UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

	For the quarterly period ended April 30, ~~2012~~2013

	OR

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

	For the transition period from to .

	COMMISSION FILE NUMBER 000-51277

GRANITE FALLS ENERGY, LLC

(Exact name of registrant as specified in its charter)



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

15045 Highway 23 SE, Granite Falls, MN 56241-0216
(Address of principal executive offices)

(320) 564-3100
(Registrant's telephone number, including area code)

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

x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes o No

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



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

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

o Yes x No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of June 14, ~~2012~~2013 there were 30,606 membership units outstanding.

INDEX

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

GRANITE FALLS ENERGY, LLC

Condensed Balance Sheets


ASSETS	April 30, 2012		October 31, 2011		April 30, 2013		October 31, 2012
	(Unaudited)				(Unaudited)
Current Assets
Cash	$	9,352,443	$	13,064,560	$	1,386,003	$	685,828
Restricted cash	600,000		1,503,000		474,000		494,000
Accounts receivable	4,239,714		3,777,547		6,152,560		7,356,534
Inventory	5,047,702		8,615,411		12,790,395		12,013,169
Commodity derivative instruments	—		404,050
Prepaid expenses and other current assets	255,101		177,793		262,314		165,519
Total current assets	19,494,960		27,542,361		21,065,272		20,715,050

Property, Plant and Equipment
Land and improvements	7,081,707		3,627,973		6,552,967		7,095,172
Railroad improvements	4,121,148		4,121,148		7,961,096		4,121,148
Process equipment and tanks	64,087,173		63,592,688		64,678,860		64,678,860
Administration building	279,734		279,734		279,734		279,734
Office equipment	154,072		154,072		244,160		154,072
Rolling stock	1,250,056		642,908		1,305,395		1,305,395
Construction in progress	409,030		366,979		1,636,310		3,831,263
	77,382,920		72,785,502		82,658,522		81,465,644
Less accumulated depreciation	38,986,619		36,886,541		43,365,199		41,047,562
Net property, plant and equipment	38,396,301		35,898,961		39,293,323		40,418,082


Total Assets	$	57,891,261	$	63,441,322	$	60,358,595	$	61,133,132

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

GRANITE FALLS ENERGY, LLC

Condensed Balance Sheets


LIABILITIES AND MEMBERS' EQUITY	April 30, 2012		October 31, 2011		April 30, 2013		October 31, 2012
	(Unaudited)				(Unaudited)
Current Liabilities
Current portion of long-term debt	$	112,525	$	—	$	116,953	$	114,718
Accounts payable	1,359,760		1,591,036		1,432,609		3,527,840
Corn payable to FCE - related party	2,785,992		2,516,923
Corn payable to FCE					4,496,144		1,995,997
Commodity derivative instruments					47,813		45,563
Accrued liabilities	338,682		375,425		602,592		318,819
Distribution payable	—		9,196,800
Total current liabilities	4,596,959		13,680,184		6,696,111		6,002,937

Long-Term Debt, less current portion	440,830		—		553,789		5,274,870

Commitments and Contingencies

Members' Equity, 30,606 and 30,656 units authorized, issued and outstanding at April 30, 2012 and October 31, 2011, respectively	52,853,472		49,761,138
Members' Equity, 30,606 units authorized, issued and outstanding					53,108,695		49,855,325

Total Liabilities and Members’ Equity	$	57,891,261	$	63,441,322	$	60,358,595	$	61,133,132

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

GRANITE FALLS ENERGY, LLC

Condensed Statements of Operations


	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended			Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	April 30, 2012			April 30, 2011			April 30, 2012			April 30, 2011			April 30, 2013			April 30, 2012			April 30, 2013			April 30, 2012
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Revenues	$	39,025,122		$	34,537,750		$	82,770,898		$	65,254,096		$	48,020,602		$	39,025,122		$	95,137,724		$	82,770,898

Cost of Goods Sold - primarily related party	38,367,706			30,833,215			78,425,531			58,015,828
Cost of Goods Sold													44,390,630			38,367,706			90,675,608			78,425,531

Gross Profit	657,416			3,704,535			4,345,367			7,238,268			3,629,972			657,416			4,462,116			4,345,367

Operating Expenses	590,481			458,806			1,254,217			1,016,927			582,965			590,481			1,145,660			1,254,217

Operating Income	66,935			3,245,729			3,091,150			6,221,341			3,047,007			66,935			3,316,456			3,091,150

Other Income (Expense)
Other income, net	51,004			6,890			65,548			7,340			23,078			51,004			24,225			65,548
Interest income	4,052			18,008			15,281			59,001			41			4,052			95			15,281
Interest expense	(5,525		)	(517		)	(13,225		)	(5,976		)	(38,183		)	(5,525		)	(87,406		)	(13,225		)
Total other income, net	49,531			24,381			67,604			60,365
Total other income (expense), net													(15,064		)	49,531			(63,086		)	67,604

Net Income	$	116,466		$	3,270,110		$	3,158,754		$	6,281,706		$	3,031,943		$	116,466		$	3,253,370		$	3,158,754

Weighted Average Units Outstanding - Basic and Diluted	30,606			30,656			30,623			30,656			30,606			30,606			30,606			30,623

Net Income Per Unit - Basic and Diluted	$	3.81		$	106.67		$	103.15		$	204.91		$	99.06		$	3.81		$	106.30		$	103.15

Distributions Per Unit	$	—		$	—		$	300.00		$	300.00
Distributions Per Unit - Basic and Diluted													$	—		$	—		$	—		$	300.00

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

GRANITE FALLS ENERGY, LLC

Condensed Statements of Cash Flows


	Six Months Ended			Six Months Ended			Six Months Ended			Six Months Ended
	April 30, 2012			April 30, 2011			April 30, 2013			April 30, 2012
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Cash Flows from Operating Activities
Net income	$	3,158,754		$	6,281,706		$	3,253,370		$	3,158,754
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization	2,100,078			1,912,414
Depreciation							2,317,637			2,100,078
Change in fair value of derivative instruments	1,301,250			(2,243,876		)	(26,582		)	1,301,250
Changes in assets and liabilities:
Restricted cash	903,000			(44,031		)	20,000			903,000
Derivative instruments	(897,200		)	1,776,066
Derivative Instruments							28,832			(897,200		)
Accounts receivable	(462,167		)	1,236,456			1,203,974			(462,167		)
Inventory	3,567,709			(2,879,109		)	(777,226		)	3,567,709
Prepaid expenses and other current assets	(77,308		)	(81,745		)	(96,795		)	(77,308		)
Accounts payable	37,793			344,177			404,916			37,793
Accrued liabilities	(103,163		)	83,272			283,773			(103,164		)
Net Cash Provided by Operating Activities	9,528,746			6,385,330			6,611,899			9,528,745

Cash Flows from Investing Activities
Proceeds from maturity of short-term investments	—			3,500,000
Proceeds from sale of land							540,000			—
Payments for capital expenditures	(135,680		)	(107,423		)	(1,732,878		)	(8,174		)
Payments for land acquisition	(3,453,734		)	—			—			(3,990,270		)
Payments for construction in process	(409,030		)	(2,505,789		)
Net Cash Provided by (Used in) Investing Activities	(3,998,444		)	886,788
Net Cash Used in Investing Activities							(1,192,878		)	(3,998,444		)

Cash Flows from Financing Activities
Payments on long-term debt	(45,619		)	(30,490		)
Payments on long-term debt, net							(4,718,846		)	(45,619		)
Member distributions paid	(9,196,800		)	(9,196,800		)	—			(9,196,800		)
Net Cash Used in Financing Activities	(9,242,419		)	(9,227,290		)	(4,718,846		)	(9,242,419		)

Net Decrease in Cash	(3,712,117		)	(1,955,172		)
Net Increase (Decrease) in Cash							700,175			(3,712,118		)

Cash - Beginning of Period	13,064,560			10,664,225			685,828			13,064,560

Cash - End of Period	$	9,352,443		$	8,709,053		$	1,386,003		$	9,352,442

Supplemental Cash Flow Information
Cash paid during the period for:
Interest expense	$	13,225		$	5,983		$	87,406		$	13,225

Supplemental Disclosure of Noncash Investing, Operating and Financing Activities

Supplemental Disclosure of Non-Cash Investing and Financing Activities
Transfer of construction in process to fixed assets							$	2,194,953		$	366,979
Capital expenditures financed with long-term debt	$	598,974		$	—		$	—		$	598,974

Transfer of construction in process to fixed assets	$	366,979		$	2,447,516

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

GRANITE FALLS ENERGY, LLC

Notes to UNAUDITED Condensed Financial Statements

April 30, ~~2012~~2013

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed balance sheet as of October 31, ~~2011~~2012 is derived from audited financial statements. The unaudited interim condensed financial statements of Granite Falls Energy, LLC (the “Company”) reflect all adjustments consisting only of normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of financial position and results of operations and cash flows. The results for the three and six month periods ended April 30, ~~2012~~2013 are not necessarily indicative of the results that may be expected for a full fiscal year. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) are condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), although the Company believes that the disclosures made are adequate to make the information not misleading. These condensed financial statements should be read in conjunction with the Company's audited financial statements and notes thereto included in its annual report for the year ended October 31, ~~2011~~2012 filed on Form 10-K with the SEC.

Nature of Business

Granite Falls Energy, LLC (“GFE” or the “Company”) 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 United States and on the international market. GFE's plant has an approximate annual production capacity of 60 million ~~gallons. However, until recently the plant was only~~ gallons, but is currently permitted to produce ~~49.9~~up to 70 million gallons of undenatured ethanol on a twelve month rolling sum basis. During the second quarter of fiscal 2011, the Company obtained an amendment to its environmental permits allowing the Company to produce up to 70 million gallons of undenatured ethanol on a twelve month rolling sum basis.

Accounting Estimates

Management uses estimates and assumptions in preparing these condensed 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: economic lives of property, plant, and equipment, valuation of commodity derivatives and inventory, and the assumptions used in the impairment analysis of long-lived assets. Actual results may differ from previously estimated amounts, and such differences may be material to our condensed financial statements. The Company periodically reviews estimates and assumptions, and the effects of revisions are reflected in the period in which the revision is made.

Revenue Recognition

The Company generally sells ethanol and related products pursuant to marketing agreements. Revenues from the production of ethanol and the related products are recorded when the customer has taken title and assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured. Ethanol and related products are generally shipped free on board (FOB) shipping point. The Company believes there are no ethanol sales, during any given month, which should be considered contingent and recorded as deferred revenue.

