Heron Lake BioEnergy, LLC (Form: 10-K, Received: 01/29/2014 12:33:21)

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FINANCIAL STATEMENTS

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K



ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2013.
Or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to .

Commission File Number 000-51825

Heron Lake BioEnergy, LLC

(Exact name of registrant as specified in its charter)



Minnesota (State or other jurisdiction of incorporation or organization)		41-2002393 (IRS Employer Identification No.)

91246 390th Avenue, Heron Lake, MN 56137-1375

(Address of principal executive offices)

Registrant's telephone number, including area code: (507) 793-0077



Securities registered pursuant to Section 12(b) of the Act:		Securities registered pursuant to Section 12(g) of the Act:
None		Class A Units

Name of Exchange on Which Registered: None

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

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act: Yes o No ý

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.



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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 126-2 of the Act) Yes o No ý

As of April 30, 2013, the aggregate market value of the Company's Class A Units held by non-affiliates is not able to be calculated. The Company is a limited liability company whose outstanding common equity, consisting of its Class A Units and Class B Units, is subject to significant restrictions on transfer under its Member Control Agreement. No public market for common equity of Heron Lake BioEnergy, LLC is established and it is unlikely in the foreseeable future that a public market for its common equity will develop. As of April 30, 2013, the Company did not have any Class B Units issued and outstanding. As of the date of this report, all Class B Units are held by an affiliate of the Company.

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FINANCIAL STATEMENTS

EXHIBITS AND FINANCIAL STATEMENTS

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As of January 29, 2014, the Company had outstanding 49,812,107 Class A Units and 15,000,000 Class B Units.

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, 2013). This proxy statement is referred to in this report as the 2014 Proxy Statement.

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PART I

Item 1.	Business	3
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	19
Item 2.	Properties	19
Item 3.	Legal Proceedings	20
Item 4.	Mine Safety Disclosures	20

PART II

Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
Item 6.	Selected Financial Data	22
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 8.	Financial Statements and Supplementary Data	34
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	35
Item 9A.	Controls and Procedures	35
Item 9B.	Other Information	36

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	36
Item 11.	Executive Compensation	36
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	36
Item 13.	Certain Relationships and Related Transactions, and Director Independence	36
Item 14.	Principal Accounting Fees and Services	36

PART IV

Item 15.	Exhibits, Financial Statement Schedules	37

SIGNATURES		38

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PART I

When we use the terms "Heron Lake BioEnergy," "we," "us," "our," the "Company", "HLBE" or similar words in this Annual Report on Form 10-K, unless the context otherwise requires, we are referring to Heron Lake BioEnergy, LLC and its subsidiaries, Lakefield Farmers Elevator, LLC, with grain facilities at Lakefield and Wilder, Minnesota, and HLBE Pipeline Company, LLC. Additionally, when we refer to "units" in this Annual Report on Form 10-K, unless the context otherwise requires, we are referring to the Class A units of Heron Lake BioEnergy, LLC.

CAUTION 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 Part I, Item 1A. "Risk Factors" of this Form 10-K.

We undertake no duty to update these forward-looking statements, even though our situation may change in the future. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report.

ITEM 1. BUSINESS

Overview

We were organized as a Minnesota limited liability company on April 12, 2001 under the name "Generation II, LLC." In June 2004, we changed our name to Heron Lake BioEnergy, LLC.

We operated a dry mill, coal fired ethanol plant in Heron Lake, Minnesota. After completing a conversion in November 2011, we are now a natural gas fired ethanol plant. Our subsidiary, HLBE Pipeline Company, LLC, owns 73% of Agrinatural Gas, LLC, the pipeline company formed to construct, own, and operate a natural gas pipeline that provides natural gas to the Company's ethanol production facility through a connection with the natural gas pipeline facilities of Northern Border Pipeline Company in Cottonwood County, Minnesota. Our subsidiary, Lakefield Farmers Elevator, LLC, formerly owned grain facilities at Lakefield and Wilder, Minnesota; however, on February 1, 2013, Lakefield Farmers Elevator sold substantially all of its assets for cash consideration. At nameplate, our ethanol plant has the capacity to process approximately 18.0 million bushels of corn each year, producing approximately 50 million gallons per year of fuel-grade ethanol and approximately 160,000 tons of distillers' grains with soluble ("DGS"). Our permitted capacity is approximately 59.2 million gallons of ethanol per year. On September 21, 2007, we began operations at the ethanol plant. Fiscal year 2007 was the first fiscal year that includes any revenue generated from our operations. In fiscal years 2013, 2012 and 2011, we sold approximately 55.3, 58.2 and 53.4 million gallons of ethanol, respectively.

The following table sets forth a summary of significant milestones in our company's history until we began operations at our plant.

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Date		Milestone
February 2002		We obtained an option on land that is now part of the 216 acre site of our ethanol plant.
October 2003		We entered into an industrial water supply development and distribution agreement with the City of Heron Lake, Jackson County, and Minnesota Soybean Processors.
Early 2004		We selected Fagen, Inc. to be the design-build firm to build our ethanol plant near Heron Lake, Minnesota, using process technology provided by ICM, Inc.
September 2005		We entered into a Standard Form of Agreement between Owner and Designer—Lump Sum with Fagen, Inc.
December 2005		We purchased certain assets relating to elevator and grain storage facilities in Lakefield, Minnesota and Wilder, Minnesota with a combined storage capacity of approximately 2.8 million bushels.
May 2006		We entered into an industrial water supply treatment agreement with the City of Heron Lake and Jackson County.
August 2006		We entered into an electric service agreement with Interstate Power and Light Company (a wholly-owned subsidiary of Alliant Energy Corporation).
December 2006		We entered into a contract with Federated Rural Electric Association for the construction of the distribution system and electrical substation for the plant.
June 2007		We entered into a master coal supply agreement with Northern Coal Transportation Company (NCTC) to provide Powder River Basin (PRB) coal for the plant.
June 2007		We entered into a coal transloading agreement with Southern Minnesota Beet Sugar Cooperative (SMBSC).
September 2007		We began operations at our dry mill, coal fired ethanol plant.

Production

Since the beginning of operations at our ethanol plant, our primary business is the production and sale of ethanol and co-products, including dried distillers' grains. We currently do not have or anticipate we will have any other lines of business or other significant sources of revenue other than the sale of ethanol and ethanol co-products.

Our Ethanol Plant

Our ethanol plant was designed and built by Fagen Inc. under a September 2005 design-build agreement who used certain proprietary property and information of ICM, Inc. in the design and construction of our ethanol plant.

Our ethanol plant uses a dry milling process to produce fuel-grade ethanol and distillers' grains. The dry milling process involves grinding the entire corn kernel into flour and the starch is converted to ethanol through fermentation that also produces carbon dioxide and distillers' grains.

The ethanol plant consists principally of a natural gas combustion area; storage and processing areas for corn; a fermentation area comprised mainly of fermentation tanks; a distillation finished product storage area; and a drying unit for processing the dried distillers' grains. Additionally, the ethanol plant contains receiving facilities that have the ability to receive corn by rail and truck, store it for use in the plant and prepare the corn to be used in the plant. We have storage tanks on site to store the ethanol we produce. The plant also contains a storage building and silos to hold distillers' grains until it is shipped to market.

The Union Pacific Railroad is the railroad adjacent to our ethanol plant. The ethanol plant has the facilities necessary to receive corn by truck and rail, coal by truck, and to load ethanol and distillers grains onto trucks and rail cars.

Our ethanol plant requires significant and uninterrupted amounts of electricity, natural gas and water. We have entered into agreements for our supply of electricity, natural gas and water.

We are required to comply with various requirements of state and federal law regulating the operations at our plant, including regulations relating to air emissions. Please review the section entitled "Compliance with Environmental Laws and Other Regulatory Matters" for a description of how compliance with regulatory requirements, including requirements relating to air emissions, has impacted our business.

Our Principal Products

The principal products that we produce are fuel grade ethanol, distillers' grains, and crude corn oil. Raw carbon dioxide is also a product of the ethanol production process, but we do not capture or market any carbon dioxide gas.

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Ethanol

Ethanol is a type of alcohol produced in the U.S. principally from corn. Ethanol is primarily used in the U.S. gasoline fuel market as:


•	an octane enhancer in fuels;


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


•	a gasoline substitute generally known as E85, a fuel blend composed of 85% ethanol; and


•	as a renewable fuel to displace consumption of imported oil.

Ethanol used as an octane enhancer or fuel additive is blended with unleaded gasoline and other fuel products. The principal purchasers of ethanol are generally wholesale gasoline distributors or blenders.

Distillers' Grains

The principal co-product of the ethanol production process is distillers' grains, a high protein and high-energy animal feed ingredient.

Dry mill ethanol processing creates three primary forms of distillers' grains: wet distillers' grains, modified wet distillers' grains, and dried distillers' grains with solubles. Wet distillers' grains are processed corn mash that contains a substantial amount of moisture. It has a shelf life of approximately three days and is primarily sold to feeders of beef animals within the immediate vicinity of the ethanol plant. Modified wet distillers' grains are similar to wet distillers' grains except that it has been partially dried and contains less moisture. Modified wet distillers' grains has a shelf life of a maximum of fourteen days, contains less water to transport, is more easily adaptable to some feeding systems, and is sold to both local and regional markets, primarily for both beef and dairy animals. Dried distillers' grains with solubles are corn mash that has been dried to approximately 10% moisture. It has an almost indefinite shelf life and may be sold and shipped to any market and fed to almost all types of livestock. Most of the distillers' grains that we sell are in the form of dried distillers' grains.

