Granite Falls Energy, LLC (Form: 10-K, Received: 01/29/2013 16:00:06)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K



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

	For the fiscal year ended October 31, 2012

	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)

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes x No

Indicated by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

o Yes x No

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

x Yes o No

Indicat e 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

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

o Yes x No

The aggregate market value of the membership units held by non-affiliates of the registrant was $21,139,000 as of April 30, 2012. The membership units are not listed on an exchange or otherwise publicly traded. Additionally, the membership units are subject to significant restrictions on transfer under the registrant's operating and member control agreement. The value of the membership units for this purpose has been based solely upon the initial offering price of the membership units. In determining this value, the registrant has assume d that all of its governors, chief executive officer, chief financial officer and beneficial owners of 5% or more of its outstanding membership units are affiliates, but this assumption shall not apply to or be conclusive for any other purpose.

As of January 29, 2013 , there were 30,606 membership units outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant has incorporated by reference into Part III of this Annual Report on Form 10-K portions of its definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Annual Report (October 31, 2012). This proxy statement is referred to in this report as the 2013 Proxy Statement.

INDEX



	Page Number
PART I	3
Item 1. Business	3
Item 1A. Risk Factors	10
Item 1B. Unresolved Staff Comments	12
Item 2. Properties	12
Item 3. Legal Proceedings	13
Item 4. Mine Safety Disclosures	13
PART II	13
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13
Item 6. Selected Financial Data	15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	29
Item 8. Financial Statements and Supplementary Data	31
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	48
Item 9A. Controls and Procedures	48
Item 9B. Other Information	49
PART III	49
Item 10. Directors, Executive Officers and Corporate Governance	49
Item 11. Executive Compensation	49
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	49
Item 13. Certain Relationships and Related Transactions, and Director Independence	49
Item 14. Principal Accountant Fees and Services	49
PART IV	49
Item 15. Exhibits, Financial Statement Schedules	49
SIGNATURES	52

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains historical information, as well as forward-looking statements that involve known and unknown risks and relate to future events, our future financial performance, or our expected future operations and actions. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “future,” “intend,” “could,” “hope,” “predict,” “target,” “potential,” or “continue” or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions based on current information and involve numerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the reasons described in this report. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include:


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


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


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


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


•	Results of our hedging transactions and other risk management strategies;


•	Decreases in the market prices of ethanol and distillers grains;


•	Ethanol supply exceeding demand; and corresponding ethanol price reductions;


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


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


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


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


•	Changes in federal and/or state laws;


•	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; 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.

AVAILABLE INFORMATION

Information about us is also available at our website at www.granitefallsenergy.com , under “SEC Compliance,” which includes links to reports we have filed with the Securities and Exchange Commission, including annual, quarterly and current reports. The contents of our website are not incorporated by reference in this Annual Report on Form 10-K. The Securities and Exchange Commission also maintains an Internet site (http://www.sec.gov) through which the public can access our reports.

PART I

ITEM 1. BUSINESS

Business Development

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

We formerly had a credit facility with Minnwest Bank M.V. of Marshall, Minnesota. Under this credit facility we had a revolving line of credit with a maximum of $6,000,000 available which was secured by a first mortgage on substantially all of our assets. In August 2012, we terminated this revolving line of credit and entered into two new credit facilities, one short-term and one long-term, with United FCS, PCA. CoBank serves as administrative agent for these new credit facilities. The Company's short-term credit facility with United FCS, PCA 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. The Company's long-term credit facility with United FCS, PCA 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. We have utilized this credit facility to provide working capital and fund our rail infrastructure improvement project. Please refer to “ Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Indebtedness ” for information about our credit facilities.

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

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

Financial Information

Please refer to “ Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations ” for information about our revenue, profit and loss measurements and total assets and liabilities and “ Item 8 - Financial Statements and Supplementary Data ” for our financial statements and supplementary data.

Principal Products

The principal products we produce are ethanol, distillers grains and corn oil.

Ethanol

Ethanol is ethyl alcohol, a fuel component made primarily from corn and various other grains, which can be used as: (i) an octane enhancer in fuels; (ii) an oxygenated fuel additive for the purpose of reducing ozone and carbon monoxide vehicle emissions; and (iii) a non-petroleum-based gasoline substitute. Ethanol produced in the United States is primarily used for blending with unleaded gasoline and other fuel products. The principal purchasers of ethanol are generally wholesale gasoline marketers or blenders. The principal markets for our ethanol are petroleum terminals in the continental United States.

Approximately 79.1% of our revenue, net of derivative activity, was derived from the sale of ethanol during our fiscal year ended October 31, 2012. Ethanol sales accounted for approximately 83.0% and 85.0% of our revenue, net of derivative activity, for the fiscal years ended October 31, 2011 and 2010, respectively.

Distillers Grains

A principal co-product of the ethanol production process is distillers grains, a high protein, high-energy animal feed supplement primarily marketed to the dairy, swine, poultry and beef industries. Distillers grains contain by-pass protein that is superior to other protein supplements such as cottonseed meal and soybean meal. By-pass proteins are more digestible to the animal, thus generating greater lactation in milk cows and greater weight gain in beef cattle and swine. Distillers grains can also be included in the rations of breeder hens and laying hens which can potentially contain up to 20% and 15% percent distillers grains, respectively.

Approximately 18.4% of our revenue was derived from the sale of distillers grains during our fiscal year ended October 31, 2012. Distillers grains sales accounted for approximately 14.5% and 12.5% of our revenue for the fiscal years ended October 31, 2011 and 2010, respectively.

Corn Oil

In May 2008, the corn oil extraction equipment we installed at our plant became operational. Corn oil is used primarily as a biodiesel feedstock and as a supplement for animal feed. Corn oil sales accounted for approximately 2.5% of our revenues during our fiscal years ended October 31, 2012 and 2011 and 1.8% for our fiscal year ended October 31, 2010.

Principal Product Markets

As described below in “ Distribution of Principal Products ”, we market and distribute all of our ethanol and all of our distillers grains shipped by rail through professional third party marketers. Our ethanol and distillers grains marketers make all decisions with regard to where our products are marketed. Our ethanol and distillers grains are primarily sold in the domestic market. As distillers grains become more accepted as an animal feed substitute throughout the world, distillers grains exporting may increase.

We expect our ethanol and distillers grains marketers to explore all markets for our products, including export markets. However, due to high transportation costs, and the fact that we are not located near a major international shipping port, we expect our products to continue to be marketed primarily domestically.

Distribution of Principal Products

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

Ethanol Distribution

Eco-Energy, Inc. (“Eco-Energy”) is our ethanol marketer. Pursuant to the agreement we have with Eco-Energy, it has agreed to market the entire ethanol output of our ethanol plant and to arrange for the transportation of ethanol; however, we are responsible for securing all of the rail cars necessary for the transportation of ethanol by rail. We pay Eco-Energy a certain percentage of the FOB plant price in consideration of Eco-Energy's services.

Distillers Grains Distribution

On December 10, 2010 we executed a distillers grains marketing agreement with Renewable Products Marketing Group, LLC (“RPMG”). The effective date of this marketing agreement with RPMG was February 1, 2011. Pursuant to this agreement, RPMG markets all the distillers grains produced at our plant.

Corn Oil Distribution

RPMG is also our corn oil marketer. Currently, RPMG markets our corn oil which is used primarily as a biodiesel feedstock and as a supplement for animal feed. Our corn oil is transported by truck to end users located primarily in the upper Midwest.

New Products and Services

We did not introduce any new services during our fiscal year ended October 31, 2012.

Sources and Availability of Raw Materials

Corn Supply

To produce approximately 60 million gallons of undenatured ethanol per year our ethanol plant needs approximately 21.5 million bushels of corn per year, or approximately 60,000 bushels per day, as the feedstock for its dry milling process. The grain supply for our plant is obtained from Farmers Cooperative Elevator Company ("FCE"), our exclusive grain procurement agent. We will be forced to seek alternative corn suppliers if FCE cannot meet our needs. The term of our agreement with FCE expires in November 2017.

Drought conditions in the United States in 2012 negatively impacted corn yields and resulted in increased corn prices. The effect of the drought was lessened due to the planting of a record number of corn acres in 2012. The decreased corn yield has increased competition for corn. While management believes that we will be able to secure enough corn to operate the ethanol plant during our 2013 fiscal year, the price we may have to pay to secure the corn we need may not allow us to operate profitably. Although the drought did not impact corn production in Minnesota to the same extent as other corn producing states, as a local consumer of corn we must nevertheless be cost competitive when sourcing corn in order to procure sufficient quantities for ethanol production. Management anticipates that corn prices will remain high 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.

We can attempt to mitigate fluctuations in the corn and ethanol markets by locking in a favorable margin through the use of hedging activities, including forward contracts. However, we are not always presented with an opportunity to lock in a favorable margin and that our plant's profitability may be negatively impacted during periods of high grain prices.

Utilities

Natural Gas . Natural gas is a significant input to our manufacturing process. We estimate our natural gas usage at approximately 120,000 million British thermal units (“mmBTU”) per month. We use natural gas to dry our distillers grains product to moisture contents at which it can be stored for long periods and transported greater distances. Our dried distillers grains can then be marketed to broader livestock markets, including poultry and swine markets in the continental United States, and can be shipped to international markets.

We pay Center Point Energy/Minnegasco a per unit fee to move the natural gas through the pipeline and have guaranteed to move a minimum of 1,400,000 mmBTU annually through December 31, 2015, which is the ending date of the agreement.

We also have an agreement with U.S. Energy Services, Inc. On our behalf, U.S. Energy Services procures contracts with various natural gas vendors to supply the natural gas necessary to operate the plant. We determined that sourcing our natural gas from a variety of vendors is more cost-efficient than using an exclusive supplier.

Electricity . Our plant requires a continuous supply of 4.5 megawatts of electricity. We have an agreement with Minnesota Valley Electric Cooperative ("MVEC") to supply electricity to our plant. Under this agreement, we pay MVEC a monthly base fee plus regular energy and demand charges for electricity delivered to our plant.

Water . Until recently we obtained the water necessary to operate our plant from the Minnesota River. However, the removal of a dam 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 second quarter of our 2013 fiscal year.

In addition to an intake structure in the Minnesota River and a water pipeline to the plant from the Minnesota River, we have two ground water wells that provide a redundant supply of water to our plant. We also have a water treatment facility to pre-treat the river water we use for operations. Recently our ground water wells have been our primary source of water; although once our water intake structure on the Minnesota River is upgraded, we anticipate that the river will once again serve as our primary water source.

In connection with our efforts to obtain permits to increase production at our facility, we have implemented a water recycling program that allows our plant to meet certain zero liquid discharge criteria. Recycling our waste water has allowed us to reduce water usage from a rate of 4.0 gallons of water per gallon of ethanol produced to 2.2 gallons of water per gallon of ethanol produced, a 45.0% reduction in water usage.

Patents, Trademarks, Licenses, Franchises and Concessions

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

Seasonality of Ethanol Sales

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

Working Capital

We primarily use our working capital for purchases of raw materials necessary to operate the ethanol plant. The Company has a line of credit with United FCS, PCA. CoBank serves as administrative agent for this facility. The line of credit allows the Company to borrow, repay, and reborrow up to $6,000,000 subject to a borrowing base calculation. The line of credit and another credit facility provided by United FCS are secured by substantially all of our assets. 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. As of October 31, 2012, the Company had no outstanding balance on this line of credit.

As of October 31, 2012, the Company has outstanding letters of credit in the amount of approximately $387,000. These letters of credit reduce the amount available under our line of credit to approximately $5,613,000.

Dependence on One or a Few Major Customers

As discussed above, we have an exclusive ethanol marketing agreement with Eco-Energy; and agreements with RPMG to market our distillers grains and corn oil. We rely on Eco-Energy and RPMG for the sale and distribution of all of our products. Therefore, we are highly dependent on Eco-Energy and RPMG for the successful marketing of our products. Any loss of Eco-Energy or RPMG as our marketing agents for our ethanol, distillers grains, or corn oil could have a negative impact on our revenues.

Competition

We are in direct competition with numerous ethanol producers, many of whom have greater resources than we do. While management believes we are a lower cost producer of ethanol, larger ethanol producers may be able to take advantages of economies of scale due to their larger size and increased bargaining power with both customers and raw material suppliers. Following the significant growth in the ethanol industry during 2005 and 2006, the ethanol industry has grown at a much slower pace. As of December 10, 2012, the Renewable Fuels Association ("RFA") estimates that there are 211 ethanol production facilities in the United States with capacity to produce approximately 14.7 billion gallons of ethanol and another 5 plants under expansion or construction with capacity to produce an additional 158 million gallons per year. However, the RFA estimates that approximately 9.6% of the ethanol production capacity in the United States was not operating as of December 10, 2012. The largest ethanol producers include Archer Daniels Midland, POET, Valero Renewable Fuels, and Green Plains Renewable Energy, each of which are capable of producing significantly more ethanol than we produce.

The following table identifies the largest ethanol producers in the United States along with their production capacities.

U.S. FUEL ETHANOL PRODUCTION CAPACITY BY TOP PRODUCERS

Producers of Approximately 730 million gallons per year (mmgy) or more



Company	Current Capacity (mmgy)
Archer Daniels Midland	1,720.0
POET Biorefining	1,629.0
Valero Renewable Fuels	1,130.0
Green Plains Renewable Energy	730.0

Updated: December 10, 2012

Ethanol is a commodity product where competition in the industry is predominantly based on price. Larger ethanol producers may be able to realize economies of scale in their operations that we are unable to realize. This could put us at a competitive disadvantage to other ethanol producers.

The United States tariff on imported ethanol expired on December 31, 2011. As a result, domestic ethanol producers have seen increased competition from ethanol produced outside the United States. Additional supply from outside the United States may lead to an over-supply of ethanol and thereby put downward pressure on ethanol prices.

We anticipate increased competition from renewable fuels that do not use corn as the feedstock. Many of the current ethanol production incentives are designed to encourage the production of renewable fuels using raw materials other than corn. One type of ethanol production feedstock that is being explored is cellulose. Cellulose is the main component of plant cell walls and is the most common organic compound on earth. Cellulose is found in wood chips, corn stalks, rice straw, amongst other common plants. Cellulosic ethanol is ethanol produced from cellulose. Several companies and researchers have commenced pilot projects to study the feasibility of commercially producing cellulosic ethanol and some companies have started constructing commercial scale plants. If this technology can be profitably employed on a commercial scale, it could potentially lead to ethanol that is less expensive to produce than corn based ethanol, especially when corn prices are high. Cellulosic ethanol may also capture more government subsidies and assistance than corn based ethanol. This could decrease demand for our product or result in competitive disadvantages for our ethanol production process.

A number of automotive, industrial and power generation manufacturers are developing alternative clean power systems using fuel cells, plug-in hybrids, electric cars or clean burning gaseous fuels. Like ethanol, the emerging fuel cell industry offers a technological option to address worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns. Fuel cells have emerged as a potential alternative to certain existing power sources because of their higher efficiency, reduced noise and lower emissions. If the fuel cell industry continues to expand and gain broad acceptance and becomes readily available to consumers for motor vehicle use, we may not be able to compete effectively. This additional competition could reduce the demand for ethanol, which would negatively impact our profitability.

Research and Development

We are continually working to develop new methods of operating the ethanol plant more efficiently. We continue to conduct research and development activities in order to realize these efficiency improvements.

Governmental Regulation and Federal Ethanol Supports

Federal Ethanol Supports

The primary federal ethanol support is the Federal Renewable Fuels Standard (the “RFS”). The RFS requires that in each year, a certain amount of renewable fuels must be used in the United States. The RFS is a national program that does not require that any renewable fuels be used in any particular area or state, allowing refiners to use renewable fuel blends in those areas where it is most cost-effective. The RFS requirement increases incrementally each year until the United States is required to use 36 billion gallons of renewable fuels by 2022. Starting in 2009, the RFS required that a portion of the RFS must be met by certain “advanced” renewable fuels. These advanced renewable fuels include ethanol that is not made from corn, such as cellulosic

ethanol and biomass based biodiesel. The use of these advanced renewable fuels increases each year as a percentage of the total renewable fuels required to be used in the United States. The RFS requirement for corn-based ethanol, such as the ethanol we produce, is capped at 15 billion gallons starting in 2015. For 2012, the RFS for corn-based ethanol was approximately 13.2 billion gallons, and the RFS for 2013 for corn-based ethanol is 13.8 billion gallons. Current domestic ethanol production capacity may meet or exceed the current RFS for corn-based ethanol.

In August 2012, the governors of several states requested that the EPA waive the national volume requirements under RFS2. Although the EPA denied these waiver requests, parties opposed to RFS2 may again seek waivers in the future.

Many in the ethanol industry believe that it will be difficult to meet the RFS requirement in future years without an increase in the percentage of ethanol that can be blended with gasoline for use in standard (non-flex fuel) vehicles. Most ethanol that is used in the United States is sold in a blend called E10. E10 is a blend of 10% ethanol and 90% gasoline. E10 is approved for use in all standard vehicles. Estimates indicate that gasoline demand in the United States is approximately 134 billion gallons per year. Assuming that all gasoline in the United States is blended at a rate of 10% ethanol and 90% gasoline, the maximum demand for ethanol is 13.4 billion gallons per year. This is commonly referred to as the “blend wall,” which represents a theoretical limit where more ethanol cannot be blended into the national gasoline pool. This is a theoretical limit because it is believed that it would not be possible to blend ethanol into every gallon of gasoline that is being used in the United States and it discounts the possibility of additional ethanol used in higher percentage blends such as E85 used in flex fuel vehicles. The RFS requires that 36 billion gallons of renewable fuels must be used each year by 2022, which equates to approximately 27% renewable fuels used per gallon of gasoline sold. In order to meet the RFS mandate and expand demand for ethanol, management believes higher percentage blends of ethanol must be utilized in standard vehicles.

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. Additionally, the EPA took further steps during our 2012 fiscal year to address other legal issues needed to bring E15 to market in additional locations. Although many positive steps have been taken at the federal level to bring E15 to market, several states have a regulatory framework that may prevent sales of E15 in the short term. Additionally, sales of E15 may be limited because (i) it is not approved for use in all vehicles, (ii) the EPA requires a label that management believes may discourage consumers from using E15, and (iii) retailers may choose not to sell E15 due to concerns regarding liability. In addition, different gasoline blendstocks may be required at certain times of the year in order to use E15 due to federal regulations related to fuel evaporative emissions. This may prevent E15 from being used during certain times of the year in various states. As a result, management believes that E15 may not have an immediate impact on ethanol demand in the United States.

Historically, the ethanol industry benefited from the Volumetric Ethanol Excise Tax Credit (“VEETC”), which provided gasoline blenders with a volumetric ethanol excise tax credit of 45 cents per gallon of ethanol blended with gasoline. However, VEETC expired as of December 31, 2011. The expiration of this tax credit may negatively impact the price of ethanol and demand for ethanol in the market due to reduced discretionary blending of ethanol. Discretionary blending is when gasoline blenders use ethanol to reduce the cost of blended gasoline. However, due to the RFS, we anticipate that in the longer term the demand for ethanol will continue to mirror the RFS requirement. If the RFS is reduced or eliminated, demand for ethanol may be further reduced.

United States ethanol production was also formerly benefited by a 54 cent per gallon tariff imposed on ethanol imported into the United States. The 54 cent per gallon tariff expired December 31, 2011. In response, ethanol imports into the United States increased during our 2012 fiscal year. These imports increase supply in the United States, which in turn puts downward pressure on ethanol prices.

Effect of Governmental Regulation

The government's regulation of the environment changes constantly. 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, expand and operate the plant. It is possible that more stringent federal or state environmental rules or regulations could be adopted, which could increase our operating costs and expenses. It also is possible that federal or state environmental rules or regulations could be adopted that could have an adverse effect on the use of ethanol. Plant operations are governed by the Occupational Safety and Health Administration (“OSHA”). OSHA regulations may change such that the costs of operating the plant may increase. Any of these regulatory factors may result in higher costs or other adverse conditions effecting our operations, cash flows and financial performance.

