
	attributable to		Non-controlling		Total Members'
	Granite Falls Energy, LLC		Interest		Equity


Balance - October 31, 2019	$	65,468,635	$	19,215,914	$	84,684,549

Acquisition of non-controlling interest		(78,817)		(2,146,183)		(2,225,000)
Net loss attributable to non-controlling interest		—		(7,289,429)		(7,289,429)
Net loss attributable to Granite Falls Energy, LLC		(13,278,293)		—		(13,278,293)

Balance - October 31, 2020	$	52,111,525	$	9,780,302	$	61,891,827

Acquisition of noncontrolling interest		(1,846,873)		(12,153,127)		(14,000,000)
Net income attributable to non-controlling interest		—		2,372,825		2,372,825
Net income attributable to Granite Falls Energy, LLC		23,657,081		—		23,657,081

Balance - October 31, 2021	$	73,921,733	$	—	$	73,921,733

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

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Consolidated Statements of Cash Flows


	Fiscal Year Ended October 31,
	2021		2020
Cash Flows from Operating Activities
Net income (loss)	$	26,029,906	$	(20,567,722)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operations:
Depreciation and amortization		7,396,463		9,310,775
Paycheck Protection Program loan forgiveness income		(2,604,185)		—
Change in fair value of derivative instruments		7,962,719		2,719,697
(Gain) loss on equity method investments		(2,091,952)		(471,800)
Patronage investment income - correction of error		(3,182,690)		—
Return on investment		282,902		—
Patronage investment redemption		272,793		—
(Gain) loss on disposal of assets		21,728		1,833,928
Goodwill impairment		—		1,372,473
Changes in operating assets and liabilities:
Commodity derivative instruments		(8,029,422)		(1,136,171)
Accounts receivable		(8,642,329)		4,041,827
Inventory		(6,958,026)		11,220
Prepaid expenses and other current assets		(158,220)		(2,436)
Accounts payable		9,241,560		(889,813)
Accrued expenses		279,443		85,088
Accrued railcar rehabilitation costs		45,924		45,924
Net Cash Provided By (Used In) Operating Activities		19,866,614		(3,647,010)

Cash Flows from Investing Activities
Payments for capital expenditures		(4,258,157)		(5,826,105)
Net Cash Used In Investing Activities		(4,258,157)		(5,826,105)

Cash Flows from Financing Activities
Checks drawn in excess of bank balance		(692,984)		692,984
Proceeds from Paycheck Protection Program loans		1,299,593		1,299,593
Proceeds from long-term debt		36,157,195		66,305,585
Payments on long-term debt		(21,015,602)		(56,819,216)
Acquisition of non-controlling interest		(14,000,000)		(2,000,000)
Net Cash Provided By Financing Activities		1,748,202		9,478,946

Net Increase in Cash, Cash Equivalents and Restricted Cash		17,356,659		5,831

Cash, Cash Equivalents and Restricted Cash - Beginning of Period		13,580,121		13,574,290

Cash, Cash Equivalents and Restricted Cash - End of Period	$	30,936,780	$	13,580,121

Reconciliation of Cash, Cash Equivalents and Restricted Cash
Cash and Cash Equivalents - Balance Sheet	$	29,295,657	$	11,423,427
Restricted Cash - Balance Sheet		1,641,123		2,156,694
Cash, Cash Equivalents and Restricted Cash	$	30,936,780	$	13,580,121

Supplemental Cash Flow Information
Cash paid during the period for:
Interest expense	$	799,834	$	463,861

Supplemental Disclosure of Non-Cash Investing and Financing Activities
Capital expenditures and construction in process included in accounts payable	$	50,922	$	2,140,625

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

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

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

Additionally, as of October 31, 2021, GFE has 100% ownership in Heron Lake BioEnergy, LLC (“HLBE”). HLBE is a Minnesota limited liability company currently producing fuel-grade ethanol, distillers’ grains, and crude corn oil near Heron Lake, Minnesota and sells these products, pursuant to marketing agreements, throughout the continental United States. HLBE’s plant has an approximate annual production capacity of 65 million gallons, but is currently permitted to produce up to 72.3 million gallons per year of undenatured ethanol on a twelve-month rolling sum basis. Additionally, HLBE, through a wholly owned subsidiary, operates a natural gas pipeline that provides natural gas to the HLBE’s ethanol production facility and other customers.