In accordance with the Company's agreements for the marketing and sale of ethanol and related products, marketing fees and commissions due to the marketers are deducted from the gross sales price as earned. These fees and commissions are recorded net of revenues, as they do not provide an identifiable benefit that is sufficiently separable from the sale of ethanol and related products. Shipping costs ~~incurred~~paid by the Company to the marketer in the sale of ethanol are not specifically identifiable and, as a result, are recorded based on the net selling price reported to the Company from the marketer. Shipping costs incurred by the Company in the sale of distillers grains and corn oil are included in cost of goods sold.

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 ~~sheet~~sheets at fair value.

GRANITE FALLS ENERGY, LLC

Notes to UNAUDITED Condensed Financial Statements

April 30, ~~2012~~2013

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 ~~cost of goods sold.~~earnings.

Additionally, the Company is required to evaluate its contracts to determine whether the contracts are derivatives. Certain contracts that literally meet the definition of a derivative may be exempted as “normal purchases or normal sales”. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that meet the requirements of normal purchases or sales are documented as normal and exempted from accounting and reporting requirements, and therefore, are not marked to market in our condensed 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 4.

2. 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 from the sale and distribution of ethanol, distillers grains, and corn oil to customers primarily located in the ~~U.S.~~United States. Corn for the production process is supplied to our plant primarily from local agricultural producers and from purchases on the open market. Ethanol sales typically average ~~80-85%~~75-85% of total revenues and corn costs typically average ~~70-80%~~75-85% of cost of goods sold.

The Company's operating and financial performance is largely driven by the prices at which they sell 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, and 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. Our 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 our risk management program used to protect against the price volatility of these commodities.

3. INVENTORY

Inventories consist of the following:


					April 30, 2013		October 31, 2012
	April 30, 2012		October 31, 2011		(Unaudited)
Raw materials	$	1,790,385	$	5,323,615	$	8,817,361	$	8,977,820
Spare parts	648,555		584,011		671,881		682,896
Work in process	1,101,054		1,150,239		1,174,317		1,183,188
Finished goods	1,507,708		1,557,546		2,126,836		1,169,265
Totals	$	5,047,702	$	8,615,411	$	12,790,395	$	12,013,169

GRANITE FALLS ENERGY, LLC

Notes to UNAUDITED Condensed Financial Statements

April 30, 2013

The Company performs a lower of cost or market analysis on inventory to determine if the market values of certain inventories are less

~~GRANITE FALLS ENERGY, LLC~~

~~Notes to UNAUDITED Condensed Financial Statements~~

~~April 30, 2012~~

than their carrying value, which is attributable primarily to decreases in market prices of corn and ethanol. Based on the lower of cost or market analysis, the Company did not record a lower of cost or market ~~change~~adjustment on certain inventories for the ~~quarter~~three or six month periods ended April 30, ~~2012 or 2011.~~2013 and 2012.

4. DERIVATIVE INSTRUMENTS

As of April 30, 2013, the total notional amount of the Company's outstanding corn derivative instruments was approximately 1,185,000 bushels that were entered into to hedge forecasted corn purchases through July 2013. There may be offsetting positions that are shown on a net basis that could lower the notional amount of positions outstanding as disclosed above.

The following tables provide details regarding the Company's derivative instruments at April 30, 2013, none of which are designated as hedging instruments:



	Balance Sheet location	Assets		Liabilities

Corn contracts	Commodity Derivative instruments	$	—	$	(47,813	)

Totals		$	—	$	(47,813	)

In addition, as of April 30, 2013 the Company maintained $474,000 of restricted cash related to margin requirements for the Company's commodity derivative instrument positions.

As of October 31, 2012, the ~~Company did not have any~~total notional amount of the Company's outstanding corn derivative ~~instruments.~~instruments was approximately 1,235,000 bushels that were entered into to hedge forecasted corn purchases through March 2013. There may be offsetting positions that are shown on a net basis that could lower the notional amount of positions outstanding as disclosed above.

The following tables provide details regarding the Company's derivative instruments at October 31, ~~2011,~~2012, none of which are designated as hedging instruments:


	Balance Sheet location	Assets		Liabilities		Balance Sheet location	Assets		Liabilities

Corn contracts	Commodity Derivative instruments	$	404,050	$	—	Commodity Derivative instruments	$	—	$	(45,563	)

Totals		$	404,050	$	—		$	—	$	(45,563	)

In addition, as of October 31, ~~2011~~2012 the Company maintained ~~$903,000~~$494,000 of restricted cash related to margin requirements for the Company's commodity derivative instrument positions.

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

Statement of Operations location
Three Months Ended
April 30,
2012 2011

Ethanol contracts Revenue — (10,546 )
Corn contracts Cost of Goods Sold (30,682 ) 1,369,782
Natural gas contracts Cost of Goods Sold — 14,985

Total gain (loss) $ (30,682 ) $ 1,374,221



	Statement of Operations location	Three Months Ended April 30,
	Statement of Operations location	2013			2012

Corn contracts	Cost of Goods Sold	$	(248,955	)	$	(30,682	)

Total Gain (Loss)		$	(248,955	)	$	(30,682	)

Statement of Operations location
Six Months Ended
April 30,
2012 2011

Ethanol contracts Revenue — (10,546 )
Corn contracts Cost of Goods Sold (1,301,250 ) 2,245,607
Natural gas contracts Cost of Goods Sold — 8,815

Total gain (loss) $ (1,301,250 ) $ 2,243,876

~~5. REVOLVING LINE OF CREDIT~~

The Company has a Loan Agreement with a bank. Under the Loan Agreement, the Company has a revolving line of credit with a maximum of $6,000,000 available through March 2013 and is secured by substantially all of the Company's assets. The interest rate on the revolving line of credit is at 0.25 percentage points above the prime rate as reported by the Wall Street Journal, with a minimum rate of 4.0%. The interest rate on the revolving line of credit at April 30, 2012 was 4.0%, the minimum rate under the terms of the agreement. At April 30, 2012, the Company had no outstanding balance on this line of credit. The Company is required

GRANITE FALLS ENERGY, LLC

Notes to UNAUDITED Condensed Financial Statements

April 30, ~~2012~~2013

~~to maintain~~



	Statement of Operations location	Six Months Ended April 30,
	Statement of Operations location	2013		2012

Corn contracts	Cost of Goods Sold	$	26,582	$	(1,301,250	)

Total Gain (Loss)		$	26,582	$	(1,301,250	)

5. REVOLVING LINE OF CREDIT AND LONG-TERM DEBT

The Company has two credit facilities with a ~~savings account balance with~~lender. The first is a seasonal revolving operating loan facility in the ~~Bank totaling 10%~~amount of $6,000,000. The second is a revolving term loan facility in the ~~maximum~~amount of $8,000,000. However, the amount available for borrowing under this facility reduces by $1,000,000 every six months, beginning September 1, 2013, with final payment due March 1, 2017.

The interest rates for both facilities are based on the ~~line of credit to serve as collateral~~bank's "One Month LIBOR Index Rate," plus 265 and 290 basis points on ~~this line of credit. At both~~the seasonal and revolving term commitments, respectively. Both facilities are available through March 2017. The outstanding balance on the revolving term loan on April 30, ~~2012~~2013 and October 31, ~~2011, this amount totaled $600,000~~2012 was $229,912 and ~~is included in restricted cash.~~$4,891,952, respectively, and the interest rates were 3.10% and 3.12% as of those dates, respectively. The Company currently has no outstanding balance on the seasonal revolving operating loan facility.

The credit facilities require the Company to comply with certain financial covenants. As of April 30, 2013 and October 31, 2012, the Company was in compliance with these financial covenants and expects to be in compliance through fiscal 2013. The credit facilities are secured by substantially all assets of the Company.

At April 30, 2013, the Company also ~~has~~had letters of credit totaling ~~$386,928~~$337,928 with the bank as part of a credit requirement of Northern Natural Gas. These letters of credit reduce the amount available under the seasonal revolving ~~line of credit~~operating loan to approximately ~~$5,613,000.~~

~~6. LONG-TERM DEBT~~$5,662,000.

Long-term debt consists of the following:


	April 30, 2012			October 31, 2011		April 30, 2013			October 31, 2012
Capital One Equipment Leasing/Finance:
Shuttlewagon Railcar Mover (5 year term at 3.875%)	$	553,355		$	—	$	440,830		$	497,636

Revolving Term Loan						229,912			4,891,952
Total Debt						670,742			5,389,588
Less: Current Maturities	(112,525		)	—		(116,953		)	(114,718		)

Total Long-Term Debt	$	440,830		$	—	$	553,789		$	5,274,870

The estimated maturities of long-term debt at April 30, 2013 are as follows:



May 1, 2013 to April 30, 2014		$	116,953
May 1, 2014 to April 30, 2015	351,468
May 1, 2015 to April 30, 2016	126,340
May 1, 2016 to April 30, 2017	75,981
Total debt		$	670,742

7.6. LEASES

The Company has a lease agreement with Trinity Industries Leasing Company (“Trinity”) for 75 hopper cars to assist with the transport of distiller's grains by rail through ~~November 2015.~~April 2018. The Company will pay Trinity ~~$620~~$620 per month plus ~~$0.03~~$0.03 per mile traveled in excess of 36,000 miles per year. Rent expense for these leases was approximately ~~$137,355~~$139,000 and ~~$137,640~~$137,000 for the three month

GRANITE FALLS ENERGY, LLC

Notes to UNAUDITED Condensed Financial Statements

April 30, 2013

periods ended April 30, ~~2012~~2013 and ~~2011,~~2012, respectively. Rent expense for these leases was approximately $278,000 and $272,000 for the six month periods ended April 30, 2013 and 2012, ~~and 2011, respectively, was approximately $272,000 and $278,000.~~respectively.

~~At April 30, 2012, the~~The Company ~~had~~has lease agreements with three leasing companies for 177 rail car leases for the transportation of the Company's ethanol with various maturity dates through October 2017. The rail car lease payments are due monthly in the aggregate amount of approximately ~~$107,000.~~$107,000. Rent expense for these leases was approximately ~~$317,835~~$364,000 and ~~$275,606~~$318,000 for the three month periods ended April 30, ~~2012~~2013 and ~~2011,~~2012, respectively. Rent expense for these leases was approximately $709,000 and $636,000 for the six month periods ended April 30, 2013 and 2012, ~~and 2011, respectively, was approximately $636,000 and $540,000.~~respectively.

8.7. MEMBERS' EQUITY

The Company has one class of membership units. The units have no par value and have identical rights, obligations and privileges. Income and losses are allocated to all members based upon their respective percentage of units held. As of April 30, ~~2012~~2013 and October 31, ~~2011,~~2012, the Company had 30,606 ~~and 30,656 respectively,~~ membership units issued and outstanding.