In June 2009, we submitted an application package to the Minnesota Pollution Control Agency ("MPCA") to allow the facility to operate at a production rate of 70 million gallons per year of undenatured ethanol. The application submittal required

numerous documents covering all aspects of the facility including: Environmental Assessment Worksheet (“EAW”), air modeling, Air Permit, NPDES/SDS permit, Aboveground Storage Tank (“AST”) permit, Construction Stormwater permit, and various other support documentation. The renewal application for the NPDES/SDS permit was also incorporated into this package and resubmitted for MPCA consideration. In the second quarter of fiscal 2011, we 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 currently have obtained all of the necessary permits to operate the plant at its permitted rate. In the fiscal year ended October 31, 2012, we incurred costs and expenses of approximately $51,000 complying with environmental laws, including the cost of pursuing permit amendments. Any retroactive change in environmental regulations, either at the federal or state level, could require us to obtain additional or new permits or spend considerable resources in complying with such regulations.

Employees

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.

Financial Information about Geographic Areas

All of our operations are domiciled in the United States. All of the products sold to our customers for fiscal years 2012, 2011 and 2010 were produced in the United States and all of our long-lived assets are domiciled in the United States. We have engaged third-party professional marketers who decide where our products are marketed and we have no control over the marketing decisions made by our third-party professional marketers. These third-party marketers may decide to sell our products in countries other than the United States. However, we anticipate that our products will primarily be sold in the United States.

ITEM 1A. RISK FACTORS

You should carefully read and consider the risks and uncertainties below and the other information contained in this report. The risks and uncertainties described below are not the only ones we may face. The following risks, together with additional risks and uncertainties not currently known to us or that we currently deem immaterial could impair our financial condition and results of operation.

Risks Relating to Our Business

Increases in the price of corn or natural gas would reduce our profitability. Our primary source of revenue is from the sale of ethanol, distillers grains and corn oil. Our results of operations and financial condition are significantly affected by the cost and supply of corn and natural gas. Changes in the price and supply of corn and natural gas are subject to and determined by market forces over which we have no control, including weather and general economic factors.

Ethanol production requires substantial amounts of corn. Generally, higher corn prices will produce lower profit margins and, therefore, negatively affect our financial performance. If a period of high corn prices were to be sustained for some time, such pricing may reduce our ability to operate profitably because of the higher cost of operating our plant. We may not be able to offset any increase in the price of corn by increasing the price of our products. If we cannot offset increases in the price of corn, our financial performance may be negatively affected.

The prices for and availability of natural gas are subject to volatile market conditions. These market conditions often are affected by factors beyond our control such as higher prices as a result of colder than average weather conditions or natural disasters, overall economic conditions and foreign and domestic governmental regulations and relations. Significant disruptions in the supply of natural gas could impair our ability to manufacture ethanol and more significantly, dried distillers grains for our customers. Furthermore, increases in natural gas prices or changes in our natural gas costs relative to natural gas costs paid by competitors may adversely affect our results of operations and financial condition. We seek to minimize the risks from fluctuations in the prices of corn and natural gas through the use of hedging instruments. However, these hedging transactions also involve risks to our business. If we were to experience relatively higher corn and natural gas costs compared to the selling prices of our products for an extended period of time, the value of our units may be reduced.

Declines in the price of ethanol or distillers grains would significantly reduce our revenues. The sales prices of ethanol and distillers grains can be volatile as a result of a number of factors such as overall supply and demand, the price of gasoline and corn prices, levels of government support, and the availability and price of competing products. We are dependent on a favorable spread between the price we receive for our ethanol and distillers grains and the price we pay for corn and natural gas. Any

lowering of ethanol and distillers grains prices, especially if it is associated with increases in corn and natural gas prices, may affect our ability to operate profitably. We anticipate the price of ethanol and distillers grains to continue to be volatile in our 2013 fiscal year. Declines in the prices we receive for our ethanol and distillers grains will lead to decreased revenues and may result in our inability to operate the ethanol plant profitably for an extended period of time which could decrease the value of our units.

The prices of ethanol and distillers grains may decline as a result of trade barriers imposed by foreign countries with respect to ethanol and distillers grains originating in the United Sates. An increasing amount of our industry's products are being exported. If producers and exporters of ethanol and distillers grains are subjected to trade barriers when selling products to foreign customers there may be a reduction in the price of these products in the United States. Declines in the price we receive for our products will lead to decreased revenues and may result in our inability to operate the ethanol plant profitably.

We engage in hedging transactions which involve risks that could harm our business. We are exposed to market risk from changes in commodity prices. Exposure to commodity price risk results from our dependence on corn and natural gas in the ethanol production process. We seek to minimize the risks from fluctuations in the prices of corn, natural gas and ethanol through the use of hedging instruments. The effectiveness of our hedging strategies is dependent on the price of corn, natural gas and ethanol and our ability to sell sufficient products to use all of the corn and natural gas for which we have futures contracts. Our hedging activities may not successfully reduce the risk caused by price fluctuation which may leave us vulnerable to high corn and natural gas prices, as well as low ethanol prices.

Our business is not diversified. Our success depends largely on our ability to profitably operate our ethanol plant. We do not have any other lines of business or other sources of revenue if we are unable to operate our ethanol plant and manufacture ethanol and distillers grains. If economic or political factors adversely affect the market for ethanol and distillers grains, we have no other line of business to fall back on. Our business would also be significantly harmed if the ethanol plant could not operate at full capacity for any extended period of time.

We depend on our management and key employees, and the loss of these relationships could negatively impact our ability to operate profitably. We are highly dependent on our management team to operate our ethanol plant. We may not be able to replace these individuals should they decide to cease their employment with us, or if they become unavailable for any other reason. Any loss of these officers and key employees may prevent us from operating the ethanol plant profitably and could decrease the value of our units.

Risks Related to Ethanol Industry

Decreasing gasoline prices may negatively impact the selling price of ethanol which could reduce our ability to operate profitably . The price of ethanol tends to change partially in relation to the price of gasoline. Decreases in the price of ethanol reduce our revenue. Our profitability depends on a favorable spread between our corn and natural gas costs and the price we receive for our ethanol. If gasoline prices fall and ethanol prices follow during times when corn and/or natural gas prices are high, we may not be able to operate our ethanol plant profitably.

We operate in an intensely competitive industry and compete with larger, better financed entities which could impact our ability to operate profitably. There is significant competition among ethanol producers. There are numerous producer-owned and privately-owned ethanol plants planned and operating throughout the Midwest and elsewhere in the United States. We also face competition from outside of the United States. The largest ethanol producers include Archer Daniels Midland, POET, Valero Renewable Fuels, and Green Plains Renewable Energy, each of which are each capable of producing significantly more ethanol than we produce. Further, many believe that there will be further consolidation in the ethanol industry in the future, which will likely lead to a few companies who control a significant portion of the ethanol production market. We may not be able to compete with these larger entities. These larger ethanol producers may be able to affect the ethanol market in ways that are not beneficial to us which could negatively impact our financial performance.

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

Consumer resistance to the use of ethanol based on the belief that ethanol is expensive, adds to air pollution, harms engines and/or takes more energy to produce than it contributes may affect the demand for ethanol. Certain individuals believe that the use of ethanol will have a negative impact on gasoline prices at the pump. Some also believe that ethanol adds to air pollution and harms car and truck engines. Still other consumers believe that the process of producing ethanol actually uses more fossil energy, such as oil and natural gas, than the amount of energy that is produced. These consumer beliefs could potentially be wide-spread and may be increasing as a result of recent efforts to increase the allowable percentage of ethanol that may be blended for use in conventional automobiles. If consumers choose not to buy ethanol based on these beliefs, it would affect the demand for the ethanol we produce which could negatively affect our profitability and financial condition.

Sustained negative operating margins have required some ethanol producers to temporarily limit or cease production. Certain ethanol producers have publicly announced their intention to limit or cease production until ethanol industry operating margins improve. Our ability and the ability of other ethanol producers to operate profitably is largely determined by the spread between the price paid for corn and the price received for ethanol. If this spread is narrow or is negative for a sustained period, additional ethanol producers may also elect to temporarily limit or cease production until their possibility for profitability returns. Although we currently have no plans to limit or cease ethanol production, we may be required to do so if we experience a period of sustained negative operating margins. In such an event, we would still incur certain fixed costs, which would impact our financial performance.

Risks Related to Regulation and Governmental Action

The Federal Volumetric Ethanol Excise Tax Credit (“VEETC”) expired on December 31, 2011 and its absence could negatively impact our profitability . The ethanol industry has historically been benefited by VEETC, which is a federal excise tax credit of 45 cents per gallon of ethanol blended with gasoline. This excise tax credit expired on December 31, 2011. Management believes that the loss of this tax credit may lead to blenders utilizing only the minimum amount of ethanol required pursuant to the Renewable Fuels Standard. This may decrease demand and could negatively impact the price we receive for our ethanol and our profitability.

The Secondary Tariff on Imported Ethanol was eliminated in December 2011, and its absence could negatively impact our profitability. The secondary tariff on imported ethanol was allowed to expire on December 31, 2011. The secondary tariff on imported ethanol was a 54 cent per gallon tariff on ethanol imports from certain foreign countries. If market prices make importing ethanol to the United States profitable for foreign producers, we could see an influx of imported ethanol on the domestic ethanol market which could have a significant negative impact on domestic ethanol prices and our profitability.

Changes in environmental regulations or violations of the regulations could be expensive and reduce our profitability. We are subject to extensive air, water supply, water discharge and other environmental laws and regulations. In addition, some of these laws require our plant to operate under a number of environmental permits which must be renewed from time to time. These laws, regulations and permits can often require expensive pollution control equipment or operation changes to limit actual or potential impacts to the environment. A violation of these laws and regulations or permit conditions can result in substantial fines, damages, criminal sanctions, permit revocations, permit non-renewals, capital expenditures and/or plant shutdowns. In the future, we may be subject to legal actions brought by environmental advocacy groups and other parties for actual or alleged violations of environmental laws or our permits. Additionally, any changes in environmental laws and regulations, both at the federal and state level, could require us to spend considerable resources in order to comply with future environmental regulations. The expense of compliance could be significant enough to reduce our profitability and negatively affect our financial condition.

ITEM 1B. UNRESOLVED STAFF COMMENTS

This Item is not applicable to Granite Falls Energy because Granite Falls Energy is not an accelerated filer, a large accelerated filer or a well-known seasoned issuer, as those terms are defined in the rules of the Securities and Exchange Commission.

ITEM 2. PROPERTIES.

Our ethanol plant is located approximately three miles east of Granite Falls, Minnesota in Chippewa County at the junction of Highways 212 and 23. The plant's address is 15045 Highway 23 SE, Granite Falls, Minnesota. We produce all of our ethanol, distillers grains and corn oil at this site. The ethanol plant sits on approximately 56 acres. During the fiscal year ended October 31, 2012, we also acquired an additional adjoining property consisting of approximately 160 acres on which we constructed our rail loop. The ethanol plant has capacity to produce approximately 60 million gallons of ethanol per year. The ethanol plant consists of the following buildings and equipment:


•	A river water intake structure in the Minnesota River and a water pipeline to the plant from the Minnesota River to provide our primary water supply and two groundwater wells that provide a redundant water supply;


•	A Cold Lime Softening Water Treatment System for pre-treating the plant's water supply;


•	A processing building, which contains processing equipment, laboratories, control room, maintenance area and offices;


•	A grain receiving and shipping building, which contains corn storage silos, distillers grains storage and associated equipment;


•	A fermentation area comprised principally of four fermentation tanks;


•	Corn oil extraction equipment;


•	A mechanical building, which contains the boiler, thermal oxidizer and distillers grains dryers; and


•	An administrative building, along with furniture and fixtures, office equipment and computer and telephone systems.

The site also contains improvements such as rail tracks and a rail spur, landscaping, drainage systems and paved access roads. Our plant was placed in service in November 2005 and is in excellent condition and is capable of functioning at 100 percent of its production capacity.

As of October 31, 2012 we also owned approximately 80 acres of agricultural real property in Renville County, Minnesota. However, we subsequently sold this real property during the first quarter of our 2013 fiscal year.

All of our tangible and intangible property, real and personal, serves as the collateral for our credit facilities with United FCS, PCA. Our credit facilities are discussed in more detail under "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Indebtedness".

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 4. MINE SAFETY DISCLOSURES

None.

PART II

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

There is no public trading market for our units.

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

There are detailed timelines that must be followed under the Unit Trading Bulletin Board Rules and Procedures with respect to offers and sales of membership units. All transactions must comply with the Unit Trading Bulletin Board Rules, our operating and member control agreement, and are subject to approval by our board of governors.

As of October 31, 2012 , there were approximately 969 holders of record of our membership units.

The following table contains historical information by fiscal quarter for the past two fiscal years regarding the actual unit transactions that were completed by our unit-holders during the periods specified. We believe this most accurately represents the current trading value of the Company's units. The information was compiled by reviewing the completed unit transfers that occurred on our qualified matching service bulletin board during the quarters indicated.



Fiscal Quarter	Low Per Unit Price	High Per Unit Price
2011 1 ^st	$1,375	$1,375
2011 2 ^nd	$1,326	$1,500
2011 3 ^rd	$1,325	$1,425
2011 4 ^th	$1,350	$1,400
2012 1 ^st	$1,390	$1,400
2012 2 ^nd	$1,405	$1,500
2012 3 ^rd	$1,475	$1,600
2012 4 ^th	$1,525	$1,575

As a limited liability company, we are required to restrict the transfers of our membership units in order to preserve our partnership tax status. Our membership units may not be traded on any established securities market or readily trade on a secondary market (or the substantial equivalent thereof). All transfers are subject to a determination that the transfer will not cause Granite Falls Energy to be deemed a publicly traded partnership.

DISTRIBUTIONS

Distributions by the Company to our unit holders are in proportion to the number of units held by each unit holder. A unit holder's distribution is determined by multiplying the number of units by distribution per unit declared. Our board of governors has complete discretion over the timing and amount of distributions to our unit holders. However, our Master Loan Agreement with United FCS, PCA provides that we may not declare any distributions other than, for each fiscal year, one or more distributions up to an aggregate of 75% of the net profit (determined according to GAAP) for such fiscal year; provided that the we are and will remain in compliance with all of the covenants, terms and conditions of the Master Loan Agreement. Our expectations with respect to our ability to make future distributions are discussed in greater detail in “ MANAGEMENT'S DISCUSSION AND ANALYSIS. ” We do not currently have any plans to declare a future distribution.

Below is a table representing the cash distributions declared or paid to the members of Granite Falls Energy during the fiscal years ended October 31, 2012 and 2011.



Date Declared to Members of Record:	Total Distribution		Distribution Per Unit		Distributed to Members on:
October 27, 2011	$	9,196,800	$	300	December 15, 2011
November 23, 2010	$	9,196,800	$	300	December 15, 2010

PERFORMANCE GRAPH

The following graph shows a comparison of cumulative total member return since October 31, 2007, calculated on a dividend reinvested basis, for the Company, the NASDAQ Composite Index (the “NASDAQ”) and an index of other companies that have the same SIC code as the Company (the “Industry Index”). The graph assumes $100 was invested in each of the Company's units, the NASDAQ, and the Industry Index on October 31, 2007. Data points on the graph are annual. Note that historic stock price performance is not necessarily indicative of future unit price performance.

Pursuant to the rules and regulations of the Securities and Exchange Commission, the performance graph and the information set forth therein shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

ITEM 6. SELECTED FINANCIAL DATA

The following table presents selected financial and operating data as of the dates and for the periods indicated. The selected balance sheet financial data as of October 31, 2010, 2009 and 2008 and the selected statement of operations data and other financial data for the years ended October 31, 2009 and 2008 have been derived from our audited financial statements that are not included in this Form 10-K. The selected balance sheet financial data as of October 31, 2012 and 2011 and the selected statement of operations data and other financial data for each of the years in the three-year period ended October 31, 2012 have been derived from the audited financial statements included elsewhere in this Form 10-K. You should read the following table in conjunction with Item 7 “Management Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and the accompanying notes included elsewhere in this Form 10-K. Among other things, those financial statements include more detailed information regarding the basis of presentation for the following financial data.



Statement of Operations Data:	2012		2011		2010		2009			2008
Revenues	$	175,162,043	$	156,521,489	$	95,289,452	$	91,282,031		$	99,393,373
Cost Goods Sold	172,708,074		142,353,416		85,146,261		87,464,936			102,396,467
Lower of Cost or Market Adjustment	—		—		—		—			1,947,000
Gross Profit (Loss)	2,453,969		14,168,073		10,143,191		3,817,095			(4,950,094		)
Operating Expenses	2,449,596		2,002,706		1,957,742		2,045,615			2,916,170
Operating Income (Loss)	4,373		12,165,367		8,185,449		1,771,480			(7,866,264		)
Other Income (Expense)	156,234		126,489		176,863		(685,300		)	188,005
Net Income (Loss)	$	160,607	$	12,291,856	$	8,362,312	$	1,086,180		$	(7,678,259	)
Weighted Average Units Outstanding - Basic and Diluted	30,614		30,656		30,656		30,781			31,156
Net Income (Loss) Per Capital Unit	$	5.25	$	400.96	$	272.78	$	35.29		$	(246.45	)
Distributions per Capital Unit	$	—	$	600.00	$	150.00	$	—		$	—

Balance Sheet Data:	2012		2011		2010		2009			2008
Current Assets	$	20,715,050	$	27,542,361	$	23,429,993	$	14,015,271		$	9,382,784
Net Property and Equipment	40,418,082		35,898,961		36,327,497		42,425,018			48,648,041
Other Assets	—		—		10,050		32,894			35,694
Total Assets	$	61,133,132	$	63,441,322	$	59,767,540	$	56,473,183		$	58,066,519
Current Liabilities	6,002,937		13,680,184		3,733,360		4,004,077			6,108,632
Long-Term Debt	5,274,870		—		171,298		370,136			445,097
Members' Equity	$	49,855,325	$	49,761,138	$	55,862,882	$	52,098,970		$	51,512,790
Book Value Per Capital Unit	$	1,628.94	$	1,623.21	$	1,822.25	$	1,699.47		$	1,653.38

* See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for further discussion of our financial results.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This report contains forward-looking statements that involve future events, our future performance and our expected future operations and actions. In some cases you can identify forward-looking statements by the use of words such as “may,” “will,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the reasons described in this report. We are not under any duty to update the forward-looking statements contained in this report. We cannot guarantee future results, levels of activity, performance or achievements. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits, completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.

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

Results of Operations for the Fiscal Years Ended October 31, 2012 and 2011

The following table shows the results of our operations and the percentage of revenues, costs of goods sold, operating expenses and other items to total revenues in our audited statements of operations for the fiscal years ended October 31, 2012 and 2011 :



	2012				2011
Income Statement Data	Amount		%		Amount		%
Revenue	$	175,162,043	100.0	%	$	156,521,489	100.0	%
Cost of Goods Sold	172,708,074		98.6	%	142,353,416		90.9	%
Gross Profit	2,453,969		1.4	%	14,168,073		9.1	%
Operating Expenses	2,449,596		1.4	%	2,002,706		1.3	%
Operating Income	4,373		—	%	12,165,367		7.8	%
Other Income, net	156,234		0.1	%	126,489		0.1	%
Net Income	$	160,607	0.1	%	$	12,291,856	7.9	%

Revenues

Our revenues from operations come from three primary sources: sales of fuel ethanol, sales of distillers grains and sales of corn oil.

The following table shows the sources of our revenue for the fiscal year ended October 31, 2012 :



Revenue Sources	Amount		Percentage of Total Revenues

Ethanol sales	$	138,628,048	79.1	%
Distillers grains sales	32,214,496		18.4	%
Corn oil sales	4,319,499		2.5	%
Ethanol derivative activity losses	—		—	%
Total Revenues	$	175,162,043	100.0	%

The following table shows the sources of our revenue for the fiscal year ended October 31, 2011 :



Revenue Sources	Amount			Percentage of Total Revenues

Ethanol sales	$	129,936,623		83.0	%
Distillers grains sales	22,745,766			14.5	%
Corn oil sales	3,843,726			2.5	%
Ethanol derivative activity losses	(4,626		)	—	%
Total Revenues	$	156,521,489		100.0	%

We experienced an 11.9% increase in our revenues for our 2012 fiscal year compared to our 2011 fiscal year. Management attributes this increase in revenues primarily to an increase in the production of our products. Additionally, the prices we received for our distillers grains increased substantially, although the prices we received for our ethanol and corn oil decreased in our 2012 fiscal year compared to our 2011 fiscal year. Our volume of ethanol sold in 2012 was approximately 15.4% higher than the volume sold in 2011. For our 2012 fiscal year, ethanol sales comprised approximately 79.1% of our revenue, distillers grains comprised approximately 18.4% of our revenue and corn oil sales comprised approximately 2.5% of our revenue. For our 2011 fiscal year, ethanol sales comprised approximately 83.0% of our revenue, distillers grains comprised approximately 14.5% of our revenue and corn oil sales comprised approximately 2.5% of our revenue.