Corn Oil

Another co-product of the ethanol production process is crude corn oil. Corn oil is used primarily as a biodiesel feedstock and as a supplement for animal feed.

Procurement and Marketing Agreements

Corn Procurement

The primary raw material used in the production of ethanol at our plant is corn. We need to procure approximately 18 million bushels of corn per year for our dry mill ethanol process. We generally do not have long-term, fixed price contracts for the purchase of corn and our members are not obligated to deliver corn to us. Typically, we purchase our corn directly from grain elevators, farmers, and local dealers within approximately 80 miles of Heron Lake, Minnesota.

We generally purchase corn through cash fixed-price contracts and may utilize hedging positions in the corn futures market for a portion of our corn requirements to manage the risk of excessive corn price fluctuations. Our fixed-price forward contracts specify the amount of corn, the price and the time period over which the corn is to be delivered. These forward contracts are at fixed prices or prices based on the Chicago Board of Trade (CBOT) prices. Our corn requirements can be forward contracted on either a fixed-price basis or futures only contracts. The parameters of these contracts are based on the local supply and demand situation and the seasonality of the price. We also purchase a portion of our corn on a spot basis.

The price and availability of corn is subject to significant fluctuation depending upon a number of factors that affect commodity prices generally. These include, among others, crop conditions, crop production, weather, government programs, and export demands.

Natural Gas Procurement

The primary source of energy in our manufacturing process is natural gas. We have a facilities agreement with Northern Border Pipeline Company which allows us access to an existing interstate natural gas pipeline located approximately 16 miles north from our plant. We entered into a transportation agreement with Agrinatural Gas, LLC ("Agrinatural Gas"). Agrinatural Gas, owned by our subsidiary, HLBE Pipeline Company, LLC, and Rural Energy Solutions, was formed to own and operate the pipeline. HLBE Pipeline Company, LLC owns 73% of Agrinatural Gas, LLC.

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We also have a base agreement for the sale and purchase of natural gas with Constellation NewEnergy—Gas Division, LLC ("Constellation"). We buy all of our natural gas from Constellation and this agreement runs for a three year period from November 1, 2011 to October 31, 2014.

Ethanol Marketing

Effective September 1, 2011, the Company entered into certain marketing, corn supply and corn storage agreements with Gavilon, LLC ("Gavilon") to market the Company's ethanol and distillers' grains products and to supply the Company's ethanol production facility with corn. These agreements terminated as of October 31, 2013. Under these agreements, Gavilon was the exclusive corn supplier and ethanol and distillers' grains marketer for the Company's production facility. The Company paid Gavilon a supply fee consisting of a per bushel fee based on corn processed at the facility and a cost of funds component determined on the amount of corn financed by Gavilon for supply to the Company's ethanol production facility based on the length of time between when Gavilon paid for the corn stored in or en route to or from the Company's elevator facilities or production facility, and when the Company was invoiced for that corn at the time it was processed at the Company's production facility.

Effective November 1, 2013, Eco-Energy, LLC 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. We pay Eco-Energy a fee for each gallon of ethanol shipped from our plant in consideration of Eco-Energy's services.

Distillers' Grains Marketing

Although we terminated our prior marketing agreements with Gavilon as of October 31, 2013, as provided above, we entered into a new distillers' grains off-take agreement with Gavilon Ingredients, LLC that became effective November 1, 2013. Pursuant to this agreement, Gavilon Ingredients, LLC purchases all of the distillers' grains produced at our ethanol plant. We pay Gavilon a service fee for its services under this agreement.

Corn Oil Marketing

RPMG, Inc. markets the corn oil produced at our ethanol plant pursuant to a corn oil marketing agreement. This agreement became effective as of September 16, 2013. We pay RPMG a commission based on each pound of corn oil sold by RPMG under the agreement.

Pricing of Corn and Ethanol

The sale of ethanol represented approximately 76.7% of our revenue for the year ended October 31, 2013. The cost of corn represented approximately 82% of our cost of sales for the year ended October 31, 2013. We expect that ethanol sales will represent our primary revenue source and corn will represent our primary component of cost of goods sold. Therefore, changes in the price at which we can sell the ethanol we produce and the price at which we buy corn for our ethanol plant present significant operational risks inherent in our business.

Generally, the price at which ethanol can be sold does not track with the price at which corn can be bought. Historically, ethanol prices have tended to correlate with wholesale gasoline prices, with demand for and the price of ethanol increasing as supplies of petroleum decreased or appeared to be threatened, crude oil prices increased and wholesale gasoline prices increased. However, the prices of both ethanol and corn do not always follow historical trends. Trends in ethanol prices and corn prices are subject to a number of factors and are difficult to predict.

Demand for Ethanol

In recent years, the demand for ethanol has increased, particularly in the upper Midwest, in part because of two major programs established by the Clean Air Act Amendments of 1990: the Oxygenated Gasoline Program and the Reformulated Gasoline Program. Under these programs, an additive (oxygenate) is required to be blended with gasoline used in areas with excessive carbon monoxide or ozone pollution to help mitigate these conditions. Because of the potential health and environmental issues associated with methyl tertiary butyl ether (MTBE) and the actions of the EPA, ethanol is now used as the primary oxygenate in those areas requiring an oxygenate additive pursuant to state or federal law. A clean air additive is a substance that, when added to gasoline, reduces tailpipe emissions, resulting in improved air quality characteristics. Ethanol contains 35% oxygen, approximately twice that of MTBE, a historically used oxygenate. The additional oxygen found in ethanol results in more complete combustion of the fuel in the engine cylinder, which reduces tailpipe emissions by as much as 30%, including a 12% reduction in volatile organic compound emissions when blended at a 10% level. Pure ethanol, which is non-toxic, water soluble and biodegradable, replaces some of the harmful gasoline components, including benzene. The United States consumes approximately 135-140 billion gallons of gasoline a year. More than 95% of those gallons were blended with ethanol, predominantly at the E10 (ten percent ethanol) level.

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In addition to demand for ethanol as an oxygenate, ethanol demand has increased because of the adoption of programs setting national renewable fuels standards (RFS). The first RFS program (RFS1) was introduced through the Energy Policy Act of 2005. RFS1 required 7.5 billion gallons of renewable fuel to be blended into gasoline by 2012. With the passage of the Energy Independence and Security Act of 2007, Congress made several important revisions to the RFS that required the EPA to promulgate new regulations to implement these changes. In February 2010, the EPA established the revised annual renewable fuel standard (RFS2) and to make the necessary program modifications as set forth in the Energy Independence and Security Act of 2007. Further, for the first time, the EPA set volume standards for specific categories of renewable fuels including cellulosic, biomass-based diesel, and total advanced renewable fuels. In order to qualify for these new volume categories, fuels must demonstrate that they meet certain minimum greenhouse gas reduction standards, based on a lifecycle assessment, in comparison to the petroleum fuels they displace. Our ethanol does not qualify for the new volume categories of renewable fuels and therefore, the total renewable fuel requirement for each year will be most relevant to the demand for, and required use of, ethanol such as ours.

RFS2 dictates an increasing amount of blending of total renewable fuels: 18.15 billion gallons in 2014, increasing to 36 billion gallons by 2022. To reach the standard as dictated by RFS2 in 2014, assuming 136 billion gallons of total gasoline usage nationally, each gallon of gasoline sold would have to be blended with greater than 10% ethanol. The EPA limit of 10% ethanol inclusion in non-flex fuel vehicles and the RFS increasing blend rate are at odds, which is sometimes referred to as the "blend wall." In 2012, the EPA 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. Although E15 is now available in limited locations in a number of states, management believes that any gasoline retailers will refuse to provide E15 due to the fact that not all standard vehicles are allowed to use E15. As a result, the approval of E15 may not significantly increase demand for ethanol.

There have been proposals in Congress to reduce or eliminate RFS2. Additionally, in November 2013 the EPA issued a proposed rule that would reduce the RFS2 levels for 2014 from the statutory volume requirement of 18.15 billion gallons to 15.21 billion gallons, and reduce the renewable volume obligations that can be satisfied by corn-based ethanol from 14.4 billion gallons to 13 billion gallons, which is less than the 2013 volume requirement of 13.8 billion gallons. If the EPA's proposal becomes a final rule, or if RFS2 were to be otherwise reduced or eliminated by the exercise of the EPA's waiver authority or by Congress, the demand for ethanol may be negatively impacted. Current ethanol production capacity exceeds the proposed 2014 RFS requirement which can be satisfied by corn based ethanol.

Markets for Ethanol

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

The markets in which our ethanol is sold will depend primarily upon the efforts of Eco-Energy, which buys and markets our ethanol. However, we believe that local markets will be limited and must typically be evaluated on a case-by-case basis. Although local markets will be the easiest to service, they may be oversold because of the number of ethanol producers near our plant, which may depress the price of ethanol in those markets.

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

Markets for Distillers' Grains

We sell distillers' grains as animal feed for beef and dairy cattle, poultry and hogs. However, the modified wet distillers' grains typically have a shelf life of a maximum of fourteen days. This provides for a much smaller market and makes the timing of its sale critical. Further, because of its moisture content, the modified wet distillers' grains are heavier and more difficult to handle. The customer must be close enough to justify the additional handling and shipping costs. As a result, modified wet distillers' grains are principally sold only to local feedlots and livestock operations.