Principles of Consolidation

The accompanying consolidated financial statements consolidate the operating results and financial position of GFE, and its approximately 50.7% owned subsidiary, HLBE (through GFE’s 100% ownership of Project Viking, L.L.C.) through September 29, 2021, when the remaining non-controlling interest was acquired. Given GFE’s control over the operations of HLBE and its majority voting interest, GFE consolidates the financial statements of HLBE with its consolidated financial statements. The remaining approximately 49.3% ownership of HLBE is included in the consolidated financial statements as a non-controlling interest through September 2021 when the remaining non-controlling interest was acquired through the merger. HLBE is also the sole owner Agrinatural Gas, LLC (“Agrinatural”), through its wholly owned subsidiary, HLBE Pipeline Company, LLC. Given HLBE’s control over the operations of Agrinatural and its majority voting interest, HLBE consolidates the financial statements of Agrinatural with its consolidated financial statements, with the equity and earnings (loss) attributed to the remaining 27% non-controlling interest identified separately in the accompanying consolidated balance sheets and statements of operations through December 11, 2019 when the remaining non-controlling interest was acquired. All significant intercompany balances and transactions are eliminated in consolidation.

On September 29, 2021, GFE acquired the remaining non-controlling interest in HLBE for cash consideration of $14,000,000. As of October 31, 2021, GFE has 100% ownership of HLBE. When we use the terms “Granite Falls Energy” or “GFE” or similar words in this Annual Report on Form 10-K, unless the context otherwise requires, we are referring to Granite Falls Energy, LLC and our operations at our ethanol production facility located in Granite Falls, Minnesota. When we use the terms “Heron Lake BioEnergy”, “Heron Lake”, or “HLBE” or similar words, unless the context otherwise requires, we are referring to Heron Lake BioEnergy, LLC and its wholly owned subsidiary, HLBE Pipeline Company, LLC, through which, HLBE holds a 100% interest in Agrinatural Gas, LLC. When we use the terms the “Company,” “we,” “us,” “our” or similar words in this Annual Report on Form 10-K, unless the context otherwise requires, we are referring to Granite Falls Energy, LLC and our consolidated wholly- and majority-owned subsidiaries.

Fiscal Reporting Period

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

Accounting Estimates

Management uses estimates and assumptions in preparing these consolidated financial statements in accordance with generally accepted accounting principles in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The Company uses estimates and assumptions in accounting for the following significant matters, among others:

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

economic lives of property and equipment, valuation of commodity derivatives, inventory, and inventory purchase and sale commitments, evaluation of rail car rehabilitation costs, and the assumptions used in the impairment analysis of long-lived assets and evaluation of going concern. Actual results may differ from previously estimated amounts, and such differences may be material to our consolidated 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 is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. Our contracts primarily consist of agreements with marketing companies and other customers as described below. Our performance obligations consist of the delivery of ethanol, distillers' grains, corn oil, and natural gas to our customers. Our customers primarily consist of two distinct marketing companies as described below. The consideration we receive for these products reflects an amount that the Company expects to be entitled to in exchange for those products, based on current observable market prices at the Chicago Mercantile Exchange, generally, and adjusted for local market differentials. Our contracts have specific delivery modes, rail or truck, and dates. Revenue is recognized when the Company delivers the products to the mode of transportation specified in the contract, at the transaction price established in the contract, net of commissions, fees, and freight. We sell each of the products via different marketing channels as described below.

●

Ethanol. The Company sells its ethanol via a marketing agreement with Eco-Energy, Inc. Eco-Energy sells one hundred percent of the Company's ethanol production based on agreements with end users at prices agreed upon mutually among the end user, Eco-Energy and the Company. Our performance obligations consist of our obligation to deliver ethanol to our customers. Our customer contracts consist of orders received from the customer pursuant to a marketing agreement. The marketing agreement calls for control and title to pass to Eco-Energy once a rail car is released to the railroad or a truck is released from the Company's scales. Revenue is recognized then at the price in the agreement with the end user, net of commissions, freight, and fees.

●

Distillers grains. GFE and HLBE engage another third-party marketing company, RPMG, Inc. (“RPMG”) and Gavilon Ingredients, Inc. (“Gavilon”), respectively, to sell one hundred percent of the distillers grains it produces at the plant. RPMG and Gavilon take title and control once a rail car is released to the railroad or a truck is released from the Company's scales. Prices are agreed upon between RPMG, Gavilon and the Company. Our performance obligations consist of our obligation to deliver corn oil to our customers. Our customer contracts consist of orders received from the customer pursuant to a marketing agreement. Revenue is recognized net of commissions, freight and fees.