Ethanol

The average price we received for our ethanol decreased by approximately 7.5% during our 2012 fiscal year compared to our 2011 fiscal year. Management attributes the decrease in our average ethanol sales price to sustained market oversupply resulting from anticipation of the expiration of the Federal Volumetric Ethanol Excise Tax Credit (“VEETC”) on December 31, 2011. In an effort to capture as much of the VEETC as possible, blenders maximized the amount of ethanol they could blend at the end of calendar 2011. As a result of that timing, demand slowed during the beginning of calendar 2012, resulting in increased ethanol inventories, which pressured ethanol prices downward.

Downward pressure on ethanol prices, combined with increased corn prices, have recently caused some ethanol plants to suspend production. Although these suspensions will reduce the total quantity of ethanol produced domestically, management does not anticipate that this reduction in supply will materially impact ethanol prices moving forward. Management anticipates that the price of ethanol will continue to be volatile during our 2013 fiscal year. In the event ethanol prices further decrease, the industry may be forced to further reduce ethanol production if operating margins are unfavorable. Further, our operating margins depend on corn prices which can affect the spread between the price we receive for our ethanol and our raw material costs. In times when this spread decreases or becomes negative, we may reduce or terminate ethanol production until these spreads become more favorable.

Distillers Grains

We produce distillers grains for sale in two separate forms, distillers dried grains with solubles (DDGS) and modified/wet distillers grains (MWDG). Market factors dictate whether we sell more DDGS versus MWDG.

Distillers grains represent a larger portion of our revenues during our 2012 fiscal year compared to our 2011 fiscal year as a result of higher prices and greater quantities of distillers grains produced and sold. The price we received for our distillers grains in our 2012 fiscal year was approximately 25.2% higher than the price we received during our 2011 fiscal year. Management believes these higher distillers grains prices are a result of the high price of other feed products available to livestock producers. We anticipate that the market price of our distillers grains will continue to be volatile as a result of changes in the price of corn and competing animal feed substitutes such as soybean meal. Volatility in distillers grains supplies related to changes in ethanol production is another factor that may impact the sales price of our distillers grains. Additionally, our quantity of distillers grains sold increased approximately 13.1% in our 2012 fiscal year compared to our 2011 fiscal year. This increase in quantity sold was largely a result of increased production of our products during our 2012 fiscal year compared to our 2011 fiscal year. The price and quantity increases, combined with the decrease in ethanol prices discussed above, resulted in distillers grains sales comprising a larger percentage of our total revenues during our 2012 fiscal year relative to our 2011 fiscal year.

Corn Oil

Separating the corn oil from our distillers grains decreases the total tons of distillers grains that we sell; however, our corn oil has a higher per ton value than our distillers grains. The average price we received per pound of corn oil sold during our 2012 fiscal year was approximately 8.9% less than the average price received during our 2011 fiscal year. Management attributes the decrease in corn oil prices to additional corn oil entering the market. However, increased use of corn oil by biodiesel producers and animal feeders have continued to support demand.

Offsetting this price decrease, our volume of corn oil sold increased approximately 23.3% during our 2012 fiscal year relative to our 2011 fiscal year as a result of higher production rates at our facility and increased extraction efficiencies. The net effect of the price decrease and increase in volume sold was an increase in corn oil revenue from $3,843,726 in 2011 to $4,319,499 in 2012.

Hedging and Volatility of Sales

We occasionally engage in hedging activities with respect to our ethanol sales. We recognize the gains or losses that result from the changes in the value of these derivative instruments in revenues as the changes occur. As ethanol prices fluctuate, the value of our derivative instruments are impacted, which affects our financial performance. We did not recognize any gains or losses for our 2012 fiscal year related to our ethanol derivative instruments, as compared to a nominal $4,626 combined realized and unrealized loss for our 2011 fiscal year related to our ethanol derivative instruments, which decreased our revenues.

Our results of operations for our 2013 fiscal year will continue to be affected by volatility in the commodity markets. If plant operating margins are negative for an extended period of time, management anticipates that this could negatively impact our liquidity. Management believes the industry will need to continue to grow demand and further develop an ethanol distribution system to facilitate additional blending of ethanol and gasoline to offset oversupply issues within the industry. 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 are optimistic that over time, as E15 is brought to market and gains market acceptance, demand for ethanol will increase. However, we do not anticipate that the EPA's approval of applications for registering ethanol for use in making E15 will impact ethanol demand or pricing in the near term.

Cost of Sales

Our two primary costs of producing ethanol, distillers grains and corn oil are corn costs and natural gas costs. We experienced a significant increase in our cost of goods sold for our 2012 fiscal year compared to our 2011 fiscal year.

Our costs of goods sold as a percentage of revenues were 98.6% for our fiscal year ended October 31, 2012 compared to 90.9% for the same period of 2011. Our two largest costs of production are corn (84.7% of cost of goods sold for our fiscal year ended October 31, 2012 ) and natural gas (3.4% of cost of goods sold for our fiscal year ended October 31, 2012 ). Our cost of goods sold increased to $ 172,708,074 for our fiscal year ended October 31, 2012 from $ 142,353,416 in our fiscal year ended October 31, 2011 . Our per bushel corn costs increased by approximately 8.8% for the year ended October 31, 2012 as compared to the same period for our 2011 fiscal year. Additionally, our volume of corn used in our 2012 fiscal year was approximately

13.5% greater as compared to our 2011 fiscal year due to increased production. Our increased cost and volume of corn were the primary factors driving up our costs of goods sold.

Corn Costs

We experienced an increase of approximately 23.5% in the total amount we paid for corn for our 2012 fiscal year compared to our 2011 fiscal year, due to our increased per bushel cost and volume of corn used discussed above.

Widespread drought in 2012 in several corn producing states, combined with continued corn demand from other sectors, has resulted in increasing corn prices. Management anticipates that corn prices will remain high for the duration of our 2013 fiscal year. Although the 2012 drought did not impact corn production in Minnesota to the same extent as other corn producing states, as a local consumer of corn we must nevertheless be cost competitive when sourcing corn in order to procure sufficient quantities for ethanol production. Management expects continued upward pressure on corn prices and tightened corn supplies moving forward.

Natural Gas Costs

For our 2012 fiscal year, we experienced a decrease of approximately 15.9% in our overall natural gas costs compared to our 2011 fiscal year. Falling natural gas prices have decreased our natural gas costs, even though our natural gas consumption has risen as a result of our increased ethanol production during our 2012 fiscal year as compared to our 2011 fiscal year. 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.

Hedging and Volatility of Purchases

Realized and unrealized gains and losses related to our corn derivative instruments resulted in an increase of $1,651,799 in our cost of goods sold for our 2012 fiscal year compared to a decrease of $1,275,868 in our cost of goods sold for our 2011 fiscal year. We recognize the gains or losses that result from the changes in the value of our derivative instruments related to 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.

Operating Expense

Operating expenses as a percentage of revenues were relatively steady, increasing from 1.3% of revenues for our fiscal year ended October 31, 2011 to 1.4% of revenues for our fiscal year ended October 31, 2012 . We continue to focus on increasing our operating efficiency as we strive to lower our operating expenses. We expect that going forward our operating expenses will remain relatively steady.

Operating Income

Our income from operations for our fiscal year ended October 31, 2012 was a negligible amount of our revenues compared to income of approximately 7.8% of our revenues for our fiscal year ended October 31, 2011 . For our fiscal year ended October 31, 2012 , we reported operating income of $ 4,373 and for our fiscal year ended October 31, 2011 , we had operating income of $ 12,165,367 . This decrease in our operating income is primarily due to the decreases in our crush margins. This decrease in our operating income is primarily due to decreased ethanol sales prices.

Other Income, Net

We had other income for our fiscal year ended October 31, 2012 of $ 156,234 compared to other income of $ 126,489 for our fiscal year ended October 31, 2011 .

Our other income, net increased from $37,281 for our fiscal year ended October 31, 2011 to $181,186 for our fiscal year ended October 31, 2012 primarily as a result of income related to land rent and other miscellaneous income.

Our interest income was lower for our fiscal year ended October 31, 2012 compared to the same period of 2011 as a result of having less cash on hand during the 2012 period. Our interest expense was greater for our fiscal year ended October 31, 2012 compared to the same period of 2011 due to the note we took to purchase a Shuttlewagon Railcar Mover in December 2011.

Results of Operations

Comparison of Fiscal Years Ended October 31, 2011 and 2010



	2011			2010
Income Statement Data	Amount		%	Amount		%
Revenues	$	156,521,489	100.0	$	95,289,452	100.0
Cost of Goods Sold	142,353,416		90.9	85,146,261		89.4
Gross Profit	14,168,073		9.1	10,143,191		10.6
Operating Expenses	2,002,706		1.3	1,957,742		2.1
Operating Income	12,165,367		7.8	8,185,449		8.6
Other Income, net	126,489		0.1	176,863		0.2
Net Income	$	12,291,856	7.9	$	8,362,312	8.8

Revenues

The following table shows the sources of our revenue for the year ended October 31, 2011 .



Revenue Sources	Amount			Percentage of Total Revenues
Ethanol sales	$	129,936,623		83.0	%
Distillers grains sales		22,745,766		14.5	%
Corn oil sales		3,843,726		2.5	%
Ethanol derivative activity losses		(4,626	)	—
Total Revenues	$	156,521,489		100.0	%

The following table shows the sources of our revenue for the year ended October 31, 2010:



Revenue Sources	Amount		Percentage of Total Revenues
Ethanol sales	$	81,317,691	85.3	%
Distillers grains sales		12,250,393	12.9	%
Corn oil sales		1,721,368	1.8	%
Total Revenues	$	95,289,452	100.0	%

We experienced a significant increase in our revenues for our 2011 fiscal year compared to our 2010 fiscal year. Management attributes this increase in revenues primarily to the higher average prices we received for our products during fiscal year 2011 compared to fiscal year 2010 and to a lesser extent an increase in the production of our products. Our volume of ethanol sold in 2011 was approximately 7.5% higher than the volume sold in 2010. For our 2011 fiscal year, ethanol sales comprised approximately 83.0% of our revenue, distillers grains comprised approximately 14.5% of our revenue and corn oil sales comprised approximately 2.5% of our revenue. For our 2010 fiscal year, ethanol sales comprised approximately 85.3% of our revenue, distillers grains comprised approximately 12.9% of our revenue and corn oil sales comprised approximately 1.8% of our revenue.

Ethanol

The average price we received for our ethanol increased by approximately 48.0% during our 2011 fiscal year compared to our 2010 fiscal year. Management attributes this increase in the average price we received per gallon of ethanol with higher petroleum prices and increased ethanol exports during our 2011 fiscal year.

Distillers Grains

We experienced an increase in the average prices we received for our distillers grains during our 2011 fiscal year compared to the same period of 2010. We experienced an increase of approximately 76.2% in the average price we received for our dried distillers grains during our 2011 fiscal year compared to our 2010 fiscal year and an increase of approximately 45.3% in the average price we received for our modified/wet distillers grains during the same period. This change in the prices we received for our

distillers grains is coupled with an increase of approximately 5.5% in the overall volume of distillers grains sold in 2011 compared to 2010.

Corn Oil

The average price we received per pound of corn oil sold during our 2011 fiscal year was approximately 75.0% greater that the average price received during our 2010 fiscal year. This increase in corn oil prices coupled with an increase of approximately 27.6% in the volume of corn oil sold caused our annual corn oil revenue to increase from approximately $1,721,000 in 2010 to approximately $3,844,000 in 2011.

Cost of Goods Sold and Gross Profit

Our costs of goods sold as a percentage of revenues were 90.9% for our fiscal year ended October 31, 2011 compared to 89.4% for the same period of 2010. Our cost of goods sold increased to $142,353,416 for our fiscal year ended October 31, 2011 from $85,146,261 in our fiscal year ended October 31, 2010. Our per bushel corn costs increased by approximately 84.6% for the year ended October 31, 2011 as compared to the same period for our 2010 fiscal year. Our increased cost of corn was the primary factor driving up our costs of goods sold.

Corn Costs

We experienced an increase of approximately 96.7% in the total amount we paid for corn for our 2011 fiscal year compared to our 2010 fiscal year. This increase was due primarily to the per bushel price we paid since the volume of corn we used in 2011 was only 6.5% higher than the volume of corn we used in 2010. Market corn prices increased during our 2011 fiscal year starting in January 2011 and continuing through the beginning of September 2011 when the market experienced a decline in corn prices followed by a stronger corn market during December 2011. Management attributes this increase in corn prices with uncertainty regarding weather factors that resulted in decreased yields in some parts of the United States. Parts of the upper Midwest experienced these lower yields which reduced the amount of corn harvested in the fall of 2011.

Natural Gas Costs

We experienced a decrease in the average price we paid per MMBtu of natural gas during our 2011 fiscal year compared to our 2010 fiscal year. The average price we paid per MMBtu of natural gas during our 2011 fiscal year was approximately 5.7% lower than the average price we paid during our 2010 fiscal year. Management attributes this decrease in our natural gas costs with lower market natural gas prices due to increased natural gas supplies and relatively stable natural gas demand.

Hedging

Realized and unrealized gains and losses related to our corn, natural gas, and denaturant derivative instruments resulted in a decrease of approximately $1,276,000 in our cost of goods sold for our 2011 fiscal year compared to a decrease of approximately $2,223,000 in our cost of goods sold for our 2010 fiscal year. We recognize the gains or losses that result from the changes in the value of our derivative instruments related to corn, natural gas, and denaturant in cost of goods sold as the changes occur. As corn, natural gas, and denaturant prices fluctuate, the value of our derivative instruments are impacted, which affects our financial performance. 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.

Operating Expenses

Operating expenses were relatively steady for the fiscal year ended October 31, 2011 compared to the same period in 2010. Our operating expenses as a percentage of revenues were lower for the fiscal year ended October 31, 2011 when compared to the same period ended October 31, 2010. However, this decrease is primarily due to the extreme increase in our revenues and not an actual reduction in operating expenses.

Other Income, Net

We had other income, net for our fiscal year ended October 31, 2011 of $126,489 compared to other income of $176,863 for our fiscal year ended October 31, 2010.

Included in other income, net is our interest income and expense. Interest expense for the fiscal year ended October 31, 2011, was less that one tenth of one percent of our revenue and totaled $4,358, compared to $10,704 of interest expense for the

year ended October 31, 2010. The interest expense incurred during our fiscal year ended October 31, 2011 is attributable to our low interest loan obtained through a local economic development authority and the upfront one percent fee on our letters of credit. On August 26, 2011, the board of governors decided to repay this loan in the amount of approximately $187,000.

Our interest income was steady for our fiscal year ended October 31, 2011 when compared to the same period ended October 31, 2010.

Changes in Financial Condition for the Fiscal Year Ended October 31, 2012 and 2011

The following table highlights the changes in our financial condition for the fiscal year ended ended October 31, 2012 from our previous fiscal year ended October 31, 2011 :



	October 31, 2012		October 31, 2011
Current Assets	$	20,715,050	$	27,542,361
Current Liabilities	$	6,002,937	$	13,680,184
Long-Term Debt	$	5,274,870	$	—
Members' Equity	$	49,855,325	$	49,761,138

Total assets were approximately $61,133,000 at October 31, 2012 compared to approximately $63,441,000 at October 31, 2011 . This decrease in total assets is primarily a result of the approximately $9,200,000 cash distribution paid to membership during our 2012 fiscal year. Also included in our total assets this period is an increase of approximately $8,018,000 in land, process equipment, and construction in progress. During our 2012 fiscal year, we purchased approximately $3,500,000 of land that will be used as part of a rail infrastructure improvement project. The construction of our rail loop enables us to load unit trains. Our construction in progress is primarily related to rail infrastructure improvement and the de-bottlenecking process we are implementing at our plant as we move toward an increased annual run rate. The additions in property, plant and equipment were offset with additional depreciation of approximately $4,161,000.

Current assets totaled approximately $20,715,000 at October 31, 2012 , which is less than our current assets as of October 31, 2011 which totaled approximately $27,542,000. The decrease is primarily due to the land acquisitions, property, plant, and equipment purchases, and payments of distributions discussed in the previous paragraph.

Total current liabilities decreased and totaled approximately $6,003,000 at October 31, 2012 and approximately $13,680,000 at October 31, 2011 . This decrease was mainly due to the payment of the accrued distribution during the first quarter of our 2012 fiscal year. Long term debt increased from zero at October 31, 2011 to approximately $5,275,000 at October 31, 2012 as we drew on our line of credit in order to finance our rail infrastructure improvement project and financed the purchase of a Shuttlewagon Railcar Mover.

Plant Operations

We are currently producing fuel-grade ethanol, distillers grains and crude corn oil for sale. Our plant has an approximate annual production capacity of 60 million gallons of denatured ethanol. We have obtained an amendment to our environmental permits allowing us to produce up to 70 million gallons of undenatured ethanol on a twelve month rolling sum basis. We intend to continue working to increase production to take advantage of the underutilized capacity of our plant. 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 fiscal year ended October 31, 2012 , we have incurred approximately $1,135,000 in costs associated with our equipment construction projects. Since starting our de-bottlenecking projects we have incurred approximately $5,135,000 associated with the cost of these equipment improvements.

We expect to have sufficient cash generated by continuing operations, current lines of credit and cash reserves to cover our usual operating costs, which consist primarily of our corn and natural gas supply, de-bottlenecking projects, staffing and 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 December 1, 2010 through January 1, 2013, as compiled by the USDA Agricultural Marketing Service.

According to the Renewable Fuels Association (“RFA”), as of December 10, 2012, there were 211 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 9.6% 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 continue to 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 in the United States is blended at a rate of 10% ethanol and 90% gasoline, the maximum demand for ethanol is 13.5 billion gallons. This is commonly referred to as the “blend wall”, which represents a limit where more ethanol cannot be blended into the national gasoline pool. This is a theoretical limit since it is believed it would not be possible to blend ethanol into every gallon of gasoline that is used in the United States and it discounts higher percentage blends of ethanol such as E15 and E85 used in flex fuel vehicles. As discussed under "Results of Operations for the Fiscal Years Ended October 31, 2012 and 2011 - Revenues," in April 2012, the U.S. Environmental Protection Agency ("EPA") approved the first applications for registering ethanol for use in making E15. As E15 is brought to market and gains market acceptance, management believes that demand for ethanol will increase. However, we do not expect the EPA's acceptance of applications for registering ethanol for use in making E15 to impact ethanol demand or pricing in the near term.

The United States ethanol industry has exported an increasing amount of ethanol. Granite Falls Energy, through the use of its ethanol marketer, recently began to export a portion of its ethanol production to the European market. The exportation of domestic ethanol has helped to mitigate the effects of the blend wall and has thereby helped to maintain ethanol price levels. We are excited to be participating in the export market, but would prefer that all of our domestically produced fuel could be utilized by the domestic market. Whether the export market continues to make economic sense for Granite Falls Energy will depend on domestic 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 2012, RFS2 required approximately 15.2 billion gallons, of which corn based ethanol could be used to satisfy approximately 13.2 billion gallons. In 2013, the RFS2 will require approximately 16.55 billion gallons, of which corn based ethanol can be used to satisfy approximately 13.8 billion gallons. In August 2012, the governors of several states requested that the EPA

waive the national volume requirements under RFS2. Although the EPA denied these waiver requests, parties opposed to RFS2 may again seek waivers in the future.

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 second quarter of our 2013 fiscal year. We currently estimate that this project will cost a total of $1,000,000 and anticipate using cash flows from fiscal 2013 operations 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 fiscal year ended October 31, 2012 , our average cost of corn per bushel, net of hedging activity, was approximately $0.56 higher than our per bushel cost of corn for the same period ended October 31, 2011 .

