Highwater Ethanol (HEOL) 10-Q 7 Mar 18 2018 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information Document - shares	3 Months Ended
	Jan. 31, 2018	Mar. 07, 2018
Entity Information [Line Items]
Entity Registrant Name	HIGHWATER ETHANOL LLC
Entity Central Index Key	1,371,451
Current Fiscal Year End Date	--10-31
Entity Filer Category	Non-accelerated Filer
Document Type	10-Q
Document Period End Date	Jan. 31, 2018
Document Fiscal Year Focus	2,018
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding		4,814

Condensed Balance Sheets

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

Condensed Balance Sheets Parent

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

Condensed Statements of Operati

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

Condensed Statements of Cash Fl

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

Summary of Significant Accounti

Summary of Significant Accounting Policies	3 Months Ended
	Jan. 31, 2018
Summary of Significant Accounting Policies [Abstract]
Summary of Significant Accounting Policies	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited condensed interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. The accompanying balance sheet and related notes as of October 31, 2017 are derived from the audited financial statements as of that date. These condensed financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company’s audited financial statements for the year ended October 31, 2017 , contained in the Company’s Form 10-K. In the opinion of management, the interim condensed financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary for fair presentation of the Company's financial position as of January 31, 2018 and the results of operations and cash flows for all periods presented. Nature of Business Highwater Ethanol, LLC, (a Minnesota Limited Liability Company) operates a 50 million gallon per year ethanol plant in Lamberton, Minnesota. The Company produces and sells, primarily through third-party professional marketers, fuel ethanol and co-products of the fuel ethanol production process in the continental United States, Mexico and Canada. Accounting Estimates Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The Company uses estimates and assumptions in accounting for significant matters, among others, the carrying value of property and equipment and related impairment testing, inventory valuation, and derivative instruments. Actual results could differ from those estimates and such differences may be material to the financial statements. The Company periodically reviews estimates and assumptions and the effects of revisions are reflected in the period in which the revision is made. Revenue Recognition The Company generally sells ethanol and related products pursuant to marketing agreements. The Company’s products are shipped FOB shipping point. Revenues are recognized when the customer has taken title and has assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured. For ethanol sales, title transfers when loaded into the rail car and for distiller’s grains when the loaded rail cars leave the plant facility. In accordance with the Company’s agreements for the marketing and sale of ethanol and related products, marketing fees and freight due to the marketers are deducted from the gross sales price at the time incurred. Revenue is recorded net of these marketing fees and freight as they do not provide an identifiable benefit that is sufficiently separable from the sale of ethanol and related products. Derivative Instruments Derivatives are recognized in the balance sheet and the measurement of these instruments is at fair value. Margin amounts required by the broker are classified as deposits with broker within derivative instruments and any excess is classified as cash equivalents in the balance sheets. In order for a derivative to qualify as a hedge, specific criteria must be met and appropriate documentation maintained. Gains and losses from derivatives that do not qualify as hedges, or are undesignated, must be recognized immediately in earnings. If the derivative does qualify as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will be either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Changes in the fair value of undesignated derivatives are recognized currently in earnings. Contracts are evaluated to determine whether the contracts are derivatives. Certain contracts that literally meet the definition of a derivative may be exempted as “normal purchases or normal sales”. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that meet the requirements of normal purchases or sales are documented as normal and exempted from accounting as derivatives, therefore, are not marked to market in our financial statements. The Company enters into corn and ethanol commodity-based and natural gas derivatives in order to protect cash flows from fluctuations caused by volatility in prices. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Changes in fair market value of ethanol derivatives are included in revenues. Changes in fair market value of corn and natural gas derivatives are included in costs of goods sold. Fair Value of Financial Instruments The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and other working capital items approximate fair value at January 31, 2018 due to the short maturity nature of these instruments. The Company believes the carrying value of the derivative instruments approximates fair value based on quoted market prices or widely accepted valuation techniques including discounted cash flow analysis which includes observable market-based inputs. The Company believes the carrying amount of the long-term debt approximates the fair value due to a significant portion of total indebtedness containing variable interest rates and that rate is a market interest rate for these borrowings. Equity Method Investments The Company has a 6% investment interest in an unlisted company, Renewable Products Marketing Group, LLC (RPMG), who markets the Company’s ethanol. The Company also has a 7% ownership interest in Lawrenceville Tank, LLC (LT), which owns and operates a trans load/tank facility near Atlanta, Georgia. These investments are flow-through entities and are being accounted for by the equity method of accounting under which the Company’s share of net income is recognized as income in the Company’s statements of operations and added to the investment account. Distributions or dividends received from the investment are treated as a reduction of the investment account. The Company consistently follows the practice of recognizing the net income from equity method investments based on the most recent reliable data. Therefore, the net income which is reported in the Company's statement of operations for the quarter ended January 31, 2018 is based on the investee’s results of operations for the three month period ended December 31, 2017. Recent Accounting Pronouncements In May 2014, the FASB issued ASU No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, which is the Company’s first quarter of fiscal year 2019. Early application is permitted one year earlier. The new standard allows for the amendment to be applied either retrospectively to each prior reporting period presented or retrospectively as a cumulative-effect adjustment as of the date of adoption. The Company is evaluating the effect that ASU 2014-09 will have on its financial statements and related disclosures, including which transition method it will adopt. The Company plans to complete its evaluation by October 31, 2018. In January 2016, the FASB issued ASU No. 2016-01 (ASU2016-01), Financial Instruments-Overall (Subtopic 825-10), which is intended to make financial statement information on recognition, measurement, presentation, and disclosure of financial instrument more useful. ASU 2016-01 is effective for fiscal periods beginning after December 15, 2017. The Company is currently in the process of evaluating the impact that this new guidance will have on the financial statements. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires lessees to recognize a lease liability and a right-to-use asset for all leases, including operating leases, with a term greater than twelve months on its balance sheet. This ASU is effective in annual and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted, and requires a modified retrospective transition method. The Company is currently in the process of evaluating the impact that this new guidance will have on the financial statements. In August 2016, the FASB issued ASU No. 2016-15 (ASU 2016-15), Statement of Cash Flows (Topic 230), which clarifies and provides guidance for specific cash flow issues. ASU 2016-15 is effective for fiscal periods beginning after December 15, 2017. The Company implemented ASU 2016-15 effective November 1, 2017. The effect was reclassifying Distributions from Equity Method Investments from Cash Flows from Investing Activities to Cash Flows from Operating Activities.

