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, 2013~~January 31, 2014

	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, 2013~~March 17, 2014 there were 30,606 membership units outstanding.

INDEX

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

GRANITE FALLS ENERGY, LLC

Condensed Consolidated Balance Sheets


ASSETS	April 30, 2013		October 31, 2012		January 31, 2014		October 31, 2013
	(Unaudited)				(Unaudited)
Current Assets
Cash	$	1,386,003	$	685,828	$	1,738,997	$	1,158,774
Restricted cash	474,000		494,000		731,500		393,750
Accounts receivable	6,152,560		7,356,534		11,869,748		6,450,694
Inventory	12,790,395		12,013,169		9,567,074		12,370,277
Commodity derivative instruments					111,625		—
Prepaid expenses and other current assets	262,314		165,519		1,342,777		1,096,483
Total current assets	21,065,272		20,715,050		25,361,721		21,469,978

Property, Plant and Equipment
Land and improvements	6,552,967		7,095,172		13,348,732		12,307,063
Railroad improvements	7,961,096		4,121,148		8,005,523		8,005,523
Process equipment and tanks	64,678,860		64,678,860		112,439,217		110,440,407
Administration building	279,734		279,734		1,014,001		1,015,361
Office equipment	244,160		154,072		265,792		265,792
Rolling stock	1,305,395		1,305,395		1,752,745		1,691,857
Construction in progress	1,636,310		3,831,263		174,689		2,067,213
	82,658,522		81,465,644		137,000,699		135,793,216
Less accumulated depreciation	43,365,199		41,047,562		49,222,398		46,984,361
Net property, plant and equipment	39,293,323		40,418,082		87,778,301		88,808,855

Goodwill					1,372,473		1,372,473

Other Assets					990,598		1,021,916

Total Assets	$	60,358,595	$	61,133,132	$	115,503,093	$	112,673,222

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

GRANITE FALLS ENERGY, LLC

Condensed Consolidated Balance Sheets


LIABILITIES AND MEMBERS' EQUITY	April 30, 2013		October 31, 2012
LIABILITIES AND EQUITY					January 31, 2014		October 31, 2013
	(Unaudited)				(Unaudited)
Current Liabilities
Checks drawn in excess of bank balances					$	672,868	$	—
Current portion of long-term debt	$	116,953	$	114,718	3,490,517		3,490,808
Accounts payable	1,432,609		3,527,840		3,683,880		3,058,633
Corn payable to FCE	4,496,144		1,995,997		1,594,046		4,001,852
Commodity derivative instruments	47,813		45,563		26,138		75,113
Accrued liabilities	602,592		318,819		775,376		696,858
Total current liabilities	6,696,111		6,002,937		10,242,825		11,323,264

Long-Term Debt, less current portion	553,789		5,274,870		29,413,295		32,981,955

Commitments and Contingencies

Members' Equity, 30,606 units authorized, issued and outstanding	53,108,695		49,855,325
Members' Equity
Members' equity attributable to Granite Falls Energy, LLC consists of 30,606 units authorized, issued and outstanding					64,931,379		59,887,346
Noncontrolling interest					10,915,594		8,480,657
Total Members' Equity					75,846,973		68,368,003
Total Liabilities and Members' Equity					$	115,503,093	$	112,673,222

Total Liabilities and Members’ Equity	$	60,358,595	$	61,133,132

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

GRANITE FALLS ENERGY, LLC

Condensed Consolidated Statements of Operations

Three Months Ended Three Months Ended Six Months Ended Six Months Ended

April 30, 2013 April 30, 2012 April 30, 2013 April 30, 2012

(Unaudited) (Unaudited) (Unaudited) (Unaudited)

Revenues $ 48,020,602
$ 39,025,122
$ 95,137,724
$ 82,770,898

Cost of Goods Sold 44,390,630
38,367,706
90,675,608
78,425,531

Gross Profit 3,629,972
657,416
4,462,116
4,345,367

Operating Expenses 582,965
590,481
1,145,660
1,254,217

Operating Income 3,047,007
66,935
3,316,456
3,091,150

Other Income (Expense)

Other income, net 23,078
51,004
24,225
65,548
Interest income 41
4,052
95
15,281
Interest expense (38,183 ) (5,525 ) (87,406 ) (13,225 )
Total other income (expense), net (15,064 ) 49,531
(63,086 ) 67,604

Net Income $ 3,031,943
$ 116,466
$ 3,253,370
$ 3,158,754

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

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

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



	Three Months Ended			Three Months Ended
	January 31, 2014			January 31, 2013
	(Unaudited)			(Unaudited)
Revenues	$	77,463,813		$	47,117,122

Cost of Goods Sold	63,043,355			45,886,978

Lower of Cost or Market Adjustment	—			398,000

Gross Profit	14,420,458			832,144

Operating Expenses	1,295,501			562,695

Operating Income	13,124,957			269,449

Other Income (Expense)
Other income, net	56,559			1,146
Interest income	307			54
Interest expense	(276,746		)	(49,222		)
Total other expense, net	(219,880		)	(48,022		)

Net Income	$	12,905,077		$	221,427

Net Income Attributable to Noncontrolling Interest	$	2,350,130		$	—

Net Income Attributable to Granite Falls Energy, LLC	$	10,554,947		$	221,427

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

Amounts attributable to Granite Falls Energy, LLC:

Net Income Per Unit - Basic and Diluted	$	344.87		$	7.23

Distributions Per Unit - Basic and Diluted	$	180		$	—

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

GRANITE FALLS ENERGY, LLC

Condensed Consolidated Statements of Cash Flows


	Six Months Ended			Six Months Ended			Three Months Ended			Three Months Ended
	April 30, 2013			April 30, 2012			January 31, 2014			January 31, 2013
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Cash Flows from Operating Activities
Net income	$	3,253,370		$	3,158,754		$	12,905,077		$	221,427
Adjustments to reconcile net income to net cash provided by operations:
Depreciation	2,317,637			2,100,078
Adjustments to reconcile net income to net cash provided by (used in) operations:
Depreciation and amortization							2,269,355			1,177,637
Change in fair value of derivative instruments	(26,582		)	1,301,250			40,772			(275,537		)
Changes in assets and liabilities:
Gain on sale of equipment							(24,119		)	—
Lower of cost or market adjustment							—			398,000
Changes in operating assets and liabilities:
Restricted cash	20,000			903,000			(337,750		)	(160,000		)
Derivative Instruments	28,832			(897,200		)	(201,372		)	141,099
Accounts receivable	1,203,974			(462,167		)	(5,419,054		)	(323,424		)
Inventory	(777,226		)	3,567,709			2,803,203			(1,974,392		)
Prepaid expenses and other current assets	(96,795		)	(77,308		)	(246,294		)	(225,958		)
Accounts payable	404,916			37,793			(1,782,559		)	(759,783		)
Accrued liabilities	283,773			(103,164		)	163,325			172,091
Net Cash Provided by Operating Activities	6,611,899			9,528,745
Net Cash Provided by (Used in) Operating Activities							10,170,584			(1,608,840		)

Cash Flows from Investing Activities
Proceeds from sale or disposal of assets							22,285			—
Payments for capital expenditures							(1,207,483		)	(497,699		)
Proceeds from sale of land	540,000			—			—			540,000
Payments for capital expenditures	(1,732,878		)	(8,174		)
Payments for land acquisition	—			(3,990,270		)
Net Cash Used in Investing Activities	(1,192,878		)	(3,998,444		)
Net Cash Provided by (Used in) Investing Activities							(1,185,198		)	42,301

Cash Flows from Financing Activities
Payments on long-term debt, net	(4,718,846		)	(45,619		)
Proceeds from checks in excess of bank balance							672,868			—
Proceeds from revolving line of credit and term loan							—			1,209,551
Proceeds from long-term debt							759,010			—
Payments on long-term debt							(4,327,961		)	(29,378		)
Member distributions paid	—			(9,196,800		)	(5,509,080		)	—
Net Cash Used in Financing Activities	(4,718,846		)	(9,242,419		)
Net Cash Provided by (Used in) Financing Activities							(8,405,163		)	1,180,173

Net Increase (Decrease) in Cash	700,175			(3,712,118		)	580,223			(386,366		)

Cash - Beginning of Period	685,828			13,064,560			1,158,774			685,828

Cash - End of Period	$	1,386,003		$	9,352,442		$	1,738,997		$	299,462

Supplemental Cash Flow Information
Cash paid during the period for:
Interest expense	$	87,406		$	13,225		$	385,419		$	49,223

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
Cancellation of accrued distribution to noncontrolling interest							$	84,523		$	—

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

GRANITE FALLS ENERGY, LLC

Notes to UNAUDITED Condensed Consolidated Financial Statements

~~April 30, 2013~~January 31, 2014

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying financial statements consolidate the operating results and financial position of Granite Falls Energy, LLC (“GFE” or the “Company”), and its wholly owned subsidiary, Project Viking, L.L.C. ("Project Viking") which owns 60.8% of Heron Lake BioEnergy, LLC (“HLBE”). The remaining 39.2% ownership of HLBE is included in the consolidated financial statements as a non-controlling interest. All intercompany balances and transactions are eliminated in consolidation.

The accompanying condensed consolidated balance sheet as of October 31, ~~2012~~2013 is derived from audited consolidated financial statements. The unaudited interim condensed consolidated financial statements of ~~Granite Falls Energy, LLC (the “Company”)~~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~~period ended ~~April 30, 2013~~January 31, 2014 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 consolidated 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 consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in its annual report for the year ended October 31, ~~2012~~2013 filed on Form 10-K with the SEC.

Nature of Business

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

HLBE is a Minnesota limited liability company currently producing fuel-grade ethanol, distillers grains, and crude corn oil near Heron Lake, Minnesota and sells these products, pursuant to marketing agreements, throughout the continental United States. HLBE's plant has an approximate annual production capacity of 50 million gallons, but is currently permitted to produce up to 59.2 million gallons.