Corn prices remain above historical averages. During spring 2012, projected increases in domestic corn production led many to anticipate the possibility of lower corn prices following the 2012 harvest. However, a widespread drought in several corn producing states, combined with continued corn demand from other sectors, resulted in increasing corn prices. The drought contributed to lower domestic production during the 2012 growing season. 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. If a period of high corn prices were to be sustained for some time, such pricing may reduce our ability to generate income because of the higher cost of operating our plant.

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

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

As of October 31, 2012 , we recorded a net liability for our derivative instruments in the amount of $45,563. As of October 31, 2011 , we recorded a net asset for our derivative instruments in the amount of $404,050. 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.

As of October 31, 2012 , we had approximately 1,000,000 bushels of fixed basis contracts for forward corn purchase commitments for delivery through December 2012. Through these contracts we hope to minimize risk from future market price fluctuations and basis fluctuations.

As of October 31, 2012 , we had price protection in place for approximately 30% of our natural gas needs through March 2013. As we move forward, we may determine that additional price protection for natural gas purchases is necessary to reduce our susceptibility to price increases. However, we may not be able to secure natural gas for prices less than current market price and we may not recover high costs of production resulting from high natural gas prices, which may raise our costs of production and reduce our net income.

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

Critical Accounting Estimates

Management uses estimates and assumptions in preparing our financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Of the significant accounting policies described in the notes to our financial statements, we believe that the following are the most critical:

Inventory

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

Property, Plant and Equipment

Management’s estimate of the depreciable lives of property, plant, and equipment is based on the estimated useful lives. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment testing for assets requires various estimates and assumptions, including an allocation of cash flows to those assets and, if required, an estimate of the fair value of those assets. Given the significant assumptions required and the possibility that actual conditions will differ, we consider the assessment of the useful lives of property and equipment to be a critical accounting estimate.

Liquidity and Capital Resources

The following table shows our cash flows for the fiscal years ended October 31, 2012 and 2011 :



	2012			2011
Net cash provided by (used in) operating activities	$	(953,958	)	$	11,879,586
Net cash used in investing activities	(7,551,142		)	(50,020		)
Net cash used in financing activities	(3,873,632		)	(9,429,231		)

Operating Cash Flows. Cash used in operating activities was approximately $954,000 for the fiscal year ended October 31, 2012 , compared to cash provided by operating activities of approximately $11,880,000 for the fiscal year ended October 31, 2011 . The difference is primarily attributable to our decrease in net income for the fiscal year ended October 31, 2012 compared to the fiscal year ended October 31, 2011 . We also purchased approximately $6,500,000 of corn during the fourth quarter of 2012 that we anticipate using during fiscal 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 $7,551,000 for the fiscal year ended October 31, 2012 , compared to cash used in investing activities of approximately $50,000 for the fiscal year ended October 31, 2011 . During the fiscal year ended October 31, 2012 , we made payments totaling approximately $7,551,000 for capital expenditures, construction in process and land acquisitions, compared to payments of approximately $3,550,000 during the same period in 2011. Additionally, during the fiscal year ended October 31, 2011 we had positive investing cash flow from the maturity of certain short term investments (certificates of deposit) in the amount of $3,500,000.

Financing Cash Flows. Cash used in financing activities was approximately $3,874,000 for the fiscal year ended October 31, 2012 , compared to approximately $9,429,000 for the fiscal year ended October 31, 2011 . The difference is primarily attributable to approximately $5,491,000 in long-term debt proceeds from our revolving term loan with United FCS during the fiscal year ended October 31, 2012 .

The following table shows our cash flows for the fiscal years ended October 31, 2011 and 2010:



	2011			2010
Net cash provided by operating activities	$	11,879,586		$	14,079,296
Net cash used in investing activities	(50,020		)	(4,320,511		)
Net cash used in financing activities	(9,429,231		)	(4,811,066		)

Operating Cash Flows. Cash provided by operating activities was approximately $11,880,000 for the fiscal year ended October 31, 2011, which was less than the approximately $14,080,000 provided by operating activities for the fiscal year ended October 31, 2010. The difference is primarily attributable to the significant depreciation taken during the period ended October 31, 2010.

Investing Cash Flows. Cash used in investing activities was approximately $50,000 for the fiscal year ended October 31, 2011, compared to cash used in investing activities of approximately $4,321,000 for the fiscal year ended October 31, 2010. During the fiscal year ended October 31, 2011 we had positive investing cash flow from the maturity of certain short term investments (certificates of deposit) in the amount of $3,500,000. These proceeds were offset by payments for capital expenditures and construction in process in the amount of approximately $3,550,000.

Financing Cash Flows. Cash used in financing activities was approximately $9,429,000 for the fiscal year ended October 31, 2011, compared to approximately $4,811,000 for the fiscal year ended ended October 31, 2010. In the fiscal year ended October 31, 2011, cash was used to pay a distribution to our members totaling approximately $9,200,000 and to repay the principal balance on our long-term debt.

Indebtedness

Short-Term Debt Sources

The Company formerly had a Loan Agreement with Minnwest Bank M.V. of Marshall, MN (the “Bank”). Under the Loan Agreement, the Company had a revolving line of credit with a maximum of $6,000,000 available which was secured by a first mortgage on substantially all of our assets. The interest rate on the revolving line of credit was at 0.25 percentage points above the prime rate as reported by the Wall Street Journal, with a minimum rate of 4.0%. In August 2012, the Company terminated this revolving line of credit and 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 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 $386,928 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 $5,613,000.

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. As of October 31, 2012, the outstanding balance on our revolving term loan was $4,891,952 and the interest rate as of that date was 3.12%.

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 October 31, 2012, we were in compliance with our financial covenants.

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 new credit facility.

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 October 31, 2012, the loan balance was approximately $498,000, of which approximately $383,000 is classified as long-term debt. The note is on a five-year term at a fixed annual interest rate of 3.875%.

Contractual Obligations

The following table provides information regarding the contractual obligations of the Company as of October 31, 2012:



	Total		Less than One Year		One to Three Years		Three to Five Years		Greater Than Five Years
Long-Term Debt Obligations (1)	$	6,022,593	$	131,938	$	2,522,722	$	3,367,933	$	—
Operating Lease Obligations (2)	$	4,456,982	$	1,582,612	$	2,342,058	$	471,494	$	60,816
Purchase Obligations (3)	$	719,000	$	719,000	$	—			$	—
Total Contractual Obligations	$	11,198,575	$	2,433,550	$	4,864,780	$	3,839,427	$	60,816

(1) Long-term debt obligations include both principal and interest payments.

(2) Operating lease obligations include the Company's rail car lease (Note 7).

(3) Purchase commitments include fixed price utility forward contracts.

Off-Balance Sheet Arrangements.

We currently have no off-balance sheet arrangements.

ITEM 7A. 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. Specifically, we have $4,891,952 outstanding in variable rate debt as of October 31, 2012 . The specifics of these credit facilities are discussed in greater detail in “Item 7 - 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. The sensitivity analysis below shows the anticipated effect on our income from a 10% adverse change in interest rates for a one-year period.



Outstanding Variable Rate Debt at October 31, 2012	Interest Rate at October 31, 2012		Interest Rate Following 10% Adverse Change		Annual Adverse Change to Income
$4,891,952	3.12	%	3.43	%	$15,263

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 October 31, 2012 , net of the forward and future contracts used to hedge our market risk for corn and natural gas usage requirements. The volumes are based on our expected use and sale of these commodities for a one year period from October 31, 2012 . 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 October 31, 2012		Approximate Adverse Change to Income
Natural Gas	1,250,000	MMBTU	10	%	$	562,500
Ethanol	58,630,000	Gallons	10	%	$	14,071,200
Corn	20,315,000	Bushels	10	%	$	15,236,250

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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Governors

Granite Falls Energy, LLC

Granite Falls, Minnesota

We have audited the accompanying balance sheets of Granite Falls Energy, LLC as of October 31, 2012 and 2011, and the related statements of operations, changes in members’ equity, and cash flows for each of the years in the three-year period ended October 31, 2012. Granite Falls Energy, LLC's management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Granite Falls Energy, LLC as of October 31, 2012 and 2011, and the results of its operations and its cash flows for each of the years in the three-year period ended October 31, 2012, in conformity with accounting principles generally accepted in the United States of America.



	/s/ Boulay, Heutmaker, Zibell, and Co. P.L.L.P.
	Certified Public Accountants

Minneapolis, Minnesota
January 29, 2013

GRANITE FALLS ENERGY, LLC

Balance Sheets



ASSETS	October 31, 2012		October 31, 2011

Current Assets
Cash	$	685,828	$	13,064,560
Restricted cash	494,000		1,503,000
Accounts receivable	7,356,534		3,777,547
Inventory	12,013,169		8,615,411
Commodity derivative instruments	—		404,050
Prepaid expenses and other current assets	165,519		177,793
Total current assets	20,715,050		27,542,361

Property, Plant and Equipment
Land and improvements	7,095,172		3,627,973
Railroad improvements	4,121,148		4,121,148
Process equipment and tanks	64,678,860		63,592,688
Administration building	279,734		279,734
Office equipment	154,072		154,072
Rolling stock	1,305,395		642,908
Construction in progress	3,831,263		366,979
	81,465,644		72,785,502
Less accumulated depreciation	41,047,562		36,886,541
Net property, plant and equipment	40,418,082		35,898,961

Total Assets	$	61,133,132	$	63,441,322

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

GRANITE FALLS ENERGY, LLC

Balance Sheets



LIABILITIES AND MEMBERS' EQUITY	October 31, 2012		October 31, 2011

Current Liabilities
Current portion of long-term debt	$	114,718	$	—
Accounts payable	3,527,840		1,591,036
Corn payable to FCE	1,995,997		2,516,923
Commodity derivative instruments	45,563		—
Accrued liabilities	318,819		375,425
Distribution payable	—		9,196,800
Total current liabilities	6,002,937		13,680,184

Long-Term Debt, less current portion	5,274,870		—

Commitments and Contingencies

Members' Equity, 30,606 and 30,656 units authorized, issued and outstanding at October 31, 2012 and 2011, respectively	49,855,325		49,761,138

Total Liabilities and Members’ Equity	$	61,133,132	$	63,441,322

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

GRANITE FALLS ENERGY, LLC

Statements of Operations



For the fiscal years ended,	October 31, 2012			October 31, 2011			October 31, 2010


Revenues	$	175,162,043		$	156,521,489		$	95,289,452

Cost of Goods Sold	172,708,074			142,353,416			85,146,261

Gross Profit	2,453,969			14,168,073			10,143,191

Operating Expenses	2,449,596			2,002,706			1,957,742

Operating Income	4,373			12,165,367			8,185,449

Other Income (Expense)
Other income	182,186			37,281			89,890
Interest income	18,050			93,566			97,677
Interest expense	(44,002		)	(4,358		)	(10,704		)
Total other income, net	156,234			126,489			176,863

Net Income	$	160,607		$	12,291,856		$	8,362,312

Weighted Average Units Outstanding - Basic and Diluted	30,614			30,656			30,656

Net Income Per Unit - Basic and Diluted	$	5.25		$	400.96		$	272.78

Distributions Per Unit	$	—		$	600.00		$	150.00

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

GRANITE FALLS ENERGY, LLC

Statement of Changes in Members' Equity



Balance - October 31, 2009	$	52,098,970

Member distributions	(4,598,400		)

Net income for the year ended October 31, 2010	8,362,312

Balance - October 31, 2010	55,862,882

Member distributions	(18,393,600		)

Net income for the year ended October 31, 2011	12,291,856

Balance - October 31, 2011	49,761,138

Repurchase of 50 membership units in December 2011	(66,420		)

Net income for the year ended October 31, 2012	160,607

Balance - October 31, 2012	$	49,855,325

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

`GRANITE FALLS ENERGY, LLC

Statements of Cash Flows



For the fiscal years ended,	October 31, 2012			October 31, 2011			October 31, 2010

Cash Flows from Operating Activities
Net income	$	160,607		$	12,291,856		$	8,362,312
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization	4,161,021			3,988,606			6,940,876
Change in fair value of derivative instruments	1,651,799			(1,271,242		)	(1,889,836		)
Change in operating assets and liabilities:
Restricted cash	1,009,000			(601,500		)	209,173
Commodity derivative instruments	(1,202,186		)	1,619,692			1,498,772
Accounts receivable	(3,578,987		)	(613,338		)	175,809
Inventory	(3,397,758		)	(4,284,741		)	(1,479,030		)
Prepaid expenses and other current assets	12,274			(60,904		)	62,733
Accounts payable	286,878			871,671			141,558
Accrued liabilities	(56,606		)	(60,514		)	56,929
Net Cash (Used in) Provided by Operating Activities	(953,958		)	11,879,586			14,079,296

Cash Flows from Investing Activities
Proceeds from (payments for) maturity of short-term investments	—			3,500,000			(3,500,000		)
Payments for capital expenditures	(1,381,680		)	(3,183,041		)	(80,415		)
Payments for construction in process	(2,702,263		)	(366,979		)	(740,096		)
Payments for land acquisitions	(3,467,199		)	—			—
Net Cash Used in Investing Activities	(7,551,142		)	(50,020		)	(4,320,511		)

Cash Flows from Financing Activities
Proceeds from long-term debt	5,490,926			—			—
Payments on long-term debt	(101,338		)	(232,431		)	(212,666		)
Payments for membership unit redemption	(66,420		)	—			—
Member distributions paid	(9,196,800		)	(9,196,800		)	(4,598,400		)
Net Cash Used in Financing Activities	(3,873,632		)	(9,429,231		)	(4,811,066		)

Net Increase (Decrease) in Cash	(12,378,732		)	2,400,335			4,947,719

Cash - Beginning of Period	13,064,560			10,664,225			5,716,506

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

Supplemental Cash Flow Information
Cash paid for:
Interest	$	44,002		$	6,857		$	11,611

Supplemental Disclosure of Noncash Investing and Financing Activities
Member distributions included in distribution payable	$	—		$	9,196,800		$	—
Transfer of construction in process to fixed assets	$	366,979		$	746,008		$	231,916
Capital expenditures and construction in process included in accounts payable	$	1,129,000		$	—		$	—

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

GRANITE FALLS ENERGY, LLC

Notes to Financial Statements

October 31, 2012 and 2011

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying audited financial statements of Granite Falls Energy, LLC have been Impairment prepared pursuant to the rules and regulations of the Securities and Exchange Commission. As used in this report in Form 10-K, the “Company” represents Granite Falls Energy, LLC (“GFE”).

Nature of Business

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

Fiscal Reporting Period

The Company has adopted a fiscal year ending October 31 for financial reporting purposes.

Accounting Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The Company uses estimates and assumptions in accounting for the following significant matters, among others: economic lives of property, plant, and equipment, valuation of commodity derivatives and inventory, and the assumptions used in the impairment analysis of long-lived assets. Actual results may differ from previously estimated amounts, and such differences may be material to our 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.

Cash

The Company maintains it accounts primarily at two financial institutions, of which one is a member of the Company. At times throughout the year, the Company's cash balances may exceed amounts insured by the Federal Deposit Insurance Corporation. At October 31, 2012 and 2011 such uninsured funds approximated $230,000 and $13,028,000 , respectively. The Company does not believe it is exposed to any significant credit risk on its cash balances.

Restricted Cash

The Company has restricted cash balances relating to its margin requirements with the Company's commodity derivative broker based on open commodity contracts discussed in Note 5.

Accounts Receivable

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

Accounts receivable are recorded at their estimated net realizable value. Accounts are considered past due if payment is not made on a timely basis in accordance with the Company's credit terms. Accounts considered uncollectible are written off. The Company follows a policy of providing an allowance for doubtful accounts; however, based on historical experience, and its evaluation of the current status of receivables, the Company is of the belief that such accounts will be collectible in all material respects and thus an allowance was not necessary at October 31, 2012 or 2011. It is at least possible this estimate will change in the future.

GRANITE FALLS ENERGY, LLC

Notes to Financial Statements

October 31, 2012 and 2011

Inventory

Inventory is stated at the lower of cost or market. Cost for all inventories is determined using the first in first out method (FIFO). Market is based on current replacement values except that it does not exceed net realizable values and it is not less than net realizable values reduced by allowances from normal profit margin. Inventory consists of raw materials, work in process, finished goods, and spare parts. Corn is the primary raw material along with other raw materials. Finished goods consist of ethanol, distillers grains, and corn oil.

Property, Plant, and Equipment

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



Asset Description	Years
Land improvements	5-20 years
Buildings	10-30 years
Grain handling equipment	5-15 years
Mechanical equipment	5-15 years
Equipment	5-10 years

Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized. Construction in progress expenditures will be depreciated using the straight-line method over their estimated useful lives once the assets are placed into service. Depreciation expense totaled $4,161,021 , $2,978,556 , and $6,918,032 for the fiscal years ended October 31, 2012, 2011, and 2010, respectively.

Long-Lived Assets

Long-lived assets, such as property, plant, and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including, but not limited to, discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No indicators of impairment existed during fiscal 2012 or 2011 that would have triggered impairment testing, and therefore, no impairment expense was recorded during 2012 or 2011.

Revenue Recognition

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

In accordance with the Company's agreements for the marketing and sale of ethanol and related products, marketing fees and commissions due to the marketers are deducted from the gross sales price as earned. These fees and commissions are recorded net of revenues, as they do not provide an identifiable benefit that is sufficiently separable from the sale of ethanol and related products. Shipping costs 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.

GRANITE FALLS ENERGY, LLC

Notes to Financial Statements

October 31, 2012 and 2011

Fair Value of Financial Instruments

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

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


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


•	Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.


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

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

Except for those assets and liabilities which are required by authoritative accounting guidance to be recorded at fair value in our balance sheets, the Company has elected not to record any other assets or liabilities at fair value. No events occurred during the fiscal years ended October 31, 2012 or 2011 that required adjustment to the recognized balances of assets or liabilities, which are recorded at fair value on a nonrecurring basis.

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

Derivative Instruments

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

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

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

GRANITE FALLS ENERGY, LLC

Notes to Financial Statements

October 31, 2012 and 2011

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 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 5.

Income Taxes

The Company is treated as a partnership for federal and state income tax purposes, and generally does not incur income taxes. Instead its earnings and losses are included in the income tax returns of its members. Therefore, no provision or liability for federal or state income taxes has been included in these financial statements. The Company had no significant uncertain tax positions as of October 31, 2012 or 2011. For years before fiscal 2010, the Company is no longer subject to U.S. Federal or state income tax examinations.

Environmental Liabilities

The Company's operations are subject to environmental laws and regulations adopted by various governmental entities in the jurisdiction in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its location. Accordingly, the Company has adopted policies, practices, and procedures in the areas of pollution control, occupational health, and the production, handling, storage, and use of hazardous materials to prevent material environmental or other damage, and to limit the financial liability, which could result from such events. Environmental liabilities are recorded when the liability is probable and the costs can be reasonable estimated. No expense has been recorded for the fiscal year's ended October 31, 2012, 2011, or 2010.

Net Income per Unit

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

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 and distillers grains to customers located in the United States and internationally. Corn for the production process is supplied to our plant primarily from local agricultural producers and from purchases on the open market. Ethanol sales average approximately 80% of total revenues and corn costs averaged 85% of cost of goods sold.

The Company's operating and financial performance is largely driven by the prices at which they sell ethanol and the net expense of corn. The price of ethanol is influenced by factors such as supply and demand, the weather, government policies and programs, and unleaded gasoline prices and the petroleum markets as a whole. Excess ethanol supply in the market, in particular, puts downward pressure on the price of ethanol. Our largest cost of production is corn. The cost of corn is generally impacted by

GRANITE FALLS ENERGY, LLC

Notes to Financial Statements

October 31, 2012 and 2011

factors such as supply and demand, the weather, government policies and programs. The Company follows a risk management program to protect against the price volatility of these commodities.

3. CONCENTRATIONS

The Company has identified certain concentrations that are present in their business operations. The Company's revenue from ethanol sales is derived from a single customer under an ethanol marketing agreement described in Note 12. Sales under that agreement account for approximately 80% , 83% , and 86% of the Company's revenues, net of derivative activity, during fiscal 2012, 2011 and 2010, respectively. Accordingly, 79% and 81% of the Company's receivables are regularly due from that same customer at October 31, 2012 and 2011, respectively.