Uncertainties

Uncertainties	3 Months Ended
	Jan. 31, 2018
Risks and Uncertainties [Abstract]
Uncertainties	UNCERTAINTIES The Company derives substantially all of its revenues from the sale of ethanol and distillers grains. These products are commodities and the market prices for these products display substantial volatility and are subject to a number of factors which are beyond the control of the Company. The Company’s most significant manufacturing inputs are corn and natural gas. The price of these commodities is also subject to substantial volatility and uncontrollable market factors. In addition, these input costs do not necessarily fluctuate with the market prices for ethanol and distillers grains. As a result, the Company is subject to significant risk that its operating margins can be reduced or eliminated due to the relative movements in the market prices of its products and major manufacturing inputs. As a result, market fluctuations in the price of or demand for these commodities can have a significant adverse effect on the Company’s operations, profitability, and availability of cash flows to make loan payments and maintain compliance with the loan agreement.

Inventories

Inventories	3 Months Ended
	Jan. 31, 2018
Inventories [Abstract]
Inventories	INVENTORIES Inventories consisted of the following at: January 31, 2018 October 31, 2017 Raw materials $ 1,751,939 $ 2,130,668 Spare parts and supplies 3,115,239 2,938,262 Work in process 711,254 729,167 Finished goods 1,404,319 1,582,609 Total $ 6,982,751 $ 7,380,706

Derivative Instruments

Derivative Instruments	3 Months Ended
	Jan. 31, 2018
Derivative Instruments [Abstract]
Derivative Instruments	DERIVATIVE INSTRUMENTS As of January 31, 2018 , the Company had entered into corn, ethanol and natural gas derivative instruments, which are required to be recorded as either assets or liabilities at fair value in the balance sheet. The Company uses these instruments to manage risks from changes in market rates and prices. They are not used for speculative purposes. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the derivative instrument and the related change in value of the underlying hedged item. The Company may designate the hedging instruments based upon the exposure being hedged as a fair value hedge or a cash flow hedge. The derivative instruments outstanding at January 31, 2018 are not designated as effective hedges for accounting purposes. Commodity Contracts As of January 31, 2018 , the Company has open positions for 1,200,000 bushels of corn. Management expects all open positions outstanding as of January 31, 2018 to be realized within the next twelve months. The following tables provide details regarding the Company's derivative instruments at January 31, 2018 and October 31, 2017 : Instrument Balance Sheet location January 31, 2018 October 31, 2017 Corn, natural gas and ethanol futures contracts In gain position $ 352,598 $ 66,438 In loss position (1,512,176 ) (1,668,043 ) Deposits with broker 1,526,021 2,401,804 Current assets $ 366,443 $ 800,199 The following tables provide details regarding the gains (losses) from the Company's derivative instruments in the statements of operations, none of which are designated as hedging instruments: Statement of Three Months Ended January 31, Operations location 2018 2017 Ethanol contracts Revenues $ (97,326 ) $ 225,732 Corn contracts Cost of goods sold 497,790 550,336 Natural gas contracts Cost of goods sold 30,852 (3,140 )

Fair Value Measurements

Fair Value Measurements	3 Months Ended
	Jan. 31, 2018
Fair Value Measurements [Abstract]
Fair Value Measurements	FAIR VALUE MEASUREMENTS The following table provides information on those assets (liabilities) measured at fair value on a recurring basis. Fair Value as of Fair Value Measurement Using January 31, 2018 Level 1 Level 2 Level 3 Derivative instruments - commodities $ (1,159,578 ) $ (1,159,578 ) $ — $ — Fair Value as of Fair Value Measurement Using October 31, 2017 Level 1 Level 2 Level 3 Derivative instruments - commodities $ (1,601,605 ) $ (1,601,605 ) $ — $ — The Company determines the fair values of commodities by obtaining the fair value measurements from an independent pricing service based on dealer quotes and live trading levels from the Chicago Board of Trade.