Accounting Estimates

Management uses estimates and assumptions in preparing these condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The Company uses estimates and assumptions in accounting for the following significant matters, among others: 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.~~assets and goodwill, and the assumptions used to estimate the fair market value of acquired assets and liabilities. Actual results may differ from previously estimated amounts, and such differences may be material to our condensed consolidated financial statements. The Company periodically reviews estimates and assumptions, and the effects of revisions are reflected in the period in which the revision is made.

Revenue Recognition

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.

GRANITE FALLS ENERGY, LLC

Notes to UNAUDITED Condensed Consolidated Financial Statements

January 31, 2014

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 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 inon the balance sheets at fair value.

~~GRANITE FALLS ENERGY, LLC~~

~~Notes to UNAUDITED Condensed Financial Statements~~

~~April 30, 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 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 consolidated financial statements.

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

The Company has adopted authoritative guidance related to “Derivatives and Hedging,” and has included the required enhanced quantitative and qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses from derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. See further discussion in Note 4.

Business Combinations

The Company allocates the total purchase price of a business combination to the assets acquired and the liabilities assumed based on their estimated fair values at the acquisition date, with the excess purchase price recorded as goodwill. The Company used current market data to assist them in determining the fair value of the assets acquired and liabilities assumed, including goodwill, based on recognized business valuation methodology. Subsequent to the acquisition but not to exceed one year from the acquisition date, the Company will record any material adjustments retrospectively to the initial estimate based on new information obtained about facts and circumstances that existed as of the acquisition date. The Company expenses any acquisition-related costs as incurred in connection with business combinations. An income, market or cost valuation method may be utilized to estimate the fair value of the assets acquired or liabilities assumed in a business combination. The income valuation method represents the present value of future cash flows over the life of the asset using (i) discrete financial forecasts, which rely on management's estimates of revenue and operating expenses, (ii) long-term growth rates, and (iii) an appropriate discount rate. The market valuation method uses prices paid for a reasonably similar asset by other purchasers in the market, with adjustments relating to any differences between the assets. The cost valuation method is based on the replacement cost of a comparable asset at prices at the time of the acquisition reduced for depreciation of the asset.

GRANITE FALLS ENERGY, LLC

Notes to UNAUDITED Condensed Consolidated Financial Statements

January 31, 2014

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 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 7580 -85% of total revenues and corn costs typically average 7570 -~~85%~~ 80% 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
(Unaudited)
Raw materials $ 8,817,361
$ 8,977,820
Spare parts 671,881
682,896
Work in process 1,174,317
1,183,188
Finished goods 2,126,836
1,169,265
Totals $ 12,790,395
$ 12,013,169



	January 31, 2014
	(Unaudited)		October 31, 2013
Raw materials	$	3,204,969	$	4,652,465
Spare parts	1,848,339		1,636,466
Work in process	1,589,635		1,643,574
Finished goods	2,924,131		4,437,772
Totals	$	9,567,074	$	12,370,277

~~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 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 adjustment on certain inventories for the three month period ended January 31, 2014. The Company recorded a lower of cost or ~~six~~market charge on certain inventories for the three month ~~periods~~period ended ~~April 30,~~January 31, 2013 ~~and 2012.~~for approximately $398,000.

4. DERIVATIVE INSTRUMENTS

As of ~~April 30, 2013,~~January 31, 2014, the total notional amount of the Company's outstanding corn derivative instruments was approximately ~~1,185,000~~2,090,000 bushels that were entered into to hedge forecasted corn purchases through ~~July 2013.~~December 2014. There may be offsetting positions that are not 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,~~January 31, 2014, none of which ~~are~~were designated as hedging instruments:

Balance Sheet location Assets Liabilities

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

Totals $ —
$ (47,813 )



	Balance Sheet location	Assets		Liabilities
Corn contracts - GFE	Commodity derivative instruments	$	111,625	$	—
Corn contracts - HLBE	Commodity derivative instruments	—		26,138
Totals		$	111,625	$	26,138

In addition, as of ~~April 30, 2013~~January 31, 2014, the Company maintained $~~474,000~~731,500 of restricted cash related to margin requirements for the Company's commodity derivative instrument positions.

GRANITE FALLS ENERGY, LLC

Notes to UNAUDITED Condensed Consolidated Financial Statements

January 31, 2014

As of October 31, ~~2012,~~2013, the total notional amount of the Company's outstanding corn derivative instruments was approximately ~~1,235,000~~1,125,000 bushels that were entered into to hedge forecasted corn purchases through ~~March~~December 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, ~~2012,~~2013, none of which are designated as hedging instruments:

Balance Sheet location Assets Liabilities

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

Totals $ —
$ (45,563 )



	Balance Sheet location	Assets	Liabilities
Corn contracts - GFE	Commodity derivative instruments	—	(75,113	)
Totals		—	(75,113	)

In addition, as of October 31, ~~2012~~2013, the Company maintained $~~494,000~~393,750 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,
2013 2012

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

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

~~GRANITE FALLS ENERGY, LLC~~

~~Notes to UNAUDITED Condensed Financial Statements~~

~~April 30, 2013~~



	Statement of Operations location	Three Months Ended January 31
	Statement of Operations location	2014			2013

Corn contracts	Cost of Goods Sold	$	(40,772	)	$	275,537

Total Gain		$	(40,772	)	$	275,537

Statement of Operations location
Six Months Ended
April 30,
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 FACILITIES

~~The Company~~Granite Falls Energy:

GFE has two credit facilities with a lender. The first is a seasonal revolving operating loan facility in the amount of $~~6,000,000~~5,600,000. The second is a revolving term loan facility in the amount of $~~8,000,000~~18,000,000. However, the amount available for borrowing under this facility reduces by $~~1,000,000~~2,000,000 ~~every six months,~~semi-annually, beginning September 1, ~~2013,~~2014, with final payment due March 1, ~~2017.~~2018.

The interest rates for both facilities are based on the bank's "One Month LIBOR Index Rate," plus ~~265~~2.8% and ~~290 basis points~~3.05% on the seasonal and revolving term commitments, respectively. Both facilities are available through March ~~2017.~~31, 2017 and March 31, 2018, respectively. The outstanding balance on the revolving term loan on ~~April 30, 2013~~January 31, 2014 and October 31, ~~2012~~2013 was $~~229,912~~2,065,495 and $~~4,891,952~~2,513,674, respectively, and the interest ~~rates were~~ ~~3.10%~~ ~~and~~ ~~3.12%~~rate as of both of those dates ~~respectively. The Company~~was 3.21%. GFE currently has no outstanding balance on the seasonal revolving operating loan facility.

The Company's credit facilities with United FCS require the Company to comply with certain financial ~~covenants.~~covenants, including (i) maintaining working capital of at least $10,000,000, (ii) maintaining local net worth, defined as total assets, minus total liabilities, minus investments by the Company in other entities, of at least $45,000,000, and (iii) achieving a debt service coverage ratio of at least 2.0 to 1.0. Our debt service coverage ratio is calculated as follows: (1) net income, plus depreciation and amortization, minus extraordinary gains (plus extraordinary losses), minus gain on asset sales (plus loss on asset sales); (2) divided by $2,000,000. As of ~~April 30, 2013~~January 31, 2014 and October 31, ~~2012, the Company~~2013, GFE was in compliance with these financial covenants and expects to be in compliance ~~through~~throughout fiscal ~~2013.~~ 2014.

The credit facilities are secured by substantially all assets of the Company. There are no savings account balance collateral requirements as part of this credit facility.

GRANITE FALLS ENERGY, LLC

Notes to UNAUDITED Condensed Consolidated Financial Statements

January 31, 2014

At ~~April 30, 2013, the Company~~January 31, 2014, GFE also had letters of credit totaling $~~337,928~~288,928 with the bank as part of a credit requirement of Northern Natural Gas. These letters of credit ~~reduce~~reduced the total amount available on the revolving operating facility to approximately $5,711,000.

Heron Lake BioEnergy:

Term Note Payable

On May 17, 2013, HLBE renegotiated its term loan with AgStar in the amount ~~available~~of $17,400,000. HLBE must make equal monthly payments of principal and interest of approximately $223,000 on the term loan based on a 10-year amortization, provided the entire principal balance and accrued and unpaid interest on the term loan is due and payable in full on the maturity date of September 1, 2016. In addition, HLBE is required to make additional payments annually on debt for up to 25% of the excess cash flow, as defined by the agreement, up to $2,000,000 per year. Through September 1, 2014, the loan bears interest at 5.75% as long as HLBE is in compliance with their debt covenants.

On September 1, 2014, the interest term loan will be adjusted to LIBOR plus 3.50% but not less than 5%. The loan agreements are secured by substantially all business assets and are subject to various financial and non-financial covenants that limit distributions and debt and require minimum debt service coverage, net worth, and working capital requirements. As described above, HLBE was in compliance with the covenants of its master loan agreement with AgStar as of January 31, 2014.

Revolving Term Note

HLBE also obtained a three-year term revolving loan commitment in the amount of $20,500,000, under which AgStar agreed to make periodic advances to HLBE up to this original amount until September 1, 2016. Amounts borrowed by HLBE under the ~~seasonal~~term revolving ~~operating~~ loan and repaid or prepaid may be re-borrowed at any time prior to maturity date of the term revolving loan, provided that outstanding advances may not exceed the amount of the term revolving loan commitment. Amounts outstanding on the term revolving loan bear interest at a variable rate equal to the greater of a LIBOR rate plus 3.50% or 5.0%, payable monthly. HLBE also pays an unused commitment fee on the unused portion of the term revolving loan commitment at the rate of 0.35% per annum, payable in arrears in quarterly installments during the term of the term revolving loan. Under the terms of the new agreement, the term revolving loan commitment is scheduled to decline by $2,000,000 annually, beginning on October 31, 2013 and each anniversary date thereafter. The maturity date of the term revolving loan is September 1, 2016

Subordinated Convertible Debt

On May 17, 2013, HLBE's previous Board of Governors loaned HLBE approximately $~~5,662,000~~1,400,000. as part of the convertible secured debt offering. An additional $3,700,000 was raised as part of a convertible debt offering during September 2013. The convertible secured debt is subordinated to the AgStar debt. The notes bear interest at 7.25% (which is paid semi-annually) and all outstanding principle is due in May 2018. On October 1, 2014, or immediately prior to the sale of all or effectively all of HLBE assets, each note is convertible to Class A stock at a rate of $0.30 per class A unit. HLBE reserves the right to issue Class B units upon conversion if the principal balance of the convertible debt exceeds the authorized Class A units at the conversion rate. At the issuance, each debt holder had the option to convert to Class A units. As a result, holders elected to convert $934,500 in September 2013 for 3,115,000 Class A units.