4. INVENTORY

Inventories consist of the following:



	October 31, 2012		October 31, 2011
Raw materials	$	8,977,820	$	5,323,615
Spare parts	682,896		584,011
Work in process	1,183,188		1,150,239
Finished goods	1,169,265		1,557,546
Totals	$	12,013,169	$	8,615,411

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 recorded a lower of cost or market charge on certain inventories for the fiscal year ended October 31, 2012 for approximately $77,000 . The Company did not record a lower of cost or market charge on certain inventories for the fiscal years ended October 31, 2011 or 2010.

5. DERIVATIVE INSTRUMENTS

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



	Balance Sheet location	Assets		Liabilities

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

Totals		$	—	$	(45,563	)

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

As of October 31, 2011, the total notional amount of the Company's outstanding corn derivative instruments was approximately 2,580,000 bushels that were entered into to hedge forecasted corn purchases through March 2012. 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.

GRANITE FALLS ENERGY, LLC

Notes to Financial Statements

October 31, 2012 and 2011

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



	Balance Sheet location	Assets		Liabilities

Corn contracts	Derivative instruments	$	404,050	$	—

Totals		$	404,050	$	—

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

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



	Statement of	Fiscal Years Ended October 31,
	Operations location	2012			2011			2010

Ethanol contracts	Revenue	$	—		$	(4,626	)	$	(343,448	)
Corn contracts	Cost of Goods Sold	(1,651,799		)	1,280,413			2,339,286
Natural gas contracts	Cost of Goods Sold	—			(4,545		)	(113,710		)
Denaturant contracts	Cost of Goods Sold	—			—			7,708

Total gain (loss)		$	(1,651,799	)	$	1,271,242		$	1,889,836

6. REVOLVING LINE OF CREDIT AND LONG-TERM DEBT

The Company had a loan agreement with a bank. Under this agreement, the Company has a revolving line of credit with a maximum of $6,000,000 available through April 2012 and was secured by substantially all of the Company's assets. At October 31, 2011, the Company had no outstanding balance on this line of credit. In August 2012, the Company terminated this revolving line of credit.

The Company has subsequently established two new credit facilities with a new lender. The first is a seasonal revolving operating loan facility in the amount of $6,000,000 . The second is a revolving term loan facility in the amount of $8,000,000 . The interest rates for both facilities are based on the bank's "One Month LIBOR Index Rate," plus 265 and 290 basis points on the seasonal and revolving term commitments, respectively. The outstanding balance on the revolving term loan on October 31, 2012 was $4,891,952 . The Company currently has not made any advances on the seasonal revolving operating loan facility.

The credit facilities 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. The 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 October 31, 2012, the Company was in compliance with these financial covenants.

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

At October 31, 2012, the Company also had letters of credit totaling $386,928 with the bank as part of a credit requirement of Northern Natural Gas. These letters of credit reduce the amount available under the seasonal revolving operating loan to approximately $5,613,000 . Subsequent to year end the letters of credit amount was reduced by $49,000 .

GRANITE FALLS ENERGY, LLC

Notes to Financial Statements

October 31, 2012 and 2011

Long-term debt consists of the following:



	October 31, 2012			October 31, 2011
Shuttlewagon Railcar Mover Loan (5 year term at 3.875%)	$	497,636		$	—
Long Term Revolver	$	4,891,952		$	—
Less: Current Maturities	$	(114,718	)	$	—

Total Long-Term Debt	$	5,274,870		$	—

The estimated maturities of long-term debt at October 31, 2012 are as follows:



November 1, 2012 to October 31, 2013		$	114,718
November 1, 2013 to October 31, 2014	119,233
November 1, 2014 to October 31, 2015	2,015,877
November 1, 2015 to October 31, 2016	2,128,801
November 1, 2016 to October 31, 2017	1,010,959
Total debt		$	5,389,588

7. LEASES

The Company has a lease agreement with a leasing company for 75 hopper cars to assist with the transport of distiller's grains by rail. In November 2010, the original lease was renewed for an additional five -year period. Based on final manufacturing and interest costs, the Company will pay the leasing company $620 per month plus $0.03 per mile traveled in excess of 36,000 miles per year. Rent expense for these leases was $552,000 , $553,000 and $604,000 for the fiscal years ended October 31, 2012, 2011 and 2010, respectively.

At October 31, 2012, the Company had lease agreements with three leasing companies for 177 rail car leases for the transportation of the Company's ethanol with various maturity dates through October 2017. The rail car lease payments are due monthly in the aggregate amount of approximately $89,000 . Rent expense for these leases was $1,278,000 , $1,171,000 and $1,058,000 for the fiscal years ended October 31, 2012, 2011 and 2010, respectively.

At October 31, 2012, the Company had the following commitments for payments of rentals under operating leases which at inception had a non-cancelable term of more than one year:



November 1, 2012 to October 31, 2013		$	1,582,614
November 1, 2013 to October 31, 2014	1,307,919
November 1, 2014 to October 31, 2015	1,034,139
November 1, 2015 to October 31, 2016	343,990
November 1, 2016 to October 31, 2017	127,504
Thereafter	60,816
Total minimum lease commitments		$	4,456,982

GRANITE FALLS ENERGY, LLC

Notes to Financial Statements

October 31, 2012 and 2011

8. FAIR VALUE

The following table provides information on those derivative assets 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
	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:
Derivative Instruments	$	45,563	$	45,563	$	45,563	$	—	$	—

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



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

We determine 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.

9. MEMBERS' EQUITY

The Company has one class of membership units. The units have no par value and have identical rights, obligations and privileges. Income and losses are allocated to all members based upon their respective percentage of units held. As of October 31, 2012, 2011 and 2010, the Company had 30,606 , 30,656 and 30,656 membership units authorized, issued, and outstanding, respectfully.

In December 2011, the Board of Governors exercised its discretion to redeem 50 membership units totaling $66,420 from an investor due to a unique restriction on transfers situation.

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

In November 2010, the Board of Governors declared a cash distribution of $300 per unit or $9,196,800 for unit holders of record as of November 23, 2010. The distribution was paid on December 15, 2010.

In November 2009, the Board of Governors declared a cash distribution of $150 per unit or $4,598,400 for unit holders of record as of November 19, 2009. The distribution was paid on December 16, 2009.

10. EMPLOYEE BENEFIT PLANS

The Company has a defined contribution plan available to all of its qualified employees. The Company contributes a match of 50% of the participant's salary deferral up to a maximum of 3% of the employee's salary. Company contributions totaled approximately $51,000 , $46,000 , and $44,000 for the fiscal years ended October 31, 2012, 2011, and 2010, respectively.

GRANITE FALLS ENERGY, LLC

Notes to Financial Statements

October 31, 2012 and 2011

11. INCOME TAXES

The differences between the financial statement basis and tax basis of assets are based on the following:



	October 31, 2012			October 31, 2011

Financial statement basis of assets	$	61,133,132		$	63,441,322
Organization & start-up costs capitalized for tax purposes, net	715,109			821,605
Tax depreciation greater than book depreciation	(25,653,678		)	(27,702,345		)
Unrealized derivatives gains	45,563			(404,050		)
Capitalized inventory	10,957			20,000

Income tax basis of assets	$	36,251,083		$	36,176,532

There were no material differences between the financial statement basis and tax basis of the Company's liabilities.

12. COMMITMENTS AND CONTINGENCIES

Corn Storage and Grain Handling Agreement and Purchase Commitments

The Company has a corn storage and grain handling agreement with Farmers Cooperative Elevator (FCE), a member. Under the agreement, the Company agrees to purchase all of the corn needed for the operation of the plant FCE. The price of the corn purchased will be the bid price FCE establishes for the plant plus a set fee of per bushel.

At October 31, 2012, the Company had basis contracts for forward corn purchase commitments with FCE for 1,000,000 bushels for delivery in November and December 2012. At October 31, 2012, the Company also had 885,000 bushels of stored corn totaling approximately $6,511,000 with FCE that is included in inventory.

The Company purchased approximately $148,289,000 of corn from the member during fiscal 2012, of which approximately $1,996,000 is included in corn payable at October 31, 2012. The Company purchased approximately $123,676,000 of corn from the member during fiscal 2011, of which approximately $2,517,000 is included in corn payable at October 31, 2011. The Company purchased approximately $63,089,000 of corn from the member during fiscal 2010.

Ethanol Marketing Agreement

Granite Falls 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.

Ethanol marketing fees and commissions totaled approximately $743,000 , $1,006,000 , and 825,000 for the fiscal years ended October 31, 2012, 2011 and 2010 respectively, and are included net within revenues.

Ethanol Contracts

At October 31, 2012, the Company had forward contracts to sell approximately $8,747,000 of ethanol for delivery in November 2012 which approximates 75% of its anticipated ethanol sales during that period.

At October 31, 2011, the Company had forward contracts to sell approximately $15,667,000 of ethanol for various delivery periods from November 2011 through December 2011.

GRANITE FALLS ENERGY, LLC

Notes to Financial Statements

October 31, 2012 and 2011

Distillers Grain Marketing Agreement

The Company 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. Distillers grain commissions totaled approximately $650,000 , $460,000 and $210,000 for the fiscal years ended October 31, 2012, 2011 and 2010 respectively, and are included net within revenues.

At October 31, 2012, the Company had forward contracts to sell approximately $1,773,000 of distillers grains for delivery in November 2012 which approximates 65% of its anticipated distillers grain sales during that period.

At October 31, 2011, the Company had forward contracts to sell approximately $4,624,000 of distillers grains for various delivery periods from November 2011 through January 2012.

Natural Gas Contracts

At October 31, 2012, the Company had forward contracts to purchase $719,000 of natural gas at prices with delivery periods from November 2012 through March 2013 which approximates 30% of its anticipated natural gas purchases during that period.

At October 31, 2011, the Company had forward contracts to purchase $1,797,600 of natural gas at prices with delivery periods from November 2011 through March 2012.

Contract for Natural Gas Pipeline to Plant

The Company has an agreement with an unrelated company for the construction of and maintenance of 9.5 miles of natural gas pipeline that will serve the plant. The agreement requires the Company to receive a minimum of 1,400,000 DT of natural gas annually through the term of the agreement. The Company is charged a fee based on the amount of natural gas delivered through the pipeline.

This agreement will continue in effect until December 31, 2015 at which time it will automatically renew for consecutive terms of one year . A twelve months prior written notice is required to be given by either party to terminate this agreement.

13. LEGAL PROCEEDINGS

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

GRANITE FALLS ENERGY, LLC

Notes to Financial Statements

October 31, 2012 and 2011

14. QUARTERLY FINANCIAL DATA (UNAUDITED)

Summary quarterly results are as follows:



	First Quarter		Second Quarter		Third Quarter			Fourth Quarter
Fiscal year ended October 31, 2012
Revenues	$	43,745,776	$	39,025,122	$	42,435,763		$	49,955,382
Gross profit (loss)	3,687,950		657,416		54,694			(1,946,091		)
Operating income (loss)	3,024,214		66,935		(597,187		)	(2,489,589		)
Net income (loss)	3,042,288		116,466		(565,637		)	(2,432,510		)
Basic and diluted earnings (loss) per unit	99.29		3.81		(18.49		)	(79.36		)



	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Fiscal year ended October 31, 2011
Revenues	$	30,716,346	$	34,537,750	$	45,414,923	$	45,852,470
Gross profit	3,533,733		3,704,535		2,068,381		4,861,424
Operating income	2,975,612		3,245,729		1,550,481		4,393,545
Net income	3,011,596		3,270,110		1,586,882		4,423,268
Basic and diluted earnings per unit	98.24		106.67		51.76		144.29



	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Fiscal year ended October 31, 2010
Revenues	$	23,424,562	$	22,237,999	$	23,632,382	$	25,994,509
Gross profit	2,346,940		1,730,098		1,386,818		4,679,335
Operating income	1,837,999		1,267,328		919,429		4,160,693
Net income	1,927,176		1,298,247		939,019		4,197,870
Basic and diluted earnings per unit	62.86		42.35		30.63		136.94

The above quarterly financial data is unaudited, but in the opinion of management, all adjustments necessary for a fair presentation of the selected data for these periods presented have been included.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES

D isclosure 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 October 31, 2012 . 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.

Internal Control Over Financial Reporting

Inherent Limitations Over Internal Controls

The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and governors; and

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluations of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management’s Annual Report on Internal Control Over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act, as amended) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of October 31, 2012 .

An attestation report from our accounting firm on our internal control over financial reporting is not included in this annual report because an attestation report is only required under the regulations of the Securities and Exchange Commission for accelerated filers and large accelerated filers.

Changes in Internal Control Over Financial Reporting.

There were no cha nges in our internal control over financial reporting during the fourth quarter of our 2012 fiscal year, which were identified in connection with management’s evaluation required by paragraph (d) of rules 13a-15 or 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

Pursuant to General Instruction G(3), we omit Part III, Items 10, 11, 12, 13 and 14 and incorporate such items by reference to an amendment to this Annual Report on Form 10-K or to a definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Annual Report (October 31, 2012).

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The Information required by this Item is incorporated by reference to the 2013 Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The Information required by this Item is incorporated by reference to the 2013 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The Information required by this Item is incorporated by reference to the 2013 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The Information required by this Item is incorporated by reference to the 2013 Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The Information required by this Item is incorporated by reference to the 2013 Proxy Statement.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Exhibits Filed as Part of this Report and Exhibits Incorporated by Reference.

The following exhibits and financial statements are filed as part of, or are incorporated by reference into, this report:


(1)	Financial Statements

The financial statements appear beginning at page 32 of this report.


(2)	Financial Statement Schedules

All supplemental schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.


(3)	Exhibits



Exhibit No.	Exhibit	Filed Herewith	Incorporated by Reference
3.1	Articles of Organization		Exhibit 3.1 to the registrant's Form SB-2 filed with the Commission on August 30, 2002.
3.2	Amendment of Articles of Organization		Exhibit 3.1 to the registrant's Form 10-QSB filed with the Commission on August 15, 2005.
3.3	Fifth Amended and Restated Operating and Member Control Agreement, First Amendment to the Fifth Amended and Restated Operating and Member Control Agreement and Second Amendment to the Fifth Amended and Restated Member Control Agreement		Exhibit 3.2 to the registrant's Form 10-QSB filed with the Commission on September 14, 2006.
4.1	Form of Membership Unit Certificate.		Exhibit 4.1 to the registrant's Pre-Effective Amendment No. 1 to Form SB-2 filed with the Commission on December 20, 2002.
10.1	Corn Storage and Delivery Agreement and Pre-Closing Memorandum dated October 6, 2003 between the Company and Farmers Cooperative Elevator Company.		Exhibit 10.2 to the registrant's Form 10-QSB filed with the Commission on November 14, 2003.
10.2	Grain Procurement Agreement with Farmers Cooperative Elevator Company.		Exhibit 10.2 to the registrant's Form 10-QSB filed with the Commission on November 15, 2004.
10.3	Electric Service Agreement dated August, 2004 with Minnesota Valley Cooperative Light and Power.		Exhibit 10.13 to the registrant's Form 10-KSB filed with the Commission on March 31, 2005.
10.4	Trinity Rail Proposal for Rail Cars.		Exhibit 10.16 to the registrant's Form 10-KSB filed with the Commission on March 31, 2005.
10.5	Job Opportunity Building Zone Business Subsidy Agreement.		Exhibit 10.17 to the registrant's Form 10-KSB filed with the Commission on March 31, 2005.
10.6	Ethanol Marketing Agreement with Eco-Energy, Inc. dated December 24, 2008. +		Exhibit 10.1 to the registrant's Form 10-K filed with the Commission on January 27, 2009.
10.7	Corn Oil Marketing Agreement between the registrant and Renewable Products Marketing Group, LLC dated April 29, 2010. +		Exhibit 10.1 to the registrant's Form 10-Q filed with the Commission on June 14, 2010.
10.8	Distillers Grains Marketing Agreement between RPMG, Inc. and Granite Falls Energy, LLC dated December 10, 2010.+		Exhibit 10.31 to the registrant's Form 10-K filed with the Commission on January 26, 2011.
10.9	Amended Employment Contract between Granite Falls Energy, LLC and Tracey Olson dated November 22, 2010.		Exhibit 10.30 to the registrant's Form 10-K filed with the Commission on January 26, 2011.
10.10	Insider Trading Policy of Granite Falls Energy, LLC dated February 17, 2011.		Exhibit 10.1 to the registrant's Form 10-Q filed with the Commission on March 16, 2011.
10.11	Ethanol Marketing Agreement Amendment No. 2 between Eco-Energy, Inc. and Granite Falls Energy, LLC dated August 30, 2011. +		Exhibit 99.1 to the registrant's Form 8-K filed with the Commission on September 1, 2011.
10.12	Amended Employment Contract between Tracey L. Olson and Granite Falls Energy, LLC dated November 21, 2011.		Exhibit 10.34 to the registrant's Form 10-K filed with the Commission on January 30, 2012.
10.13	CEO/GM Employment Contract between Steve Christensen and Granite Falls Energy, LLC dated April 19, 2012.		Exhibit 10.1 to the registrant's Form 10-Q filed with the Commission on June 14, 2012.



10.14	Master Loan Agreement between United FCS, PCA and Granite Falls Energy, LLC dated August 22, 2012.	X
10.15	Revolving Term Loan Supplement between United FCS, PCA and Granite Falls Energy, LLC dated August 22, 2012.	X
10.16	Monitored Revolving Credit Supplement between United FCS, PCA and Granite Falls Energy, LLC dated August 22, 2012.	X
14.1	Code of Ethics		Exhibit 14.1 to the registrant's Form 10-KSB filed with the Commission on March 30, 2004.
31.1	Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a)	X
31.2	Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a)	X
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350	X
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350	X
101	The following financial information from Granite Falls Ethanol, LLC's Annual Report on Form 10-K for the fiscal year ended October 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Balance Sheets as of October 31, 2012 and October 31, 2011, (ii) Statements of Operations for the fiscal years ended October 31, 2012, 2011, and 2010, (iii) Statement of Changes in Members' Equity; (iv) Statements of Cash Flows for the fiscal years ended October 31, 2012, 2011, and 2010, and (v) the Notes to Financial Statements.**

(+) Confidential Treatment Requested.

(**) Furnished herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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:	January 29, 2013	/s/ Steve Christensen
		Steve Christensen
		Chief Executive Officer

Date:	January 29, 2013	/s/ Stacie Schuler
		Stacie Schuler
		Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



Date:	January 29, 2013	/s/ Steve Christensen
		Steve Christensen, Chief Executive Officer and General Manager
		(Principal Executive Officer)

Date:	January 29, 2013	/s/ Stacie Schuler
		Stacie Schuler, Chief Financial Officer
		(Principal Financial and Accounting Officer)

Date:	January 29, 2013	/s/ Paul Enstad
		Paul Enstad, Governor and Chairman

Date:	January 29, 2013	/s/ Rodney R. Wilkison
		Rodney R. Wilkison, Governor and Vice Chairman

Date:	January 29, 2013	/s/ Dean Buesing
		Dean Buesing, Governor

Date:	January 29, 2013	/s/ Julie Oftedahl-Volstad
		Julie Oftedahl-Volstad, Governor and Secretary

Date:	January 29, 2013	/s/ Marten Goulet
		Marten Goulet, Governor

Date:	January 29, 2013	/s/ Steven Core
		Steven Core, Governor

Date:	January 29, 2013	/s/ Myron Peterson
		Myron Peterson, Governor

Date:	January 29, 2013	/s/ Shannon Johnson
		Shannon Johnson, Governor

Date:	January 29, 2013	/s/ David Thompson
		David Thompson, Governor

Date:	January 29, 2013	/s/ Marty Seifert
		Marty Seifert, Alternate Governor

MLA No. RI1080

MASTER LOAN AGREEMENT

THIS MASTER LOAN AGREEMENT is entered into as of August 22, 2012 among UNITED FCS, PCA (“Lead Lender”) and GRANITE FALLS ENERGY, LLC (die “Company”).