Debt Financing

Debt Financing	3 Months Ended
	Jan. 31, 2018
Debt Financing [Abstract]
Debt Financing	DEBT FINANCING Long-term debt consists of the following at: January 31, 2018 October 31, 2017 Variable Rate Term Loan $ 9,000,000 $ 9,750,000 Term Revolving Loan 3,000,000 1,000,000 Total 12,000,000 10,750,000 Less Debt Issuance Costs (82,005 ) (92,069 ) Less amounts due within one year (2,717,350 ) (2,715,528 ) Net long-term debt $ 9,200,645 $ 7,942,403 Bank Financing On January 22, 2016, the Company entered into a Second Amended and Restated Credit Agreement with Compeer Financial, PCA f/k/a AgStar Financial Services, PCA, as administrative agent for several financial institutions ("Compeer") which amended the Amended and Restated Credit Agreement dated September 22, 2014. The Second Amended and Restated Credit Agreement decreased the Term Loan to $15,000,000 , increased the Term Revolving Loan to $15,000,000 and eliminated the Revolving Line of Credit. Term Loan The Term Loan is for $15,000,000 with a variable interest rate based on the 30-day LIBOR rate plus 325 basis points with no minimum interest rate. The applicable interest rate at January 31, 2018 was 4.68% . Monthly principal payments are due on the Term Loan of approximately $250,000 plus accrued interest. Payments of all amounts outstanding are due on January 22, 2021. The outstanding balance on this note was $9,000,000 at January 31, 2018 . The Company may convert the Term Loan to a fixed rate loan, subject to certain conditions as described in the Second Amended and Restated Credit Agreement and with the consent of Compeer. Term Revolving Loan The Term Revolving Loan is for up to $15,000,000 with a variable interest rate based on the 30-day LIBOR rate plus 325 basis points with no minimum interest rate. The applicable interest rate at January 31, 2018 was 4.68% . The availability under the Term Revolving Loan increases to $20,000,000 after the Term Loan is paid down to $10,000,000 so long as at least one or more of the participating banks agrees to raise its commitment. The Term Revolving Loan may be advanced, repaid and re-borrowed during the term. Monthly interest payments are due on the Term Revolving Loan. Payment of all amounts outstanding are due on January 22, 2023. The outstanding balance on this note was $3,000,000 at January 31, 2018 . The Company also has $500,000 in letters of credit outstanding at January 31, 2018 which reduce the amount available under the Term Revolving Loan. The Company pays interest at a rate of 1.50% on amounts outstanding for the letters of credit. The Company is also required to pay unused commitment fees for the Term Revolving Loan as defined in the Second Amended and Restated Credit Agreement. Debt Issuance Costs Costs associated with the issuance of debt are recorded as debt issuance costs and are amortized over the term of the related debt by use of the effective interest method. Covenants and other Miscellaneous Terms The loan facility with Compeer is secured by substantially all business assets. The Company executed a mortgage creating a first lien on its real estate and plant and a security interest in all personal property located on the premises and assigned all rents and leases to property, marketing contracts, risk management services contract, and natural gas, electricity, water service and grain procurement agreements. The Company is also subject to various financial and non-financial covenants that limit distributions and debt and require minimum debt service coverage, tangible net worth, and working capital requirements. The debt service coverage ratio is no less than 1.25:1.00 measured annually by comparing adjusted EBITDA to scheduled payments of principal and interest. The minimum working capital is $8,250,000 , which is calculated as current assets plus the amount available for drawing under the Term Revolving Loan and undrawn amounts on outstanding letters of credit, less current liabilities, and is measured quarterly. The Company is limited to annual capital expenditures of $5,000,000 without prior approval, incurring additional debt over certain amounts without prior approval, and making additional investments as described in the Amended and Restated Credit Agreement without prior approval of Compeer. The Company is allowed to make cash distributions to members as frequently as monthly in an amount equal to 75% of net income if working capital is greater than or equal to $8,250,000 , or 100% of net income if working capital is greater than or equal to $11,000,000 , or an unlimited amount if working capital is greater than or equal to $11,000,000 and the outstanding balance on the Term Loan is $0 . The estimated maturities of the long-term debt at January 31, 2018 are as follows: Principal Debt Issuance Costs Total January 2019 $ 2,750,000 $ (32,650 ) $ 2,717,350 January 2020 3,000,000 (27,998 ) 2,972,002 January 2021 3,250,000 (21,357 ) 3,228,643 January 2022 — — — January 2023 3,000,000 — 3,000,000 Long-term debt $ 12,000,000 $ (82,005 ) $ 11,917,995