GRANITE FALLS ENERGY, LLC

Notes to UNAUDITED Condensed Consolidated Financial Statements

January 31, 2014

Long-term debt consists of the following:

April 30, 2013 October 31, 2012
Capital One Equipment Leasing/Finance:
Shuttlewagon Railcar Mover (5 year term at 3.875%) $ 440,830
$ 497,636
Revolving Term Loan 229,912 4,891,952
Total Debt 670,742 5,389,588
Less: Current Maturities (116,953 ) (114,718 )

Total Long-Term Debt $ 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



	January 31, 2014			October 31, 2013
Granite Falls Energy:	(unaudited)
Capital One Shuttlewagon Railcar Mover (5 year term at 3.875%, due in monthly installments of $10,995) This note was paid in full January 2014.	$	—		$	382,918
Revolving Term Loan - see terms above	2,065,495			2,513,674
Heron Lake BioEnergy:
Term note payable to lending institution (including premium of approximately $1.56m) - see terms above	17,715,311			18,317,800
Revolving term note payable to lending institution (including premium of approximately $252k) - see terms above	3,632,234			6,263,158
Assessment payable as part of water treatment agreement, due in semi-annual installments of $189,393 with interest at 6.55%, enforceable by statutory lien, with the final payment due in 2021. The Company made deposits for one years' worth of debt service payments that are held on deposit to be applied with the final payments of the assessment.	2,246,771			2,246,771
Assessment payable as part of water treatment agreement, due in semi-annual installments of $25,692 with interest at 0.50%, enforceable by statutory lien, with the final payment due in 2016.	152,698			152,698
Assessment payable as part of water supply agreement, due in monthly installments of $3,942 with interest at 8.73%, enforceable by statutory lien, with the final payment due in 2019.	197,154			205,209
Note payable to electrical company with monthly payments of $6,250 with a 1% maintenance fee due each October, due September 2017. The electrical company is a member of the Company.	275,000			293,750
Note payable to a lending institution for the construction of the pipeline assets initially due in December 2011, converted in February 2012 to a term loan with a three year repayment period. Monthly payments of $52,093 with interest is at 5.29% and the note, along with the line of credit in Note 8, is secured by substantially all assets of Agrinatural.	1,684,469			1,013,132
Note payable to non-controlling interest member of Agrinatural. Interest is payable monthly at 5.425% with principle due at the maturity date of October 2014.	300,000			300,000
Equipment payable on corn oil separation equipment from a vendor. The Company pays approximately $40,000 per month conditioned upon revenue generated from the corn oil equipment. The monthly payment includes implicit interest of 5.57% until maturity in May 2015 and the note is secured by the equipment.	491,680			640,653
Subordinated Convertible Debt with interest of 7.25% paid on a semi-annual basis - see terms above.	4,143,000			4,143,000
Total debt	32,903,812			36,472,763
Less: Current Maturities	(3,490,517		)	(3,490,808		)
Total Long-Term Debt	$	29,413,295		$	32,981,955

6. LEASES

~~The Company~~GFE 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 April 2018. ~~The Company~~GFE will pay Trinity $620 per month plus $0.03 per mile traveled in excess of 36,000 miles per year. Rent expense for these leases was approximately $~~139,000~~ ~~and~~ ~~$137,000~~139,500 for the three month

~~GRANITE FALLS ENERGY, LLC~~

~~Notes to UNAUDITED Condensed Financial Statements~~

~~April 30, 2013~~

periods ended ~~April 30, 2013~~January 31, 2014 and ~~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, respectively.~~2013.

~~The Company~~GFE has lease agreements with three leasing companies for ~~177~~176 rail car leases for the transportation of ~~the Company's~~GFE'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~~121,000. Rent expense for these leases was approximately $~~364,000~~ ~~and~~ ~~$318,000~~398,000 for the three month periods ended ~~April 30,~~January 31, 2014 and 2013, ~~and 2012,~~ respectively.

GRANITE FALLS ENERGY, LLC

Notes to UNAUDITED Condensed Consolidated Financial Statements

January 31, 2014

HLBE leases equipment, primarily rail cars, under operating leases through 2017. Rent expense for ~~these leases~~the three months ended January 31, 2014 and 2013 was approximately ~~$709,000~~$448,000 and ~~$636,000~~ ~~for the six month periods ended April 30, 2013 and 2012,~~$532,000, respectively.

7. MEMBERS' EQUITY

~~The Company~~GFE 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,~~January 31, 2014 and 2013, ~~and October 31, 2012, the Company~~GFE had 30,606 membership units authorized, issued, and outstanding.

~~8. FAIR VALUE~~

~~The following table provides information on those derivative liabilities measured at fair value on a recurring basis at April 30, 2013:~~

Carrying Amount in Balance Sheet
April 30, 2013

Fair Value
April 30, 2013
Fair Value Measurement Using
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 derivative liabilities measured at fair value on a recurring basis at October 31, 2012:~~

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)
Financial Liabilities:
Commodity derivative instruments $ (45,563 ) $ (45,563 ) $ (45,563 ) $ —
$ —

~~The Company determines~~In December 2013, the fair value of commodity derivative instruments by obtaining fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the Chicago Board of ~~Trade market and New York Mercantile Exchange.~~Governors declared a cash distribution of $180 per unit or $5,509,080 for unit holders of record as of December 19, 2013. The distribution was paid on December 31, 2013.

9.8. COMMITMENTS AND CONTINGENCIES

Corn Storage and Grain Handling Agreement and Purchase Commitments

~~The Company~~GFE 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,~~October 31, 2013, GFE also had 550,000 bushels of stored corn totaling approximately $2,346,000 with FCE that is included in inventory. All of this corn was consumed in production during the ~~Company~~three months ended January 31, 2014.

At January 31, 2014, GFE had basis contracts for forward corn purchase commitments with FCE for ~~2,375,000~~1,455,000 bushels for deliveries ~~from May~~through October 2014.

Ethanol Marketing Agreement

GFE currently has an Ethanol Marketing Agreement (“Eco Agreement”) with Eco-Energy, Inc. (“Eco-Energy”). Pursuant to the Eco Agreement, Eco-Energy agrees to purchase the entire ethanol output of GFE's ethanol plant and to arrange for the transportation of ethanol; however, GFE is responsible for securing all of the rail cars necessary for the transport of ethanol by rail. GFE will pay Eco-Energy a certain percentage of the FOB plant price in consideration of Eco-Energy's services. The contract had an initial term of one year, and will continue to remain in effect until terminated by either party at its unqualified option, by providing written notice of not less than 90 days to the other party.

During the fourth quarter of fiscal year 2013, ~~through June 2013. At April 30, 2013,~~HLBE entered into a new marketing agreement with Eco-Energy, for the sale of ethanol. Under this ethanol agreement, Eco-Energy will purchase, market and resell 100% of the ethanol produced at the Company'sethanol production facility and the Company ~~also had~~ ~~885,000~~ ~~bushels~~will pay Eco-Energy a marketing fee based on a percentage of ~~stored corn totaling approximately~~ ~~$6,511,000~~ ~~with FCE that is included in inventory.~~the applicable sale price of the ethanol. The marketing fee was negotiated based on prevailing market-rate conditions for comparable ethanol marketing services.

~~GRANITE FALLS ENERGY, LLC~~

~~Notes to UNAUDITED Condensed Financial Statements~~

~~April 30, 2013~~

Ethanol Contracts

At ~~April 30, 2013, the Company~~January 31, 2014, GFE had forward contracts to sell approximately $~~13,212,000~~6,148,000 of ethanol for ~~deliveries~~various delivery periods from ~~May 2013~~February 2014 through ~~June 2013~~March 2014 which approximates ~~50%~~35% of its anticipated ethanol sales during that period.

At January 31, 2014, HLBE had forward contracts to sell approximately $6,061,000 of ethanol for various delivery periods from February 2014 through March 2014 which approximates 35% of its anticipated ethanol sales during that period.

Distillers ~~Grains~~Grain Contracts

GFE has a Marketing Agreement with RPMG, an unrelated party, for the purpose of marketing and selling all distillers grains produced by the Company. The contract commenced on February 1, 2011 with an initial term of one year, and will continue to remain in effect until terminated by either party at its unqualified option, by providing written notice of not less than 90 days to the other party.

GRANITE FALLS ENERGY, LLC

Notes to UNAUDITED Condensed Consolidated Financial Statements

January 31, 2014

At ~~April 30, 2013, the Company~~January 31, 2014, GFE had forward contracts to sell approximately $~~600,000~~1,453,587 of distillers ~~grains~~grain for ~~delivery~~deliveries in ~~May~~February 2014 through June ~~2013~~2014 which approximates ~~10%~~19% of its anticipated distillers grain sales during that period.

~~10. LEGAL PROCEEDINGS~~At January 31, 2014, HLBE had forward contracts to sell approximately $4,828,565 of distillers grains for delivery in February 2014 through September 2014 which approximates 24% of its anticipated distillers grain sales during that period.

~~From time~~Corn Oil Marketing Agreement

GFE has a Marketing Agreement with RPMG, an unrelated party, for the purpose of marketing and selling all corn oil produced by the Company. The contract commenced on April 29, 2010 with an initial term of one year, and will continue to ~~time~~remain in effect until terminated by either party at its unqualified option, by providing written notice of not less than 90 days to the ~~ordinary course~~other party.