●

Distillers corn oil (corn oil). The Company sells one hundred percent of its corn oil production to RPMG, Inc. The process for selling corn oil is the same as our distillers’ grains. RPMG takes title and control once a rail car is released to the railroad or a truck is released from the Company's scales. Prices are agreed upon between RPMG and the Company. Our performance obligations consist of our obligation to deliver corn oil to our customers. Our customer contracts consist of orders received from the customer pursuant to a marketing agreement. Revenue is recognized net of commissions, freight and fees.

●

Natural gas. The Company sells natural gas through its wholly-owned subsidiary Agrinatural Gas, LLC. Agrinatural owns approximately 190 miles of natural gas pipeline and provides natural gas to HLBE’s ethanol plant and other commercial, agricultural and residential customers through a connection with the natural gas pipeline facilities of Northern Border Pipeline Company. Agrinatural’s revenues are generated through natural gas distribution fees and sales. HLBE is its largest customer by volume and revenue.

Cost of Goods Sold

The primary components of cost of goods sold for the production of ethanol and related co-products are corn, energy, raw materials, overhead, depreciation, rail car rehabilitation costs, and direct labor.

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Notes to Consolidated Financial Statements

Operating Expenses

The primary components of operating expenses are salaries and expenses for administrative employees, professional fees, board of governor expenses, loss on disposal of assets and property taxes.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company maintains its accounts at multiple financial institutions, of which one is a member of the Company. At times throughout the year, the Company’s cash balances may exceed amounts insured by the Federal Deposit Insurance Corporation. The Company does not believe it is exposed to any significant credit risk on its cash balances.

Restricted Cash

The Company is periodically required to maintain at its broker cash balances related to open commodity derivative instrument positions as discussed in Note 8.

Accounts Receivable

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

Accounts receivable are recorded at their estimated net realizable value. Accounts are considered past due if payment is not made on a timely basis in accordance with the Company’s credit terms. Accounts considered uncollectible are written off. The Company follows a policy of providing an allowance for doubtful accounts; however, based on historical experience, and its evaluation of the current status of receivables, the Company is of the belief that such accounts will be collectible in all material respects and thus an allowance was not necessary at October 31, 2021 or 2020. It is at least possible this estimate will change in the future.

Inventory

Inventory is stated at the lower of cost or net realizable value. Cost for all inventories is determined using the first in first out method. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventory consists of raw materials, work in process, finished goods, and supplies. Corn is the primary raw material along with other raw materials. Finished goods consist of ethanol, distillers’ grains, and corn oil.

Derivative Instruments

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

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

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

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Notes to Consolidated Financial Statements

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

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

The Company has adopted authoritative guidance related to “Derivatives and Hedging,” and has included the required enhanced quantitative and qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses from derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. See further discussion in Note 8.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided over the following estimated useful lives by use of the straight-line method.


Asset Description	Years
Land improvements	5-20	years
Railroad improvements	5-20	years
Process equipment and tanks	5-40	years
Administration building	10-40	years
Office equipment	3-10	years
Rolling stock	5-10	years

Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized. Construction in progress expenditures will be depreciated using the straight-line method over their estimated useful lives once the assets are placed into service.

Long-Lived Assets

Long-lived assets, such as property and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When determining impairment losses, a long-lived asset should be grouped with other assets or liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets or liabilities. If circumstances require a long-lived asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including, but not limited to, discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No impairment expense was recorded during fiscal 2021 and 2020.

Investments

GFE owns 1,600 capital units of Ringneck Energy & Feed, LLC (“Ringneck”) at a price of $5,000 per unit for a total of $8,000,000. Ringneck is a South Dakota limited liability company that constructed an 80 million gallon per year ethanol manufacturing plant outside of Onida, South Dakota in Sully County. GFE’s investment is sufficient to secure the Company

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Notes to Consolidated Financial Statements

the right to appoint one director to the board of directors of Ringneck. GFE has appointed Jeffrey Oestmann, its CEO, to serve as its appointed director.

On June 29, 2018, GFE executed a subscription agreement for investment in Harvestone Group, LLC (“Harvestone”), a Delaware limited liability company, and a Joinder to the Operating Agreement of Harvestone. In connection with the execution of the subscription agreement and joinder, GFE made a capital contribution of $2,000,000 in exchange for twenty (20) preferred membership units. Harvestone is an ethanol marketing, logistics, and trading company headquartered in Franklin, Tennessee. Harvestone is owned by several other ethanol producers and other private investors, and its primary business is marketing and trading for member and non-member ethanol producers. The marketing and trading commenced in January 2019.