Commitments and Contingencies

Commitments and Contingencies	3 Months Ended
	Jan. 31, 2018
Commitments and Contingencies Disclosure [Abstract]
Commitments and Contingencies	COMMITMENTS AND CONTINGENCIES Marketing Agreements The Company has an ethanol marketing agreement with a marketer (RPMG) to purchase, market, and distribute all the ethanol produced by the Company. The Company also entered into a member control agreement with the marketer whereby the Company made capital contributions and became a minority owner of the marketer. The member control agreement became effective on February 1, 2011 and provides the Company a membership interest with voting rights. The marketing agreement will terminate if the Company ceases to be a member. The Company will assume certain of the member’s rail car leases if the agreement is terminated. The Company can sell its ethanol either through an index arrangement or at an agreed upon fixed price. The marketing agreement is perpetual until terminated according to the agreement. The Company may be obligated to continue to market its ethanol through the marketer for a period of time. The amended agreement requires minimum capital amounts invested as required under the agreement. The Company has a distillers grains marketing agreement with a marketer to market all the dried distillers grains produced at the plant. Under the agreement the marketer charges a maximum of $2.00 per ton and a minimum of $1.50 per ton price using 2% of the FOB plant price actually received by them for all dried distillers grains removed. The agreement will remain in effect unless otherwise terminated by either party with 120 days days notice. Under the agreement, the marketer is responsible for all transportation arrangements for the distribution of the dried distillers grains. The Company markets and sells its modified and wet distillers grains. The Company has a crude corn oil marketing agreement with a marketer to market all corn oil to be produced at the plant. Under the agreement, the marketer will execute contracts with buyers after giving prior notice of the terms and conditions thereof to the Company and receiving direction from the Company to accept such contracts. The Company receives the actual price received from buyers less a marketing fee, actual freight and transportation costs and certain taxes related to the purchase, delivery or sale. The Company is required to provide corn oil meeting certain specifications as provided in the agreement and the agreement provides for a process for rejection of nonconforming corn oil. The agreement automatically renews for successive one-year terms unless terminated in accordance with the agreement. Regulatory Agencies The Company is subject to oversight from regulatory agencies regarding environmental concerns which arise in the ordinary course of its business. Forward Contracts At January 31, 2018 , the Company had approximately 6,296,000 bushels of forward fixed basis corn contracts and 1,715,000 bushels of forward fixed price corn contracts valued at approximately $5,488,000 . These purchase contracts are for various delivery periods through December 2018. At January 31, 2018 , the Company had approximately 1,043,000 MMBTUs of forward fixed price natural gas purchase contracts valued at approximately $2,884,000 for various delivery periods through September 2019. In addition, at January 31, 2018 , the Company had approximately 18,400 gallons of forward fixed price denaturant purchase contracts valued at $29,000 for various delivery periods through February 2018. At January 31, 2018 , the Company had approximately 8,050 tons of forward fixed price dried distillers grains sales contracts valued at $1,094,000 for various delivery periods through March 2018. In addition, at January 31, 2018 , the Company had approximately 10,400 tons of forward fixed price modified distillers grains sales contracts valued at approximately $591,000 for delivery periods through September 2018. In addition, at January 31, 2018 , the Company had approximately 575,000 pounds of forward fixed price corn oil sales contracts valued at approximately $121,000 for delivery periods through February 2018.