Natural Gas

At January 31, 2014, GFE had no forward contracts to purchase natural gas.

HLBE has natural gas agreements with a minimum purchase commitment 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.approximately 1.6 million MMBTU per year until October 31, 2014.

1214

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~~nine month periods ended ~~April 30, 2013~~January 31, 2014, compared to the same period of the prior fiscal year. This discussion should be read in conjunction with the condensed financial statements and notes and the information contained in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, ~~2012.~~2013.

Available Information

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

Disclosure Regarding Forward-Looking Statements

This report contains historical information, as well as forward-looking statements regarding our business, financial condition, results of operations, performance and prospects. All statements that are not historical or current facts are forward-looking statements. ~~These~~You can identify 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~~by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” ~~“should,~~“would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “future,” “intend,” “could,” “hope,” “predict,” “target,” “potential,” or “continue” or the negative of these terms or otherand similar expressions ~~are~~ intended to identify forward-looking ~~statements, but are not the exclusive means of identifying such~~ statements. ~~These forward-looking~~Forward-looking statements ~~and others we make from time to time,~~ are subject to a number of known and unknown risks, uncertainties and ~~uncertainties. Many~~other factors, ~~could~~many of which may be beyond our control, and may cause actual results, performance or achievements to differ materially from those projected in, expressed or implied by forward-looking statements. ~~While it is impossible to identify all such~~Certain of these risks and uncertainties are described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended October 31, 2013 and in this Form 10-Q. These risk, uncertainties and factors ~~factors that could cause actual results to differ materially from those estimated by us~~ include, but are not limited to:

Reduction or elimination of the federal Renewable Fuels Standard;

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 the performance of Heron Lake BioEnergy, LLC, an ethanol production company in which we indirectly own approximately 60.8% of the outstanding membership units;

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 ~~or regulations, including the elimination or modification of the federal 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;

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.~~

~~We are currently producing fuel-grade~~limited liability company operating an ethanol ~~distillers grains~~plant in Granite Falls, Minnesota. References to "we," "us," "our", Granite Falls Energy", "GFE", and ~~crude corn oil for sale. Our~~the "Company" refer to Granite Falls Energy, LLC. GFE's ethanol plant has an approximate annual production capacity of 60 million gallons of denatured ethanol, but is currently permitted to produce up to 70 million gallons of undenatured ethanol on a twelve month rolling sum basis. We intend to continue working toward increasing production to take advantage of the additional production allowed pursuant to our permit as long as we believe it is profitable to do so.

Our ~~operating results~~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. Eco-Energy, LLC markets our ethanol and Renewable Products Marketing Group, LLC (“RPMG”) markets our distillers grains and our corn oil produced at the GFE plant. We also independently market a small portion of our ethanol production as E-85 to local retailers.

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. Farmers Cooperative Elevator Company is the exclusive supplier of corn to the GFE ethanol plant.

In July 2013, we indirectly acquired a majority interest in Heron Lake BioEnergy, LLC ("Heron Lake" or "HLBE"), a Minnesota limited liability company, through our purchase of 100% of the membership units of Project Viking, L.L.C. (“Project Viking”). HLBE owns a 50 million gallon per year ethanol plant located in Heron Lake, Minnesota, but is currently permitted to produce up to 59.2 million gallons. As of March 17, 2014, we are ~~largely driven~~the indirect owner of approximately 60.8% of HLBE's outstanding membership units and are entitled to appoint five (5) of the nine (9) governors to HLBE's board of governors under HLBE's member control agreement.

In July 2013, we entered into a Management Services Agreement with HLBE pursuant to which our Chief Executive Officer, Chief Financial Officer, and Commodity Risk Manager also hold those same offices with HLBE. The initial term of the Management Services Agreement expires in July 2016, but automatically renews for successive one-year terms unless either party gives the other party written notice of termination prior to expiration of the then current term. The Management Services Agreement may also be terminated by either party for cause under certain circumstances.

HLBE's revenues are primarily derived from the ~~prices at which we sell our~~sale of its ethanol, distillers grains and corn ~~oil~~oil. HLBE has contracted with Eco-Energy, LLC to market all of its ethanol, Gavilon Ingredients, LLC to market its distillers grains and RPMG to market its corn oil. HLBE grinds approximately 1,640,000 bushels of corn each month at the HLBE plant. HLBE generally does not have long-term, fixed price contracts for the purchase of corn. Typically, HLBE purchases its corn directly from grain elevators, farmers, and local dealers within approximately 80 miles of Heron Lake, Minnesota.

We expect to have sufficient cash generated by continuing operations and current lines of credit to fund our operations. However, should we experience unfavorable operating conditions in the ethanol industry that prevent us from profitably operating the ethanol plant, we may need to seek additional funding.

On November 14, 2013, the GFE board of directors declared a cash distribution of $180 per unit for GFE members of record as ~~well~~of that date. The distribution was paid in December 2013 and totaled $5,509,080.

Trends and Uncertainties Impacting Our Operations

Our current results of operation are affected and will continue to be affected by factors such as ~~the other costs related to production. The price~~(a) volatile and uncertain pricing of ethanol ~~has historically fluctuated with the price~~and corn; (b) availability of ~~petroleum-based products~~corn that is, in turn, affected by trends such as ~~unleaded gasoline, heating oil~~corn acreage, weather conditions, and ~~crude oil. The price~~yields on existing and new acreage diverted from other crops; and (c) the supply and demand for ethanol, which is affected by acceptance of ~~distillers grains has historically been influenced by the price of corn~~ethanol as a substitute ~~livestock feed. We expect~~for fuel, public perception of the ethanol industry, government incentives and regulation, and competition from new and existing construction, among other things.

The ethanol industry is dependent on several economic incentives which if reduced or eliminated could significantly impact ethanol demand. One of these ~~price relationships~~is the Renewable Fuels Standard (“RFS”) mandate. If the mandate is not changed, the RFS will require approximately 18.15 billion gallons in 2014, of which corn based ethanol can be used to ~~continue~~satisfy approximately 14.4 billion gallons. However, in November 2013 the EPA issued a proposed rule that would reduce the RFS levels for 2014 to 15.21 billion gallons of which corn-based ethanol could only be used to satisfy 13 billion gallons. This proposal will result in a reduction the 2014 volume requirement below the 13.8 billion gallons required for 2013. The EPA also sought comment on several petitions it has received for partial waiver of the statutory volumes for 2014. The 60-day public comment period for the ~~foreseeable~~proposal ended on January 28, 2014. Furthermore, there have also been recent proposals in Congress to reduce or eliminate the RFS. If the EPA's proposal becomes a final rule, or if RFS were to be otherwise reduced or eliminated by the exercise of the EPA's waiver authority or by Congress, the demand for ethanol may be negatively impacted.

Other factors that may affect our future ~~although recent volatility~~results of operation include those factors below in ~~the commodities markets makes historical price relationships less reliable. Our largest costs~~our Results of ~~production are corn, natural gas, depreciation~~Operations of this Form 10-Q and ~~manufacturing chemicals. Our cost of corn is largely impacted by geopolitical supply~~those discussed in “Item 1. Business” and ~~demand factors and the outcome~~“Item 1A. Risk Factors” of our ~~risk management strategies. Prices~~Annual Report on Form 10-K for ~~natural gas, manufacturing chemicals~~the year ended October 31, 2013, and ~~denaturant are tied directly to~~in other filings we make with the ~~overall energy sector, crude oil~~Securities and ~~unleaded gasoline.~~Exchange Commission.

As of the date of this report, we have 37 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, 2013~~January 31, 2014 and ~~2012~~2013

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~~from our unaudited consolidated statements of operations for the three months ended ~~April 30, 2013~~January 31, 2014 and ~~2012~~2013:


	2013					2012				2014					2013
Income Statement Data	Amount			%		Amount		%		Amount			%		Amount			%
Revenue	$	48,020,602		100.0	%	$	39,025,122	100.0	%	$	77,463,813		100.0	%	$	47,117,122		100.0	%
Cost of Goods Sold	44,390,630			92.4	%	38,367,706		98.3	%	63,043,355			81.4	%	46,284,978			98.2	%
Gross Profit	3,629,972			7.6	%	657,416		1.7	%	14,420,458			18.6	%	832,144			1.8	%
Operating Expenses	582,965			1.2	%	590,481		1.5	%	1,295,501			1.7	%	562,695			1.2	%
Operating Income	3,047,007			6.4	%	66,935		0.2	%	13,124,957			16.9	%	269,449			0.6	%
Other Income (Expense), net	(15,064		)	—	%	49,531		0.1	%
Other Expense, net										(219,880		)	(0.3	)%	(48,022		)	(0.1	)%
Net Income	$	3,031,943		6.4	%	$	116,466	0.3	%	12,905,077			16.6	%	221,427			0.5	%
Net Income Attributable to Noncontrolling Interest										2,350,130			3.0	%	—			—	%
Net Income Attributable to Granite Falls Energy, LLC										$	10,554,947		13.6	%	$	221,427		0.5	%

Revenues

~~Our~~Nearly all of our revenues from operations come from three primary sources: sales of fuel ethanol, sales of distillers grains and sales of corn oil. The remaining 0.5% is made up of incidental sales of syrup at HLBE's plant and revenues from Agrinatural Gas, LLC, a pipeline company, of which HLBE owns 73% of the outstanding membership interests.