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

Competition

Producers of Ethanol

We sell our ethanol in a highly competitive market. We are in direct competition with numerous other ethanol producers, both regionally and nationally, many of which have more experience and greater resources than we have. Some of these producers are, among other things, capable of producing a significantly greater amount of ethanol or have multiple ethanol plants that may help them achieve certain benefits that we could not achieve with one ethanol plant. Further, new products or methods of ethanol production developed by larger and better-financed competitors could provide them competitive advantages over us and harm our business. A majority of the ethanol plants in the U.S. and the greatest number of gallons of ethanol production are located in the corn-producing states, such as Iowa, Nebraska, Illinois, Minnesota, Indiana, South Dakota, Wisconsin, Ohio, Kansas, and North Dakota.

According to the Renewable Fuels Association (RFA), as of January 2014, there are approximately 211 biorefineries with a total nameplate capacity of 14.9 billion gallons of ethanol per year.

Below is the U.S. ethanol production by state in millions of gallons for the ten states with the most total ethanol production as of January 2013:



State	Nameplate	Operating	Under Construction/ Expansion	Total
Iowa	3,848.0	3,843.0	—	3,848.0
Nebraska	2,058.0	1,744.0	—	2,058.0
Illinois	1,412.0	1,374.0	—	1,412.0
Indiana	1,148.0	826.0	—	1,148.0
Minnesota	1,147.1	1,010.6	—	1,147.1
South Dakota	1,016.0	1,016.0	—	1,016.0
Kansas	503.5	381.5	45	548.5
Ohio	538.0	478.0	—	538.0
Wisconsin	504.0	504.0	5	509.0
North Dakota	370.0	360.0	—	370.0
Total	12,544.6	11,537.1	50	12,594.6

Source: Renewable Fuels Association, 2013 Ethanol Industry Outlook

Because Minnesota is one of the top producers of ethanol in the U.S., we face increased competition because of the location of our ethanol plant in Minnesota. Therefore, we compete with other Minnesota ethanol producers both for markets in Minnesota and markets in other states.

In addition to intense competition with local, regional and national producers of ethanol, we expect increased competition from imported ethanol and foreign producers of ethanol. Ethanol imported to the U.S. was subject to a 2.5 percent ad valorem tax and an additional 54 cents a gallon surcharge, both of which expired on December 31, 2011. As a result, we have faced increased competition from imported ethanol and foreign producers of ethanol.

Producers of Other Fuel Additives and Alternative Fuels

In addition to competing with ethanol producers, we also compete with producers of other gasoline oxygenates. Many gasoline oxygenates are produced by other companies, including oil companies, that have far greater resources than we have. Historically, as a gasoline oxygenate, ethanol primarily competed with two gasoline oxygenates, both of which are ether-based: MTBE (methyl tertiary butyl ether) and ETBE (ethyl tertiary butyl ether). Many states have enacted legislation prohibiting the sale of gasoline containing certain levels of MTBE or are phasing out the use of MTBE because of health and environmental concerns. As a result, national use of MTBE has decreased significantly in recent years. Use of ethanol now exceeds that of MTBE and ETBE as a gasoline oxygenate.

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While ethanol has displaced these two gasoline oxygenates, the development of ethers intended for use as oxygenates is continuing and we will compete with producers of any future ethers used as oxygenates.

A number of automotive, industrial and power generation manufacturers are developing alternative fuels and power systems, both for vehicles and other applications. Fuel cells have emerged as a potential alternative power system to certain existing power sources because of their higher efficiency, reduced noise and lower emissions. Fuel cell industry participants are currently targeting the transportation, stationary power and portable power markets in order to decrease fuel costs, lessen dependence on crude oil and reduce harmful emissions.

Additionally, there are more than a dozen alternative and advanced fuels currently in development, production or use, including the following alternative fuels that, like ethanol, have been or are currently commercially available for vehicles:


•	biodiesel


•	electricity


•	hydrogen


•	methanol


•	natural gas


•	propane

Several emerging fuels are currently under development. Many of these fuels are also considered alternative fuels and may have other benefits such as reduced emissions or decreasing dependence upon oil. Examples of emerging fuels include:


•	Biobutanol: Like ethanol, biobutanol is an alcohol that can be produced through the processing of domestically grown crops, such as corn and sugar beets, and other biomass, such as fast-growing grasses and agricultural waste products.


•	Biogas: Biogas is produced from the anaerobic digestion of organic matter such as animal manure, sewage, and municipal solid waste. After it is processed to required standards of purity, biogas becomes a renewable substitute for natural gas and can be used to fuel natural gas vehicles.


•	Fischer-Tropsch Diesel: Diesel made by converting gaseous hydrocarbons, such as natural gas and gasified coal or biomass, into liquid fuel, including transportation fuel.


•	Hydrogenation-Derived Renewable Diesel (HDRD): The product of fats or vegetable oils—alone or blended with petroleum—that has been refined in an oil refinery.


•	P-Series: A blend of natural gas liquids (pentanes plus), ethanol, and the biomass-derived co-solvent methyltetrahydrofuran (MeTHF) formulated to be used in flexible fuel vehicles.


•	Ultra-Low Sulfur Diesel: This is diesel fuel with 15 parts per million or lower sulfur content. This ultra-low sulfur content enables the use of advanced emission control technologies on vehicles using ULSD fuels produced from non-petroleum and renewable sources that are considered alternative fuels.

Additionally, there are developed and developing technologies for converting natural gas, coal and biomass to liquid fuel, including transportation fuels such as gasoline, diesel, and methanol.

We expect that competition will increase between ethanol producers, such as HLBE, and producers of these or other newly developed alternative fuels or power systems, especially to the extent they are used in similar applications such as vehicles.

Producers of Distillers' Grains

The amount of distillers' grains produced annually in North America has increased significantly as the number of ethanol plants increased. We compete with other producers of distillers' grains products both locally and nationally, with more intense competition for sales of distillers' grains among ethanol producers in close proximity to our ethanol plant. There are seven ethanol plants within an approximate 50 mile radius of our plant with a combined ethanol capacity of 436 million gallons that will produce approximately 1.5 million tons of distillers' grains. These competitors may be more likely to sell to the same markets that we target for our distillers' grains.

Additionally, distillers' grains compete with other feed formulations, including corn gluten feed, dry brewers' grain and mill feeds. The primary value of these products as animal feed is their protein content. Dry brewers' grain and distillers' grains have about the same protein content, and corn gluten feed and mill feeds have slightly lower protein contents. Distillers' grains contain nutrients, fat content, and fiber that we believe will differentiate our distillers' grains products from other feed formulations. However, producers of other forms of animal feed may also have greater experience and resources than we do and their products may have greater acceptance among producers of beef and dairy cattle, poultry and hogs.

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Competition for Corn

We will compete with ethanol producers in close proximity for the supplies of corn we will require to operate our plant. The existence of other ethanol plants, particularly those in close proximity to our plant, increase the demand for corn and may result in higher costs for supplies of corn. We estimate that the seven ethanol plants within an approximate 50 mile radius of our plant will use approximately 160 million bushels of corn and that we will compete with these other ethanol plants for corn for our ethanol plant.

We compete with other users of corn, including ethanol producers regionally and nationally, producers of food and food ingredients for human consumption (such as high fructose corn syrup, starches, and sweeteners), producers of animal feed and industrial users.

Competition for Personnel

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

Hedging

We may hedge anticipated corn purchases and ethanol and distillers' grain sales through a variety of mechanisms.

We procure corn through spot cash, fixed-price forward, basis only, futures only, and delayed pricing contracts. Additionally, we may use hedging positions in the corn futures and options market to manage the risk of excessive corn price fluctuations for a portion of our corn requirements.

For our spot purchases, we post daily corn bids so that corn producers can sell to us on a spot basis. Our fixed-price forward contracts specify the amount of corn, the price and the time period over which the corn is to be delivered. These forward contracts are at fixed prices indexed to Chicago Board of Trade, or CBOT, prices. Our corn requirements can be contracted in advance under fixed-price forward contracts or options. The parameters of these contracts are based on the local supply and demand situation and the seasonality of the price. For delayed pricing contracts, producers will deliver corn to us, but the pricing for that corn and the related payment will occur at a later date.

To hedge a portion of our exposure to corn price risk, we may buy and sell futures and options positions on the CBOT. In addition, our facilities have significant corn storage capacity. At the ethanol plant, we have the ability to store approximately 10 days of corn supply.

Eco-Energy is the exclusive marketer for all of the ethanol produced at our facility. To mitigate ethanol price risk and to obtain the best margins on ethanol that is marketed and sold by our marketer, we may utilize ethanol swaps, over-the-counter ("OTC") ethanol swaps, or OTC ethanol options that are typically settled in cash, rather than gallons of the ethanol we produce.

Our marketing and risk management committee assists the board and our risk management personnel to, among other things, establish appropriate policies and strategies for hedging and enterprise risk.

Compliance with Environmental Laws and Other Regulatory Matters

Our business subjects us to various federal, state and local environmental laws and regulations, including those relating to discharges into the air, water and ground; the generation, storage, handling, use, transportation and disposal of hazardous materials; and the health and safety of our employees.