~~In October 2011, the Board of Governors declared a cash distribution of $300 per unit or $9,196,800 for unit holders of record as of October 27, 2011. The distribution was paid on December 15, 2011.~~

~~In December 2011, the Board of Governors exercised its discretion to redeem 50 membership units totaling $66,250 from an investor due to a unique restriction on transfers situation.~~

~~GRANITE FALLS ENERGY, LLC~~

~~Notes to UNAUDITED Condensed Financial Statements~~

~~April 30, 2012~~

9.8. FAIR VALUE

The ~~Company did not have any financial assets or~~following table provides information on those derivative liabilities measured at fair value on a recurring basis at April 30, ~~2012.~~2013:



	Carrying Amount in Balance Sheet April 30, 2013			Fair Value April 30, 2013			Fair Value Measurement Using
	Carrying Amount in Balance Sheet April 30, 2013			Fair Value April 30, 2013			Quoted Prices in Active Markets (Level 1)			Significant Other Observable Inputs (Level 2)		Significant unobservable inputs (Level 3)
Financial Liabilities:
Commodity derivative instruments	$	(47,813	)	$	(47,813	)	$	(47,813	)	$	—	$	—

The following table provides information on those ~~assets~~derivative liabilities measured at fair value on a recurring basis at October 31, ~~2011:~~

2012:


	Carrying Amount in Balance Sheet October 31, 2011		Fair Value October 31, 2011		Fair Value Measurement Using						Carrying Amount in Balance Sheet October 31, 2012			Fair Value October 31, 2012			Fair Value Measurement Using
					Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant unobservable inputs (Level 3)								Quoted Prices in Active Markets (Level 1)			Significant Other Observable Inputs (Level 2)		Significant unobservable inputs (Level 3)
Financial Assets:
Financial Liabilities:
Commodity derivative instruments	$	404,050	$	404,050	$	404,050	$	—	$	—	$	(45,563	)	$	(45,563	)	$	(45,563	)	$	—	$	—

The Company determines the fair value of ~~the~~commodity derivative instruments ~~are based on quoted~~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 ~~prices in an active market.~~and New York Mercantile Exchange.

~~10.~~9. COMMITMENTS AND CONTINGENCIES

Corn Storage and Grain Handling Agreement and Purchase Commitments

The Company has a corn storage and grain handling agreement with Farmers Cooperative Elevator Company (FCE), a member. Under the current agreement, the Company agrees to purchase all of the corn needed for the operation of the plant from FCE. The price of the corn purchased will be the bid price the member establishes for the plant plus a set fee per bushel. At April 30, ~~2012,~~2013, the Company had ~~1,000,000~~basis contracts for forward corn purchase commitments with FCE for 2,375,000 bushels ~~of forward purchased basis only corn with FCE.~~for deliveries from May 2013 through June 2013. At ~~October 31, 2011,~~April 30, 2013, the Company also had ~~460,000~~885,000 bushels of stored corn totaling ~~$2,862,550~~approximately $6,511,000 with ~~FCE.~~

~~Ethanol Contracts~~

At April 30, 2012, the Company had forward ethanol sales contracts totaling approximately 7.6 million gallons for various delivery periods from May 2012 to June 2012. The prices on these contracts have a basis level established by the Oil Price Information Service (“OPIS”) Chicago ethanol market, the Platts Chicago market, and the Platts New York Harbor market between -$0.09 and -$0.18.

~~Distillers Grains Contracts~~

At April 30, 2012, the Company had forward distillers grains sales contracts totaling approximately 50,000 tons for various delivery periods from May 2012 to September 2012 at an average price of approximately $190 per ton.

~~Natural Gas Contracts~~

At April 30, 2012, the Company had forward contracts to purchase approximately 170,000 British thermal units (MMBTU) of natural gas during the months of May 2012 through January 2013 at an average price of approximately $4.10 per MMBTU.

~~Corn Oil Contracts~~

At April 30, 2012, the Company had forward corn oil sales contracts totaling approximately 13.3M pounds for various delivery periods from May 2012 to September 2012 at an average price of approximately $0.44 per pound.

~~Rail Infrastructure Improvement Project~~

~~The Company~~FCE that is ~~currently~~included in the process of a rail infrastructure improvement project. As of April 30, 2012 the Company has acquired approximately $3,500,000 of land that will be used for this project. The Company has contracts with various contractors totaling approximately $3.8 million to construct the project, of which approximately $410,000 has been completed as of April 30, 2012. The project is expected to be completed in late 2012.inventory.

GRANITE FALLS ENERGY, LLC

Notes to UNAUDITED Condensed Financial Statements

April 30, ~~2012~~2013

Ethanol Contracts

At April 30, 2013, the Company had forward contracts to sell approximately $13,212,000 of ethanol for deliveries from May 2013 through June 2013 which approximates 50% of its anticipated ethanol sales during that period.

Distillers Grains Contracts

At April 30, 2013, the Company had forward contracts to sell approximately $600,000 of distillers grains for delivery in May through June 2013 which approximates 10% of its anticipated distillers grain sales during that period.

~~11.~~10. LEGAL PROCEEDINGS

From time to time in the ordinary course of business, the Company may be named as a defendant in legal proceedings related to various issues, including without limitation, workers' compensation claims, tort claims, or contractual disputes. We are not currently a party to any material pending legal proceedings and we are not currently aware of any such proceedings contemplated by governmental authorities.

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

We prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition, and results of operations for the three and six month periods ended April 30, ~~2012~~2013, compared to the same period of the prior fiscal year. This discussion should be read in conjunction with the condensed financial statements and notes and the information contained in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, ~~2011.~~2012.

Disclosure Regarding Forward-Looking Statements

This report contains historical information, as well as forward-looking statements. These forward-looking statements include any statements that involve known and unknown risks and relate to future events and our expectations regarding future performance or conditions. Words 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 are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. These forward-looking statements, and others we make from time to time, are subject to a number of risks and uncertainties. Many factors could cause actual results to differ materially from those projected in forward-looking statements. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include, but are not limited to:

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

Demand for corn exceeding supply; and corresponding corn price increases;

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

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

Results of our hedging transactions and other risk management strategies;

Decreases in the market prices of ethanol and distillers grains;

Ethanol supply exceeding demand; and corresponding ethanol price reductions;

Changes in the environmental regulations that apply to our plant operations and changes in our ability to comply with such regulations;

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

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

Lack of transport, storage and blending infrastructure preventing ethanol from reaching high demand markets;

Changes in federal and/or state laws ~~(including~~or regulations, including the elimination or modification of ~~any~~the federal ~~and/or state ethanol tax incentives);~~renewable fuels standard;

Changes and advances in ethanol production technology;

Effects of mergers, consolidations or contractions in the ethanol industry;

Competition from alternative fuel additives;

The development of infrastructure related to the sale and distribution of ethanol;

Our inelastic demand for corn, as it is the only available feedstock for our plant;

Our ability to retain key employees and maintain labor relations;

Changes to our current water intake system, or our ability to cost-effectively construct a modified water intake ~~system, if necessary;~~system;

The imposition of tariffs or other duties on ethanol imported into Europe; and

Volatile commodity and financial markets.

The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We do not undertake any duty to update forward-looking statements after the date they are made or to conform forward-looking statements to actual results or to changes in circumstances or expectations. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits, completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.

Overview

Granite Falls Energy, LLC (“Granite Falls Energy” or the “Company”) is a Minnesota Limited Liability Company formed on December 29, 2000.

gallons of undenatured ethanol on a twelve month rolling sum basis. We intend to continue working toward increasing production to take advantage of the ~~underutilized capacity of~~additional production allowed pursuant to our ~~plant~~permit as long as we believe it is profitable to do so.

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

On April 23, 2012, Steve Christensen was appointed as Chief Executive Officer of the Company. The date of Mr. Christensen's appointment coincides with the resignation of Wayne Gordon, who served as our interim Chief Executive Officer from February 10, 2012 through the date of his resignation. Mr. Gordon's appointment coincided with the departure of our previous Chief Executive Officer.

As of the date of this report, we have 3637 full time employees. Ten of these employees are involved primarily in management and administration. The remaining employees are involved primarily in plant operations. We do not currently anticipate any significant change in the number of employees at our plant.

Results of Operations for the Three Months Ended April 30, ~~2012~~2013 and ~~2011~~2012

The following table shows the results of our operations and the approximate percentage of revenues, costs of goods sold, operating expenses and other items to total revenues in our unaudited statements of operations for the three months ended April 30, ~~2012~~2013 and ~~2011~~2012:


	2012				2011				2013					2012
Income Statement Data	Amount		%		Amount		%		Amount			%		Amount		%
Revenue	$	39,025,122	100.0	%	$	34,537,750	100.0	%	$	48,020,602		100.0	%	$	39,025,122	100.0	%
Cost of Goods Sold	38,367,706		98.3	%	30,833,215		89.3	%	44,390,630			92.4	%	38,367,706		98.3	%
Gross Profit	657,416		1.7	%	3,704,535		10.7	%	3,629,972			7.6	%	657,416		1.7	%
Operating Expenses	590,481		1.5	%	458,806		1.3	%	582,965			1.2	%	590,481		1.5	%
Operating Income	66,935		0.2	%	3,245,729		9.4	%	3,047,007			6.4	%	66,935		0.2	%
Other Income, net	49,531		0.1	%	24,381		0.1	%
Other Income (Expense), net									(15,064		)	—	%	49,531		0.1	%
Net Income	$	116,466	0.3	%	$	3,270,110	9.5	%	$	3,031,943		6.4	%	$	116,466	0.3	%

Revenues

Our revenues from operations come from three primary sources: sales of fuel ethanol, sales of distillers grains and sales of corn oil. Our results of operations will continue to be affected by volatility in the commodity markets. In the event that we experience a prolonged period of negative operating margins, our liquidity may be negatively impacted.

The following table shows the sources of our revenue for the three months ended April 30, 2013:



Revenue Sources	Amount		Percentage of Total Revenues

Ethanol sales	$	37,209,376	77.5	%
Distillers grains sales	9,546,923		19.9	%
Corn oil sales	1,264,303		2.6	%
Total Revenues	$	48,020,602	100.0	%

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


Revenue Sources	Amount		Percentage of Total Revenues		Amount		Percentage of Total Revenues

Ethanol sales	$	31,250,124	80.1	%	$	31,250,125	80.1	%
Distillers grains sales	6,860,000		17.6	%	6,860,000		17.6	%
Corn oil sales	914,997		2.3	%	914,997		2.3	%
Total Revenues	$	39,025,122	100.0	%	$	39,025,122	100.0	%

~~The following table shows the sources of our revenue for~~In the three ~~months~~month period ended April 30, ~~2011~~2013:, ethanol sales comprised

Revenue Sources Amount
Percentage of
Total Revenues

Ethanol sales $ 28,093,094
81.3
%
Distillers grains sales 5,558,477
16.1
%
Corn oil sales 896,724
2.6
%
Ethanol derivative activity (losses) (10,546 ) —
%
Total Revenues $ 34,537,750
100.0
%

In77.5% of our revenues and distillers grains sales comprised 19.9% percent of our revenues, while corn oil sales comprised 2.6% of our revenues. For the three month period ended April 30, 2012, ethanol sales comprised 80.1% of our ~~revenues and~~revenue, distillers grains sales comprised 17.6~~% percent of our revenues, while corn oil sales comprised~~ ~~2.3% of our revenues. For the three month period ended~~ ~~April 30, 2011, ethanol sales comprised~~ ~~81.3% of our revenue, without including ethanol derivatives, and distillers grains sales comprised~~ ~~16.1~~% of our revenue, while corn oil sales comprised ~~2.6~~2.3% of our revenues.