Revenues increased by 64.4% for the three months ended January 31, 2014 as compared to the three months ended January 31, 2013 due primarily to as a result of the HLBE acquisition. 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~~January 31, 2014 (unaudited):


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

Ethanol sales	$	37,209,376	77.5	%	$	60,079,982	77.6	%
Distillers grains sales	9,546,923		19.9	%	15,106,894		19.5	%
Corn oil sales	1,264,303		2.6	%	1,822,373		2.4	%
Miscellaneous other					454,564		0.5	%
Total Revenues	$	48,020,602	100.0	%	$	77,463,813	100.0	%

The following table shows the sources of ~~our~~ revenue from the GFE plant for the three months ended ~~April 30, 2012~~January 31, 2013 (unaudited):


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

Ethanol sales	$	31,250,125	80.1	%	$	35,286,120	74.9	%
Distillers grains sales	6,860,000		17.6	%	10,704,680		22.7	%
Corn oil sales	914,997		2.3	%	1,126,322		2.4	%
Total Revenues	$	39,025,122	100.0	%	$	47,117,122	100.0	%

We experienced a 64.4% increase in our total revenues for the three month period ended January 31, 2014 compared to the same period in fiscal year 2013. Management attributes this increase in revenues primarily to an increase in the quantities sold as a result of our indirect acquisition of HLBE, since its results of operations were not consolidated into our statements of operations until the fourth fiscal quarter in 2013.

In the three month period ended ~~April 30, 2013~~January 31, 2014, ethanol sales comprised ~~77.5~~%77.6% of our revenues and distillers grains sales comprised ~~19.9~~%19.5% percent of our revenues, while corn oil sales comprised ~~2.6~~%2.4% of our revenues. For the three month period ended ~~April 30, 2012~~January 31, 2013, ethanol sales comprised ~~80.1~~%74.9% of our revenue, distillers grains sales comprised ~~17.6~~%22.7% of our revenue, while corn oil sales comprised ~~2.3~~%2.4% of our revenues.

Ethanol

~~The~~Our revenues from ethanol increased for our three month period ended January 31, 2014 as compared to the same period in 2013, despite a decrease in the average price per gallon of 13.9% from period to period due to an increase in ethanol sold as a result of the HLBE acquisition. Although our average ethanol ~~sales~~ price ~~we received for~~was lower during the three month period ended ~~April 30, 2013~~January 31, 2014 as compared to the same period in 2013, there was ~~approximately 12.7% higher than our average~~a favorable spread between the price of ethanol ~~sales~~and the price ~~for the comparable 2012 period.~~of corn. Management attributes the ~~increase in our average ethanol sales price to decreased ethanol inventories and a decrease~~drop in ethanol ~~production~~prices due to significantly lower corn prices, which fell as result of a record 2013 corn crop, and changes in ethanol prices are typically follow changes in corn prices. However, the ~~industry compared~~decline in ethanol prices has been less than the corresponding decline in corn prices due to increased ethanol exports and higher gasoline demand, which has contributed to the ~~prior year. Downward pressure on~~lower ethanol stocks during the three month period ended January 31, 2014. This has created a favorable spread between the price of ethanol and the price of corn and resulted in an improvement in operating margins.

Management anticipates that ethanol prices ~~throughout much of calendar year 2012, combined with increased corn prices particularly~~will continue to be volatile during the ~~last half~~remainder of ~~calendar 2012, have caused some ethanol plants~~our 2014 fiscal, changing in relation to ~~suspend or reduce production, leading to the decrease~~changes in ~~ethanol inventories~~corn and ~~production. As ethanol prices increase,~~energy prices. In addition, continuing favorable operating margins may cause some plants that have suspended or reduced production may resume or increase production, which may ~~once again~~cause excess supply and pressure ethanol prices downward. Management ~~anticipates~~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 oversupply issues within the industry. The EPA's approval of E15 for use in certain vehicles has led us to be 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 ~~price~~EPA's approval of E15 will impact ethanol ~~will continue to be volatile during~~demand or pricing in the ~~remainder of our 2013 fiscal year. Our volume of~~near term. Additionally, if the EPA reduces or waives the RFS from statutory levels as currently proposed, domestic demand for ethanol ~~sold during the three month period ended~~ ~~April 30, 2013~~ ~~was approximately 5.7% higher than the volume sold for the comparable 2012 period as we have continued to increase production efficiencies.~~could decline and ethanol prices may decrease.

Distillers Grains

~~Distillers~~Total revenue from the sales of distillers grains ~~represented a larger portion of our revenues~~increased during the three months ended ~~April 30, 2013~~January 31, 2014 compared to the same period of ~~2012 as a result of higher prices and greater quantities of~~2013. However, distillers grains ~~produced and sold during~~sales comprised 19.5% of our revenues for the three months ended ~~April 30, 2013~~January 31, 2014, as compared to 22.7% for the same period of ~~2012.~~ 2013.

The price we received for our ~~dried~~ distillers grains in the three month period ended ~~April 30, 2013~~January 31, 2014 was approximately ~~34.0% higher~~19.0% lower than the price we received during the three months ended ~~April 30, 2012~~January 31, 2013. Management believes these ~~higher~~lower distillers grains prices are aprimarily result of the ~~high~~decline in price of corn and other feed products available to livestock producers. The decline in distillers grains prices, however, was mitigated by the quantity of distillers grains sold which increased approximately 74.1% in three month period ended January 31, 2014 compared to the same period in 2013. This increase in quantity sold was a result of the HLBE acquisition, as we sold 27.8% less distillers grains at our Granite Falls plant in fiscal quarter ended January 31, 2014 compared to the same quarter 2013.

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~~As plants that have suspended or reduced production begin to resume or increase production, distillers grains ~~sold~~prices may be pushed downward.

Corn Oil

Corn oil revenues only increased ~~approximately 3.9% in the three month period ended~~ ~~April 30, 2013~~ ~~compared to~~slightly for 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 greater portion of our revenues during the three months ended~~ ~~April 30, 2013~~ ~~than it did for the same period of 2012. Corn oil sales accounted for approximately~~ ~~2.6% of our revenues during our quarter ended~~ ~~April 30, 2013~~ ~~compared to~~ ~~2.3% for our quarter ended~~ ~~April 30, 2012. The price we received for our corn oil decreased by approximately 9.4% during the three months ended~~ ~~April 30, 2013~~January 31, 2014 compared to the same period of ~~2012. However, offsetting this~~2013; however, corn oil sales accounted for approximately 2.4% of our revenues for both periods. The average price ~~decrease, our total volume~~per pound of corn oil ~~sold increased by 52.5%~~was approximately 8.9% lower for the quarter ended January 31, 2014 as ~~a result higher production rates at our facility and increased extraction efficiencies.~~compared to the same period in 2013. Management attributes the decrease in corn oil prices to additional corn oil entering the market. ~~However, increased use~~The decline in corn oil prices was offset by an increase in the amount of corn oil ~~by biodiesel producers~~sold due to the additional corn oil sales as result of HLBE acquisition, as we sold 3.5% less corn oil at our Granite Falls plant in fiscal quarter ended January 31, 2014 compared to the same quarter 2013. Corn oil prices could experience further decreases if additional plants enter into the market and ~~animal feeders have continued to support demand.~~cause in an oversupply unless additional demand can be created.

Cost of Goods Sold

Our costs of goods sold as a percentage of revenues were ~~92.4%~~81.4% for the three month period ended ~~April 30, 2013~~January 31, 2014 compared to ~~98.3%~~98.2% for the same period of ~~2012.~~2013. Our two largest costs of production are corn ~~(83.7%~~(72.0% of cost of goods sold for our three months ended ~~April 30, 2013~~January 31, 2014) and natural gas ~~(4.0%~~(8.7% of cost of goods sold for our three months ended ~~April 30, 2013~~January 31, 2014). Our total cost of goods sold increased to $~~44,390,630~~63,043,355 for the three months ended ~~April 30, 2013~~January 31, 2014 from $~~38,367,706~~45,886,978 in the three months ended ~~April 30, 2012~~January 31, 2013.

Corn

The volume of corn we processed was up ~~3.3%~~85.7% for the three months ended ~~April 30, 2013~~January 31, 2014 as compared to the same period for our ~~2012~~2013 fiscal ~~year. Additionally,~~year due primarily to the acquisition of HLBE. However, for the quarter ended January 31, 2014, our average cost of corn per bushel, net of hedging activity, was approximately $2.84 less than our cost of corn ~~costs increased by approximately 11.8%~~ for ~~the three~~

~~months ended~~ ~~April 30, 2013~~ ~~as compared to~~ the same period ~~for~~ended January 31, 2013, which offset the increase in our ~~2012~~volume of corn processed. The decrease in corn price is largely attributable to the record 2013 corn harvest which eased corn prices substantially in the last fiscal ~~year. Tight corn supply following last growing season's drought~~quarter of 2013 and has continued ~~to place upward pressure on corn prices. Although~~into the ~~2012 drought did not impact corn production in Minnesota~~quarter ended January 31, 2014. Due to the ~~same extent as other corn producing states, as a local consumer of corn~~2013 harvest, we ~~must nevertheless be cost competitive when sourcing corn in order to procure sufficient quantities for ethanol production. Management anticipates that~~expect corn prices ~~will~~to remain ~~high for~~lower over the ~~duration~~next several months than what we have experienced during the first several months of our 2013 fiscal year. ~~The USDA's World Agricultural Supply~~However, weather, world supply and ~~Demand Estimates published on May 10, 2013 projects domestic~~demand, current and anticipated stocks, agricultural policy and other factors can contribute to volatility in corn ~~production~~prices. If corn prices increase again, and if a period of ~~14.14 billion bushels~~high corn prices were to be sustained for some time, such pricing may reduce our ability to generate income because of the ~~2013 growing season, which would be a significant increase over the estimate~~higher cost of ~~10.78 billion bushels produced during the 2012 growing season. However, corn planting in several Midwestern states has been behind historical pace due to wet conditions.~~operating our plant.

~~For~~Realized and unrealized losses related to our corn derivative instruments totaled $40,772 for the three month period ended ~~April 30,~~January 31, 2014, which increased our cost of goods sold. By comparison, we experienced gains of $275,537 for the three months ended January 31, 2013~~, we experienced an increase~~ related to our corn derivative instruments, which decreased our cost of approximately 21.1% in our overall natural gas costs compared to the same period of 2012 as a result of increases in natural gas prices and our quantity of natural gas consumed. Natural gas prices continue to remain low compared to 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.~~goods sold. We recognize the gains or losses that result from the changes in the value of our derivative instruments from corn in cost of goods sold as the changes occur. As corn prices fluctuate, the value of our derivative instruments are impacted, which affects our financial performance. We anticipate continued volatility in our cost of goods sold due to the timing of the changes in value of the derivative instruments relative to the cost and use of the commodity being hedged.