On November 15, 2021, Harvestone redeemed GFE’s 20 units for $3,000,000. As a result of the Harvestone redemption, GFE no longer owns any Harvestone units and has ceased to be a member of Harvestone. As a result of the ongoing negotiations as of fiscal year end, the Harvestone investment was impaired to $3,000,000, and the impairment of approximately $300,000 was recorded within investment income on the consolidated statement of operations, at October 31, 2021. The Company received and recorded the $3,000,000 redemption in November 2021.

The investments are accounted for by the equity method, under which the Company’s share of the net income of the investee is recognized as income in the Company’s Consolidated Statements of Operations and added to the investment account, and distributions received from the affiliates are treated as a reduction of the investment.

Summarized financial information of Ringneck, which was a significant investment as of October 31, 2020, is as follows:



		2020
Current Assets	$	19,510,000
Total Assets		149,434,000
Current Liabilities		16,206,000
Total Liabilities		69,439,000
Members' Equity		79,995,000


		12 Months Ended October 31, 2020
Revenue	$	114,768,000
Gross Profit		6,325,000
Operating Profit		7,758,000
Net Profit		424,000

Patronage Investment

Patronage investment consists of the patron equities of GFE’s electricity supplier. Non-cash patronage dividends are recognized when declared/communicated to GFE. Cash redemptions are recorded as a reduction of the investment. This investment is carried at the lower of cost or fair value. See Note 2 - PATRONAGE INVESTMENT AND CORRECTION OF ERROR.

Fair Value of Financial Instruments

The Company’s accounting for fair value measurements of assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring or nonrecurring basis adhere to the Financial Accounting Standards Board (“FASB”) fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The Company has adopted guidance for fair value measurement related to nonfinancial items that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

●

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

●

Level 2 inputs include:

Quoted prices in active markets for similar assets or liabilities.

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

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

●

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

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

Except for those assets and liabilities which are required by authoritative accounting guidance to be recorded at fair value, the Company has elected not to record any other assets or liabilities at fair value. Except for the impairment of the Harvestone investment to fair value, no events occurred during the fiscal years ended October 31, 2021 or 2020 that required adjustment to the recognized balances of assets or liabilities, which are recorded at fair value on a nonrecurring basis.

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates fair value due to the short maturity of these instruments. The Company obtains fair value measurements from an independent pricing service for corn derivative contracts. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the Chicago Board of Trade and New York Mercantile Exchange markets. The fair value of the long-term debt is estimated based on anticipated interest rates which management believes would currently be available to the Company for similar issues of debt, taking into account the current credit risk of the Company and other market factors. The Company believes the carrying value of the debt instruments approximate fair value.

Income Taxes

The Company is treated as a partnership for federal and state income tax purposes, and generally does not incur income taxes. Instead, its earnings and losses are included in the income tax returns of its members. Therefore, no provision or liability for federal or state income taxes has been included in these financial statements. Differences exist between financial statement basis of assets and tax basis of assets and financial statement basis of liabilities and tax basis of liabilities. In addition, the Company uses the alternative depreciation system for tax depreciation instead of the straight-line method that is used for book depreciation, which also causes temporary differences. The Company’s tax year end is December 31.

The Company had no significant uncertain tax positions as of October 31, 2021 or 2020 that would require disclosure, primarily due to the partnership tax status. The Company recognizes and measures tax benefits when realization of the benefits is uncertain under a two-step approach. The first step is to determine whether the benefit meets the more-likely-than-not condition for recognition and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%. Primarily due to the Company’s tax status as a partnership, the adoption of this guidance had no material impact on the Company’s financial condition or results of operations.

The Company files income tax returns in the U.S. federal and Minnesota state jurisdictions. For years before 2018, the Company is no longer subject to U.S. Federal or state income tax examinations.

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Net Income (Loss) per Unit

Basic net income (loss) per unit is computed by dividing net income (loss) by the weighted average number of members’ units outstanding during the period. Diluted net income per unit is computed by dividing net income by the weighted average number of members’ units and members’ unit equivalents outstanding during the period. There were no member unit equivalents outstanding during the periods presented; accordingly, for all periods presented, the calculations of the Company’s basic and diluted net income per unit are the same.