These laws and regulations require us to obtain and comply with numerous permits to construct and operate our ethanol plant, including water, air and other environmental permits. The costs associated with obtaining these permits and meeting the conditions of these permits have increased our costs of construction and production. In the fiscal year ended October 31, 2013, we incurred costs and expenses of approximately $136,000 complying with environmental laws, including the cost of pursuing permit amendments.

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

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our operations. Although violations and environmental non-compliance still remain a possibility following our conversion from coal to natural gas combustion, the exposure to the company has been greatly reduced.

Employees

As of the date of this report, we have 36 full time employees. Seven 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.

Corporate Information

Our principal executive offices are located at 91246 390th Avenue, Heron Lake, Minnesota 56137 and our telephone number is 507-793-0077. We maintain an Internet website at www.heronlakebioenergy.com. We make available free of charge on or through our Internet website, www.heronlakebioenergy.com, all of our reports and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (SEC). We will provide electronic or paper copies of these documents free of charge upon request.

Additionally, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.

ITEM 1A. RISK FACTORS

If any of the following risks actually occur, our results of operations, cash flows and the value of our units could be negatively impacted.

Risks Related to Our Financial Condition

We were previously in default of our master loan agreement with AgStar and there is substantial doubt about our ability to continue as a going concern.

At October 31, 2012, we were in default of covenants of our master loan agreement with AgStar Financial Services, PCA ("AgStar") requiring us to maintain at least $5.0 million minimum working capital; at least $39.5 million of tangible net worth; and a fixed charge ratio of 1.20 to 1.00 or greater. We also failed to make monthly principal payments to AgStar from December 2012 through May 2013 and operated under forbearance agreements with AgStar. As a result of these defaults, we previously classified our long-term debt with AgStar as a current liability. These factors and continual volatile commodity prices raise substantial doubt about our ability to continue as a going concern.

During the fiscal year ended October 31, 2013, market conditions improved. We also raised approximately $6.9 million in equity and approximately $5.1 million in convertible debt during our 2013 fiscal year. While we believe these changes will improve our operating performance, we cannot be certain that our efforts will be successful.

Risks Relating to Our Operations

Because we are primarily dependent upon one product, our business is not diversified, and we may not be able to adapt to changing market conditions or endure any decline in the ethanol industry.

Our success depends on our ability to efficiently produce and sell ethanol, and, to a lesser extent, distillers' grains and corn oil. We do not have any other lines of business or other significant sources of revenue to rely upon if we are unable to produce and sell ethanol, distillers' grains and corn oil, or if the market for those products decline. Our lack of diversification means that we may not be able to adapt to changing market conditions, changes in regulation, increased competition or any significant decline in the ethanol industry.

Our profitability depends upon purchasing corn at lower prices and selling ethanol at higher prices and because the difference between ethanol and corn prices can vary significantly, our financial results may also fluctuate significantly.

The substantial majority of our revenues are derived from the sale of ethanol. Our gross profit relating to the sale of ethanol is principally dependent on the difference between the price we receive for the ethanol we produce and the price we pay for the corn we used to produce our ethanol.

The price we receive for our ethanol is dependent upon a number of factors. Increasing domestic ethanol capacity may boost demand for corn, resulting in increased corn prices and corresponding decrease in the selling price of ethanol as production increases. Further, the price of corn is influenced by weather conditions (including droughts or over abundant rainfall) and other factors affecting crop yields, farmers' planting decisions and general economic, market and regulatory factors, including government policies and subsidies with respect to agriculture and international trade, and global and local

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supply and demand. Declines in the corn harvest, caused by farmers' planting decisions or otherwise, could cause corn prices to increase and negatively impact our gross margins.

We have experienced low or negative margins in the past, reflecting higher expenses for the corn we purchase and lower revenues from ethanol we produce. For example, our cost of goods sold (including lower of cost or market adjustments) as a percentage of revenues was 95.0% and 98.7% for the fiscal years ended October 31, 2013 and October 31, 2012, respectively. Reduction in ethanol prices without corresponding decreases in corn costs or increases in corn prices without corresponding increases in ethanol prices has adversely affected our financial performance in the past and may adversely affect our financial performance in the future.

If the supply of ethanol exceeds the demand for ethanol, the price we receive for our ethanol and distillers' grains may decrease.

Domestic ethanol production capacity has increased substantially over the past decade. However, demand for ethanol may not increase as quickly as expected or to a level that exceeds supply, or at all.

Excess ethanol production capacity may result from decreases in the demand for ethanol or increased domestic production or imported supply. There are many factors affecting demand for ethanol, including regulatory developments and reduced gasoline consumption as a result of increased prices for gasoline or crude oil. Higher gasoline prices could cause businesses and consumers to reduce driving or acquire vehicles with more favorable gasoline mileage, or higher prices could spur technological advances, such as the commercialization of engines utilizing hydrogen fuel-cells, which could supplant gasoline-powered engines. There are a number of governmental initiatives designed to reduce gasoline consumption, including tax credits for hybrid vehicles and consumer education programs.

If ethanol prices decline for any reason, including excess production capacity in the ethanol industry or decreased demand for ethanol, our business, results of operations and financial condition may be materially and adversely affected.

In addition, because ethanol production produces distillers' grains as a co-product, increased ethanol production will also lead to increased production of distillers' grains. An increase in the supply of distillers' grains, without corresponding increases in demand, could lead to lower prices or an inability to sell our distillers' grains production. A decline in the price of distillers' grains or the distillers' grains market generally could have a material adverse effect on our business, results of operations and financial condition.

The price of distillers' grains is affected by the price of other commodity products, such as soybeans, and decreases in the price of these commodities could decrease the price of distillers' grains.

Distillers' grains compete with other protein-based animal feed products. The price of distillers' grains may decrease when the price of competing feed products decrease. The prices of competing animal feed products are based in part on the prices of the commodities from which they are derived. Downward pressure on commodity prices, such as soybeans, will generally cause the price of competing animal feed products to decline, resulting in downward pressure on the price of distillers' grains. The price of distillers' grains is not tied to production costs. However, decreases in the price of distillers' grains would result in less revenue from the sale of distillers' grains and could result in lower profit margins.

We face intense competition that may result in reductions in the price we receive for our ethanol, increases in the prices we pay for our corn, or lower gross profits.

Competition in the ethanol industry is intense. We face formidable competition in every aspect of our business from both larger and smaller producers of ethanol and distillers' grains. Some larger producers of ethanol, such as Archer Daniels Midland Company, Cargill, Inc., Valero Energy Corporation, have substantially greater financial, operational, procurement, marketing, distribution and technical resources than we have. Additionally, smaller competitors, such as farmer-owned cooperatives and independent companies owned by farmers and investors, have business advantages, such as the ability to more favorably procure corn by operating smaller plants that may not affect the local price of corn as much as a larger-scale plant like ours or requiring their farmer-owners to sell them corn as a requirement of ownership.

We also face increasing competition from international ethanol suppliers. Most international ethanol producers have cost structures that can be substantially lower than ours and therefore can sell their ethanol for substantially less than we can. While ethanol imported to the U.S. was subject to an ad valorem tax and a per gallon surcharge that helped mitigate the effects of international competition for U.S. ethanol producers, the tax and per gallon surcharge expired on December 31, 2011. Because the tax and surcharge on imported ethanol was not extended beyond December 31, 2011, we are facing increased competition

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from imported ethanol and foreign producers of ethanol. In addition, ethanol imports from certain countries are exempted from these tariffs under the Caribbean Basin Initiative to spur economic development in Central America and the Caribbean.

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

We engage in hedging transactions which involve risks that can harm our business.

In an attempt to offset some of the effects of pricing and margin volatility, we may hedge anticipated corn purchases and ethanol and distillers' grain sales through a variety of mechanisms. Because of our hedging strategies, we are exposed to a variety of market risks, including the effects of changes in commodities prices of ethanol and corn.

Hedging arrangements also expose us to the risk of financial loss in situations where the other party to the hedging contract defaults on its contract or, in the case of exchange-traded contracts, where there is a change in the expected differential between the underlying price in the hedging agreement and the actual prices paid or received by us. Hedging activities can themselves result in losses when a position is purchased in a declining market or a position is sold in a rising market. Our losses or gains from hedging activities may vary widely.

There can be no assurance that our hedging strategies will be effective and we may experience hedging losses in the future. We also vary the amount of hedging or other price mitigation strategies we undertake, and we may choose not to engage in hedging transactions at all. As a result, whether or not we engage in hedging transactions, our business, results of operations and financial condition may be materially adversely affected by increases in the price of corn or decreases in the price of ethanol.

Operational difficulties at our plant could negatively impact our sales volumes and could cause us to incur substantial losses.

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

Our operations are also subject to operational hazards inherent in our industry and to manufacturing in general, such as equipment failures, fires, explosions, abnormal pressures, blowouts, pipeline ruptures, transportation accidents and natural disasters. Some of these operational hazards may cause personal injury or loss of life, severe damage to or destruction of property and equipment or environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. The occurrence of any of these operational hazards may materially adversely affect our business, results of operations and financial condition. Further, our insurance may not be adequate to fully cover the potential operational hazards described above or we may not be able to renew this insurance on commercially reasonable terms or at all.