BACKGROUND

From time to time Lead Lender may make loans to the Company. In order to reduce the amount of paperwork associated therewith, Lead Lender and the Company would like to enter into a master loan agreement. For that reason, and in consideration of Lead Lender making one or more loans to the Company, Lead Lender and the Company agrees as follows:

SECTION 1. Supplements. In the event the Company desires to borrow from Lead Lender and Lead Lender is willing to lend to the Company, or in the event Lead Lender and the Company desire to consolidate any existing loans hereunder, the parties will enter into a Supplement to this agreement (a “Supplement”). Each Supplement will set forth the amount of the loan, the purpose of the loan, the interest rate or rate options applicable to that loan, the repayment terms of the loan, and any other terms and conditions applicable to that particular loan. Each loan will be governed by the terms and conditions contained in this agreement and in the Supplement relating to the loan.

SECTION 2. Sale of Participation Interests and Appointment of Administrative Agent. The Company acknowledges that concurrent with the execution of this Master Loan Agreement and related Supplements, Lead Lender is selling a participation interest in this Master Loan Agreement and Supplements executed concurrently herewith to CoBank, ACB. Pursuant to an Administrative Agency Agreement dated of even date herewith (“Agency Agreement”), Lead Lender has appointed CoBank, ACB, to act as Administrative Agent (“Agent”) to act in place of Lead Lender hereunder and under the Supplements and any security documents to be executed thereunder. All funds to be advanced hereunder shall be made by Agent, all repayments by the Company hereunder shall be made to Agent, and all notices to be made to Lead Lender hereunder shall be made to Agent. Agent shall be solely responsible for the administration of this agreement, the Supplements and the security documents to be executed by the Company thereunder and the enforcement of all rights and remedies of Lead Lender hereunder and thereunder. Company acknowledges the appointment of Agent and consents to such appointment.

SECTION 3. Availability. Loans will be made available on any day on which Agent and the Federal Reserve Banks are open for business upon the telephonic or written request of the Company. Requests for loans must be received no later than 12:00 Noon Company’s local time on the date the loan is desired. Loans will be made available by wire transfer of immediately available funds to such account or accounts as may be authorized by the Company. The Company shall furnish to Agent a duly completed and executed copy of a CoBank Delegation and Wire and Electronic Transfer Authorization Form, and Agent shall be entitled to rely on (and shall incur no liability to the Company in acting on) any request or direction furnished in accordance with the terms thereof.

#2279921

Master Loan Agreement RI1080 -2-

SECTION 4. Repayment. The Company’s obligation to repay each loan shall be evidenced by the promissory note set forth in the Supplement relating to that loan or by such replacement note as Agent shall require. Agent shall maintain a record of all loans, the interest accrued thereon, and all payments made with respect thereto, and such record shall, absent proof of manifest error, be conclusive evidence of the outstanding principal and interest on the loans. All payments shall be made by wire transfer of immediately available funds, by check, or by automated clearing house or other similar cash handling processes as specified by separate agreement between the Company and Agent. Wire transfers shall be made to ABA No. 307088754 for advice to and credit of CoBank (or to such other account as Agent may direct by notice). The Company shall give Agent telephonic notice no later than 12:00 Noon Company’s local time of its intent to pay by wire and funds received after 3:00 p.m. Company’s local time shall be credited on the next business day. Checks shall be mailed to CoBank, Department 167, Denver, Colorado 80291-0167 (or to such other place as Agent may direct by notice). Credit for payment by check will not be given until the later of: (A) the day on which Agent receives immediately available funds; or (B) the next business day after receipt of the check.

SECTION 5. Capitalization.

(A) Association Membership: The Company agrees to purchase and maintain stock or participation certificates in Lead Lender or Lead Lender’s parent association, as applicable, in amounts as may be required from time to time under the Capital Plan adopted by the Board of Directors of Lead Lender or Lead Lender’s parent association, pursuant to applicable Bylaws.

(B) Voting Stockholder: Paul Enstad is authorized by the Company to exercise any voting rights in Lead Lender or Lead Lender’s parent association, subject to applicable Bylaws, and to receive effective interest rate disclosures, unless otherwise agreed in writing between the parties.

SECTION 6. Security. The Company’s obligations under this agreement, all Supplements (whenever executed), and all instruments and documents contemplated hereby or thereby, shall be secured by a statutory first lien on all equity which the Company may now own or hereafter acquire in Lead Lender. In addition, the Company agrees to grant to Lead Lender, by means of such instruments and documents as Agent shall require, a first lien (subject only to exceptions approved in writing by Agent) on all personal property of the Company, and on all real property of the Company, whether now existing or hereafter acquired. As additional security for those obligations: (A) the Company agrees to grant to Lead Lender, by means of such instruments and documents as Agent shall require, a first priority lien on such of its other assets, whether now existing or hereafter acquired, as Agent may from time to time require; and (B) the Company agrees to grant to Lead Lender, by means of such instruments and documents as Agent shall require, a first priority lien on all realty which the Company may from time to time acquire after the date hereof. Lead Lender may at its discretion assign collateral to the Agent under the Agency Agreement.

SECTION 7. Conditions Precedent.

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(A) Conditions to Initial Supplement. Lead Lender’s obligation to extend credit under the initial Supplement hereto is subject to the conditions precedent that Agent receive, in form and content satisfactory to Agent, each of the following:

(1) This Agreement, Etc. A duly executed copy of this agreement and all instruments and documents contemplated hereby.

(2) Proof of Insurance. Evidence that the Company has obtained insurance required hereunder.

(3) Appraisal. An appraisal of the Company’s ethanol plant located in Chippewa County, Minnesota, in form and content satisfactory to Agent and Lead Lender.

(4) Security Agreements. Security agreements granting to Lead Lender a first lien (subject only to exceptions approved in writing by Agent and Lead Lender) on all personal property of the Company, whether now owned or hereafter acquired.

(5) Security Agreements. Security agreements granting to Agent a second lien (subject only to exceptions approved in writing by Agent) on all personal property of the Company, whether now owned or hereafter acquired.

(6) Mortgages/Deeds of Trust. An executed mortgage or deed of trust in the face amount of $8,000,000.00 (subject only to exceptions approved in writing by Agent) covering all of the Company’s real property, including but not limited to all of the Company’s real property located in Chippewa County, Minnesota.

(7) Title Commitment/Policy. A commitment from a title insurance company acceptable to Agent and Lead Lender to issue an ALTA lender’s policy of title insurance in the face amount of $8,000,000.00 insuring the Company’s mortgage or deed of trust to Lead Lender as a first priority lien on the property encumbered thereby, subject only to exceptions approved in writing by Agent. The Company agrees to pay the cost of such commitment.

(8) Environmental Site Assessment. An environmental site assessment covering all of the Company’s real property.

(9) Flood Insurance. A flood zone determination on all real property security and evidence of flood insurance if such determination requires flood insurance.

(10) Risk Management Policy. A Risk Management Policy regarding the procurement of corn, and for distiller’s grain, ethanol inventories and contract positions.

(11) Survey. A survey of the Company’s real property sufficient to allow the issuance of the title insurance policy and endorsements described in Section 9(I)(1)(b).

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(B) Conditions to Each Supplement. Lead Lender’s obligation to extend credit under each Supplement, including the initial Supplement, is subject to the conditions precedent that Agent receive, in form and content satisfactory to Agent, each of the following:

(1) Supplement. A duly executed copy of the Supplement and all instruments and documents contemplated thereby.

(2) Evidence of Authority. Such certified board resolutions, certificates of incumbency, and other evidence that Agent may require that the Supplement, all instruments and documents executed in connection therewith, and, in the case of initial Supplement hereto, this agreement and all instruments and documents executed in connection herewith, have been duly authorized and executed.

(3) Fees and Other Charges. All fees and other charges provided for herein or in the Supplement.

(4) Evidence of Perfection, Etc. Such evidence as Agent may require that Lead Lender has a duly perfected first priority lien on all security for the Company’s obligations, and that the Company is in compliance with Section 9(D) hereof.

(C) Conditions to Each Loan. Lead Lender’s obligation under each Supplement to make any loan to the Company thereunder is subject to the condition that no “Event of Default” (as defined in Section 12 hereof) or event which with the giving of notice and/or the passage of time would become an Event of Default hereunder (a “Potential Default”), shall have occurred and be continuing.

SECTION 8. Representations and Warranties.

(A) This Agreement. The Company represents and warrants to Lead Lender and Agent that as of the date of this agreement:

(1) Compliance. The Company and, to the extent contemplated hereunder, each “Subsidiary” (as defined below), is in compliance with all of the terms of this agreement, and no Event of Default or Potential Default exists hereunder.

(2) Subsidiaries. The Company has no “Subsidiary(ies)” (as defined below). For purposes hereof, a “Subsidiary” shall mean a corporation of which shares of stock having ordinary voting power to elect a majority of the board of directors or other managers of such corporation are owned, directly or indirectly, by the Company.

(B) Each Supplement. The execution by the Company of each Supplement hereto shall constitute a representation and warranty to Lead Lender and Agent that:

(1) Applications. Each representation and warranty and all information set forth in any application or other documents submitted in connection with, or to induce Lead

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Lender to enter into, such Supplement, is correct in all material respects as of the date of the Supplement.

(2) Conflicting Agreements, Etc. This agreement, the Supplements, and all security and other instruments and documents relating hereto and thereto (collectively, at any time, the “Loan Documents”), do not conflict with, or require the consent of any party to, any other agreement to which the Company is a party or by which it or its property may be bound or affected, and do not conflict with any provision of the Company’s Operating Agreement, articles of organization, or other organizational documents.

(3) Compliance. The Company and, to the extent contemplated hereunder, each Subsidiary, is in compliance with all of the terms of the Loan Documents (including, without limitation, Section 9(A) of this agreement on eligibility to borrow from Lead Lender).

(4) Binding Agreement. The Loan Documents create legal, valid, and binding obligations of the Company which are enforceable in accordance with their terms, except to the extent that enforcement may be limited by applicable bankruptcy, insolvency, or similar laws affecting creditors’ rights generally.

SECTION 9. Affirmative Covenants. Unless otherwise agreed to in writing by Agent while this agreement is in effect, the Company agrees to and with respect to Subsections 9(B) through 9(G) hereof, agrees to cause each Subsidiary to:

(A) Eligibility. Maintain its status as an entity eligible to borrow from Lead Lender.

(B) Corporate Existence, Licenses, Etc. (1) Preserve and keep in full force and effect its existence and good standing in the jurisdiction of its incorporation or formation; (2) qualify and remain qualified to transact business in all jurisdictions where such qualification is required; and (3) obtain and maintain all licenses, certificates, permits, authorizations, approvals, and the like which are material to the conduct of its business or required by law, rule, regulation, ordinance, code, order, and the like (collectively, “Laws”).

(C) Compliance with Laws. Comply in all material respects with all applicable Laws, including, without limitation, all Laws relating to environmental protection and any patron or member investment program that it may have. In addition, the Company agrees to cause all persons occupying or present on any of its properties, and to cause each Subsidiary to cause all persons occupying or present on any of its properties, to comply in all material respects with all environmental protection Laws.

(D) Insurance. Maintain insurance with insurance companies or associations acceptable to Agent in such amounts and covering such risks as are usually carried by companies engaged in the same or similar business and similarly situated, and make such increases in the type or amount of coverage as Agent may request. All such policies insuring any collateral for the Company’s obligations to Lead Lender shall have mortgagee or lender loss payable clauses or

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endorsements in form and content acceptable to Agent. At Agent’s request, all policies (or such other proof of compliance with this Subsection as may be satisfactory to Agent) shall be delivered to Agent.

(E) Property Maintenance. Maintain all of its property that is necessary to or useful in the proper conduct of its business in good working condition, ordinary wear and tear excepted.

(F) Books and Records. Keep adequate records and books of account in which complete entries will be made in accordance with generally accepted accounting principles (“GAAP”) consistently applied.

(G) Inspection. Permit Agent and Lead Lender or their agents, upon reasonable notice and during normal business hours or at such other times as the parties may agree, to examine its properties, books, and records, and to discuss its affairs, finances, and accounts, with its respective officers, directors, employees, and independent certified public accountants.

(H) Reports and Notices. Furnish to Agent:

(1) Annual Financial Statements. As soon as available, but in no event more than 90 days after the end of each fiscal year of the Company occurring during the term hereof, annual consolidated and consolidating financial statements of the Company and its consolidated Subsidiaries, if any, prepared in accordance with GAAP consistently applied. Such financial statements shall: (a) be audited by independent certified public accountants selected by the Company and acceptable to Agent; (b) be accompanied by a report of such accountants containing an opinion thereon acceptable to Agent; (c) be prepared in reasonable detail and in comparative form; and (d) include a balance sheet, a statement of income, a statement of retained earnings, a statement of cash flows, and all notes and schedules relating thereto.

(2) Interim Financial Statements. As soon as available, but in no event more than 30 days after the end of each month, a consolidated balance sheet of the Company and its consolidated Subsidiaries, if any, as of the end of such month, a consolidated statement of income for the Company and its consolidated Subsidiaries, if any, for such period and for the period year to date, and such other interim statements as Agent may specifically request, including but not limited to statements regarding production, sales and shipments, all prepared in reasonable detail and in comparative form in accordance with GAAP consistently applied and, if required by written notice from Agent, certified by an authorized officer or employee of the Company acceptable to Agent.

(3) Notice of Default. Promptly after becoming aware thereof, notice of the occurrence of an Event of Default or a Potential Default.

(4) Notice of Non-Environmental Litigation. Promptly after the commencement thereof, notice of the commencement of all actions, suits, or proceedings before any court, arbitrator, or governmental department, commission, board, bureau, agency, or

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instrumentality affecting the Company or any Subsidiary which, if determined adversely to the Company or any such Subsidiary, could have a material adverse effect on the financial condition, properties, profits, or operations of the Company or any such Subsidiary.

(5) Notice of Environmental Litigation, Etc. Promptly after receipt thereof, notice of the receipt of all pleadings, orders, complaints, indictments, or any other communication alleging a condition that may require the Company or any Subsidiary to undertake or to contribute to a cleanup or other response under environmental Laws, or which seek penalties, damages, injunctive relief, or criminal sanctions related to alleged violations of such Laws, or which claim personal injury or property damage to any person as a result of environmental factors or conditions.

(6) Operating Agreement and Articles. Promptly after any change in the Company’s operating agreement or articles of organization (or like documents), copies of all such changes, certified by the Company’s Secretary.

(7) Compliance Certificates. Together with each set of financial statements furnished to Agent pursuant to Subsection (1) hereof and, if applicable, Subsection (2) hereof, a certificate of an officer or employee of the Company acceptable to Agent, in the form attached as Exhibit “A” hereto: (a) certifying that no Event of Default or Potential Default occurred during the period covered by such statement(s) or, if an Event of Default or Potential Default occurred, a description thereof and of all actions taken or to be taken to remedy same; and (b) setting forth calculations showing compliance with the financial covenants set forth in Section 11 hereof.

(8) Other Information. Such other information regarding the condition or operations, financial or otherwise, of the Company or any Subsidiary as Agent may from time to time reasonably request, including but not limited to copies of all pleadings, notices, and communications referred to in Subsections 9(H)(4) and (5) above.

(I) Company Post-Closing Mortgage and Title Policy.

(1) On or before November 1, 2012, provide Agent with:

(a) a recorded mortgage(s) or deed(s) of trust in the face amount of $8,000,000.00 granting to Lead Lender a first lien (subject only to exceptions approved in writing by Agent) on the Company-owned property (the “Company Property”);

(b) an extended coverage ALTA lender’s policy of title insurance, including survey and map endorsements, in the face amount of $8,000,000.00 insuring the Company mortgage(s) or deed(s) of trust to Lead Lender as first priority lien(s) on the Company Property, subject only to exceptions approved in writing by Agent; and

(c) duly executed commodity account control agreements regarding the Company’s commodity trading accounts with FCStone, LLC, and INTL Hanley LLC ,

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in form and substance acceptable to Agent, and such other evidence as Agent may require that such agreement(s) have been duly authorized and executed.

(d) grain contracts utilized by the Company in form and content acceptable to Agent.

(2) The Company agrees to pay 100% of the cost of such mortgage, commodity account control agreements and title policy, including but not limited to all mortgage tax due for the recordation of the mortgage, together with such endorsements as may be reasonably requested by Agent, and also agrees that if, for any reason, these documents are not issued to Agent by November 1, 2012 , or such later date as may be agreeable to Agent, then an “Event of Default” shall be deemed to have occurred under this agreement.

(J) Leasehold Assignments. On or before December 1, 2012, provide to Agent assignments of all railroad leases held by the Company, all in form and substance acceptable to Agent. The Company agrees to pay any and all costs incurred by Agent in obtaining such assignments.

SECTION 10. Negative Covenants. Unless otherwise agreed to in writing by Agent, while this agreement is in effect the Company will not:

(A) Borrowings. Create, incur, assume, or allow to exist, directly or indirectly, any indebtedness or liability for borrowed money (including trade or bankers’ acceptances), letters of credit, or the deferred purchase price of property or services (including capitalized leases), except for: (1) debt to Lead Lender and/or Agent; (2) accounts payable to trade creditors incurred in the ordinary course of business; (3) current operating liabilities (other than for borrowed money) incurred in the ordinary course of business; and (4) debt of the Company to other lenders or finance companies, including existing debt with Capital One Equipment Finance, in an aggregate amount not to exceed $750,000.00 with lien positions acceptable to Lead Lender and/or Agent .

(B) Liens. Create, incur, assume, or allow to exist any mortgage, deed of trust, pledge, lien (including the lien of an attachment, judgment, or execution), security interest, or other encumbrance of any kind upon any of its property, real or personal (collectively, “Liens”). The forgoing restrictions shall not apply to: (1) Liens in favor of Lead Lender and/or Agent; (2) Liens for taxes, assessments, or governmental charges that are not past due; (3) Liens and deposits under workers’ compensation, unemployment insurance, and social security Laws; (4) Liens and deposits to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), and like obligations arising in the ordinary course of business as conducted on the date hereof; (5) Liens imposed by Law in favor of mechanics, materialmen, warehousemen, and like persons that secure obligations that are not past due; (6) easements, rights-of-way, restrictions, and other similar encumbrances which, in the aggregate, do not materially interfere with the occupation, use, and enjoyment of the property or assets encumbered thereby in the normal course of its business or materially impair the value of the property subject thereto; and (7) Liens, acceptable to Lead Lender and/or Agent in favor of other lenders or finance companies to secure indebtedness permitted hereunder .

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(C) Mergers, Acquisitions, Etc. Merge or consolidate with any other entity or acquire all or a material part of the assets of any person or entity, or form or create any new Subsidiary or affiliate, or commence operations under any other name, organization, or entity, including any joint venture.

(D) Transfer of Assets. Sell, transfer, lease, or otherwise dispose of any of its assets, except in the ordinary course of business.

(E) Loans and Investments. Make any loan or advance to any person or entity, or purchase any capital stock, obligations or other securities of, make any capital contribution to, or otherwise invest in any person or entity, or form or create any partnerships or joint ventures except: (1) trade credit extended in the ordinary course of business.

(F) Contingent Liabilities. Assume, guarantee, become liable as a surety, endorse, contingently agree to purchase, or otherwise be or become liable, directly or indirectly (including, but not limited to, by means of a maintenance agreement, an asset or stock purchase agreement, or any other agreement designed to ensure any creditor against loss), for or on account of the obligation of any person or entity, except by the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of the Company’s business.

(G) Change in Business. Engage in any business activities or operations substantially different from or unrelated to the Company’s present business activities or operations.

(H) Dividends, Etc. Declare or pay any dividends, or make any distribution of assets to the Company’s member/owners, or purchase, redeem, retire or otherwise acquire for value any equity, or allocate or otherwise set apart any sum for any of the foregoing, except that for each fiscal year of the Company and after Agent’s receipt of the audited financial statements, one or more distributions may be made to the Company’s members/owners of up to an aggregate of 75% of the net profit (according to GAAP) for such fiscal year after Agent’s receipt of the audited financial statements for the pertinent fiscal year; provided that the Company has been and will remain in compliance with all of the covenants, terms and conditions of this Master Loan Agreement.

(I) Operating/Capitalized Leases. Create, incur, assume, or permit to exist any obligation as lessee under operating leases for the rental or hire of any real or personal property or under any leases that should be capitalized in accordance with GAAP , except railroad car leases and except operating and/or capitalized leases which leases do not in the aggregate require the Company to make scheduled payments to the lessors in any fiscal year of the Company in excess of $100,000.00 . Rail car leases may not exceed an initial or extended term of 84 months.