The average ethanol sales price we received for the three month period ended April 30, ~~2012~~2013 was approximately ~~10.7% lower~~12.7% higher than our average ethanol sales price for the comparable ~~2011~~2012 period. Management attributes the ~~decrease~~increase in our average ethanol sales price to ~~sustained market oversupply resulting from anticipation of~~decreased ethanol inventories and a decrease in ethanol production in the ~~expiration of~~industry compared to the ~~Federal Volumetric Ethanol Excise Tax Credit (“VEETC”)~~prior year. Downward pressure on ~~December 31, 2011. In an effort to capture as~~ethanol prices throughout much of ~~the VEETC as possible, blenders maximized the amount of ethanol they could blend at the end of~~ calendar ~~2011. As a result of that timing, demand slowed~~year 2012, combined with increased corn prices particularly during the ~~beginning~~last half of calendar 2012, ~~resulting~~have caused some ethanol plants to suspend or reduce production, leading to the decrease in ~~increased~~ ethanol inventories ~~which have pressured~~and production. As ethanol prices ~~downward. Recent geopolitical events in the Middle East~~increase, some plants that have ~~caused significant uncertainty about the global supply of crude oil and other petroleum based products.~~suspended or reduced production may resume or increase production, which may once again pressure ethanol prices downward. Management anticipates that the price of ethanol will continue to be volatile during the remainder of our ~~2012~~2013 fiscal ~~year as a result of these factors.~~year. Our volume of ethanol sold during the three month period ended April 30, ~~2012~~2013 was approximately ~~24.6%~~5.7% higher than the volume sold for the comparable ~~2011 period. This~~2012 period as we have continued to increase ~~in ethanol sales is largely due to the de-bottlenecking improvements made to our facility in the last year.~~production efficiencies.

Distillers grains ~~represent~~represented a larger portion of our revenues during the three months ended April 30, ~~2012~~2013 compared to the same period of ~~2011~~2012 as a result of ~~the~~ higher prices and greater quantities of distillers grains produced and sold during ~~our first fiscal quarter of 2012~~the three months ended April 30, 2013 compared to the same period of ~~2011.~~2012. The price we received for our dried distillers grains in the three month period ended April 30, ~~2012~~2013 was approximately ~~4.6%~~34.0% higher than the price we received during the three months ended April 30, ~~2011~~2012. This price increase, combined with the decrease in ethanol prices discussed above, resulted in distillers grains sales comprising a larger percentage of our total revenues during the three months ended ~~April 30, 2012~~ ~~relative to the same period during the prior year.~~ Management believes these higher distillers grains prices are a result of the high price of other feed products available to livestock producers. We anticipate that the market price of our dried distillers grains will continue to be volatile as a result of changes in the price of corn and competing animal feed substitutes such as soybean meal. Volatility in distillers grains supplies related to changes in ethanol production is another factor that may impact the sales price of our distillers grains. Additionally, our quantity of distillers grains sold increased approximately 3.9% in the three month period ended April 30, 2013 compared to the three months ended April 30, 2012. This increase in quantity sold was largely a result of increased production during the three months ended April 30, 2013 as compared to the three months ended April 30, 2012. The price and quantity increases resulted in distillers grains sales comprising a larger percentage of our total revenues during the three months ended April 30, 2013 relative to the same period during the prior year, despite increases in the price and quantity sold of ethanol discussed above.

Corn oil represented a ~~slightly smaller~~greater portion of our revenues during the three months ended April 30, ~~2012~~2013 than it did for the same period of ~~2011.~~2012. Corn oil sales accounted for approximately ~~2.3~~2.6% of our revenues during our quarter ended April 30, ~~2012~~2013 compared to ~~2.6~~2.3% for our quarter ended April 30, ~~2011~~2012. The price we received for our corn oil decreased by approximately ~~16.2%~~9.4% during the three months ended April 30, ~~2012~~2013 compared to the same period of ~~2011.~~2012. However, offsetting this price decrease, our total volume of corn oil sold increased by ~~21.8%~~52.5% as a result higher production rates at our ~~facility.~~facility and increased extraction efficiencies. Management attributes the decrease in corn oil prices to additional corn oil entering the market. However, increased use of corn oil by biodiesel producers and animal feeders have continued to support demand.

We occasionally engage in hedging activities with respect to our ethanol sales. We recognize the gains or losses that result from the changes in the value of these derivative instruments in revenues as the changes occur. As ethanol prices fluctuate, the value of our derivative instruments are impacted, which affects our financial performance. We anticipate continued volatility in our revenues due to the timing of the changes in value of the derivative instruments relative to the price and volume of the ethanol being hedged. We did not recognize any gains or losses for the three month period ended ~~April 30, 2012~~ ~~related to our ethanol derivative instruments, as compared to an approximate $11,000 combined realized and unrealized loss for the three months ended~~ ~~April 30, 2011~~ ~~related to our ethanol derivative instruments, which decreased our revenues.~~

Our results of operations for our 2012 fiscal year will continue to be affected by volatility in the commodity markets. If plant operating margins are negative for an extended period of time, management anticipates that this could negatively impact our liquidity. Management believes the industry will need to continue to grow demand and further develop an ethanol distribution

system to facilitate additional blending of ethanol and gasoline to offset the increased supply brought to the marketplace by additional production. In April 2012, the U.S. Environmental Protection Agency ("EPA") approved the first applications for registering ethanol for use in making a blend of fifteen percent ethanol, known as E15. Since that time, we have applied with the EPA to register ethanol for use in making E15, although our application remains pending as of the date of this report. We are optimistic that over time, as E15 is brought to market and gains market acceptance, demand for ethanol will increase. However, we do not anticipate that the EPA's acceptance of applications for registering ethanol for use in making E15 will impact ethanol demand or pricing in the near term.

Cost of ~~Sales~~Goods Sold

Our costs of goods sold as a percentage of revenues were ~~98.3%~~92.4% for the three month period ended April 30, ~~2012~~2013 compared to ~~89.3%~~98.3% for the same period of ~~2011.~~2012. Our two largest costs of production are corn ~~(83.8%~~(83.7% of cost of goods sold for our three months ended April 30, ~~2012~~2013) and natural gas ~~(3.8%~~(4.0% of cost of goods sold for our three months ended April 30, ~~2012~~2013). Our total cost of goods sold increased to ~~approximately $38,368,000~~$44,390,630 for the three months ended April 30, ~~2012~~2013 from ~~approximately $30,833,000~~$38,367,706 in the three months ended April 30, ~~2011~~2012. ~~The main driver of our increased cost of goods sold was the increased volume of corn we processed due to our higher ethanol production.~~ The volume of corn we processed was up ~~17.8%~~3.3% for the three months ended April 30, ~~2012~~2013 as compared to the same period for our ~~2011~~2012 fiscal year. Additionally, our per bushel corn costs increased by approximately ~~1.9%~~11.8% for the three

months ended April 30, ~~2012~~2013 as compared to the same period for our ~~2011~~2012 fiscal year. Tight corn supply following last growing season's drought has continued to place upward pressure on corn prices. Although the 2012 drought did not impact corn production in Minnesota to the same extent as other corn producing states, as a local consumer of corn we must nevertheless be cost competitive when sourcing corn in order to procure sufficient quantities for ethanol production. Management anticipates that corn prices will remain high ~~throughout~~for the ~~rest~~duration of our ~~2012~~2013 fiscal ~~year, especially if extreme weather interferes with the 2012 growing season.~~year. The USDA's World Agricultural Supply and Demand Estimates published on May 10, ~~2012,~~2013 projects ~~record~~ domestic corn production of ~~14.8~~14.14 billion bushels for the 2013 growing season, which would be a significant increase over the estimate of 10.78 billion bushels produced during the 2012 growing season. ~~Management expects that this level of production, if realized, would put downward pressure on~~However, corn ~~prices.~~planting in several Midwestern states has been behind historical pace due to wet conditions.

For the three month period ended April 30, ~~2012~~2013, we experienced ~~a decrease~~an increase of approximately ~~15.2%~~21.1% in our overall natural gas costs compared to the same period of ~~2011. Falling natural gas prices have decreased our natural gas costs, even though our natural gas consumption has risen~~2012 as a result of increases in natural gas prices and our ~~19.7% increase in ethanol production during the quarter ended April 30, 2012 as~~quantity of natural gas consumed. Natural gas prices continue to remain low compared to ~~the same period in 2011.~~historic averages. We expect the market price for natural gas to remain steady in the near term as we continue to enjoy an abundant supply of domestic natural gas, due in part to the continued commissioning of new, highly productive natural gas wells.

We occasionally engage in hedging activities with respect to ~~corn, natural gas or denaturant.~~corn. We recognize the gains or losses that result from the changes in the value of our derivative instruments in cost of goods sold as the changes occur. As corn ~~natural gas and denaturant~~ 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.

We experienced an approximate ~~$31,000~~$249,000 combined realized and unrealized loss for the three month period ended April 30, ~~2012~~2013 related to our corn ~~and natural gas~~ derivative instruments, which increased our cost of goods sold. By comparison, we experienced an approximate ~~$1,374,000~~$31,000 combined realized and unrealized ~~gain~~loss for the three months ended April 30, ~~2011~~2012 related to our corn ~~and natural gas~~ derivative instruments, which ~~decreased~~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 ~~and natural gas~~ in cost of goods sold as the changes occur. As corn ~~and natural gas~~ prices fluctuate, the value of our derivative instruments are impacted, which affects our financial performance.

Operating Expense

Our operating expenses as a percentage of revenues ~~were relatively steady~~decreased to 1.2% for the three month period ended April 30, ~~2012~~2013 ~~when compared to~~from 1.5% for the same period ended April 30, ~~2011~~2012. ~~The increase in our~~Our total operating expenses for the three months ended April 30, ~~2012~~2013 as compared to the same period for our ~~2011~~2012 fiscal year ~~is due primarily to an increase in rail car fees.~~decreased slightly. We continue to focus on increasing our operating efficiency and we strive to lower our operating expenses.