Natural Gas

~~We experienced an approximate $249,000 combined realized and unrealized loss for~~For the three month period ended ~~April 30, 2013~~January 31, 2014 ~~related to our corn derivative instruments, which increased our cost of goods sold. By comparison,~~, we experienced an ~~approximate $31,000 combined realized and unrealized loss for the three months ended~~ ~~April 30, 2012~~ ~~related~~increase of approximately 198.7% in our overall natural gas costs compared 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 in cost of goods sold as the changes occur. As corn prices fluctuate, the value of our derivative instruments are impacted, which affects our financial performance.

~~Operating Expense~~

~~Our operating expenses as a percentage of revenues decreased to 1.2% for the three month period ended~~ ~~April 30, 2013~~ ~~from 1.5% for~~ the same period of 2013. This increase was primarily the result of the HLBE acquisition (approximately $2.9 million, or a 54.2% increase); although we also experienced a 37.0% increase in

natural gas costs at our Granite Falls plant for the quarter ended ~~April 30, 2012~~January 31, 2014~~. Our total operating expenses for the three months ended~~ ~~April 30, 2013~~ as compared to the same period for ~~our 2012 fiscal year 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, 2013~~ ~~was approximately $3,047,000, compared to income from operations of approximately $67,000 for the three months ended~~ ~~April 30, 2012. This increase in our operating income is primarily due to more favorable operating margins.~~

~~Other Income (Expense), Net~~

~~Our other income (expense), net for the three months ended~~ ~~April 30, 2013~~ ~~was an expense of approximately $15,000, compared to income of approximately $50,000 for the three months ended~~ ~~April 30, 2012. This change is primarily a result of increased interest expense during the quarter ended~~ ~~April 30, 2013~~ ~~as compared to the same period~~ the prior year ~~attributable to borrowings on our United FCS credit facilities.~~

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

2013 2012
Income Statement Data Amount % Amount %
Revenue $ 95,137,724
100.0 % $ 82,770,898
100.0 %
Cost of Goods Sold 90,675,608
95.3 % 78,425,531
94.8 %
Gross Profit 4,462,116
4.7 % 4,345,367
5.2 %
Operating Expenses 1,145,660
1.2 % 1,254,217
1.5 %
Operating Income 3,316,456
3.5 % 3,091,150
3.7 %
Other Income (Expense), net (63,086 ) (0.1 )% 67,604
0.1 %
Net Income $ 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, 2013~~:

Revenue Sources Amount
Percentage of
Total Revenues

Ethanol sales $ 72,495,495
76.2 %
Distillers grains sales 20,251,604
21.3 %
Corn oil sales 2,390,625
2.5 %
Total Revenues $ 95,137,724
100.0 %

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

Revenue Sources Amount
Percentage of
Total Revenues

Ethanol sales $ 67,447,635
81.5 %
Distillers grains sales 13,562,618
16.4 %
Corn oil sales 1,760,645
2.1 %
Total Revenues $ 82,770,898
100.0

~~Our total revenues were higher for the~~ ~~six months~~ ~~ended~~ ~~April 30, 2013~~ ~~compared to the same period of~~ ~~2012. With respect to ethanol, we sold approximately 4.5% more gallons of ethanol during the~~ ~~six months~~ ~~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~~ ~~2012~~.

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

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

~~Cost of Goods Sold~~

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

~~Our natural gas costs increased during the first~~ ~~six months~~ ~~of our~~ ~~2013~~ ~~fiscal year compared to the same period of~~ ~~2012. Our total cost of natural gas was approximately 8.2% higher during the first~~ ~~six months~~ ~~of our~~ ~~2013~~ ~~fiscal year compared to the same period of~~ ~~2012~~.

~~We experienced an approximate $27,000 combined realized and unrealized gain for the~~ ~~six months~~ ~~ended~~ ~~April 30, 2013~~ ~~related to our corn 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 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 decreased in the~~ ~~six months~~ ~~ended~~ ~~April 30, 2013~~ ~~when compared to the same period ended~~ ~~April 30, 2012. The decrease in our operating expenses for the~~ ~~six months~~ ~~ended~~ ~~April 30, 2013~~ ~~as compared to the same period for our~~ ~~2012~~ ~~fiscal year is due primarily to 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 infrastructure and water intake.~~

~~Other Income (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. This change resulted primarily from increased interest expense during the~~ ~~six months~~ ~~ended~~ ~~April 30, 2013~~ ~~as compared to the same period the prior year, attributable to borrowings on our United FCS credit facilities.~~

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

~~The following table highlights our financial condition at~~ ~~April 30, 2013~~ ~~and~~ ~~October 31, 2012~~:

April 30, 2013 October 31, 2012
Current Assets $ 21,065,272
$ 20,715,050
Current Liabilities $ 6,696,111
$ 6,002,937
Long-Term Debt $ 553,789
$ 5,274,870
Members' Equity $ 53,108,695
$ 49,855,325

~~Total assets were approximately $60,359,000 at~~ ~~April 30, 2013~~ ~~compared to approximately $61,133,000 at~~ ~~October 31, 2012~~. Included in our total assets is an approximate $540,000 decrease in land and improvements resulting from our sale of land and a net increase of approximately $1,645,000 in rail improvements and construction in progress. The additions in property, plant and equipment were offset with additional depreciation of approximately $2,318,000.

~~Current assets totaled approximately $21,065,000 at~~ ~~April 30, 2013, which is more than our current assets as of~~ ~~October 31, 2012, which totaled approximately $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 increased and totaled approximately $6,696,000 at~~ ~~April 30, 2013~~ ~~and approximately $6,003,000 at~~ ~~October 31, 2012. This increase was mainly due to an increase in our corn payable to FCE, slightly offset by a decrease in our~~

~~accounts payable. Long-term debt decreased from approximately $5,275,000 at~~ ~~October 31, 2012~~ ~~to approximately $554,000 at~~ ~~April 30, 2013~~ ~~as we paid down amounts drawn on our long-term revolving credit facility during the 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 additional capacity our 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 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~~ ~~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 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 $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 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 2011 through June 1, 2013, as compiled by the USDA Agricultural Marketing Service.~~

According to the Renewable Fuels Association (“RFA”), as of May 20, 2013, there were 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 13.3 billion gallons are currently operating and that approximately 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 depress ethanol prices.

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~~increase in natural gas prices. We expect the ~~United States is blended at a rate of 10% ethanol and 90% gasoline, the maximum demand~~market price for ~~ethanol is 13.5 billion gallons. This is commonly referred~~natural gas 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.

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, our application with the EPA to register ethanol for use in making E15 has also been approved. We do not anticipate that the EPA's approval of applications for registering ethanol for use in making E15 will impact ethanol demand or pricingremain steady in the near ~~term.~~

According to industry sources, United States ethanol industry exports decreased approximately 38% in 2012 as compared to 2011. The Company, through its ethanol marketer, has in the past exported a portion of its ethanol production to foreign markets. The European 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 had helped to mitigate the effects of the blend wall and had thereby helped to maintain ethanol price levels. Whether export markets will make economic sense for us in the future will depend on domestic ethanol blend rates as well as global supply and demand for our product.

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 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 opted to upgrade our intake structure, finding that option preferable to acquiring ownership of the dam prior to its removal. We are working on plans for this upgrade and expect to complete the necessary modifications during the third quarter of our 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 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, 2013, our average cost of corn per bushel, net of hedging activity, was approximately $0.75 greater than our cost of corn for the same period ended~~ ~~April 30, 2012~~.

Corn prices remain above historical averages. Tight corn supply following last growing season's drought has continued to place upward pressure on corn prices. We anticipate that corn prices will remain high through at least the 2013 harvest, as that is the earliest possible time that corn producers may be able to generate significant additional domestic production. The USDA's World Agricultural Supply and Demand Estimates published on May 10, 2013 projects domestic corn production of 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. However, corn planting in several Midwestern states has been behind historical pace due to wet conditions. If a period of high corn prices were to be sustained 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~~term 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.Operating Expenses

AsOur operating expenses as a percentage of revenues increased to 1.7% for the three month period ended ~~April 30,~~January 31, 2014 up from 1.2% for the same period ended January 31, 2013. Operating expenses include salaries and benefits of administrative employees, insurance, taxes, professional fees and other general administrative costs. We continue to focus on increasing our operating efficiency and we strive to lower our operating expenses. We expect that going forward our operating expenses will remain relatively steady.

Operating Income

We had income from operations of $13,124,957 for the three months ended January 31, 2014, compared to income from operations of $269,449 for the three months ended January 31, 2013. This increase in our operating income is primarily due to more favorable operating margins.

Other Expense, Net

Our other expense net for the three months ended January 31, 2014 was a $219,880, compared to $48,022 for the three months ended January 31, 2013. This change is primarily a result of increased interest expense during the quarter ended January 31, 2014 as compared to the same period the prior year, attributable to HLBE borrowings on our United FCS credit facilities.

Changes in Financial Condition for the Three Months Ended January 31, 2014

The following table highlights our financial condition at January 31, 2014 and October 31, 2013:



	January 31, 2014		October 31, 2013
Current Assets	$	25,361,721	$	21,469,978
Total Assets	$	115,503,093	$	112,673,222
Current Liabilities	$	10,242,825	$	11,323,264
Long-Term Debt	$	29,413,295	$	32,981,955
Members' Equity Attributable to Granite Falls Energy, LLC	$	64,931,379	$	59,887,346
Non-controlling Interest	$	10,915,594	$	8,480,657

Our total current assets were approximately $25,362,000 at January 31, 2014 compared to approximately $21,470,000 at October 31, 2013. We experienced an increase in trade accounts receivable of approximately $5,419,000 at January 31, 2014 as compared to October 31, 2013, ~~we recorded~~which was offset by a ~~net liability for our derivative instruments~~decrease of approximately $2,803,000 in ~~the amount of $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, 2013, we had fixed basis contracts for forward corn purchase commitments totaling approximately 2,375,000 bushels. We also had 885,000 bushels of stored corn included in~~ inventory at ~~April 30,~~January 31, 2014 compared to October 31, 2013 due to having more corn and ethanol on hand at October 31, 2013. We also experienced an increase in commodity derivative instruments of $111,635 at January 31, 2014 as compared to October 31, 2013.