Accounting Policies

Accounting Policies	3 Months Ended
	Jan. 31, 2018
Summary of Significant Accounting Policies [Abstract]
Accounting Estimates	Accounting Estimates Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The Company uses estimates and assumptions in accounting for significant matters, among others, the carrying value of property and equipment and related impairment testing, inventory valuation, and derivative instruments. Actual results could differ from those estimates and such differences may be material to the financial statements. The Company periodically reviews estimates and assumptions and the effects of revisions are reflected in the period in which the revision is made.
Revenue Recognition	Revenue Recognition The Company generally sells ethanol and related products pursuant to marketing agreements. The Company’s products are shipped FOB shipping point. Revenues are recognized when the customer has taken title and has assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured. For ethanol sales, title transfers when loaded into the rail car and for distiller’s grains when the loaded rail cars leave the plant facility. In accordance with the Company’s agreements for the marketing and sale of ethanol and related products, marketing fees and freight due to the marketers are deducted from the gross sales price at the time incurred. Revenue is recorded net of these marketing fees and freight as they do not provide an identifiable benefit that is sufficiently separable from the sale of ethanol and related products.
Derivative Instruments	Derivative Instruments Derivatives are recognized in the balance sheet and the measurement of these instruments is at fair value. Margin amounts required by the broker are classified as deposits with broker within derivative instruments and any excess is classified as cash equivalents in the balance sheets. In order for a derivative to qualify as a hedge, specific criteria must be met and appropriate documentation maintained. Gains and losses from derivatives that do not qualify as hedges, or are undesignated, must be recognized immediately in earnings. If the derivative does qualify as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will be either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Changes in the fair value of undesignated derivatives are recognized currently in earnings. Contracts are evaluated to determine whether the contracts are derivatives. Certain contracts that literally meet the definition of a derivative may be exempted as “normal purchases or normal sales”. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that meet the requirements of normal purchases or sales are documented as normal and exempted from accounting as derivatives, therefore, are not marked to market in our financial statements. The Company enters into corn and ethanol commodity-based and natural gas derivatives in order to protect cash flows from fluctuations caused by volatility in prices. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Changes in fair market value of ethanol derivatives are included in revenues. Changes in fair market value of corn and natural gas derivatives are included in costs of goods sold.
Fair Value of Financial Instruments	Fair Value of Financial Instruments The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and other working capital items approximate fair value at January 31, 2018 due to the short maturity nature of these instruments. The Company believes the carrying value of the derivative instruments approximates fair value based on quoted market prices or widely accepted valuation techniques including discounted cash flow analysis which includes observable market-based inputs. The Company believes the carrying amount of the long-term debt approximates the fair value due to a significant portion of total indebtedness containing variable interest rates and that rate is a market interest rate for these borrowings.
Investments	Equity Method Investments The Company has a 6% investment interest in an unlisted company, Renewable Products Marketing Group, LLC (RPMG), who markets the Company’s ethanol. The Company also has a 7% ownership interest in Lawrenceville Tank, LLC (LT), which owns and operates a trans load/tank facility near Atlanta, Georgia. These investments are flow-through entities and are being accounted for by the equity method of accounting under which the Company’s share of net income is recognized as income in the Company’s statements of operations and added to the investment account. Distributions or dividends received from the investment are treated as a reduction of the investment account. The Company consistently follows the practice of recognizing the net income from equity method investments based on the most recent reliable data. Therefore, the net income which is reported in the Company's statement of operations for the quarter ended January 31, 2018 is based on the investee’s results of operations for the three month period ended December 31, 2017.
Recent Accounting Pronouncements	Recent Accounting Pronouncements In May 2014, the FASB issued ASU No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, which is the Company’s first quarter of fiscal year 2019. Early application is permitted one year earlier. The new standard allows for the amendment to be applied either retrospectively to each prior reporting period presented or retrospectively as a cumulative-effect adjustment as of the date of adoption. The Company is evaluating the effect that ASU 2014-09 will have on its financial statements and related disclosures, including which transition method it will adopt. The Company plans to complete its evaluation by October 31, 2018. In January 2016, the FASB issued ASU No. 2016-01 (ASU2016-01), Financial Instruments-Overall (Subtopic 825-10), which is intended to make financial statement information on recognition, measurement, presentation, and disclosure of financial instrument more useful. ASU 2016-01 is effective for fiscal periods beginning after December 15, 2017. The Company is currently in the process of evaluating the impact that this new guidance will have on the financial statements. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires lessees to recognize a lease liability and a right-to-use asset for all leases, including operating leases, with a term greater than twelve months on its balance sheet. This ASU is effective in annual and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted, and requires a modified retrospective transition method. The Company is currently in the process of evaluating the impact that this new guidance will have on the financial statements. In August 2016, the FASB issued ASU No. 2016-15 (ASU 2016-15), Statement of Cash Flows (Topic 230), which clarifies and provides guidance for specific cash flow issues. ASU 2016-15 is effective for fiscal periods beginning after December 15, 2017. The Company implemented ASU 2016-15 effective November 1, 2017. The effect was reclassifying Distributions from Equity Method Investments from Cash Flows from Investing Activities to Cash Flows from Operating Activities.