Operating Income

Our income from operations for the three months ended April 30, ~~2012~~2013 was ~~0.2%~~ ~~of our revenues~~approximately $3,047,000, compared to income from operations of approximately ~~9.4%~~ ~~of our revenues for the three months ended~~ ~~April 30, 2011. For the three months ended~~ ~~April 30, 2012, we reported operating income of $66,935~~ ~~and for the three months ended~~ ~~April 30, 2011, we had operating income of $3,245,729. This decrease in our operating income is primarily due to decreased ethanol sales prices.~~

~~Other Income and Expense~~

~~We had other income~~$67,000 for the three months ended April 30, 2012 ~~of $~~. This increase in our operating income is primarily due to more favorable operating margins.

Other Income (Expense), Net

~~49,531~~ ~~compared to~~Our other income ~~of $24,381~~(expense), net for the three months ended April 30, ~~2011~~2013.

~~Our other income and~~ was an expense ~~includes other income, net~~ of ~~$51,004 for the three months ended April 30, 2012, as~~approximately $15,000, compared to ~~$6,890 for the same period the prior year. Our other~~ income ~~net increased primarily due to income related to land rent for the property on which our loop track will be constructed and other miscellaneous income during the quarter ended April 30, 2012.~~

~~Also included in other income and expense is our interest income and expense. Interest expense~~of approximately $50,000 for the three months ended April 30, 2012~~, was less than one tenth of one percent of our revenue and totaled approximately $5,525, compared to approximately $517~~ ~~of interest expense for the three months ended~~ ~~April 30, 2011~~. The interest expense incurred during the three months ended April 30, 2012 is attributable to a 5 year, 3.875% note we took to purchase a Shuttlewagon Railcar Mover in December 2011 and the one percent fee on our letters of credit. The interest expense incurred during the three months ended January 31, 2011 is attributable to our low interest loan obtained through a local Economic Development Authority ("EDA") and the one percent fee on our letters of credit. On August 26, 2011, the board of governors decided to repay the EDA loan in the amount of approximately $187,000.

~~Our interest income was lower for the three months ended~~ ~~April 30, 2012~~ ~~when compared to the three months ended~~ ~~April 30, 2011~~. This ~~reduction in interest income~~change is primarily a result of ~~us having less cash on hand~~increased interest expense during the quarter ended April 30, ~~2012~~2013 as compared to the same period the prior ~~year.~~year, attributable to borrowings on our United FCS credit facilities.

Results of Operations for the Six Months Ended April 30, ~~2012~~2013 and ~~2011~~2012

The following table shows the results of our operations and the percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our statement of operations for the six months ended April 30, ~~2012~~2013 and ~~2011~~2012:


	2012				2011				2013					2012
Income Statement Data	Amount		%		Amount		%		Amount			%		Amount		%
Revenue	$	82,770,898	100.0	%	$	65,254,096	100.0	%	$	95,137,724		100.0	%	$	82,770,898	100.0	%
Cost of Goods Sold	78,425,531		94.8	%	58,015,828		88.9	%	90,675,608			95.3	%	78,425,531		94.8	%
Gross Profit	4,345,367		5.2	%	7,238,268		11.1	%	4,462,116			4.7	%	4,345,367		5.2	%
Operating Expenses	1,254,217		1.5	%	1,016,927		1.6	%	1,145,660			1.2	%	1,254,217		1.5	%
Operating Income	3,091,150		3.7	%	6,221,341		9.5	%	3,316,456			3.5	%	3,091,150		3.7	%
Other Income	67,604		0.1	%	60,365		0.1	%
Other Income (Expense), net									(63,086		)	(0.1	)%	67,604		0.1	%
Net Income	$	3,158,754	3.8	%	6,281,706		9.6	%	$	3,253,370		3.4	%	3,158,754		3.8	%

Revenues

The following table shows the sources of our revenue for the six months ended April 30, ~~2012~~2013:


Revenue Sources	Amount		Percentage of Total Revenues		Amount		Percentage of Total Revenues

Ethanol sales	$	67,447,635	81.5	%	$	72,495,495	76.2	%
Distillers grains sales	13,562,618		16.4	%	20,251,604		21.3	%
Corn oil sales	1,760,645		2.1	%	2,390,625		2.5	%
Total Revenues	$	82,770,898	100.0	%	$	95,137,724	100.0	%

The following table shows the sources of our revenue for the six months ended April 30, ~~2011~~2012:


Revenue Sources	Amount			Percentage of Total Revenues		Amount		Percentage of Total Revenues

Ethanol sales	$	53,797,102		82.4	%	$	67,447,635	81.5	%
Distillers grains sales	9,837,670			15.1	%	13,562,618		16.4	%
Corn oil sales	1,629,870			2.5	%	1,760,645		2.1	%
Ethanol derivative activity gains (losses)	(10,546		)	—	%
Total Revenues	$	65,254,096		100.0		$	82,770,898	100.0

Our total revenues were higher for the six ~~month~~months ~~period~~ ended April 30, ~~2012~~2013 compared to the same period of ~~2011~~2012. ~~This increase in revenue is a result of a significant increase in our quantity of~~With respect to ethanol, ~~sold during the first~~ ~~six months~~ ~~of our~~ ~~2012~~ ~~fiscal year compared to the same period of~~ ~~2011. We~~we sold approximately ~~24.9%~~4.5% more gallons of ethanol during the six ~~month~~months ~~period~~ ended April 30, 2013 than we did in the same period of 2012. Additionally, the price we received for our ethanol was approximately 2.8% higher for the six months ended April 30, 2013 compared to the same period of ~~2011~~2012. ~~However, the price we received for our ethanol was only approximately 0.4% higher for the~~ ~~six month~~ ~~period ended~~ ~~April 30, 2012~~ ~~compared to the same period of~~ ~~2011. Our increase in our quantity of ethanol sold is largely due to the de-bottlenecking improvements made to our facility in the last year.~~

The average price we received for our distillers grains was approximately ~~13.7%~~35.1% higher for the first six months of our ~~2012~~2013 fiscal year compared to the same period of ~~2011~~2012. We also sold approximately ~~21.2%~~10.5% more tons of distillers grains during the first six months of our ~~2012~~2013 fiscal year compared to the same period of ~~2011~~2012 ~~due to our increased ethanol production.~~.

We sold approximately ~~12.6%~~51.2% more pounds of corn oil during the first six months of our ~~2012~~2013 fiscal year compared to the same period of ~~2011~~2012. However, offsetting our increase in corn oil sales, our average price per pound of corn oil decreased by approximately ~~4.1%~~10.2% for the first six months of our ~~2012~~2013 fiscal year compared to the same period of ~~2011~~2012.

Cost of Goods Sold

Our costs of goods sold were significantly higher for the first six months of our ~~2012~~2013 fiscal year compared to the same period of our ~~2011~~2012 fiscal year. Additionally, our costs of good sold as a percentage of our revenues were higher for the first six months of our ~~2012~~2013 fiscal year compared to the same period of our ~~2011~~2012 fiscal year. Our average cost per bushel of corn was approximately ~~11.6%~~11.9% higher during the first six months of our ~~2012~~2013 fiscal year compared to the same period of ~~2011~~2012. Additionally, we ground approximately ~~20.8%~~6.3% more corn during the first six months of our ~~2012~~2013 fiscal year compared to the same period of ~~2011~~2012 due to our increased production.

Our natural gas costs ~~decreased~~increased during the first six months of our ~~2012~~2013 fiscal year compared to the same period of ~~2011~~2012. Our total cost of natural gas was approximately ~~5.8% lower~~8.2% higher during the first six months of our ~~2012~~2013 fiscal year compared to the same period of ~~2011~~2012. ~~Our natural gas consumption during the first~~ ~~six months~~ ~~of our~~ ~~2012~~ ~~fiscal year was approximately 13.5% higher compared to the first~~ ~~six months~~ ~~of our~~ ~~2011~~ ~~fiscal year. Management attributes this increase in our natural gas consumption to increases in our ethanol production and quantity of distillers grains sold.~~

We experienced an approximate ~~$1,301,000 combined realized and unrealized loss for the~~ ~~six month~~ ~~period ended~~ ~~April 30, 2012~~ ~~related to our corn and natural gas derivative instruments, which increased our cost of goods sold. By comparison, we experienced an approximately $2,254,000~~$27,000 combined realized and unrealized gain for the six months ended April 30, ~~2011~~2013 related to our corn ~~natural gas , and denaturant~~ derivative instruments, which decreased our cost of goods sold. By comparison, we experienced an approximately $1,301,000 combined realized and unrealized loss for the six months ended April 30, 2012 related to our corn derivative instruments, 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, natural gas, and denaturant in cost of goods sold as the changes occur. As corn ~~natural gas, and denaturant~~ prices fluctuate, the value of our derivative instruments are impacted, which affects our financial performance.

Operating Expenses

Our total operating expenses and our operating expenses as a percentage of revenues ~~were relatively steady for~~decreased in the six ~~month~~months ~~period~~ ended April 30, ~~2012~~2013 when compared to the same period ended April 30, ~~2011~~2012. The ~~increase~~decrease in our operating expenses for the six months ended April 30, ~~2012~~2013 as compared to the same period for our ~~2011~~2012 fiscal year is due primarily to ~~an increase~~a decrease in personnel expenses following the accrual of our former Chief Executive Officer's bonus and vacation during the six months ended April 30, 2012 in connection with his departure from the Company, as well as a decrease in professional service expense in the six months ended April 30, 2013 compared to the six months ended April 30, 2012, when we conducted studies related to our rail ~~car fees. We continue to focus on increasing our operating efficiency~~infrastructure and ~~we strive to lower our operating expenses.~~water intake.

Other Income ~~and Expense~~(Expense), Net

We had other expense, net for the six months ended April 30, 2013 of $63,086 compared to other income, net of $67,604 for the six months ended April 30, 2012 ~~of $67,604~~ ~~compared to~~ ~~$60,365~~ ~~for~~. This change resulted primarily from increased interest expense during the six months ended April 30, ~~2011. Our other income, net increased primarily as a result of income related to land rent and other miscellaneous income.~~

~~Our interest income was lower for the~~ ~~six month~~2013 ~~period ended~~ ~~April 30, 2012~~as compared to the same period of ~~2011~~ ~~as a result of having less cash~~the prior year, attributable to borrowings on ~~hand during the~~ ~~2012~~ ~~period. Our interest expense was greater for the first~~ ~~six months~~ of our ~~2012~~ ~~fiscal year compared to the same period of~~ ~~2011~~ ~~due to the note we took to purchase a Shuttlewagon Railcar Mover in December 2011.~~United FCS credit facilities.