Total current liabilities totaled approximately $10,243,000 at January 31, 2014, a decrease of approximately $1,080,000 from October 31, 2013. This decrease was mainly due to a decrease in our accounts payable for corn of approximately $2,408,000 at January 31, 2014 as compared to October 31, 2013 due to paying off accounts payable deferred from fiscal 2013. This decrease in our accounts payable for corn was partially offset by an increase in checks drawn in excess of bank balances of approximately $673,000 at January 31, 2014 as compared to October 31, 2013 due to timing on bank account sweeps.

Our long-term debt decreased approximately $3,569,000 from October 31, 2013 to January 31, 2014. The ~~derivative accounts are reported~~decrease is due to our paying the balance of our Capital One Shuttlewagon Railcar Mover note and payments on HLBE’s debt facilities.

Members’ equity attributable to Granite Falls Energy, LLC totaled $64,931,379 at ~~fair value. We have categorized the cash flows~~January 31, 2014, which is more than our Members’ equity attributable to Granite Falls Energy, LLC as of October 31, 2013 which totaled $59,887,346. The increase was directly related to the ~~hedging~~net income attributable to Granite Falls Energy, LLC of $10,554,947 for the quarter ended January 31, 2014. The net income was offset by the declaration and payment of $5,509,080 in distributions to members during the quarter ended January 31, 2014.

Noncontrolling interest totaled $10,915,594 at January 31, 2014 compared to $8,480,657 at October 31, 2013. This is directly related to recognition of the 39.2% noncontrolling interest in HLBE at January 31, 2014 and net income attributable to the noncontrolling interest during the quarter ended January 31, 2014.

LIQUIDITY AND CAPITAL RESOURCES

The following table shows our cash flows for the three months ended January 31, 2014 and 2013:



	2014		2013
Net cash provided by (used in) operating activities	10,170,584		(1,608,840	)
Net cash provided by (used in) investing activities	(1,185,198	)	42,301
Net cash provided by (used in) financing activities	(8,405,163	)	1,180,173

Operating Cash Flows.Cash provided by operating activities ~~with~~was approximately $10,171,000 for the three months ended January 31, 2014, as compared to cash used in operations of approximately $1,609,000 for the three months ended January 31, 2013. 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 $1,185,000 for the three months ended January 31, 2014, compared to cash provided by ~~operations,~~investing activities of approximately $42,000 for the three months ended January 31, 2013. Our payments for capital expenditures during the three months ended January 31, 2014 totaled approximately $1,207,000, compared to payments of approximately $498,000 for the three months ended January 31, 2013. Additionally, during the three months ended January 31, 2013 we received proceeds from the sale of land of approximately $540,000, as compared to the most recent quarter ended January 31, 2014, when did not sell any land.

Financing Cash Flows.Cash used in financing activities was approximately $8,405,000 for the three months ended January 31, 2014, consisting primarily of payments made on our credit facilities and a distribution to our members. For the three months ended January 31, 2013, our cash provided by financing activities was approximately $1,180,000, which consisted primarily of result of proceeds from our credit facilities.

Indebtedness

Granite Falls Energy

In August 2012, we entered into two new credit facilities, one short-term and one long-term, with United FCS. CoBank serves as administrative agent for these new credit facilities.

The Company's credit facilities with United FCS require the Company to comply with certain financial covenants, including (i) maintaining working capital of at least $10,000,000, (ii) maintaining local net worth, defined as total assets, minus total liabilities, minus investments by the Company in other entities, of at least $45,000,000, and (iii) achieving a debt service coverage ratio of at least 2.0 to 1.0. Our debt service coverage ratio is calculated as follows: (1) net income, plus depreciation and amortization, minus extraordinary gains (plus extraordinary losses), minus gain on asset sales (plus loss on asset sales); (2) divided by $2,000,000. As of January 31, 2014 and October 31, 2013, we were in compliance with these financial covenants and expect to be in compliance throughout fiscal 2014.

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

GFE Short-Term Debt Sources

The Company's short-term credit facility with United FCS is a revolving line of credit. This facility allows us to borrow, repay, and re-borrow up to $5,600,000 subject to outstanding letters of credit and a borrowing base calculation. Final payment of amounts borrowed under this credit facility is due August 1, 2014. The interest rate for the Company's short-term credit facility is based on the bank's "One Month LIBOR Index Rate" plus 2.8%. The short-term credit facility is available through March 31, 2017. As of January 31, 2014, there was no outstanding balance on the short-term credit facility and the interest rate was 3.21%.

We expect to utilize this credit facility to finance inventory and receivables as needed.

GFE 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 re-borrow up to $18,000,000. However, the amount available for borrowing under this facility reduces by $2,000,000 every six months, beginning September 1, 2014, with final payment due March 1, 2018. Interest on amounts borrowed is payable monthly in arrears. The interest rates for this facility is based on the bank's "One Month LIBOR Index Rate" plus 3.05%. The facility is available through March 31, 2018. The outstanding balance on the revolving term loan at January 31, 2014 was $2,065,495, and the interest rate was 3.21%.

We have used this credit facility to fund our rail infrastructure improvement project and working capital.

Other GFE Credit Arrangements

In December 2011, the Company purchased a Shuttlewagon Railcar Mover for use at its facility. The Company financed the entire purchase price through Capital One Equipment Leasing and Finance. In January 2014, the Company paid the loan balance in full.

Heron Lake BioEnergy

Credit Arrangements with AgStar

HLBE entered into an amended and restated master loan agreement with AgStar Financial Services, PCA ("AgStar") under which it has two forms of debt as of January 31, 2014: a term note and a revolving term note. HLBE's total indebtedness to AgStar as of January 31, 2014 was approximately $21.3 million (which includes a fair value premium of approximately $1.8 million), consisting of approximately $17.7 million under the term note and approximately $3.6 million under the revolving term note.

HLBE's loan agreements with AgStar are secured by substantially all business assets and are subject to various financial and non-financial covenants that limit distributions and debt and require minimum debt service coverage, net worth, and working capital requirements. HLBE was in compliance with the covenants of its loan agreements with AgStar as of January 31, 2014.

In the past, HLBE’s failure to comply with the covenants of the master loan agreement and failure to timely pay required installments of principal has resulted in events of default under the master loan agreement, entitling AgStar to accelerate and declare due all amounts outstanding under the master loan agreement. There can be no assurance that HLBE will be able to maintain compliance with its agreements with AgStar. Upon an occurrence of an event of default or an event that will lead to HLBE's default, AgStar may upon notice terminate its commitment to loan funds and declare the entire unpaid principal balance of the loans, plus accrued interest, immediately due and payable. An event of default includes, but is not limited to, HLBE's failure to make payments when due, insolvency, any material adverse change in HLBE's financial condition or HLBE's breach of any of the covenants, representations or warranties we have given in connection with the transaction.

AgStar Term Note

With respect to the term loan, HLBE must make equal monthly payments of principal and interest of approximately $223,000 on the term loan based on a 10-year amortization, provided the entire principal balance and accrued and unpaid interest on the term loan is due and payable in full on the maturity date of September 1, 2016. In addition, HLBE is required to make additional payments annually on debt for up to 25% of the excess cash flow, as defined by the agreement, up to $2 million per year. Through September 1, 2014, the loan bears interest at 5.75% as long as HLBE is in compliance with its debt covenants. On September 1, 2014, the interest on the term loan will be adjusted to LIBOR plus 3.50%, but the total interest rate shall not be less than 5.00%.

AgStar Revolving Term Note

With respect to the revolving term loan, the loan matures in September 2016. Amounts borrowed by HLBE under the term revolving loan can be repaid and may be re-borrowed at any time prior to maturity date of the term revolving loan, provided that outstanding advances may not exceed the amount of the term revolving loan commitment. Amounts outstanding on the term revolving loan bear interest at a variable rate equal to the greater of a LIBOR rate plus 3.50% or 5.00%, payable monthly. At October 31, 2013, the revolving term loan carried an interest rate of 5.00%. HLBE also pays an unused commitment fee on the unused portion of the term revolving term loan commitment at

the rate of 0.35% per annum, payable in arrears in quarterly installments during the term of the revolving term loan. At January 31, 2014, HLBE had approximately $3.4 million outstanding under the revolving term loan and an additional approximately $15.1 million was available. The amount available under the revolving term loan is reduced by $2 million at October 31 each year until September 2016, when the unpaid balance is due.

HLBE Subordinated Convertible Debt

On September 18, 2013, HLBE entered into an indenture with U.S. Bank National Association (“U.S. Bank”), as trustee and collateral agent, in connection with the closing of HLBE's offering of a maximum of $12 million aggregate principal amount of 7.25% Secured Subordinated Notes due 2018 (the “Notes”). On September 18, 2013, HLBE sold an aggregate principal amount of approximately $3.7 million of the Notes. Prior to that, HLBE sold approximately $1.4 million of the notes in May 2013. Additionally, subscribers from HLBE's subordinated notes offering holding an aggregate principal amount of approximately $935,000 of HLBE's subordinated notes elected to exchange their notes for Notes under the indenture, per the original terms of the interim subordinated notes. Therefore, HLBE has an aggregate principal amount of approximately $4.1 million in Notes. The Notes are subordinated secured obligations, with interest payable on April 1 and October 1 of each year, beginning April 1, 2014, through the maturity date of October 1, 2018 at a rate of 7.25% per annum. The Notes are secured by a second mortgage and lien position on, among other assets, HLBE's property, plant and equipment located in Heron Lake, Minnesota, which mortgage and lien position are junior to and subordinated to HLBE's senior debt with AgStar.