Environmental Liabilities

The Company’s operations are subject to environmental laws and regulations adopted by various governmental entities in the jurisdiction in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its location. Accordingly, the Company has adopted policies, practices, and procedures in the areas of pollution control, occupational health, and the production, handling, storage, and use of hazardous materials to prevent material environmental or other damage, and to limit the financial liability, which could result from such events. Environmental liabilities are recorded when the liability is probable and the costs can be reasonably estimated. No expense has been recorded for the fiscal years ended October 31, 2021 or 2020.

Reportable Operating Segments

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

2. PATRONAGE INVESTMENT AND CORRECTION OF ERROR

During the fourth quarter of fiscal year 2021, management became aware of an investment related to patronage in the Company’s electricity supplier that had not previously been recognized in the consolidated financial statements. The Company recognized the investment during the fourth quarter of fiscal year 2021 whereby approximately $3.2 million of investment income was recognized as a component of other income on the consolidated statement of operations for the fiscal year ended October 31, 2021. Of the approximate $3.2 million of investment income recognized during 2021, approximately $0.4 million related to income earned during fiscal year 2021, approximately $0.4 million related to investment income earned during fiscal year 2020, and the remaining $2.4 million related to fiscal years prior to 2020. The investment balance as of October 31, 2021 was approximately $2.9 million.

3. RISKS AND UNCERTAINTIES

The Company has certain risks and uncertainties that it experiences during volatile market conditions. These volatilities can have a severe impact on operations. The Company’s revenues are derived primarily from the sale and distribution of

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

ethanol, distillers’ grains and corn oil to customers primarily located in the U.S. Corn for the production process is supplied to our plants primarily from local agricultural producers and from purchases on the open market. Ethanol sales typically average 75-90% of total revenues and corn costs typically average 65-85% of cost of goods sold.

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

4. REVENUE

Revenue by Source

All revenues from contracts with customers under ASC Topic 606 are recognized at a point in time. The following table disaggregates revenue by major source for the fiscal year ended October 31:


	Fiscal Year Ended October 31, 2021
	Total
Ethanol	$	240,874,504
Distillers’ Grains		49,185,948
Corn Oil		17,147,981
Other		1,221,727
Natural Gas Pipeline		1,185,216
Total Revenues	$	309,615,376

	Fiscal Year Ended October 31, 2020
	Total
Ethanol	$	126,605,211
Distillers’ Grains		29,672,577
Corn Oil		6,590,481
Other		678,226
Natural Gas Pipeline		1,407,346
Total Revenues	$	164,953,841

Payment Terms

The Company has contractual payment terms with each respective marketer that sells ethanol, distillers’ grains and corn oil. These terms are 10 calendar days after the transfer of control date. The Company has contractual payment terms with the natural gas customers of 20 days.

Shipping and Handling Costs

Shipping and handling costs related to contracts with customers for sale of goods are accounted for as a fulfillment activity and are included in cost of goods sold. Accordingly, amounts billed to customers for such costs are included as a component of revenue.

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

5. FAIR VALUE

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

The following table provides information on those derivative assets and liabilities measured at fair value on a recurring basis at October 31, 2021:


					Fair Value Measurement Using
					Quoted Prices		Significant Other		Significant
	Carrying Amount in				in Active Markets		Observable Inputs		Unobservable Inputs
Financial Assets:	Consolidated Balance Sheet		Fair Value		(Level 1)		(Level 2)		(Level 3)
Commodity Derivative instruments - Corn	$	39,067	$	39,067	$	39,067	$	—	$	—

Financial Liabilities:
Commodity Derivative instruments - Corn	$	732,801	$	732,801	$	732,801	$	—	$	—
Accounts Payable (1)	$	923,550	$	923,550	$	—	$	923,550	$	—

The following table provides information on those derivative assets measured at fair value on a recurring basis at October 31, 2020:


					Fair Value Measurement Using
					Quoted Prices		Significant Other		Significant
	Carrying Amount in				in Active Markets		Observable Inputs		Unobservable Inputs
	Consolidated Balance Sheet		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial Assets:
Commodity Derivative Instruments - Ethanol	$	56,050	$	56,050	$	56,050	$	—	$	—

Financial Liabilities:
Commodity Derivative Instruments - Corn	$	816,478	$	816,478	$	816,478	$	—	$	—
Accounts Payable (1)	$	772,795	$	772,795	$		$	772,795

(1)

Accounts payable is generally stated at historical amounts with the exception of amounts in this table related to certain delivered inventory for which the payable fluctuates based on the changes in commodity prices. These payables are hybrid financial instruments for which the Company has elected the fair value option.