Changes in Financial Condition for the Six Months Ended April 30, ~~2012~~2013

The following table highlights ~~the changes in~~ our financial condition ~~for the~~ ~~six months~~ ~~ended~~at April 30, ~~2012~~2013 ~~from our previous fiscal year ended~~and October 31, ~~2011~~2012:


	April 30, 2012		October 31, 2011		April 30, 2013		October 31, 2012
Current Assets	$	19,494,960	$	27,542,361	$	21,065,272	$	20,715,050
Current Liabilities	$	4,596,959	$	13,680,184	$	6,696,111	$	6,002,937
Long-Term Debt	$	440,830	$	—	$	553,789	$	5,274,870
Members' Equity	$	52,853,472	$	49,761,138	$	53,108,695	$	49,855,325

Total assets were approximately ~~$57,891,000~~$60,359,000 at April 30, ~~2012~~2013 compared to approximately ~~$63,441,000~~$61,133,000 at October 31, ~~2011. This decrease in total assets is primarily a result of the approximately $9,200,000 cash distribution paid to membership during our~~ ~~six month~~ ~~period ended~~ ~~April 30,~~ 2012. ~~Also included~~Included in our total assets ~~this period~~ is an approximate $540,000 decrease in land and improvements resulting from our sale of land and a net increase of approximately ~~$4,000,000~~$1,645,000 in ~~land, process equipment,~~rail improvements and construction in progress. During fiscal 2012, we purchased approximately $3,500,000 of land that will be used as part of a rail infrastructure improvement project. Our construction in progress is primarily related to the de-bottlenecking process we are implementing at our plant as we move toward an increased annual run rate. The additions in property, plant and equipment were offset with additional depreciation of approximately ~~$2,100,000.~~$2,318,000.

Current assets totaled approximately ~~$19,495,000~~$21,065,000 at April 30, ~~2012~~2013, which is ~~less~~more than our current assets as of October 31, ~~2011~~2012, which totaled approximately ~~$27,542,000.~~$20,715,000. The increase is primarily due to increases in inventory and cash, offset slightly by a decrease in accounts receivable.

Total current liabilities ~~decreased~~increased and totaled approximately ~~$4,597,000~~$6,696,000 at April 30, ~~2012~~2013 and approximately ~~$13,680,000~~$6,003,000 at October 31, ~~2011~~2012. This ~~decrease~~increase was mainly due to ~~the payment of the accrued distribution during the first quarter of fiscal 2012. Long term~~an increase in our corn payable to FCE, slightly offset by a decrease in our

accounts payable. Long-term debt ~~increased~~decreased from ~~zero~~approximately $5,275,000 at October 31, ~~2011~~2012 to approximately ~~$441,000~~$554,000 at April 30, ~~2012~~2013 as we ~~financed~~paid down amounts drawn on our long-term revolving credit facility during the ~~purchase of a Shuttlewagon Railcar Mover in December 2011.~~six months ended April 30, 2013.

Plant Operations

We are currently producing fuel-grade ethanol, distillers grains and crude corn oil for sale. Our plant has an approximate annual production capacity of 60 million gallons of denatured ethanol. We have obtained an amendment to our environmental permits allowing us to produce up to 70 million gallons of undenatured ethanol on a twelve month rolling sum basis. We intend to continue working to increase production to take advantage of the ~~underutilized~~additional capacity of our ~~plant.~~permits allow us to produce. Any plant bottlenecks are assessed and a cost benefit analysis is performed prior to further capital investment.

We have completed several de-bottlenecking projects and we are in the process of ~~soliciting bids for several additional~~completing our remaining projects. Each of these projects help our facility to be more efficient, productive and improve the environmental aspects of our process. For the three and six month periods ended April 30, 2013 ~~period~~we have incurred approximately $704,000 and $1,032,000, respectively, in costs associated with our equipment construction projects. For the three and six month periods ended April 30, 2012 we ~~have~~ incurred approximately $500,000 and $900,000, respectively, in costs associated with our equipment construction projects. Since starting our de-bottlenecking projects we have incurred approximately ~~$4,900,000~~$6,167,000 associated with the cost of these equipment improvements.

We expect to have sufficient cash generated by continuing operations and current lines of credit ~~and cash reserves~~ to cover our usual operating costs, which consist primarily of our corn supply, our natural gas supply, de-bottlenecking projects, staffing expense, office expense, audit and legal compliance, working capital costs and debt service obligations.

Trends and Uncertainties Impacting the Ethanol and Distillers Grains Industries and Our Future Revenues

Our revenues primarily consist of sales of the ethanol and distillers grains we produce; however, we also realize revenue from the sale of corn oil we separate from our distillers syrup. The ethanol industry needs to continue to expand the market for ethanol and distillers grains in order to maintain current price levels.

The following chart shows the average cash price per gallon of ethanol in Minnesota from January ~~2010~~2011 through June ~~2012,~~1, 2013, as compiled by the USDA Agricultural Marketing Service.

According to the Renewable Fuels Association (“RFA”), as of May ~~30, 2012,~~20, 2013, there were ~~212~~209 ethanol plants nationwide with the capacity to produce approximately 14.7 billion gallons of ethanol annually. The RFA estimates that plants with an annual production capacity of approximately ~~14.0~~13.3 billion gallons are currently operating and that approximately ~~5.3%~~9.2% of the nameplate production capacity is not currently operational. Management believes the production capacity of the ethanol industry is greater than ethanol demand which may ~~begin to~~ depress ethanol prices. ~~This overcapacity issue may be exacerbated by increased production from plants that had previously slowed their rate of production or idled altogether due to poor operating margins.~~

Currently, ethanol is primarily blended with conventional gasoline for use in standard (non-flex fuel) vehicles to create a blend which is 10% ethanol and 90% conventional gasoline. Estimates indicate that approximately 135 billion gallons of gasoline

are sold in the United States each year. However, gasoline demand may be shrinking in the United States as a result of the global economic slowdown and improved fuel efficiency. Assuming that all gasoline in the United States is blended at a rate of 10% ethanol and 90% gasoline, the maximum demand for ethanol is 13.5 billion gallons. This is commonly referred to as the “blend wall”, which represents a limit where more ethanol cannot be blended into the national gasoline pool. This is a theoretical limit since it is believed it would not be possible to blend ethanol into every gallon of gasoline that is used in the United States and it discounts higher percentage blends of ethanol such as E15 and E85 used in flex fuel vehicles. ~~As discussed under "Results of Operations for the Three Months Ended~~ ~~April 30, 2012~~ ~~and~~ ~~2011~~ ~~- Revenues," in~~

In April 2012, the U.S. Environmental Protection Agency ("EPA") approved the first applications for registering ethanol for use in making a blend of fifteen percent ethanol, known as E15. AsSince that time, our application with the EPA to register ethanol for use in making E15 ~~is brought to market and gains market acceptance, management believes that demand for ethanol will increase. However, we~~has also been approved. We do not ~~expect~~anticipate that the EPA's ~~acceptance~~approval of applications for registering ethanol for use in making E15 towill impact ethanol demand or pricing in the near term.

~~The~~According to industry sources, United States ethanol industry ~~is exporting an increasing amount of ethanol. Granite Falls Energy recently began~~exports decreased approximately 38% in 2012 as compared to ~~export~~2011. The Company, through its ethanol marketer, has in the past exported a portion of its ethanol production to ~~the~~foreign markets. The European ~~market.~~Union recently imposed a five-year tariff of approximately $83 per metric ton on imported U.S. ethanol. This tariff may further slow overall demand for U.S. ethanol. The exportation of domestic ethanol ~~has~~had helped to mitigate the effects of the blend wall and ~~has~~had thereby helped to maintain ethanol price levels. ~~We are excited to be participating in the~~Whether export ~~market, but would prefer that all of our domestically produced fuel could be utilized by the domestic market. Whether the export market continues to~~markets will make economic sense for ~~Granite Falls Energy~~us in the future will depend on domestic ethanol blend rates as well as global supply and demand for our product.

~~Xcel Energy~~The federal Renewable Fuels Standard, known as RFS2, requires the use of a specified amount of renewable fuels in the United States. In 2013, RFS2 requires approximately 16.55 billion gallons, of which corn based ethanol can be used to satisfy approximately 13.8 billion gallons. This is an increase from 2012 levels, which required approximately 15.2 billion gallons, of which corn based ethanol could be used to satisfy approximately 13.2 billion gallons.

Certain legislators and certain industry groups and have advocated for changes to RFS2 and other statutes and regulations that, if adopted, would negatively impact our business. At various times over the ~~owner~~past several months, legislation has been proposed that would repeal RFS2, repeal the corn based ethanol portion of RFS2, or ban E15. While the ethanol industry has resisted these proposals, we cannot be assured that RFS2 will remain in its current form going forward or that E15 or higher blends of ethanol will be widely available.

The ethanol production process requires a reliable water supply. The removal of a dam on the Minnesota River located downstream from our water intake structure has resulted in the water level lowering below our current intake structure. We have been notified that Xcel Energy intends to remove that dam during the summer of 2012. In the event Xcel Energy does proceed with the dam removal, we expect that the water level around our intake structure will be lowered by approximately 15 feet. This change in the pool level would require us to invest capitalopted to upgrade our intake structure, finding that option preferable to ~~draw water from the Minnesota River.~~

~~We have engaged in discussions with Xcel Energy regarding transferring~~acquiring ownership of the ~~dam; however, the occurrence of any such transfer is uncertain and would require the approval of government authorities.~~dam prior to its removal. We are ~~also concurrently proceeding with~~working on plans for this upgrade and expect to ~~upgrade~~complete the necessary modifications during the third quarter of our ~~water intake structure in the event ownership transfer does not occur~~2013 fiscal year. We currently estimate that this project will cost a total of $1,000,000 and anticipate using a combination of cash flows from fiscal 2013 operations and the ~~dam is removed.~~Company's debt facilities to fund the entire upgrade. However, the actual cost may be different than our current estimate.

Trends and Uncertainties Impacting the Corn and Natural Gas Markets and Our Future Cost of Goods Sold

Our costs of our goods sold consist primarily of costs relating to the corn and natural gas supplies necessary to produce ethanol and distillers grains for sale. We grind approximately 1,800,000 bushels of corn each month. For the quarter ended April 30, ~~2012~~2013, our average cost of corn per bushel, net of hedging activity, was approximately ~~$0.12 higher~~$0.75 greater than our cost of corn for the same period ended April 30, ~~2011~~2012.