Beginning on October 1, 2014, and each anniversary date thereafter prior to the maturity date of the Notes, and on the maturity date of the Notes, and prior to the effective time of certain corporate actions, each holder of Notes has the right, at such holder’s option, to irrevocably convert all (but not less than all) of such holder’s Notes into HLBE's membership units at the rate of $0.30 of principal amount per unit. In addition to the anniversary and event conversion rights, prior to any prepayment date, each holder of Notes has the right, at such holder’s option, to irrevocably convert the principal amount to be prepaid into HLBE's membership units at the rate of $0.30 of principal amount per unit. Subject to this conversion right, HLBE may, by at least 45 days but not more than 60 days notice to the holders thereof, prepay the outstanding amount of the Notes in whole or in part with accrued interest to the date of such prepayment on the amount prepaid, without penalty or premium, provided that any prepayment of Notes must be done pro rata to all holders of Notes.

Other HLBE Credit Arrangements

In addition to HLBE's primary credit arrangement with AgStar and our subordinated convertible debt, HLBE has other material credit arrangements and debt obligations.

In October 2003, HLBE entered into an industrial water supply development and distribution agreement with the City of Heron Lake, Jackson County, and Minnesota Soybean Processors. In consideration of this agreement, HLBE and Minnesota Soybean Processors are allocated equally the debt service on $735,000 in water revenue bonds that were issued by the City to support this project that mature in February 2019. The parties have agreed that prior to the scheduled expiration of the agreement, they will negotiate in good faith to replace the agreement with a further agreement regarding the wells and related facilities. In May 2006, HLBE entered into an industrial water supply treatment agreement with the City of Heron Lake and Jackson County. Under this agreement, HLBE pays monthly installments over 24 months starting January 1, 2007 equal to one years' debt service on approximately $3.6 million in water revenue bonds, which will be returned to HLBE if any funds remain after final payment in full on the bonds and assuming HLBE complies with all payment obligations under the agreement. As of January 31, 2014, there was a total of $2.2 million in outstanding water revenue bonds. HLBE classifies its obligations under these bonds as assessments payable. The interest rates on the bonds range from 0.50% to 8.73%.

To fund the purchase of the distribution system and substation for the plant, HLBE entered into a loan agreement with Federated Rural Electric Association pursuant to which HLBE borrowed $600,000 by a secured promissory note. Under the note HLBE is required to make monthly payments to Federated Rural Electric Association of $6,250 consisting of principal and an annual fee of 1% beginning on October 10, 2009. In exchange for this loan, Federated Rural Electric Association was granted a security interest in the ~~same category as~~distribution system and substation for the ~~item being hedged.~~plant. The balance of this loan at January 31, 2014 was $275,000.

HLBE has a note payable in connection with the construction of its pipeline assets. This loan was initially due in December 2011, but was converted in February 2012 to a term loan with a three-year repayment period. The balance of this loan at January 31, 2014 was approximately $1.7 million. Interest on the loan is at 5.29%. The note is secured by the assets of Agrinatural Gas, LLC.

HLBE financed its corn oil separation equipment from the equipment vendor. HLBE pays approximately $40,000 per month on this debt, conditioned upon revenue generated from the corn oil separation equipment. The monthly payment includes implicit interest of 5.57% until maturity in May 2015. The note is secured by the corn oil separation equipment. The balances of this loan at January 31, 2014 was approximately $492,000

HLBE also has a note payable to the minority owner of Agrinatural Gas, LLC in the amount of $300,000 at January 31, 2014. Interest on the note is 5.43% and the note has a maturity date in October 2014.

Critical Accounting Policies and 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 the reported revenues and expenses.

~~Liquidity and Capital Resources~~

~~The following table shows~~ We believe that of our ~~cash flows~~significant accounting policies summarized in Note 1 to our condensed consolidated financial statements included with this Form 10-Q. At January 31, 2014, our critical accounting estimates continue to include those described in our Annual Report on Form 10-K for the ~~six months~~fiscal year ended ~~April 30,~~October 31, 2013. Management has not changed the method of calculating and ~~2012~~:

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

~~Operating Cash Flows.Cash provided by operating activities was approximately $6,612,000 for~~using estimates and assumptions in preparing our condensed consolidated financial statements in accordance with generally accepted accounting principles in the ~~six months~~ ~~ended~~ ~~April 30, 2013, as compared to cash provided by operations~~United States of ~~approximately $9,529,000 for the~~ ~~six months~~ ~~ended~~ ~~April 30, 2012. Currently, our capital needs are being adequately met through cash flows from our operating activities and our currently available credit facilities.~~America.

~~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. During the~~ ~~six months~~ ~~ended~~ ~~April 30, 2013~~ ~~we made payments totaling approximately $1,733,000 for capital expenditures, compared to payments of approximately $8,000 for the~~ ~~six months~~ ~~ended~~ ~~April 30, 2012. Additionally, during the~~ ~~six months~~ ~~ended~~ ~~April 30, 2013~~ ~~we received proceeds from the sale of land of approximately $540,000, as compared to the~~ ~~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 $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, our cash used in financing activities was approximately $9,242,000, most of which was used to pay a distribution to our 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's short-term credit facility with 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 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 variable weekly rate equal to 2.65% 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 2.65%. Interest on amounts borrowed is 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 this line of credit.

The Company also has letters of credit totaling $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 new credit facilities. These letters of credit reduce the amount available under our line of credit to approximately $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 for use at its facility. The Company financed the entire purchase price through Capital One Equipment Leasing and Finance. As of~~ ~~April 30, 2013, the loan balance was approximately $441,000, of which approximately $324,000 is classified as long-term debt. The note is on a five-year term at a fixed annual interest rate of 3.875%.~~

Off-Balance Sheet ~~Arrangements.~~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 exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from our credit facilities with United FCS, PCA and HLBE's credit facilities with AgStar Financial Services, PCA. ~~Specifically, we have $229,912 outstanding in variable rate debt as of~~ ~~April 30, 2013~~. 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 - Indebtedness.”

Below is a sensitivity analysis we prepared regarding our income exposure to changes in interest ~~rates.~~rates for our credit facilities with United FCS, PCA. The sensitivity analysis below shows the anticipated effect on our income from a 10% adverse change in interest rates for a one-year period. However, an adverse change in interest rates of 10% would not have an impact on the HLBE's interest expense under the AgStar credit facilities due to the interest rate floors of 5.75% and 5.00% that are in effect at January 31, 2014.

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



Outstanding Variable Rate Debt at January 31, 2014	Interest Rate at January 31, 2014		Interest Rate Following 10% Adverse Change		Annual Adverse Change to Income
$2,065,495	3.21	%	3.531	%	$6,630

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, 2013~~January 31, 2014, 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 both the Granite Falls, Minnesota and Heron Lake, Minnesota production plants for a one year period from ~~April 30, 2013~~January 31, 2014. 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, 2013		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 January 31, 2014		Approximate Adverse Change to Income
Natural Gas	1,694,500	MMBTU	10	%	$	842,000	3,093,000	MMBTU	10	%	$	2,578,000
Ethanol	56,894,000	Gallons	10	%	$	13,371,000	116,040,000	Gallons	10	%	$	21,453,000
Corn	19,784,000	Bushels	10	%	$	13,691,000	40,000,000	Bushels	10	%	$	16,595,000

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, 2013~~January 31, 2014. 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, 2013~~January 31, 2014 and there has been no change that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time in the ordinary course of business, Granite Falls Energy, LLC and Heron Lake BioEnergy, 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

There have been no material changes ~~except as described below,~~ to the risk factors disclosed in Item 1A of our Form 10-K for the fiscal year ended October 31, ~~2012.~~2013. 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 business, financial condition and/or results of operations.

~~Risks Related to Regulation and Government Action~~

~~Changes to the Renewable Fuels Standard or to permissible levels of ethanol blended into gasoline could negatively impact our profitability~~. RFS2 requires the use of a specified amount of renewable fuels in the United States. 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 model year 2001 and later. These two measures, taken together, help ensure that there is a market for the ethanol 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 will be widely available, which may negatively impact the 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.

2526

Item 6. Exhibits.


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



Exhibit No.			Exhibit
~~3.1~~			Third Amendment to the Fifth Amended and Restated Operating and Member 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, 2013,~~January 31, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets, ~~as of April 30, 2013 and October 31, 2012,~~ (ii) Condensed Statements of Operations, ~~for the three and six months ended April 30, 2013 and 2012,~~ (iii) Statements of Cash Flows, ~~for the six months ended April 30, 2013 and 2012,~~ and (iv) the Notes to Condensed Financial Statements.**

* Filed herewith.

** Furnished herewith.

2627

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, 2013~~March 17, 2014	/s/ Steve Christensen
		Steve Christensen
		Chief Executive Officer


Date:	~~June 14, 2013~~March 17, 2014	/s/ Stacie Schuler
		Stacie Schuler
		Chief Financial Officer

2728



	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	1314
Item 3. Quantitative and Qualitative Disclosures about Market Risk	2324
Item 4. Controls and Procedures	2425
PART II. OTHER INFORMATION	2426
Item 1. Legal Proceedings	2426
Item 1A. Risk Factors	2526
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	2526
Item 3. Defaults Upon Senior Securities	2526
Item 4. Mine Safety Disclosures	2526
Item 5. Other Information	2526
Item 6. Exhibits	2627
SIGNATURES	2728



	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,
	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	)



	April 30, 2013			October 31, 2012
Capital One Equipment Leasing/Finance:
Shuttlewagon Railcar Mover (5 year term at 3.875%)	$	440,830		$	497,636
Revolving Term Loan	229,912			4,891,952
Total Debt	670,742			5,389,588
Less: Current Maturities	(116,953		)	(114,718		)

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



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



	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	)	$	—	$	—



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



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