The Company determines the fair value of commodity derivative instruments by obtaining fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the Chicago Board of Trade market and New York Mercantile Exchange.

6. CONCENTRATIONS

Granite Falls Energy

GFE sold all of the ethanol, distillers’ grains, and corn oil produced at its plant to two customers under marketing agreements during the fiscal years ended October 31, 2021 and 2020.

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The percentage of GFE’s total revenues attributable to each of its two major customers for the fiscal years ended October 31, 2021 and 2020 were as follows:


	October 31, 2021	October 31, 2020
Eco-Energy, Inc. - Ethanol	76.7%	77.0%
RPMG, Inc. - Distillers' Grains & Corn Oil	23.3%	23.0%

The percentage of GFE’s total accounts receivable attributable to each of its two major customers at October 31, 2021 and 2020 were as follows:


	October 31, 2021	October 31, 2020
Eco-Energy, Inc. - Ethanol	82.9%	72.1%
RPMG, Inc. - Distillers' Grains & Corn Oil	15.0%	24.6%

Heron Lake BioEnergy

HLBE sold all of the ethanol, distillers’ grains, and corn oil produced at its plant to three customers under marketing agreements during the fiscal years ended October 31, 2021 and 2020.

The percentage of HLBE’s total revenues attributable to each of HLBE’s two major customers for the fiscal years ended October 31, 2021 and 2020 were as follows:


	October 31, 2021	October 31, 2020
Eco-Energy, Inc. - Ethanol	78.7%	76.7%
Gavilon Ingredients, LLC - Distillers' Grains	14.3%	15.9%

The percentage of HLBE’s total accounts receivable attributable to each of HLBE’s two major customers at October 31, 2021 and 2020 were as follows:


	October 31, 2021	October 31, 2020
Eco-Energy, Inc. - Ethanol	66.5%	54.8%
Gavilon Ingredients, LLC - Distillers' Grains	22.2%	20.0%

7. INVENTORY

Inventory consists of the following at October 31:


	October 31, 2021		October 31, 2020
Raw materials	$	10,742,480	$	4,893,502
Supplies		3,322,639		3,070,458
Work in process		2,023,966		1,480,871
Finished goods		4,660,746		4,346,974
Totals	$	20,749,831	$	13,791,805

The Company performs a lower of cost or net realizable value analysis on inventory to determine if the market values of certain inventories are less than their carrying value, which is attributable primarily to decreases in market prices of corn and ethanol. Based on the lower of cost or net realizable value analysis, the Company recorded a loss on ethanol inventories, as a component of cost of goods sold, of approximately $383,000 for the fiscal year ended October 31, 2020. There were no recorded losses on inventory for the fiscal year ended October 31, 2021.

8. DERIVATIVE INSTRUMENTS

The Company enters into corn, ethanol, and natural gas derivatives in order to protect cash flows from fluctuations caused by volatility in commodity prices for periods up to 24 months. These derivatives are put in place to protect gross profit margins from potentially adverse effects of market and price volatility on ethanol sales and corn purchase commitments

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GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

where the prices are set at a future date. Although these derivative instruments serve the Company’s purpose as an economic hedge, they are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change.

As of October 31, 2021, the total notional amount of GFE’s outstanding corn derivative instruments was approximately 6,385,000 bushels, comprised of long corn futures positions on 2,075,000 bushels that were entered into to hedge forecasted ethanol sales through March 2022, and short corn futures positions on 4,310,000 bushels that were entered into to hedge its forward corn purchase contracts through December 2022. Additionally, there are corn options positions of 140,000 bushels through May 2022. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

As of October 31, 2021, GFE had approximately $1,365,000 of cash collateral (restricted cash) related to derivatives held by a broker.

As of October 31, 2021, the total notional amount of HLBE’s outstanding corn derivative instruments was approximately 2,790,000 bushels, comprised of long corn futures positions on 1,105,000 bushels that were entered into to hedge forecasted ethanol sales through December 2021, and short corn futures positions on 1,685,000 bushels that were entered into to hedge its forward corn purchase contracts through December 2022. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

As of October 31, 2021, HLBE had approximately $276,000 in cash collateral (restricted cash) related to derivatives held by a broker.

The following tables provide details regarding the Company’s derivative instruments at October 31, 2021, none of which were designated as hedging instruments:

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