Our operations and financial performance could be adversely affected by infrastructure disruptions and lack of adequate transportation and storage infrastructure in certain areas.

We ship our ethanol to our customers primarily by the railroad adjacent to our site. We also have the potential to receive inbound corn via the railroad. Our customers require appropriate transportation and storage capacity to take delivery of the products we produce. We also receive our natural gas through a pipeline that is approximately 16 miles in length. Without the appropriate flow of natural gas through the pipeline our plant may not be able to run at desired production levels or at all. Therefore, our business is dependent on the continuing availability of rail, highway and related infrastructure. Any disruptions in this infrastructure network, whether caused by labor difficulties, earthquakes, storms, other natural disasters, human error or malfeasance or other reasons, could have a material adverse effect on our business. We rely upon third-parties to maintain the rail lines from our plant to the national rail network, and any failure on their part to maintain the lines could impede our delivery of products, impose additional costs on us and could have a material adverse effect on our business, results of operations and financial condition.

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


•	additional rail capacity;

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•	additional storage facilities for ethanol;


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


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


•	growth in service stations equipped to handle ethanol fuels.

The substantial investments that will be required for these infrastructure changes and expansions may not be made on a timely basis, if at all, and decisions regarding these infrastructure improvements are outside of our control. Significant delay or failure to improve the infrastructure that facilitates the distribution could curtail more widespread ethanol demand or reduce prices for our products in certain areas, which would have a material adverse effect on our business, results of operations or financial condition.

Competition for qualified personnel in the ethanol industry is intense and we may not be able to hire and retain qualified personnel to operate our ethanol plant.

Our success depends in part on our ability to attract and retain competent personnel. For our ethanol plant, we must hire qualified managers, operations personnel, accounting staff and others, which can be challenging in a rural community. Competition for employees in the ethanol industry is intense, and we may not be able to attract and retain qualified personnel. If we are unable to hire productive and competent personnel and retain our existing personnel, our business may be adversely affected and we may not be able to efficiently operate our ethanol business and comply with our other obligations.

Technology in our industry evolves rapidly, potentially causing our plant to become obsolete, and we must continue to enhance the technology of our plant or our business may suffer.

We expect that technological advances in the processes and procedures for processing ethanol will continue to occur. It is possible that those advances could make the processes and procedures that we utilize at our ethanol plant less efficient or obsolete. These advances could also allow our competitors to produce ethanol at a lower cost than we are able. If we are unable to adopt or incorporate technological advances, our ethanol production methods and processes could be less efficient than those of our competitors, which could cause our ethanol plant to become uncompetitive.

Ethanol production methods are constantly advancing. The current trend in ethanol production research is to develop an efficient method of producing ethanol from cellulose-based biomass such as agricultural waste, forest residue and municipal solid waste. This trend is driven by the fact that cellulose-based biomass is generally cheaper than corn and producing ethanol from cellulose-based biomass would create opportunities to produce ethanol in areas that are unable to grow corn. Another trend in ethanol production research is to produce ethanol through a chemical or thermal process, rather than a fermentation process, thereby significantly increasing the ethanol yield per pound of feedstock. Although current technology does not allow these production methods to be financially competitive, new technologies may develop that would allow these methods to become viable means of ethanol production in the future. If we are unable to adopt or incorporate these advances into our operations, our cost of producing ethanol could be significantly higher than those of our competitors, which could make our ethanol plant obsolete. Modifying our plant to use the new inputs and technologies would likely require material investment.

If ethanol fails to compete successfully with other existing or newly-developed oxygenates or renewable fuels, our business will suffer.

Alternative fuels, additives and oxygenates are continually under development. Alternative fuels and fuel additives that can replace ethanol are currently under development, which may decrease the demand for ethanol. Technological advances in engine and exhaust system design and performance could reduce the use of oxygenates, which would lower the demand for ethanol, and our business, results of operations and financial condition may be materially adversely affected.

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

We have entered into agreements with a third parties to market our supply of ethanol, distillers' grains and corn oil. Our marketers are independent businesses that we do not control. We cannot be certain that our marketers will market or sell our ethanol, distillers' grains and corn oil effectively. Our agreements with our marketers do not contain requirements that a certain percentage of sales are of our products, nor do the agreements restrict the marketer's ability to choose alternative sources for ethanol, distillers' grains or corn oil.

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

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marketers do not effectively market and sell our ethanol, distillers' grains and corn oil, our revenues may decrease and our business will be harmed.

Risks Related to Government Programs and Regulation

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

We are subject to various federal, state and local environmental laws and regulations, including those relating to the discharge of materials into the air, water and ground. Certain aspects of our operations require environmental permits and controls to prevent and reduce air and water pollution, and these permits are subject to modification, renewal and revocation by issuing authorities including the Minnesota Pollution Control Agency. We could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions and third-party claims for property damage and personal injury as a result of violations of or liabilities under environmental laws or non-compliance with environmental permits. We could also incur substantial costs and experience increased operating expenses as a result of operational changes to comply with environmental laws, regulations and permits. We have previously incurred substantial costs relating to our air emissions permit and expect additional costs relating to this permit in the future.

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

Failure to comply with existing or future regulatory requirements could have a material adverse effect on our business, financial condition and results of operations.

Because federal and state regulation heavily influence the supply of and demand for ethanol, changes in government regulation that adversely affect demand or supply will have a material adverse effect on our business.

Various federal and state laws, regulations and programs impact the supply of and demand for ethanol. Some government regulation, for example those that provide economic incentives to ethanol producers, stimulate supply of ethanol by encouraging production and the increased capacity of ethanol plants. Others, such as a federal excise tax incentive program that provides gasoline distributors who blended ethanol with gasoline to receive a federal excise tax rate reduction for each blended gallon they sell, stimulate demand for ethanol by making it price competitive with other oxygenates. Further, tariffs generally apply to the import of ethanol from certain other countries, where the cost of production can be significantly less than in the U.S. These tariffs are designed to increase the cost of imported ethanol to a level more comparable to the cost of domestic ethanol by offsetting the benefit of the federal excise tax program. Tariffs have the effect of maintaining demand for domestic ethanol.

Additionally, the Environmental Protection Agency has established a revised annual renewable fuel standard (RFS2) that sets minimum national volume standards for use of renewable fuels. The RFS2 also sets volume standards for specific categories of renewable fuels: cellulosic, biomass-based diesel and total advanced renewable fuels. While our ethanol does not qualify as one of the new volume categories of renewable fuels, we believe that the overall renewable fuels requirement of RFS2 creates an incentive for the use of ethanol. Other federal and state programs that require or provide incentives for the use of ethanol create demand for ethanol. Government regulation and government programs that create demand for ethanol may also indirectly create supply for ethanol as additional producers expand or new companies enter the ethanol industry to capitalize on demand. In the case of the RFS2, while it creates a demand for ethanol, the existence of specific categories of renewable fuels also creates a demand for these types of renewable fuels and will likely provide an incentive for companies to further develop these products to capitalize on that demand. In these circumstances, the RFS2 may also reduce demand for ethanol in favor of the renewable fuels for which specific categories exist.

There have been proposals in Congress to reduce or eliminate RFS2. Additionally, in November 2013 the Environmental Protection Agency issued a proposed rule that would reduce the RFS2 levels for 2014 from the statutory volume requirement of 18.15 billion gallons to 15.21 billion gallons, and reduce the renewable volume obligations that can be satisfied by corn-based ethanol from 14.4 billion gallons to 13 billion gallons, which is less than the 2013 volume requirement of 13.8 billion gallons. If the Environmental Protection Agency's proposal becomes a final rule, or if RFS2 were to be otherwise reduced or eliminated by the exercise of the Environmental Protection Agency's waiver authority or by Congress, the demand for ethanol may be negatively impacted.

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Federal and state laws, regulations and programs are constantly changing. We cannot predict what material impact, if any, these changes might have on our business. Future changes in regulations and programs could impose more stringent operational requirements or could reduce or eliminate the benefits we receive, directly and indirectly, under current regulations and programs. Future changes in regulations and programs may increase or add benefits to ethanol producers other than us or eliminate or reduce tariffs or other barriers to entry into the U.S. ethanol market, any of which could prove beneficial to our competitors, both domestic and international. Future changes in regulation may also hurt our business by providing economic incentives to producers of other renewable fuels or oxygenates or encouraging use of fuels or oxygenates that compete with ethanol. In addition, both national and state regulation is influenced by public opinion and changes in public opinion. For example, certain states oppose the use of ethanol because, as net importers of ethanol from other states, the use of ethanol could increase gasoline prices in that state and because that state does not receive significant economic benefits from the ethanol industry, which are primarily experienced by corn and ethanol producing states. Further, some argue that the use of ethanol will have a negative impact on gasoline prices to consumers, result in rising food prices, add to air pollution, harm car and truck engines, and actually use more fossil energy, such as oil and natural gas, than the amount of ethanol that is produced. We cannot predict the impact that opinions of consumers, legislators, industry participants, or competitors may have on the regulations and programs currently benefiting ethanol producers.

The EPA imposed E10 "blend wall" if not overcome will have an adverse effect on demand for ethanol.