~~Management attributes the currently high corn~~Corn prices ~~to uncertainty regarding an imbalance between~~remain above historical averages. Tight corn supply ~~and demand. Management anticipates~~following last growing season's drought has continued to place upward pressure on corn prices. We anticipate that corn prices will ~~continue~~remain high through at least the 2013 harvest, as that is the earliest possible time that corn producers may be able to ~~be volatile and will be subject to weather factors that may influence corn prices during the 2012 growing season.~~generate significant additional domestic production. The USDA's World Agricultural Supply and Demand Estimates published on May 10, ~~2012,~~2013 projects ~~record~~ domestic corn production of ~~14.8~~14.14 billion bushels for the ~~2012~~2013 growing season, which ~~if realized~~ would ~~put downward pressure on~~be a significant increase over the estimate of 10.78 billion bushels produced during the 2012 growing season. However, corn ~~prices. However, larger acreage expectations have~~planting in several Midwestern states has been ~~tempered by the dry soil conditions present in some portions of the upper Midwest and the potential for drought-induced yield reductions. The Company expects growing conditions~~behind historical pace due to ~~be the primary driver for local basis numbers and corn futures prices.~~

wet conditions. If a period of high corn prices were to be sustained ~~for some time,~~following the 2013 harvest, such pricing may reduce our ability to generate income because of the higher cost of operating our plant.

Natural gas is also an important input commodity to our manufacturing process. Our natural gas usage is approximately 120,000 million British thermal units (mmBTU) per month. We continue to work to find ways to limit our natural gas price risk through efficient usage practices, research of new technologies, and pricing and hedging strategies. We use a marketing firm and an energy consultant for our natural gas procurement and will work with them on an ongoing basis to mitigate our exposure to volatile gas prices.

Management anticipates that natural gas prices will be relatively stable in the next several months as a result of an ample amount of gas in the supply chain. However, should we experience any natural gas supply disruptions, including disruptions from hurricane activity, we may experience significant increases in natural gas prices.

Compliance with Environmental Laws

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

Contracting Activity

Farmers Cooperative Elevator Company supplies our corn. Eco-Energy, LLC markets our ethanol and Renewable Products Marketing Group, LLC (“RPMG”) markets our distillers grains and our corn oil. Each of these contracts is critical to our success and we are very dependent on each of these companies. Accordingly, the financial stability of these partners is critical to the successful operation of our business.

We independently market a small portion of our ethanol production as E-85 to local retailers.

Commodity Price Risk Protection

We occasionally seek to minimize the risks from fluctuations in the prices of corn, ethanol, denaturant and natural gas through the use of derivative instruments. In practice, as markets move, we actively manage our risk and adjust hedging strategies as appropriate. We do not use hedge accounting which would match the gain or loss on our hedge positions to the specific commodity contracts being hedged. Instead, we are using fair value accounting for our hedge positions, which means that as the current market price of our hedge positions changes, the gains and losses are immediately recognized in our revenue or cost of goods sold depending on the commodity that is hedged. The immediate recognition of hedging gains and losses under fair value accounting can cause net income to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged.

As of April 30, ~~2012~~2013, ~~we did not have any derivative instruments recorded on our balance sheet. As of~~ ~~October 31, 2011~~,

we recorded a net ~~asset~~liability for our derivative instruments in the amount of ~~$404,050.~~$47,813. As of October 31, 2012, we recorded a net liability for our derivative instruments in the amount of $45,563. There are several variables that could affect the extent to which our derivative instruments are impacted by fluctuations in the price of corn, ethanol, denaturant or natural gas. However, it is likely that commodity cash prices will have the greatest impact on the derivative instruments with delivery dates nearest the current cash price. As we move forward, additional protection may be necessary. As the prices of these hedged commodities move in reaction to market trends and information, our statement of operations will be affected depending on the impact such market movements have on the value of our derivative instruments. Depending on market movements, crop prospects and weather, these price protection positions may cause immediate adverse effects, but are expected to produce long-term positive growth for Granite Falls Energy.

At April 30, ~~2012~~2013, we had ~~1,000,000 bushels of~~ fixed basis contracts for forward corn purchase ~~commitments.~~

Ascommitments totaling approximately 2,375,000 bushels. We also had 885,000 bushels of stored corn included in inventory at April 30, ~~2012~~2013, we had price protection in place for approximately 11% of our natural gas needs through April 30, 2013. As we move forward, we may determine that additional price protection for natural gas purchases is necessary to reduce our susceptibility to price increases. However, we may not be able to secure natural gas for prices less than current market price and we may not recover high costs of production resulting from the possible increase in natural gas prices, which may raise our costs of production and reduce our net income..

The derivative accounts are reported at fair value. We have categorized the cash flows related to the hedging activities with cash provided by operations, in the same category as the item being hedged.

Critical Accounting Estimates

Management uses estimates and assumptions in preparing our financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and reported revenues and expenses.

Liquidity and Capital Resources

The following table shows our cash flows for the six months ended April 30, ~~2012~~2013 and ~~2011~~2012:


	2012			2011			2013			2012
Net cash provided by operating activities	$	9,528,746		$	6,385,330		$	6,611,899		$	9,528,745
Net cash provided by (used in) investing activities	(3,998,444		)	886,788
Net cash used in investing activities							(1,192,878		)	(3,998,444		)
Net cash used in financing activities	(9,242,419		)	(9,227,290		)	(4,718,846		)	(9,242,419		)

Operating Cash Flows. Cash provided by operating activities was approximately $6,612,000 for the six months ended April 30, 2013, as compared to cash provided by operations of approximately $9,529,000 for the six months ended April 30, 2012~~, which was an increase from the approximately $6,385,000 provided by operating activities for the~~ ~~six months~~ ~~ended~~ ~~April 30, 2011~~. Currently, our capital needs are being adequately met through cash flows from our operating activities and our currently available credit facilities.

Investing Cash Flows. Cash used in investing activities was approximately $1,193,000 for the six months ended April 30, 2013, compared to cash used in investing activities of approximately $3,998,000 for the six months ended April 30, 2012~~, compared to cash provided by investing activities of approximately $887,000 for the~~ ~~six months~~ ~~ended~~ ~~April 30, 2011~~. During the six months ended April 30, ~~2012~~2013 we made payments totaling approximately ~~$3,998,000~~$1,733,000 for ~~land acquisitions,~~ capital expenditures, ~~and construction in process,~~ compared to payments of approximately ~~$2,613,000 during~~$8,000 for the ~~same period in 2011.~~six months ended April 30, 2012. Additionally, during the six months ended April 30, ~~2011,~~2013 we ~~had positive investing cash flow~~received proceeds from the ~~maturity~~sale of ~~certain short term investments (certificates~~land of ~~deposit) in~~approximately $540,000, as compared to the ~~amount of $3,500,000.~~six months ended April 30, 2012, when we made payments totaling approximately $3,990,000 for land acquisitions.

Financing Cash Flows. Cash used in financing activities was approximately ~~$9,242,000~~$4,719,000 for the six months ended April 30, 2013, consisting entirely of net payments made on our credit facilities. For the the six months ended April 30, 2012, ~~compared to $9,227,000 for the~~ ~~six months~~ ~~ended~~ ~~April 30, 2011~~,our cash used in financing activities was approximately $9,242,000, most of which was used to pay a distribution to our ~~members in each period.~~members.

Indebtedness

In August 2012, the Company entered into two credit facilities, one short-term and one long-term, with United FCS. CoBank serves as administrative agent for United FCS for these credit facilities. These facilities replaced the Company's prior $6,000,000 revolving line of credit with Minnwest Bank M.V. of Marshall, MN.

Short-Term Debt Sources

The ~~Company has a Loan Agreement~~Company's short-term credit facility with ~~Minnwest Bank M.V. of Marshall, MN (the “Bank”). Under the Loan Agreement, the Company has~~United FCS is a revolving line of credit. This facility allows us to borrow, repay, and reborrow up to $6,000,000 subject to a borrowing base calculation. Final payment of amounts borrowed under this credit ~~with~~facility is due August 1, 2013. Amounts borrowed under the revolving line of credit bear interest at one of three interest rate options selected by us, (i) at a ~~maximum~~variable weekly rate equal to 2.65% above the rate quoted by the British Bankers Association for the offering of ~~$6,000,000 available which~~one-month U.S. Dollar deposits, (ii) at a fixed rate to be quoted by CoBank, or (iii) at a fixed rate for up to 12 months equal to LIBOR plus 2.65%. Interest on amounts borrowed is ~~secured by a first mortgage~~payable monthly in arrears. We expect to utilize this credit facility to finance inventory and receivables as needed. We have not yet made any advances on ~~substantially all~~this line of ~~our assets.~~ credit.

The Company also has ~~outstanding~~ letters of credit intotaling $337,928 as part of a credit requirement of Northern Natural Gas. In August 2012, these letters of credit were transferred to United FCS as part of the ~~amount of approximately $387,000.~~new credit facilities. These letters of credit reduce the amount available under ~~the revolving~~our line of credit to approximately ~~$5,613,000. The interest rate on the revolving line of credit is at 0.25 percentage points above the prime rate as reported by the Wall Street Journal, with a minimum rate of 4.0%. At~~ ~~April 30, 2012~~ ~~and~~ ~~October 31, 2011, the Company had no outstanding balance on this line of credit.~~

$5,662,000.

Long-Term Debt Sources

The Company's long-term credit facility with United FCS is a revolving term loan. Under this facility we may borrow, repay, and reborrow up to $8,000,000. However, the amount available for borrowing under this facility reduces by $1,000,000 every six months, beginning September 1, 2013, with final payment due March 1, 2017. Amounts borrowed under the revolving term loan bear interest at one of three interest rate options selected by us, (i) at a variable weekly rate equal to 2.90% above the rate quoted by the British Bankers Association for the offering of one-month U.S. Dollar deposits, (ii) at a fixed rate to be quoted by CoBank, or (iii) at a fixed rate for up to 12 months equal to LIBOR plus 2.90%. Interest on amounts borrowed is payable monthly in arrears. We have used this credit facility to fund our rail infrastructure improvement project and working capital. As of April 30, 2013, the outstanding balance on our revolving term loan was $229,912 and the interest rate as of that date was 3.10%.

The Company's credit facilities with United FCS require the Company to comply with certain financial covenants. As of April 30, 2013, we were in compliance with our financial covenants and expect to remain in compliance throughout our 2013 fiscal year.

Our credit facilities with United FCS are secured by substantially all our assets. There are no savings account balance collateral requirements as part of our credit facilities.

In December 2011, the Company purchased a ~~Shuttlewagon Railcar Mover~~shuttlewagon railcar mover for use at its facility. The Company financed ~~all of~~ the entire purchase price through Capital One Equipment Leasing and Finance. As of April 30, ~~2012~~2013, the loan balance was approximately ~~$553,000,~~$441,000, of which ~~$440,830~~approximately $324,000 is classified as long-term debt. The note is on a ~~five year~~five-year term at a fixed annual interest rate of 3.875%.

Off-Balance Sheet Arrangements.