SECTION 11. Financial Covenants. Unless otherwise agreed to in writing, while this agreement is in effect:

(A) Working Capital. The Company will have at the end of each period for which financial statements are required to be furnished pursuant to Section 8(H) hereof an excess of current

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assets over current liabilities (both as determined in accordance with GAAP consistently applied) of not less than $10,000,000.00, except that in determining current assets, any amount available under the Revolving Term Loan Supplement (less the amount that would be considered a current liability under GAAP if fully advanced) hereto may be included.

(B) Local Net Worth. The Company will have at the end of each period for which financial statements are required to be furnished pursuant to Section 8(H) hereof Local Net Worth (as defined below) of not less than $45,000,000.00. For purposes hereof, the term “Local Net Worth” shall mean the following: (1) total assets of the Company (as determined in accordance with GAAP consistently applied); minus (2) total liabilities of the Company (as determined in accordance with GAAP consistently applied); minus (3) investments of the Company in any other entities.

(C) Debt Service Coverage Ratio. The Company will have at the end of each fiscal year of the Company a “Debt Service Coverage Ratio” (as defined below) for such year of not less than 2.00 to 1.00 . For purposes hereof, the term “Debt Service Coverage Ratio” shall mean the following (all as calculated for the most current year end in accordance with GAAP consistently applied): (1) net income (after taxes), plus depreciation and amortization, minus extraordinary gains (+ losses), minus gain (+ loss) on asset sales; divided by (2) $2,000,000.00 .

SECTION 12. Events of Default. Each of the following shall constitute an “Event of Default” under this agreement:

(A) Payment Default. The Company should fail to make any payment required under this agreement or any other Loan Document when due, or should fail to purchase any equity in Lead Lender or Lead Lender’s parent Association as and when required by the Capital Plan and/or Bylaws of Lead Lender or its parent Association.

(B) Representations and Warranties. Any representation or warranty made or deemed made by the Company herein or in any Supplement, application, agreement, certificate, or other document related to or furnished in connection with this agreement or any Supplement, shall prove to have been false or misleading in any material respect on or as of the date made or deemed made.

(C) Certain Affirmative Covenants. The Company or, to the extent required hereunder, any Subsidiary should fail to perform or comply with Sections 9(A) through 9(H)(2), 9(H)(6) through 9(H)(8) or any reporting covenant set forth in any Supplement hereto, and such failure continues for 15 days after written notice thereof shall have been delivered by Agent to the Company.

(D) Other Covenants and Agreements. The Company or, to the extent required hereunder, any Subsidiary should fail to perform or comply with any other covenant or agreement contained herein or in any other Loan Document or shall use the proceeds of any loan for an unauthorized purpose.

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(E) Cross-Default. The Company should, after any applicable grace period, breach or be in default under the terms of any other agreement between the Company and Lead Lender or Agent, or between the Company and any affiliate of Lead Lender or Agent, including without limitation Farm Credit Leasing Services Corporation.

(F) Other Indebtedness. The Company or any Subsidiary should fail to pay when due any indebtedness to any other person or entity for borrowed money or any long-term obligation for the deferred purchase price of property (including any capitalized lease), or any other event occurs which, under any agreement or instrument relating to such indebtedness or obligation, has the effect of accelerating or permitting the acceleration of such indebtedness or obligation, whether or not such indebtedness or obligation is actually accelerated or the right to accelerate is conditioned on the giving of notice, the passage of time, or otherwise.

(G) Judgments. A judgment, decree, or order for the payment of money shall be rendered against the Company or any Subsidiary and either: (1) enforcement proceedings shall have been commenced; (2) a Lien prohibited under Section 10(B) hereof shall have been obtained; or (3) such judgment, decree, or order shall continue unsatisfied and in effect for a period of 20 consecutive days without being vacated, discharged, satisfied, or stayed pending appeal.

(H) Insolvency, Etc. The Company or any Subsidiary shall: (1) become insolvent or shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they come due; or (2) suspend its business operations or a material part thereof or make an assignment for the benefit of creditors; or (3) apply for, consent to, or acquiesce in the appointment of a trustee, receiver, or other custodian for it or any of its property or, in the absence of such application, consent, or acquiescence, a trustee, receiver, or other custodian is so appointed; or (4) commence or have commenced against it any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, or liquidation Law of any jurisdiction.

(I) Material Adverse Change. Any material adverse change occurs, as reasonably determined by Agent, in the Company’s financial condition, results of operation, or ability to perform its obligations hereunder or under any instrument or document contemplated hereby.

(J) Revocation of Guaranty. Any guaranty, suretyship, subordination agreement, maintenance agreement, or other agreement furnished in connection with the Company’s obligations hereunder and under any Supplement shall, at any time, cease to be in full force and effect, or shall be revoked or declared null and void, or the validity or enforceability thereof shall be contested by the guarantor, surety or other maker thereof (the “Guarantor”), or the Guarantor shall deny any further liability or obligation thereunder, or shall fail to perform its obligations thereunder, or any representation or warranty set forth therein shall be breached, or the Guarantor shall breach or be in default under the terms of any other agreement with Lead Lender and/or Agent (including any loan agreement or security agreement), or a default set forth in Subsections (F) through (H) hereof shall occur with respect to the Guarantor.

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SECTION 13. Remedies. Upon the occurrence and during the continuance of an Event of Default or any Potential Default, Lead Lender shall have no obligation to continue to extend credit to the Company and may discontinue doing so at any time without prior notice. For all purposes hereof, the term “Potential Default” means the occurrence of any event which, with the passage of time or the giving of notice or both would become an Event of Default. In addition, upon the occurrence and during the continuance of any Event of Default, Lead Lender or Agent may, upon notice to the Company, terminate any commitment and declare the entire unpaid principal balance of the loans, all accrued interest thereon, and all other amounts payable under this agreement, all Supplements, and the other Loan Documents to be immediately due and payable. Upon such a declaration, the unpaid principal balance of the loans and all such other amounts shall become immediately due and payable, without protest, presentment, demand, or further notice of any kind, all of which are hereby expressly waived by the Company. In addition, upon such an acceleration:

(A) Enforcement. Lead Lender or Agent may proceed to protect, exercise, and enforce such rights and remedies as may be provided by this agreement, any other Loan Document or under Law. Each and every one of such rights and remedies shall be cumulative and may be exercised from time to time, and no failure on the part of Lead Lender or Agent to exercise, and no delay in exercising, any right or remedy shall operate as a waiver thereof, and no single or partial exercise of any right or remedy shall preclude any other or future exercise thereof, or the exercise of any other right. Without limiting the foregoing, Agent may hold and/or set off and apply against the Company’s obligation to Lead Lender the proceeds of any equity in Lead Lender or Lead Lender’s parent Association, any cash collateral held by Lead Lender or Agent, or any balances held by Lead Lender or Agent for the Company’s account (whether or not such balances are then due).

(B) Application of Funds. Agent may apply all payments received by it to the Company’s obligations to Lead Lender in such order and manner as Agent may elect in its sole discretion.

In addition to the rights and remedies set forth above: (1) upon the occurrence and during the continuance of an Event of Default, then at Agent’s option in each instance, the entire indebtedness outstanding hereunder and under all Supplements shall bear interest from the date of such Event of Default until such Event of Default shall have been waived or cured in a manner satisfactory to Agent at 4.00% per annum in excess of the rate(s) of interest that would otherwise be in effect on that loan; and (2) after the maturity of any loan (whether as a result of acceleration or otherwise), the unpaid principal balance of such loan (including without limitation, principal, interest, fees and expenses) shall automatically bear interest at 4.00% per annum in excess of the rate(s) of interest that would otherwise be in effect on that loan. All interest provided for herein shall be payable on demand and shall be calculated on the basis of a year consisting of 360 days.

SECTION 14. Broken Funding Surcharge. Notwithstanding any provision contained in any Supplement giving the Company the right to repay any loan prior to the date it would otherwise be due and payable, the Company agrees to provide three Business Days’ prior written notice for any prepayment of a fixed rate balance and that in the event it repays any fixed rate balance prior to its scheduled due date or prior to the last day of the fixed rate period applicable thereto (whether

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such payment is made voluntarily, as a result of an acceleration, or otherwise), the Company will pay to Agent a surcharge in an amount equal to the greater of: (A) an amount which would result in Lead Lender being made whole (on a present value basis) for the actual or imputed funding losses incurred by Lead Lender as a result thereof; or (B) $300.00. Notwithstanding the foregoing, in the event any fixed rate balance is repaid as a result of the Company refinancing the loan with another lender or by other means, then in lieu of the foregoing, the Company shall pay to Agent a surcharge in an amount sufficient (on a present value basis) to enable Lead Lender to maintain the yield it would have earned during the fixed rate period on the amount repaid. Such surcharges will be calculated in accordance with methodology established by Lead Lender and Agent (copies of which will be made available to the Company upon request).

SECTION 15. Complete Agreement, Amendments. This agreement, all Supplements, and all other instruments and documents contemplated hereby and thereby, are intended by the parties to be a complete and final expression of their agreement. No amendment, modification, or waiver of any provision hereof or thereof, and no consent to any departure by the Company herefrom or therefrom, shall be effective unless approved by Agent and contained in a writing signed by or on behalf of Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. In the event this agreement is amended or restated, each such amendment or restatement shall be applicable to all Supplements hereto.

SECTION 16. Other Types of Credit. From time to time, Lead Lender may issue letters of credit or extend other types of credit to or for the account of the Company. In the event the parties desire to do so under the terms of this agreement, such extensions of credit may be set forth in any Supplement hereto and this agreement shall be applicable thereto.

SECTION 17. Applicable Law. Without giving effect to the principles of conflict of laws and except to the extent governed by federal law, the Laws of the State of Colorado, without reference to choice of law doctrine, shall govern this agreement, each Supplement and any other Loan Documents for which Colorado is specified as the applicable law, and all disputes and matters between the parties to this agreement, including all disputes and matters whatsoever arising under, in connection with or incident to the lending and/or leasing or other business relationship between the parties, and the rights and obligations of the parties to this agreement or any other Loan Documents by and between the parties for which Colorado is specified as the applicable law.

SECTION 18. Notices. All notices hereunder shall be in writing and shall be deemed to be duly given upon delivery if personally delivered or sent by telegram or facsimile transmission, or three days after mailing if sent by express, certified or registered mail, to the parties at the following addresses (or such other address for a party as shall be specified by like notice):

If to Agent, as follows: If to the Company, as follows:

For general correspondence purposes:

CoBank, ACB Granite Falls Energy, LLC

P.O. Box 5110 15045 Highway 23 SE

Denver, Colorado 80217-5110 Granite Falls, MN 56241

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For direct delivery purposes, when desired: Attention: CFO

5500 South Quebec Street Fax No.:

Greenwood Village, Colorado 80111-1914

Attention: Credit Information Services

Fax No.: (303) 224-6101

If to, Lead Lender as follows: Attention: Corporate Office

United FCS Facsimile: 320-235-1433

P.O. Box 1330

Willmar, MN 56201-1330

(320) 235-1771

SECTION 19. Taxes and Expenses. To the extent allowed by law, the Company agrees to pay all reasonable out-of-pocket costs and expenses (including the fees and expenses of counsel retained or employed by Lead Lender and/or Agent, and including any expenses of in-house counsel of Lead Lender and/or Agent) incurred by Lead Lender and/or Agent and any participants of Lead Lender in connection with the origination, administration, collection, and enforcement of this agreement and the other Loan Documents, including, without limitation, all costs and expenses incurred in perfecting, maintaining, determining the priority of, and releasing any security for the Company’s obligations to Lead Lender, and any stamp, intangible, transfer, or like tax payable in connection with this agreement or any other Loan Document.

SECTION 20. Effectiveness and Severability. This agreement shall continue in effect until: (A) all indebtedness and obligations of the Company under this agreement, all Supplements, and all other Loan Documents shall have been paid or satisfied; (B) Lead Lender has no commitment to extend credit to or for the account of the Company under any Supplement; and (C) either party sends written notice to the other terminating this agreement. Any provision of this agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or thereof.

SECTION 21. Successors and Assigns. This agreement, each Supplement, and the other Loan Documents shall be binding upon and inure to the benefit of the Company and Lead Lender and their respective successors and assigns, except that the Company may not assign or transfer its rights or obligations under this agreement, any Supplement or any other Loan Document without the prior written consent of Agent.

SECTION 22. Participations, Etc. From time to time, Lead Lender may sell to one or more banks, financial institutions, or other lenders a participation in one or more of the loans or other extensions of credit made pursuant to this agreement. However, no such participation shall relieve Lead Lender of any commitment made to the Company hereunder. In connection with the foregoing, Lead Lender may disclose information concerning the Company and its Subsidiaries, if any, to any participant or prospective participant, provided that such participant or prospective

Master Loan Agreement RI1080 -15-

participant agrees to keep such information confidential. Patronage distributions in the event of a sale of a participation interest shall be governed by the Bylaws and Capital Plan of Lead Lender or Lead Lender’s parent Association (as each may be amended from time to time). A sale of a participation interest may include certain voting rights of the participants regarding the loans hereunder (including without limitation the administration, servicing, and enforcement thereof). Lead Lender agrees to give written notification to the Company of any sale of a participation interest, which notification may be given by Agent.

SECTION 23. Counterpart Signatures. This agreement, each Supplement and any other Loan Document may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original and shall be binding upon all parties and their respective permitted successors and assigns, and all of which taken together shall constitute one and the same agreement.

SECTION 24. Administrative Fee. The Company agrees to pay to Agent on execution hereof and on each July 1 thereafter for as long as the Company has effective loan commitments from Lead Lender, an administrative fee in the amount of $3,000.00.

IN WITNESS WHEREOF, the parties have caused this agreement to be executed by their duly authorized officers as of the date shown above.

UNITED FCS, PCA GRANITE FALLS ENERGY, LLC

By: /s/ Jeffrey A Schmidt By: /s/ Paul Enstad

Title: CCO Title: Chairman

Granite Falls Energy, LLC (00079054) EXHIBIT A

Granite Falls, Minnesota

Compliance Certificate

Exhibit A

As of Month Ended

This Certificate is delivered pursuant to the Master Loan Agreement dated _____________, 2012 (hereinafter referred to as the “MLA”) among UNITED FCS, FLCA, UNITED FSC, PCA (collectively “Lead Lender”) and GRANITE FALLS ENERGY, LLC (the “Company”). Terms used herein and defined in the MLA shall have their defined meanings when used herein.



Section 11 (A) – Working Capital
Required to be no less than $10,000,000 at all times
GAAP Current Assets
plus: Unadvanced Portion of Term Revolver
Adjusted Current Assets		$0

GAAP Current Liabilities
plus: Current Portion of Term Revolver When Fully Advanced
Adjusted Current Liabilities		$0
	GAAP Working Capital -->	$0
	Adjusted Working Capital -->	$0
Compliance (Yes/No)



Section 11 (B) – Local Net Worth
Required to be no less than $45,000,000 at all times
Net Worth
less: Investments in other cooperatives
Local Net Worth -->		$0
Compliance (Yes/No)



Section 11 (C) – Debt Service Coverage Ratio (Fiscal Year End Only)
Required to be no less than 2.00 to 1.00
Net Income (after tax)
plus: Depreciation & Amortization
less: Extraordinary Gain (plus Loss)
less: Gain (plus Loss) on Asset Sale
Available Cash		$0
divided by: $2,000,000	$2,000,000
DSC Ratio -->	0.00
Compliance (Yes/No)

FINANCIAL OFFICER CERTIFICATION

The undersigned hereby certifies that the foregoing is a correct statement of financial condition and compliance as of the month end stated above, and that, during such month, there existed at no time any condition or event which constituted an event of default or which, after notice or lapse of time or both, would constitute an event of default in the performance of any covenants contained in the MLA.

By: Title: Date:

Loan No. RI1080T01

REVOLVING TERM LOAN SUPPLEMENT

THIS SUPPLEMENT to the Master Loan Agreement dated August 22, 2012 (the “MLA”), is entered into as of August 22, 2012 between UNITED FCS, PCA (“Lead Lender”) and GRANITE FALLS ENERGY, LLC, Granite Falls, Minnesota (the “Company”).

SECTION 1. The Revolving Term Loan Commitment. On the terms and conditions set forth in the MLA and this Supplement, Lead Lender agrees to make loans to the Company from the date hereof, up to and including March 1, 2017, in an aggregate principal amount not to exceed, at any one time outstanding, $8,000,000.00 less the amounts scheduled to be repaid during the period set forth below in Section 5 (the “Commitment”). Within the limits of the Commitment, the Company may borrow, repay, and reborrow.

SECTION 2. Purpose. The purpose of the Commitment is to provide working capital to the Company and fund capital expenditures.

SECTION 3. Term. Intentionally Omitted.

SECTION 4. Interest. The Company agrees to pay interest on the unpaid balance of the loan(s) in accordance with one or more of the following interest rate options, as selected by the Company:

(A) One-Month LIBOR Index Rate. At a rate (rounded upward to the nearest 1/100th and adjusted for reserves required on “Eurocurrency Liabilities” [as hereinafter defined] for banks subject to “FRB Regulation D” [as hereinafter defined] or required by any other federal law or regulation) per annum equal at all times to 2.90% above the rate quoted by the British Bankers Association (the “BBA”) at 11:00 a.m. London time for the offering of one (1)-month U.S. dollars deposits, as published by Bloomberg or another major information vendor listed on BBA’s official website on the first “U.S. Banking Day” (as hereinafter defined) in each week, with such rate to change weekly on such day. The rate shall be reset automatically, without the necessity of notice being provided to the Company or any other party, on the first “U.S. Banking Day” of each succeeding week, and each change in the rate shall be applicable to all balances subject to this option. Information about the then-current rate shall be made available upon telephonic request. For purposes hereof: (1) “U.S. Banking Day” shall mean a day on which Agent is open for business and banks are open for business in New York, New York; (2) “Eurocurrency Liabilities” shall have the meaning as set forth in “FRB Regulation D”; and (3) “FRB Regulation D” shall mean Regulation D as promulgated by the Board of Governors of the Federal Reserve System, 12 CFR Part 204, as amended.

(B) Quoted Rate. At a fixed rate per annum to be quoted by Agent in its sole discretion in each instance. Under this option, rates may be fixed on such balances and for such periods, as may be agreeable to Agent in its sole discretion in each instance, provided that: (1) the minimum fixed period shall be 180 days; (2) amounts may be fixed in increments of $100,000.00 or multiples thereof; and (3) the maximum number of fixes in place at any one time shall be five.

#2279912

Revolving Term Loan Supplement RI1080T01 -2-

GRANITE FALLS ENERGY, LLC

Granite Falls, Minnesota

(C) LIBOR. At a fixed rate per annum equal to “LIBOR” (as hereinafter defined) plus 2.90%. Under this option: (1) rates may be fixed for “Interest Periods” (as hereinafter defined) of 1, 2, 3, 6, 9, or 12 months, as selected by the Company; (2) amounts may be fixed in increments of $100,000.00 or multiples thereof; (3) the maximum number of fixes in place at any one time shall be five; and (4) rates may only be fixed on a “Banking Day” (as hereinafter defined) on three Banking Days’ prior written notice. For purposes hereof: (a) “LIBOR” shall mean the rate (rounded upward to the nearest sixteenth and adjusted for reserves required on “Eurocurrency Liabilities” [as hereinafter defined] for banks subject to “FRB Regulation D” [as herein defined] or required by any other federal law or regulation) quoted by the British Bankers Association (the “BBA”) at 11:00 a.m. London time two Banking Days before the commencement of the Interest Period for the offering of U.S. dollar deposits in the London interbank market for the Interest Period designated by the Company, as published by Bloomberg or another major information vendor listed on BBA’s official website; (b) “Banking Day” shall mean a day on which Agent is open for business, dealings in U.S. dollar deposits are being carried out in the London interbank market, and banks are open for business in New York City and London, England; (c) “Interest Period” shall mean a period commencing on the date this option is to take effect and ending on the numerically corresponding day in the next calendar month or the month that is 2, 3, 6, 9, or 12 months thereafter, as the case may be; provided, however, that: (i) in the event such ending day is not a Banking Day, such period shall be extended to the next Banking Day unless such next Banking Day falls in the next calendar month, in which case it shall end on the preceding Banking Day; and (ii) if there is no numerically corresponding day in the month, then such period shall end on the last Banking Day in the relevant month; (d) “Eurocurrency Liabilities” shall have meaning as set forth in “FRB Regulation D”; and (e) “FRB Regulation D” shall mean Regulation D as promulgated by the Board of Governors of the Federal Reserve System, 12 CFR Part 204, as amended.