We believe that the E10 "blend wall" is one of the most critical governmental policies currently facing the ethanol industry. The "blend wall" issue arises because of several conflicting requirements. First, the renewable fuels standards dictate a continuing increase in the amount of ethanol blended into the national gasoline supply. Second, the Environmental Protection Agency (EPA) mandates a limit of 10% ethanol inclusion in non-flex fuel vehicles, and the E85 vehicle marketplace is struggling to grow due to lacking infrastructure. The EPA policy of 10% and the RFS increasing blend rate are at odds, which is sometimes referred to as the "blend wall." While the issue is being considered by the EPA, there have been no regulatory changes that would reconcile the conflicting requirements. In 2011, the United States Environmental Protection Agency allowed the use of E15, gasoline which is blended at a rate of 15% ethanol and 85% gasoline, in vehicles manufactured in the model year 2001 and later. Management believes that many gasoline retailers will refuse to provide E15 due to the fact that not all standard vehicles will be allowed to use E15 and due to the labeling requirements the EPA may impose. As a result, the approval of E15 may not significantly increase demand for ethanol.

Risks Related to the Units

Project Viking owns a large percentage of our units, which may allow it to control or heavily influence matters requiring member approval, and Project Viking has been granted additional board rights under our member control agreement.

As of October 31, 2013, Project Viking, L.L.C. (“Project Viking”) beneficially owned 60.8% of our outstanding units. Project Viking is owned by Granite Falls Energy, LLC (“Granite Falls Energy”). As a result, Granite Falls Energy can significantly influence our management and affairs and all matters requiring member approval, including the approval of significant corporate transactions.

Additionally, our member control agreement gives members who hold significant amounts of equity in us the right to designate governors to serve on our board of governors. As of October 31, 2013, Project Viking has the right to appoint five persons to our nine-person board pursuant to this provision. With the right to designate a majority of our board, Project Viking influences the decisions of our board and our business.

Further, the interests of Project Viking may not coincide with our interests or the interests of our other members. For example, Granite Falls Energy owns and operates an ethanol production facility that could be considered our competitor. As a result of these and other potential conflicting interests, this could result in decisions with respect to us with which our members may disagree.

There is no public market for our units and no public market is expected to develop.

There is no established public trading market for our units, and we do not expect one to develop in the foreseeable future. As of January 1, 2014, we have established through FNC Ag Stock, LLC, 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. 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. 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 member control agreement, and are subject to approval by our board of governors. As a result, units held by our members may not be easily resold and members may be required to hold their units indefinitely. Even if members

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are able to resell our units, the price may be less than the members' investment in the units or may otherwise be unattractive to the member.

There are significant restrictions on the transfer of our units.

To protect our status as a partnership for tax purposes and to assure that no public trading market in our units develops, our units are subject to significant restrictions on transfer and transfers are subject to approval by our board of governors. All transfers of units must comply with the transfer provisions of our member control agreement and the unit transfer policy adopted by our board of governors. Our board of governors will not approve transfers which could cause us to lose our tax status or violate federal or state securities laws. As a result of the provisions of our member control agreement, members may not be able to transfer their units and may be required to assume the risks of the investment for an indefinite period of time.

There is no assurance that we will be able to make distributions to our unit holders, which means that holders could receive little or no return on their investment.

Distributions of our net cash flow may be made at the sole discretion of our board of governors, subject to the provisions of the Minnesota Limited Liability Company Act, our member control agreement and restrictions imposed by AgStar under our master loan agreement. Our master loan agreements with AgStar currently materially limit our ability to make distributions to our members and are likely to limit materially the future payment of distributions. If our financial performance and loan covenants permit, we expect to make future cash distributions at times and in amounts that will permit our members to make income tax payments, along with distributions in excess of these amounts. However, our board may elect to retain cash for operating purposes, debt retirement, plant improvements or expansion. We may also never be in a position to pay distributions because of our financial performance or the terms of our master loan agreement. Consequently, members may receive little or no return on their investment in the units.

We may authorize and issue units of new classes which could be superior to or adversely affect holders of our outstanding units.

Our board of governors, upon the approval of a majority in interest of our members, has the power to authorize and issue units of classes which have voting powers, designations, preferences, limitations and special rights, including preferred distribution rights, conversion rights, redemption rights and liquidation rights, different from or superior to those of our present units. New units may be issued at a price and on terms determined by our board of governors. The terms of the units and the terms of issuance of the units could have an adverse impact on your voting rights and could dilute your financial interest in us.

Our use of a staggered board of governors and allocation of governor appointment rights may reduce the ability of members to affect the composition of the board.

We are managed by a board of governors, currently consisting of four elected governors and five appointed governors. The seats on the board that are not subject to a right of appointment will be elected by the members without appointment rights. An appointed governor serves indefinitely at the pleasure of the member appointing him or her (so long as such member and its affiliates continue to hold a sufficient number of units to maintain the applicable appointment right) until a successor is appointed, or until the earlier death, resignation or removal of the appointed governor.

Under our member control agreement, non-appointed governors are divided into three classes, with the term of one class expiring each year. As the term of each class expires, the successors to the governors in that class will be elected for a term of three years. As a result, members elect only approximately one-third of the non-appointed governors each year.

The effect of these provisions may make it more difficult for a third party to acquire, or may discourage a third party from acquiring, control of us and may discourage attempts to change our management, even if an acquisition or these changes would be beneficial to our members.

Our units represent both financial and governance rights, and loss of status as a member would result in the loss of the holder's voting and other rights and would allow us to redeem such holder's units.

Holders of units are entitled to certain financial rights, such as the right to any distributions, and to governance rights, such as the right to vote as a member. If a unit holder does not continue to qualify as a member or such holder's member status is terminated, the holder would lose certain rights, such as voting rights, and we could redeem such holder's units. The minimum number of units presently required for membership is 2,500 units. In addition, holders of units may be terminated as a member if the holder dies or ceases to exist, violates our member control agreement or takes actions contrary to our interests, and for other reasons. Although our member control agreement does not define what actions might be contrary to our interests, and our board of governors has not adopted a policy on the subject, such actions might include providing confidential information about us to a competitor, taking a board or management position with a competitor or taking action which results in

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significant financial harm to us in the marketplace. If a holder of units is terminated as a member, our board of governors will have no obligation to redeem such holder's units.

Voting rights of members are not necessarily equal and are subject to certain limitations.

Members of our company are holders of units who have been admitted as members upon their investment in our units and who are admitted as members by our board of governors. The minimum number of units required to retain membership is 2,500 units. Any holder of units who is not a member will not have voting rights. Transferees of units must be approved by our board of governors to become members. Members who are holders of our present units are entitled to one vote for each unit held. The provisions of our member control agreement relating to voting rights applicable to any class of units will apply equally to all units of that class.

However, our member control agreement gives members who hold significant amounts of equity in us the right to designate governors to serve on our board of governors. For every 9% of our units held, the member has the right to appoint one person to our board. Project Viking, L.L.C. has the right to appoint five persons to our board pursuant to this provision and has currently appointed five persons. If units of any other class are issued in the future, holders of units of that other class will have the voting rights that are established for that class by our board of governors with the approval of our members. Consequently, the voting rights of members may not be necessarily proportional to the number of units held.

Further, cumulative voting for governors is not allowed, which makes it substantially less likely that a minority of members could elect a member to the board of governors. Members do not have dissenter's rights. This means that they will not have the right to dissent and seek payment for their units in the event we merge, consolidate, exchange or otherwise dispose of all or substantially all of our property. Holders of units who are not members have no voting rights. These provisions may limit the ability of members to change the governance and policies of our company.

All members will be bound by actions taken by members holding a majority of our units, and because of the restrictions on transfer and lack of dissenters' rights, members could be forced to hold a substantially changed investment.

We cannot engage in certain transactions, such as a merger, consolidation, dissolution or sale of all or substantially all of our assets, without the approval of our members. However, if holders of a majority of our units approve a transaction, then all members will also be bound to that transaction regardless of whether that member agrees with or voted in favor of the transaction. Under our member control agreement, members will not have any dissenters' rights to seek appraisal or payment of the fair value of their units. Consequently, because there is no public market for the units, members may be forced to hold a substantially changed investment.

Risks Related to Tax Issues in a Limited Liability Company

EACH UNIT HOLDER SHOULD CONSULT THE INVESTOR'S OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL AND STATE TAX CONSEQUENCES OF AN INVESTMENT IN HERON LAKE BIOENERGY, LLC AND ITS IMPACT ON THE INVESTOR'S TAX REPORTING OBLIGATIONS AND LIABILITY.

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

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

Your tax liability from your allocated share of our taxable income may exceed any cash distributions you receive, which means that you may have to satisfy this tax liability with your personal funds.

As a partnership for federal income tax purposes, all of our profits and losses "pass-through" to our unit holders. You must pay tax on your allocated share of our taxable income every year. You may incur tax liabilities from allocations of taxable income for a particular year or in the aggregate that exceed any cash distributions you receive in that year or in the aggregate. This may occur because of various factors, including but not limited to, accounting methodology, the specific tax rates you face, and payment obligations and other debt covenants that restrict our ability to pay cash distributions. If this occurs, you may have to pay income tax on your allocated share of our taxable income with your own personal funds.

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You may not be able to fully deduct your share of our losses or your interest expense.