We currently have no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Interest Rate Risk

We are ~~generally~~ exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from our ~~revolving line of~~ credit ~~and letters of credit~~facilities with ~~Minnwest Bank. As~~United FCS, PCA. Specifically, we have $229,912 outstanding in variable rate debt as of April 30, ~~2012~~2013~~, we did not have an outstanding balance on this revolving line of credit.~~. The specifics of these credit facilities are discussed in greater detail in “Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations - ~~Short-Term Debt Sources.~~Indebtedness.”

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



Outstanding Variable Rate Debt at April 30, 2013	Interest Rate at April 30, 2013		Interest Rate Following 10% Adverse Change		Annual Adverse Change to Income
$229,912	3.10	%	3.41	%	$713

Commodity Price Risk

We seek to minimize the risks from fluctuations in the prices of raw material inputs, such as corn and natural gas, and finished products, such as ethanol and distillers grains, through the use of hedging instruments. In practice, as markets move, we actively manage our risk and adjust hedging strategies as appropriate. Although we believe our hedge positions accomplish an economic hedge against our future purchases and sales, management has chosen not to use hedge accounting, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged. We are using fair value accounting for our hedge positions, which means as the current market price of our hedge positions changes, the realized or unrealized gains and losses are immediately recognized in our cost of goods sold or as an offset to revenues. The immediate recognition of hedging gains and losses under fair value accounting can cause net income to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged.

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

A sensitivity analysis has been prepared to estimate our exposure to ethanol, corn and natural gas price risk. Market risk related to these factors is estimated as the potential change in income resulting from a hypothetical 10% adverse change in the

fair value of our corn and natural gas prices and average ethanol price as of April 30, ~~2012~~2013, net of the forward and future contracts used to hedge our market risk for corn and natural gas usage requirements. The volumes are based on our expected use and sale of these commodities for a one year period from April 30, ~~2012~~2013. The results of this analysis, which may differ from actual results, are as follows:


	Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)	Unit of Measure	Hypothetical Adverse Change in Price as of April 30, 2012		Approximate Adverse Change to Income		Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)	Unit of Measure	Hypothetical Adverse Change in Price as of April 30, 2013		Approximate Adverse Change to Income
Natural Gas	1,390,000	MMBTU	10	%	$	569,900	1,694,500	MMBTU	10	%	$	842,000
Ethanol	54,500,000	Gallons	10	%	$	11,968,000	56,894,000	Gallons	10	%	$	13,371,000
Corn	20,400,000	Bushels	10	%	$	13,056,000	19,784,000	Bushels	10	%	$	13,691,000

Participation in Captive Reinsurance Company

We participate in a captive reinsurance company (“Captive”). The Captive reinsures losses related to workman's compensation, commercial property and general liability. Premiums are accrued by a charge to income for the period to which the premium relates and is remitted by our insurer to the captive reinsurer. The Captive reinsures losses in excess of a predetermined amount. The Captive insurer has estimated and collected a premium amount in excess of expected losses but less than the aggregate loss limits reinsured by the Captive. We have contributed limited capital surplus to the Captive that is available to fund losses should the actual losses sustained exceed premium funding. So long as the Captive is fully-funded through premiums and capital contributions to the aggregate loss limits reinsured, and the fronting insurers are financially strong, we cannot be assessed over the amount of our current contributions.

Item 4. Controls and Procedures

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

Our management, including our Chief Executive Officer and General Manager (the principal executive officer), Steve Christensen, along with our Chief Financial Officer (the principal financial officer), Stacie Schuler, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of April 30, ~~2012~~2013. Based upon this review and evaluation, these officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission; and to ensure that the information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

Our management, including our principal executive officer and principal financial officer, have reviewed and evaluated any changes in our internal control over financial reporting that occurred during the quarter ended April 30, ~~2012~~2013 and there has been no change that has materially affected or is reasonably likely to materially affect our internal control over financial reporting. However, on February 10, 2012, we appointed an interim Chief Executive Officer, and on April 23, 2012, we appointed a permanent Chief Executive Officer, both of which appointments resulted in additional training associated with our review process. The effective date of the appointment of our interim Chief Executive Officer, Wayne Gordon, coincided with the departure of our former Chief Executive Officer. The effective date of the appointment of our permanent Chief Executive Officer, Steve Christensen, coincided with Wayne Gordon's resignation as interim Chief Executive Officer.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time in the ordinary course of business, Granite Falls Energy, LLC may be named as a defendant in legal proceedings related to various issues, including workers' compensation claims, tort claims, or contractual disputes. We are not currently involved in any material legal proceedings.

Item 1A. Risk Factors

~~The following risk factors are provided due to~~There have been no material changes, ~~from~~except as described below, to the risk factors ~~previously~~ disclosed in Item 1A of our ~~annual report on~~ Form ~~10-K. The risk factors set forth below should be read in conjunction with the risk factors section and the Management's Discussion and Analysis section~~10-K for the fiscal year ended October 31, ~~2011, included in~~2012. Additional risks and uncertainties, including risks and uncertainties not presently known to us, or that we currently deem immaterial, could also have an adverse effect on our ~~annual report on Form 10-K.~~business, financial condition and/or results of operations.

Risks Related to Regulation and Government Action

~~The Federal Volumetric Ethanol Excise Tax Credit (“VEETC”) expired on December 31, 2011 and its absence~~Changes to the Renewable Fuels Standard or to permissible levels of ethanol blended into gasoline could negatively impact our ~~profitability.~~profitability ~~The ethanol industry has historically been benefited by VEETC which is~~. RFS2 requires the use of a federal excise tax credit of 45 cents per gallon of ethanol blended with gasoline. This excise tax credit expired on December 31, 2011. It is unclear exactly how the absence of this tax credit will affect the ethanol market but it could negatively impact the price we receive for our ethanol and could negatively impact our profitability.

~~The Secondary Tariff on Imported Ethanol was eliminated in December 2011, and its absence could negatively impact our profitability.~~ The secondary tariff on imported ethanol was allowed to expire in December 2011. Accordingly, it is possible that we could see an increase in ethanol produced in foreign countries being marketed in the United States which could negatively impact our profitability. The secondary tariff on imported ethanol was a 54 cent per gallon tariff on ethanol imports from certain foreign countries. If market prices make importing ethanol to the United States profitable for foreign producers, we could see an influx of imported ethanol on the domestic ethanol market which could have a significant negative impact on domestic ethanol prices and our profitability.

~~Increases in the price of corn may reduce our profitability.~~ Our results of operations and financial condition are significantly affected by the price and supply of corn. Changes in the price and supply of corn are subject to and determined by market forces over which we have little control. Ethanol production requires substantial amounts of corn. Generally, higher corn prices will produce lower profit margins and, therefore, negatively affect our financial performance. If a period of high corn prices were to be sustained for some time, such pricing may reduce our ability to generate income because of the higher cost of operating our plant. This may make ethanol production unprofitable. We may not be able to offset any increase in the price of corn by increasing the price of our products. If we cannot offset increases in the price of corn, our financial performance may be materially and adversely affected.

The prices of ethanol and distillers grains may decline as a result of antidumping and antisubsidy investigations being conducted by foreign countries with respect to ethanol and distillers grains originating in the United Sates. ~~An increasing~~specified amount of our industry's products are being exported. If producers and exporters of ethanol and distillers grains are subjected to trade barriers when selling products to foreign customers there may be a reduction in the price of these productsrenewable fuels in the United States. ~~Declines~~Additionally, the EPA has approved the use of E15, gasoline which is blended at a rate of 15% ethanol and 85% gasoline, in vehicles manufactured in the ~~price we receive~~model year 2001 and later. These two measures, taken together, help ensure that there is a market for ~~our products will lead to decreased revenues and may result in our inability to operate~~ the ethanol ~~plant profitably.~~

~~An oversupply~~we produce. However, certain legislators and certain industry groups have advocated for changes to RFS2 and other statutes and regulations that, if adopted, would negatively impact our business. At various times over the past several months, legislation has been proposed that would repeal RFS2, repeal the corn based ethanol portion of RFS2, or ban E15. While the ethanol industry has resisted these proposals, we cannot be assured that RFS2 will remain in its current form going forward or that E15 or higher blends of ethanol inwill be widely available, which may negatively impact the ~~United States may reduce our revenues and profitability.~~ The United States ethanol industry presently has a production capacity of approximately 15.2 billion gallons per year of “renewable biofuels” according to the Spring 2012 Fuel Ethanol Plant Map produced by ~~Ethanol Producer Magazine~~, including some presently idled facilities. However, the current Federal Renewable Fuels Standard, known as RFS2, requires that U.S. ethanol blenders purchase only 13.2 billion gallons of renewable biofuels during 2012. During 2011, the U.S. exported a record 1.2 billion gallons of ethanol, according to the Renewable Fuels Association. However, net exports in 2012 remain uncertain given a jump in imports following the expiration of the import tariff on December 31, 2011 and a weaker Brazilian currency in 2012. Brazil purchased approximately 40% of U.S. ethanol exports in 2011. If the U.S. ethanol supply imbalance continues, then ethanol prices and our profit margins may remain narrow or trend negative, and the value of your investment in us may decrease.demand for ethanol.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits.


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



Exhibit No.			Exhibit
~~10.1~~3.1			~~CEO/GM Employment Contract dated April 19, 2012 by~~Third Amendment to the Fifth Amended and ~~between Granite Falls Energy, LLC~~Restated Operating and Steve ChristensenMember Control Agreement
31.1			Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a)*
31.2			Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a)*
32.1			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350*
32.2			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350*
101			The following financial information from Granite Falls Ethanol, LLC's Quarterly Report on Form 10-Q for the quarter ended April 30, ~~2012,~~2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of April 30, ~~2012~~2013 and October 31, ~~2011,~~2012, (ii) Condensed Statements of Operations for the three and six months ended April 30, ~~2012~~2013 and ~~2011,~~2012, (iii) Statements of Cash Flows for the six months ended April 30, ~~2012~~2013 and ~~2011,~~2012, and (iv) the Notes to Condensed Financial Statements.**

* Filed herewith.

** Furnished herewith.

SIGNATURES

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



		GRANITE FALLS ENERGY, LLC

Date:	June 14, ~~2012~~2013	/s/ Steve Christensen
		Steve Christensen
		Chief Executive Officer


Date:	June 14, ~~2012~~2013	/s/ Stacie Schuler
		Stacie Schuler
		Chief Financial Officer



	Page Number
PART I. FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3. Quantitative and Qualitative Disclosures about Market Risk	23
Item 4. Controls and Procedures	24
PART II. OTHER INFORMATION	24
Item 1. Legal Proceedings	2524
Item 1A. Risk Factors	25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3. Defaults Upon Senior Securities	2625
Item 4. Mine Safety Disclosures	2625
Item 5. Other Information	2625
Item 6. Exhibits	26
SIGNATURES	27