The Company shall select the applicable rate option at the time it requests a loan hereunder and may, subject to the limitations set forth above, elect to convert balances bearing interest at the variable rate option to one of the fixed rate options. Upon the expiration of any fixed rate period, interest shall automatically accrue at the variable rate option unless the amount fixed is repaid or fixed for an additional period in accordance with the terms hereof. Notwithstanding the foregoing, rates may not be fixed for periods expiring after the maturity date of the loans and rates may not be fixed in such a manner as to cause the Company to have to break any fixed rate balance in order to pay any installment of principal. All elections provided for herein shall be made electronically (if applicable), telephonically or in writing and must be received by Agent not later than 12:00 Noon Company’s local time in order to be considered to have been received on that day; provided, however, that in the case of LIBOR rate loans, all such elections must be confirmed in writing upon Agent’s request. Interest shall be calculated on the actual number of days each loan is outstanding on the basis of a year consisting of 360 days and shall be payable monthly in arrears by the 20th day of the following month or on such other day in such month as Agent shall require in a written notice to the Company; provided, however, in the event the Company elects to fix all or a portion of the indebtedness outstanding under the LIBOR interest rate option above, at Agent’s option upon written notice to the Company, interest shall be payable at the maturity of the Interest Period and if the LIBOR interest rate fix is for a period longer than three months, interest on that portion of the

Revolving Term Loan Supplement RI1080T01 -3-

GRANITE FALLS ENERGY, LLC

Granite Falls, Minnesota

indebtedness outstanding shall be payable quarterly in arrears on each three-month anniversary of the commencement date of such Interest Period, and at maturity.

SECTION 5. Promissory Note. The Company promises to repay on the dates set forth below, the outstanding principal, if any, that is in excess of the listed amounts:



Payment Date	Reducing Commitment Amount
September 1, 2013	$	7,000,000.00
March 1, 2014	$	6,000,000.00
September 1, 2014	$	5,000,000.00
March 1, 2015	$	4,000,000.00
September 1, 2015	$	3,000,000.00
March 1, 2016	$	2,000,000.00
September 1, 2016	$	1,000,000.00

followed by a final installment in an amount equal to the remaining unpaid principal balance of the loans on March 1, 2017. If any installment due date is not a day on which Agent is open for business, then such payment shall be made on the next day on which Agent is open for business. In addition to the above, the Company promises to pay interest on the unpaid principal balance hereof at the times and in accordance with the provisions set forth in Section 4 hereof.

SECTION 6. Letters of Credit. In addition to loans, the Company may utilize, if agreeable to Agent in its sole discretion in each instance, the Commitment to open irrevocable letters of credit for its account. Each letter of credit will be issued within a reasonable period of time after Agent’s receipt of a duly completed and executed copy of Agent’s then current form of Application and Reimbursement Agreement, or, if applicable, in accordance with the terms of any CoTrade Agreement between the parties, and shall reduce the amount available under the Commitment by the maximum amount capable of being drawn thereunder. Any draw under any letter of credit issued hereunder shall be deemed a loan under the Commitment and shall be repaid in accordance with this Supplement. Each letter of credit must be in form and content acceptable to Agent and must expire no later than the maturity date of the Commitment.

SECTION 7. Security. The Company’s obligations hereunder and, to the extent related hereto, the MLA, including without limitation any future advances under any existing mortgage or deed of trust, shall be secured as provided in the Security Section of the MLA.

SECTION 8. Prepayment. Subject to the broken funding surcharge provision of the MLA, prepayment of any outstanding principal balance due to refinancing, or refinancing of any unadvanced Commitment, up to June 1, 2014, will result in a 2% prepayment charge in addition to any broken funding surcharges which may be applicable, based on the amounts prepaid and on the total amount of the Commitments in effect at such time. It is acknowledged and agreed that there shall be no prepayment charge (other than broken funding surcharges) based upon Commitment reductions required in accordance with Section 5.

Revolving Term Loan Supplement RI1080T01 -4-

GRANITE FALLS ENERGY, LLC

Granite Falls, Minnesota

SECTION 9. Loan Origination Fee. In consideration of the Commitment, the Company agrees to pay to Agent on the execution hereof a loan origination fee in the amount of $12,000.00.

SECTION 10. Commitment Fee. In consideration of the Commitment, the Company agrees to pay to Agent a commitment fee on the average daily unused portion of the Commitment at the rate of 0.60% per annum (calculated on a 360-day basis), payable monthly in arrears by the 20th day following each month. Such fee shall be payable for each month (or portion thereof) occurring during the original or any extended term of the Commitment.

IN WITNESS WHEREOF, the parties have caused this Supplement to be executed by their duly authorized officers as of the date shown above.

UNITED FCS, PCA GRANITE FALLS ENERGY, LLC

By: /s/ Jeffrey A. Schmidt By: /s/ Paul Enstad

Title: CCO Title: Board Chairman

Loan No. RI1080S01

MONITORED REVOLVING CREDIT SUPPLEMENT

SECTION 1. The Revolving Credit Facility. On the terms and conditions set forth in the MLA and this Supplement, Lead Lender agrees to make loans to the Company during the period set forth below in an aggregate principal amount not to exceed, at any one time outstanding, $6,000,000.00 (the “Commitment”); provided, however that the amount available under the Commitment shall not exceed the “Borrowing Base” (as calculated pursuant to the Borrowing Base Report attached hereto as Exhibit A) on the date for which Borrowing Base Reports are required pursuant to Section 6 below. Within the limits of the Commitment, the Company may borrow, repay, and reborrow.

SECTION 2. Purpose. The purpose of the Commitment is to refinance the Company’s indebtedness to Minnwest Bank of M.V., Marshall, Minnesota; and to finance the inventory and receivables referred to in the Borrowing Base Report.

SECTION 3. Term. The term of the Commitment shall be from the date hereof, up to and including August 1, 2013, or such later date as Agent (as that term is defined in the MLA) may, in its sole discretion, authorize in writing.

SECTION 4. Interest. The Company agrees to pay interest on the unpaid balance of the loan(s) in accordance with one or more of the following interest rate options, as selected by the Company:

(A) One-Month LIBOR Index Rate. At a rate (rounded upward to the nearest 1/100th and adjusted for reserves required on “Eurocurrency Liabilities” [as hereinafter defined] for banks subject to “FRB Regulation D” [as hereinafter defined] or required by any other federal law or regulation) per annum equal at all times to 2.65% above the rate quoted by the British Bankers Association (the “BBA”) at 11:00 a.m. London time for the offering of one (1)-month U.S. dollars deposits, as published by Bloomberg or another major information vendor listed on BBA’s official website on the first “U.S. Banking Day” (as hereinafter defined) in each week, with such rate to change weekly on such day. The rate shall be reset automatically, without the necessity of notice being provided to the Company or any other party, on the first “U.S. Banking Day” of each succeeding week, and each change in the rate shall be applicable to all balances subject to this option. Information about the then-current rate shall be made available upon telephonic request. For purposes hereof: (1) “U.S. Banking Day” shall mean a day on which Agent is open for business and banks are open for business in New York, New York; (2) “Eurocurrency Liabilities” shall have the meaning as set forth in “FRB Regulation D”; and (3) “FRB Regulation D” shall mean Regulation D as promulgated by the Board of Governors of the Federal Reserve System, 12 CFR Part 204, as amended.

#2279917

Monitored Revolving Credit Supplement RI1080S01 -2-

GRANITE FALLS ENERGY, LLC

Granite Falls, Minnesota

(B) Quoted Rate. At a fixed rate per annum to be quoted by Agent in its sole discretion in each instance. Under this option, rates may be fixed on such balances and for such periods, as may be agreeable to Agent in its sole discretion in each instance, provided that: (1) the minimum fixed period shall be 30 days; (2) amounts may be fixed in increments of $100,000.00 or multiples thereof; and (3) the maximum number of fixes in place at any one time shall be five.

(C) LIBOR. At a fixed rate per annum equal to “LIBOR” (as hereinafter defined) plus 2.65%. Under this option: (1) rates may be fixed for “Interest Periods” (as hereinafter defined) of 1, 2, 3, 6, 9, or 12 months, as selected by the Company; (2) amounts may be fixed in increments of $100,000.00 or multiples thereof; (3) the maximum number of fixes in place at any one time shall be five; and (4) rates may only be fixed on a “Banking Day” (as hereinafter defined) on three Banking Days’ prior written notice. For purposes hereof: (a) “LIBOR” shall mean the rate (rounded upward to the nearest sixteenth and adjusted for reserves required on “Eurocurrency Liabilities” [as hereinafter defined] for banks subject to “FRB Regulation D” [as herein defined] or required by any other federal law or regulation) quoted by the British Bankers Association (the “BBA”) at 11:00 a.m. London time two Banking Days before the commencement of the Interest Period for the offering of U.S. dollar deposits in the London interbank market for the Interest Period designated by the Company, as published by Bloomberg or another major information vendor listed on BBA’s official website; (b) “Banking Day” shall mean a day on which Agent is open for business, dealings in U.S. dollar deposits are being carried out in the London interbank market, and banks are open for business in New York City and London, England; (c) “Interest Period” shall mean a period commencing on the date this option is to take effect and ending on the numerically corresponding day in the next calendar month or the month that is 2, 3, 6, 9, or 12 months thereafter, as the case may be; provided, however, that: (i) in the event such ending day is not a Banking Day, such period shall be extended to the next Banking Day unless such next Banking Day falls in the next calendar month, in which case it shall end on the preceding Banking Day; and (ii) if there is no numerically corresponding day in the month, then such period shall end on the last Banking Day in the relevant month; (d) “Eurocurrency Liabilities” shall have meaning as set forth in “FRB Regulation D”; and (e) “FRB Regulation D” shall mean Regulation D as promulgated by the Board of Governors of the Federal Reserve System, 12 CFR Part 204, as amended.

Monitored Revolving Credit Supplement RI1080S01 -3-

GRANITE FALLS ENERGY, LLC

Granite Falls, Minnesota

to the Company; provided, however, in the event the Company elects to fix all or a portion of the indebtedness outstanding under the LIBOR interest rate option above, at Agent option upon written notice to the Company, interest shall be payable at the maturity of the Interest Period and if the LIBOR interest rate fix is for a period longer than three months, interest on that portion of the indebtedness outstanding shall be payable quarterly in arrears on each three-month anniversary of the commencement date of such Interest Period, and at maturity.

SECTION 5. Promissory Note. The Company promises to repay the unpaid principal balance of the loans on the last day of the term of the Commitment. In addition to the above, the Company promises to pay interest on the unpaid principal balance of the loans at the times and in accordance with the provisions set forth in Section 4 hereof.

SECTION 6. Borrowing Base Reports, Etc. The Company agrees to furnish a Borrowing Base Report to Agent at such times or intervals as Agent may from time to time request. Until receipt of such a request, the Company agrees to furnish a Borrowing Base Report to Agent within 30 days after each month end calculating the Borrowing Base as of the last day of the month for which the report is being furnished. However, if no balance is outstanding hereunder on the last day of such month, then no Report need be furnished. If on the date for which a Borrowing Base Report is required the amount outstanding under the Commitment exceeds the Borrowing Base, the Company shall immediately notify Agent and repay so much of the loans as is necessary to reduce the amount outstanding under the Commitment to the limits of the Borrowing Base.

SECTION 7. Letters of Credit. If agreeable to Agent in its sole discretion in each instance, in addition to loans, the Company may utilize the Commitment to open irrevocable letters of credit for its account. Each letter of credit will be issued within a reasonable period of time after Agent’s receipt of a duly completed and executed copy of Agent’s then current form of Application and Reimbursement Agreement or, if applicable, in accordance with the terms of any CoTrade Agreement between the parties, and shall reduce the amount available under the Commitment by the maximum amount capable of being drawn thereunder. Any draw under any letter of credit issued hereunder shall be deemed a loan under the Commitment and shall be repaid in accordance with this Supplement. Each letter of credit must be in form and content acceptable to Agent and must expire no later than the maturity date of the Commitment. Notwithstanding the forgoing or any other provision hereof, the maximum amount capable of being drawn under each letter of credit must be statused against the Borrowing Base in the same manner as if it were a loan, and in the event that (after repaying all loans) the maximum amount capable of being drawn under the letters of credit exceeds the Borrowing Base, then the Company shall immediately notify Agent and pay to Agent (to be held as cash collateral) an amount equal to such excess.

SECTION 8. Security. The Company’s obligations hereunder and, to the extent related hereto, the MLA, including without limitation any future advances under any existing mortgage or deed of trust, shall be secured as provided in the Security Section of the MLA.

SECTION 9. Collateral Inspections. In consideration of the loans made hereunder, the Company will permit Agent, Lead Lender or their representatives, agents or independent contractors, during normal business hours or at such other times as Agent, Lead Lender and the Company may

Monitored Revolving Credit Supplement RI1080S01 -4-

GRANITE FALLS ENERGY, LLC

Granite Falls, Minnesota

agree to: (A) inspect or examine the Company’s properties, books and records; (B) make copies of the Company’s books and records; and (C) discuss the Company’s affairs, finances and accounts with its officers, employees and independent certified public accountants. Without limiting the foregoing, the Company will permit Agent, through an employee of Agent or through an independent third party contracted by Agent, to conduct on an annual basis a review of the collateral covered by the Security Agreement. The Company further agrees to pay to Agent a collateral inspection fee designated by Agent and reimburse Agent all reasonable costs and expenses incurred by Agent in connection with such collateral inspection reviews performed by Agent employees or its agents.

SECTION 10. Prepayment. Subject to the broken funding surcharge provision of the MLA, prepayment of any outstanding principal balance due to refinancing, or refinancing of any unadvanced Commitment, up to August 1, 2013, will result in a $120,000.00 prepayment charge in addition to any broken funding surcharges which may be applicable.

SECTION 11. Loan Origination Fee. In consideration of the Commitment, the Company agrees to pay to Agent on the execution hereof a loan origination fee in the amount of $9,000.00.

SECTION 12. Commitment Fee. In consideration of the Commitment, the Company agrees to pay to Agent a commitment fee on the average daily unused portion of the Commitment at the rate of 0.30% per annum (calculated on a 360-day basis), payable monthly in arrears by the 20th day following each month. Such fee shall be payable for each month (or portion thereof) occurring during the original or any extended term of the Commitment. For purposes of calculating the commitment fee only, the “Commitment” shall mean the dollar amount specified in Section 1 hereof, irrespective of the Borrowing Base.

IN WITNESS WHEREOF, the parties have caused this Supplement to be executed by their duly authorized officers as of the date shown above.

UNITED FCS, PCA GRANITE FALLS ENERGY, LLC

By: /s/ Jeffrey A. Schmidt By: /s/ Paul Enstad

Title: CCO Title: Board Chairman

Exhibit A

Seasonal Borrowing Base Report



Granite Falls Energy, LLC (00079054)	Granite Falls, MN	<--For Period Ending

For purposes hereof, ELIGIBLE INVENTORY shall mean inventory which: (a) is of a type shown below; (b) is owned by the borrower and not held by the borrower on consignment or similar basis; (c) is not subject to a lien except in favor of Cobank; (d) is in commercially marketable condition; and (e) is not deemed ineligible by CoBank. Furthermore, market price shall mean the commodity FOB at the plant. For purposes hereof, ELIGIBLE RECEIVABLES shall mean rights to payment for goods, sold and delivered or for services rendered which (a) are not subject to any dispute, set-off, or counterclaim; (b) are not owing by an account debtor that is subject to a bankruptcy, reorganization, receivership or like proceeding; (c) are not subject to a lien in favor of any third party, other than liens authorized by CoBank in writing; (d) are not owing by an account debtor that is owned or controlled by the borrower; and (e) not deemed ineligible by CoBank. For purposes hereof, CONTRACT RECEIVABLES shall mean all accrued gains & losses on cash, hedged to arrive and basis purchase and sales contracts for grain which (a) are not in dispute; (b) are legally enforceable; (c) are not subject to a lien except in favor of CoBank and (d) are not deemed ineligible by CoBank.



Line	Type of Eligible Asset	Amount/Price/Value	Advance Rate	Collateral Value
1	Corn Inventory – Collateral Receipts Not Issued to CoBank	$ -	85%	$ -
2	Corn Inventory – Collateral Receipts Issued to CoBank	$ -	90%	$ -
3	Net Liquidated Value of Brokerage Accounts	$ -	90%	$ -
4	Net Contract Receivables for Old Crop Grains	$ -	80%	$ -
5	Net Contract Receivables for New Crop Grains	$ -	70%	$ -
6	Net Contract Receivables for 2nd Year New Crop Grains	$ -	0%	$ -
7	Net Contract Receivables for New Crop Beyond 2 Years	$ -	0%	$ -
8	Subtotal-Net Contract Receivables for Grain	$ -		$ -
	*For Corn, Old Crop ends September 30. Net contract receivables are Accrued Gains & Losses on Open Purchases & Sale contracts
9	Less All Grain Payables (including Farmers Cooperative Elevator Co.)	$ -	100%	$ -

10	Owned DDGS Inventory (tons)	-
11	DDGS Price (market - $/ton)	$ -
12	DDGS Value (Line 11 x Line 12)	$ -	65%	$ -

13	Owned WDGS Inventory (tons)	-
14	WDGS Price (market - $/ton)	$ -
15	WDGS Value (Line 14 x Line 15)	$ -	65%	$ -

16	Owned Ethanol Inventory (gallons)	-
17	Ethanol Price (market - $/gallon)	$ -
18	Ethanol Value (Line 17 x Line 18)	$ -	80%	$

19	Ethanol Receivables less than 10 days Past Due*	$ -	85%	$ -
20	DDGS & WDGS Receivables less than 10 days Past Due*	$ -	85%	$ -
	*(must be billed within 30 days of invoice)
21	Total Borrowing Base -->			$ -

22	Less Book Overdraft(s)	$ -	100%	$ -
23	Less Demand Patron Notes/Deposits	$ -	100%	$ -
24	Less Outstanding Balance of Loan(s)	$ -	100%	$ -
25	Less Issued Letters of Credit	$ -	100%	$ -

26	Total Deducts (Lines 22+23+24+25) -->			$ -

27	EXCESS OR DEFICIT* (Line 21 – Line 26) -->			$ -

*NOTE: If a deficit exists. Please contact Relationship Manager immediately with: 1) An updated borrowing base report, and 2) Specifics of all payments remitted since end of period (check numbers, wire routing number, etc.)

I HEREBY CERTIFY THAT TO THE BEST OF MY KNOWLEDGE THIS INFORMATION IS TRUE AND CORRECT.



Authorized Signature	Title	Date

Printed Name:

CERTIFICATION PURSUANT TO 17 CFR 240.15d-14(a)

(SECTION 302 CERTIFICATION)

I, Steve Christensen, certify that:

1. I have reviewed this annual report on Form 10-K of Granite Falls Energy, LLC;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date:	January 29, 2013	/s/ Steve Christensen
		Steve Christensen, Chief Executive Officer (Principal Executive Officer)

CERTIFICATION PURSUANT TO 17 CFR 240.15d-14(a)

(SECTION 302 CERTIFICATION)

I, Stacie Schuler, certify that:

1. I have reviewed this annual report on Form 10-K of Granite Falls Energy, LLC;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date:	January 29, 2013	/s/ Stacie Schuler
		Stacie Schuler, Chief Financial Officer (Principal Financial Officer)

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

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

In connection with the annual report on Form 10-K of Granite Falls Energy, LLC (the “Company”) for the fiscal year ended October 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steve Christensen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.




	/s/ Steve Christensen
	Steve Christensen, Chief Executive Officer
	Dated: January 29, 2013

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

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

In connection with the annual report on Form 10-K of Granite Falls Energy, LLC (the “Company”) for the fiscal year ended October 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stacie Schuler, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.




	/s/ Stacie Schuler
	Stacie Schuler, Chief Financial Officer
	Dated: January 29, 2013