It is likely that your interest in us will be treated as a "passive activity" for federal income tax purposes. In the case of unit holders who are individuals or personal services corporations, this means that a unit holder's share of any loss incurred by us will be deductible only against the holder's income or gains from other passive activities, e.g., S corporations and partnerships that conduct a business in which the holder is not a material participant. Some closely held C corporations have more favorable passive loss limitations. Passive activity losses that are disallowed in any taxable year are suspended and may be carried forward and used as an offset against passive activity income in future years. Upon disposition of a taxpayer's entire interest in a passive activity to an unrelated person in a taxable transaction, suspended losses with respect to that activity may then be deducted.

Interest paid on any borrowings incurred to purchase units may not be deductible in whole or in part because the interest must be aggregated with other items of income and loss that the unit holder has independently experienced from passive activities and subjected to limitations on passive activity losses.

Deductibility of capital losses that we incur and pass through to you or that you incur upon disposition of units may be limited. Capital losses are deductible only to the extent of capital gains plus, in the case of non-corporate taxpayers, the excess may be used to offset up to $3,000 of ordinary income. If a non-corporate taxpayer cannot fully utilize a capital loss because of this limitation, the unused loss may be carried forward and used in future years subject to the same limitations in the future years.

You may be subject to federal alternative minimum tax

Individual taxpayers are subject to an "alternative minimum tax" if that tax exceeds the individual's regular income tax. For alternative minimum tax purposes, an individual's adjusted gross income is increased by items of tax preference. We may generate such preference items. Accordingly, preference items from our operations together with other preference items you may have may cause or increase an alternative minimum tax to a unit holder. You are encouraged and expected to consult with your individual tax advisor to analyze and determine the effect on your individual tax situation of the alternative minimum taxable income you may be allocated, particularly in the early years of our operations.

Preparation of your tax returns may be complicated and expensive.

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

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

The IRS may audit our tax returns and may disagree with the positions that we take on our returns or any Schedule K-1. If any of the information on our partnership tax return or a Schedule K-1 is successfully challenged by the IRS, the character and amount of items of income, gains, losses, deductions or credits in a manner allocable to some or all our unit holders may change in a manner that adversely affects those unit holders. This could result in adjustments on unit holders' tax returns and in additional tax liabilities, penalties and interest to you. An audit of our tax returns could lead to separate audits of your personal tax returns, especially if adjustments are required.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We own approximately 216 acres of land located near Heron Lake, Minnesota on which we have constructed our ethanol plant, which also includes corn, coal, ethanol, and distillers' grains storage and handling facilities. Located on these 216 acres is an approximately 7,320 square foot building that serves as our headquarters. Our address is 91246 390th Avenue, Heron Lake, Minnesota 56137-3175.

All of our real property is subject to mortgages in favor of AgStar as security for loan obligations.

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ITEM 3. LEGAL PROCEEDINGS

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

ITEM 4. MINE SAFETY DISCLOSURES

None.

PART II

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

Market Information

There is no public trading market for our units.

However, effective as of January 1, 2014, we have established through FNC Ag Stock, LLC, 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 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 Heron Lake BioEnergy, LLC 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 member control agreement, and are subject to approval by our board of governors.

There were no secondary market unit sales transactions completed by our members during the fiscal years ended October 31, 2013 and 2012, other than related-party transfers without consideration.

Holders of Record

As of January 27, 2014, there were 49,812,107 Class A units outstanding held of record by 1,165 persons, and 15,000,000 Class B units outstanding held of record by one person. There are no other classes of units outstanding. As of October 31, 2013 and January 27, 2014, there were no outstanding options or warrants to purchase, or securities convertible into, our units, other than $4,143,000 in subordinated convertible notes that are convertible into up to 13,810,000 Class A units at a price of $0.30 per unit.

Distributions

To date, we have not made any distributions to our members. Our master loan agreement with AgStar Financial Services, PCA currently materially limits our ability to make distributions, other than tax distributions and certain allowed distributions (including up to 40% of our previous fiscal year's net income), to our members and is likely to limit materially the future payment of distributions. If our financial performance and loan covenants permit, we expect to make future cash distributions at times and in amounts that will permit our members to make income tax payments, along with distributions in excess of these amounts. Cash distributions are not assured, however, and we may never be in a position to make distributions. Under Minnesota law, we cannot make a distribution to a member if, after the distribution, we would not be able to pay our debts as

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they become due or our liabilities, excluding liabilities to our members on account of their capital contributions, would exceed our assets.

For a further description of the limitations on our ability to make distributions to our members, please see "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations".

Securities Authorized for Issuance under Equity Compensation Plans

There are no "compensation plans" (including individual compensation arrangements) under which any of our equity securities are authorized for issuance.

Performance Graph

The following graph shows a comparison of cumulative total member return since October 31, 2008, 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, 2008. Data points on the graph are semi-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.

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ITEM 6. SELECTED FINANCIAL DATA

Selected Consolidated Financial Data

The following table presents selected consolidated financial and operating data as of the dates and for the periods indicated. The selected financial data for the balance sheets as of October 31, 2013 and 2012 and the statements of operations data for the years ended October 31, 2013, 2012, and 2011 have been derived from the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The selected financial data for the balance sheet as of October 31, 2011, 2010 and 2009 and the statements of operations data for the years ended October 31, 2010 and 2009 were derived from audit financial statements filed previously.

This selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" within Item 7 and the consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K. Among other things, those financial statements include more detailed information regarding the basis of presentation for the following consolidated financial data.



	Fiscal Year Ended
	October 31, 2013			October 31, 2012			October 31, 2011			October 31, 2010			October 31, 2009
Statement of Operations Data:
Revenues	$	163,764,144		$	168,659,935		$	164,120,375		$	110,624,758		$	88,304,596
Cost of goods sold	155,536,974			166,529,283			157,163,624			103,690,208			90,857,247
Gross profit (loss)	8,227,170			2,130,652			6,956,751			6,934,550			(2,552,651		)
Operating expenses	(3,214,036		)	(3,171,331		)	(3,613,465		)	(3,857,492		)	(4,515,476		)
Impairment charge	—			(27,844,579		)	—			—			—
Settlement income (expense)	—			(900,000		)	—			2,600,000			—
Operating income (loss)	5,013,134			(29,785,258		)	3,343,286			5,677,058			(7,068,127		)
Other expense	(2,745,274		)	(2,567,385		)	(2,800,269		)	(3,993,537		)	(4,261,307		)
Net income (loss) before noncontrolling interest	2,267,860			(32,352,643		)	543,017			1,683,521			(11,329,434		)
Noncontrolling income (loss)	327,018			353,019			(27,838		)	—			—
Net income (loss) attributable to Heron Lake BioEnergy, LLC	$	1,940,842		$	(32,705,662	)	$	570,855		$	1,683,521		$	(11,329,434	)
Weighted average units outstanding	44,868,463			38,510,066			33,391,636			28,141,942			27,104,625
Net income (loss) per unit—Basic and diluted (Class A and B)	$	0.04		$	(0.85	)	$	0.02		$	0.06		$	(0.42	)

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	As of
	October 31, 2013		October 31, 2012		October 31, 2011		October 31, 2010		October 31, 2009
Balance Sheet Data:
Assets:
Current assets	$	7,849,244	$	7,538,782	$	14,237,942	$	18,254,313	$	12,926,672
Property and equipment	51,670,272		58,099,286		88,592,945		89,803,647		98,560,605
Other assets	1,274,401		942,951		1,303,037		1,482,617		1,602,000
Total assets	$	60,793,917	$	66,581,019	$	104,133,924	$	109,540,577	$	113,089,277
Current liabilities	$	5,061,910	$	45,000,237	$	7,807,727	$	60,034,589	$	69,059,727
Long-term debt	28,181,155		4,031,335		46,844,912		4,068,716		4,775,804
Total members' equity	27,550,852		17,549,447		49,481,285		45,437,272		39,253,746
Total liabilities and members' equity	$	60,793,917	$	66,581,019	$	104,133,924	$	109,540,577	$	113,089,277

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

The following discussion should be read in conjunction with our financial statements and related notes contained elsewhere in this Annual Report on Form 10-K. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of selected factors, including those set forth under "Risk Factors" in Part I, Item 1A of this Form 10-K. All forward-looking statements included herein are based on information available to us as of the date hereof, and we undertake no obligation to update any such forward-looking statements.

We prepared the following discussion and analysis to help readers better understand our financial condition, changes in our financial condition, and results of operations for the fiscal year ended October 31, 2013.

Overview

Heron Lake BioEnergy, LLC is a Minnesota limited liability company that owns and operates a dry mill corn-based, natural gas fired ethanol plant near Heron Lake, Minnesota. The plant has a stated capacity to produce 50 million gallons of denatured fuel grade ethanol and 160,000 tons of dried distillers' grains (DDGS) per year. Production of ethanol and distillers' grains at the plant began in September 2007. We began recording revenue from plant production in October 2007, the last month of our fiscal year. Our revenues are derived from the sale and distribution of our ethanol throughout the continental United States and in the sale and distribution of our distillers' grains (DGS) locally, and throughout the continental United States. Our subsidiary, Lakefield Farmers Elevator, LLC, had grain facilities at Lakefield and Wilder, Minnesota that were sold on February 1, 2013. Our subsidiary, HLBE Pipeline Company, LLC, owns 73% of Agrinatural Gas, LLC, the pipeline company formed to construct, own, and operate a natural gas pipeline that provides natural gas to the Company's ethanol production facility through a connection with the natural gas pipeline facilities of Northern Border Pipeline Company in Cottonwood County, Minnesota.