Inventories (Tables)

Inventories (Tables)	3 Months Ended
	Jan. 31, 2018
Inventories [Abstract]
Schedule of Inventory	January 31, 2018 October 31, 2017 Raw materials $ 1,751,939 $ 2,130,668 Spare parts and supplies 3,115,239 2,938,262 Work in process 711,254 729,167 Finished goods 1,404,319 1,582,609 Total $ 6,982,751 $ 7,380,706

Derivative Instruments (Tables)

Derivative Instruments (Tables)	3 Months Ended
	Jan. 31, 2018
Derivative Instruments [Abstract]
Schedule of Derivatives Instruments Statements of Financial Performance and Financial Position	Instrument Balance Sheet location January 31, 2018 October 31, 2017 Corn, natural gas and ethanol futures contracts In gain position $ 352,598 $ 66,438 In loss position (1,512,176 ) (1,668,043 ) Deposits with broker 1,526,021 2,401,804 Current assets $ 366,443 $ 800,199
Schedule of Other Derivatives Not Designated as Hedging Instruments, Statements of Financial Performance and Financial Position	Statement of Three Months Ended January 31, Operations location 2018 2017 Ethanol contracts Revenues $ (97,326 ) $ 225,732 Corn contracts Cost of goods sold 497,790 550,336 Natural gas contracts Cost of goods sold 30,852 (3,140 )

Fair Value Measurements (Tables

Fair Value Measurements (Tables)	3 Months Ended
	Jan. 31, 2018
Fair Value Measurements [Abstract]
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis	The following table provides information on those assets (liabilities) measured at fair value on a recurring basis. Fair Value as of Fair Value Measurement Using January 31, 2018 Level 1 Level 2 Level 3 Derivative instruments - commodities $ (1,159,578 ) $ (1,159,578 ) $ — $ — Fair Value as of Fair Value Measurement Using October 31, 2017 Level 1 Level 2 Level 3 Derivative instruments - commodities $ (1,601,605 ) $ (1,601,605 ) $ — $ —

Debt Financing (Tables)

Debt Financing (Tables)	3 Months Ended
	Jan. 31, 2018
Debt Financing [Abstract]
Schedule of Long-term Debt	January 31, 2018 October 31, 2017 Variable Rate Term Loan $ 9,000,000 $ 9,750,000 Term Revolving Loan 3,000,000 1,000,000 Total 12,000,000 10,750,000 Less Debt Issuance Costs (82,005 ) (92,069 ) Less amounts due within one year (2,717,350 ) (2,715,528 ) Net long-term debt $ 9,200,645 $ 7,942,403
Schedule of Maturities of Long-term Debt	Principal Debt Issuance Costs Total January 2019 $ 2,750,000 $ (32,650 ) $ 2,717,350 January 2020 3,000,000 (27,998 ) 2,972,002 January 2021 3,250,000 (21,357 ) 3,228,643 January 2022 — — — January 2023 3,000,000 — 3,000,000 Long-term debt $ 12,000,000 $ (82,005 ) $ 11,917,995

Summary of Significant Accoun18

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

Summary of Significant Accoun19

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

Inventories (Details)

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

Derivative Instruments Balance

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

Derivative Instruments Income S

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

Fair Value Measurements (Detail

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

Debt Financing (Details)

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

Debt Financing Short Term Debt

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

Debt Financing Schedule of Matu

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

Commitments and Contingencies (

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

Commitments and Contingencies S

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

Commitments and Contingencies R

Commitments and Contingencies Related Parties Commitment (Details) - USD ($)	12 Months Ended
	Oct. 31, 2017	Jan. 31, 2018
Related Party Transaction [Line Items]
Related Party Contract Termination notice	120 days
Affiliated Entity [Member]
Related Party Transaction [Line Items]
Related Party Transaction, Fees, Percentage of Total		2.00%
Affiliated Entity [Member] | Maximum [Member]
Related Party Transaction [Line Items]
Related Party Transaction, Marketing Expense, Per Unit	$ 2
Affiliated Entity [Member] | Minimum [Member]
Related Party Transaction [Line Items]
Related Party Transaction, Marketing Expense, Per Unit	$ 1.50