Our operating results are largely driven by the prices at which we sell ethanol and distillers grains and the costs related to their production, particularly the cost of corn. Historically, the price of ethanol tended to fluctuate in the same direction as the price of unleaded gasoline and other petroleum products. However, in recent years ethanol prices tended to move up and down proportionately with changes in corn prices. The price of ethanol can also be influenced by factors such as general economic conditions, concerns over blending capacities, and government policies and programs. The price of distillers grains is generally influenced by supply and demand, the price of substitute livestock feed, such as corn and soybean meal, and other animal feed proteins. Our largest component of and cost of production is corn. The cost of corn is affected primarily by factors over which we lack any control such as crop production, carryout, exports, government policies and programs, and weather. The growth of the ethanol industry has increased the demand for corn. We believe that continuing increase in global demand will result in corn prices above historic averages. As an example of our potential sensitivity to price changes, if the price of ethanol rises or falls $0.10 per gallon, our revenues may increase or decrease accordingly by approximately $5.0 million, assuming no other changes in our business. Additionally, if the price of corn rises or falls $0.25 per bushel, our cost of goods sold may increase or decrease by $5.0 million, again assumi ng no other changes in our business. During our fiscal 2013, the market price of ethanol and corn were extremely volatile.

Trends and Uncertainties Impacting Our Operations

Our current results of operation are affected and will continue to be affected by factors such as (a) volatile and uncertain pricing of ethanol and corn; (b) availability of corn that is, in turn, affected by trends such as corn acreage, weather conditions, and yields on existing and new acreage diverted from other crops; and (c) the supply and demand for ethanol, which is affected by acceptance of ethanol as a substitute for fuel, public perception of the ethanol industry, government incentives and regulation, and competition from new and existing construction, among other things. Other factors that may affect our future results of operation include those factors discussed in "Item 1. Business" and "Item 1A. Risk Factors."

Critical Accounting Estimates

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. 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

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through our derivative instruments and forward contracts. Given the significant assumptions required and the possibility that actual conditions will differ, we consider the assessment of impairment of our long-lived assets to be a critical accounting estimate. As a result of our review of long-lived assets for impairment at October 31, 2012, we recorded an impairment charge of approximately $27.8 million. No impairment was recorded during fiscal year 2013.

We enter forward contracts for corn purchases to supply the plant. These contracts represent firm purchase commitments which along with inventory on hand must be evaluated for potential market value losses. We estimated a loss on these firm purchase commitments to corn contracts in place and for corn on hand during 2011 where the price of corn exceeded the market price and upon being used in the manufacturing process and eventual sale of products we anticipate losses. Our estimates include various assumptions including the future prices of ethanol, distillers' grains and corn. For the fiscal years ended 2013, 2012 and 2011 we recognized a lower of cost or market losses of approximately $0, $0 and $1,592,000, respectively.

Fiscal Year Ended October 31, 2013 Compared to Fiscal Year Ended October 31, 2012

The following table shows the results of our operations and the percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our statements of operations for the fiscal year ended October 31, 2013 and 2012:



	2013					2012
Income Statement Data	Amount			%		Amount			%
Revenues	$	163,764,144		100.0	%	$	168,659,935		100.0	%
Cost of Goods Sold	155,536,974			95.0	%	166,529,283			98.7	%
Gross Profit	8,227,170			5.0	%	2,130,652			1.3	%
Operating Expenses	(3,214,036		)	(2.0	)%	(3,171,331		)	(1.9	)%
Impairment Charge	—			—	%	(27,844,579		)	(16.5	)%
Settlement Expense	—			—	%	(900,000		)	(0.5	)%
Operating Income (Loss)	5,013,134			3.1	%	(29,785,258		)	(17.7	)%
Other Expense	(2,745,274		)	(1.7	)%	(2,567,385		)	(1.5	)%
Net Income (Loss) before noncontrolling interest	2,267,860			1.4	%	(32,352,643		)	(19.2	)%
Noncontrolling Income (Loss)	327,018			0.2	%	353,019			0.2	%
Net Income (Loss) attributable to Heron Lake BioEnergy, LLC	$	1,940,842		1.2	%	$	(32,705,662	)	(19.4	)%

Revenues

Ethanol revenues during the fiscal year ended October 31, 2013 were approximately $125.5 million, comprising 76.7% of our revenues, as compared to approximately $128.6 million during the fiscal year ended October 31, 2012, representing 76.2% of our revenues.

For the year ended October 31, 2013, we sold approximately 55.3 million gallons of ethanol at an average price of $2.27 per gallon. For the year ended October 31, 2012, we sold approximately 58.2 million gallons of ethanol at an average price of $2.20 per gallon. The price of ethanol during our fiscal year was affected by the demand for ethanol as a motor fuel which is affected by, among other factors, regulatory developments, gasoline consumption, and the price of crude oil. The price was also affected by federal RFS blending mandates.

We may hedge anticipated ethanol sales through a variety of mechanisms. Our prior marketer, Gavilon, was obligated, and our current marketer, Eco-Energy, is obligated, to use reasonable efforts to obtain the best price for our ethanol. To mitigate ethanol price risk and to obtain the best margins on ethanol that is marketed and sold by a marketer, we may utilize ethanol swaps, over-the-counter ("OTC") ethanol swaps, or OTC ethanol options that are typically settled in cash, rather than gallons of the ethanol we produce. Losses or gains on ethanol derivative instruments recorded in a particular period are reflected in revenue for that period. For the years ended October, 31, 2013 and 2012, we did not record any gains or losses related to ethanol derivative instruments. In the future, if we have such gains or losses, there may be timing differences in the recognition of losses or gains on derivatives as compared to the corresponding sale of ethanol.

We expect to see fluctuations in ethanol prices over the next fiscal year. Although some level of demand is expected to continue since gasoline blenders will need to meet the Renewable Fuels Standard's blending requirements, the Environmental Protection Agency recently proposed decreasing those requirements relative to prior expected standards. Additionally, recent improved margins in the ethanol industry may lead to increased ethanol supply, as production facilities re-start or increase production in order to capture such margins. Such an increase in supply could pressure ethanol prices downward. In addition,

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low prices for petroleum and gasoline could exert downward pressure on ethanol prices. If ethanol prices decline, our earnings will also decline, particularly if corn prices do not also decrease proportionally. Future prices for fuel ethanol will be affected by a variety of factors beyond our control including, the demand for ethanol as a motor fuel, federal incentives for ethanol production, the amount and timing of additional domestic ethanol production and ethanol imports and petroleum and gasoline prices.

Total sales of DGS during fiscal years 2013 and 2012 equaled approximately $32.8 million and $33.1 million, respectively, comprising 20.0% and 19.6% of our revenues for fiscal years 2013 and 2012, respectively. In fiscal years 2013 and 2012, we sold approximately 132,000 tons and 148,000 tons, respectively, of dried distillers' grain. The average price we received for distillers' grain was approximately $244 per ton in fiscal year 2013 and approximately $221 per ton in fiscal year 2012.

Prices for distillers' grains are affected by a number of factors beyond our control such as the supply of and demand for distillers' grains as an animal feed and prices for competing feeds. We believe that prices for distillers' grains will be volatile as a result of changes in the prices of competing animal feeds. We expect prices to remain steady or increase so long as livestock feeders continue to create demand for alternative feed sources such as distillers' grains and the supply of distillers' grains remains relatively stable. On the other hand, if competing commodity price values retreat or distillers' supplies increase due to growth in the ethanol industry, distillers' grains prices may decline.

Corn oil separation began in February 2012. Total sales of corn oil during fiscal years 2013 and 2012 equaled approximately $4.0 million and $2.7 million, respectively, comprising 2.5% and 1.6% of our revenues for fiscal years 2013 and 2012, respectively.

Cost of Goods Sold

Our costs of sales include, among other things, the cost of corn used in ethanol and DGS production (which is the largest component of costs of sales), natural gas, processing ingredients, electricity, and wages, salaries and benefits of production personnel. We use approximately 1.6 million bushels of corn per month at the plant. We contract with local farmers and elevators for our corn supply.

Our costs of sales as a percentage of revenues were 95.0% and 98.7% for the fiscal years ended October 31, 2013 and October 31, 2012, respectively. The per bushel cost of corn purchased decreased approximately 1.9% in the fiscal year ended October 31, 2013 as compared to the fiscal year ended October 31, 2012. We had gains related to corn derivative instruments of approximately $1.1 million for the fiscal year ended October 31, 2012, which changed cost of sales, compared to no gains or losses related to corn derivative instruments for the fiscal year ended October 31, 2013. The 1.9% decrease in the per bushel cost of corn, combined with the 3.2% increase in the per gallon sales price of ethanol, caused the decrease in the cost of goods sold as a percent of revenues for the fiscal year ended October 31, 2013. Our gross margin for the fiscal year ended October 31, 2013 increased to 5.0% from 1.3% for the fiscal year ended October 31, 2012.

The cost of corn fluctuates based on supply and demand, which, in turn, is affected by a number of factors that are beyond our control. We expect our gross margin to fluctuate in the future based on the relative prices of corn and fuel ethanol. We use futures and options contracts to minimize our exposure to movements in corn prices, but there is no assurance that these hedging strategies will be effective. Gains or losses on derivative instruments do not necessarily coincide with the related corn purchases. This may cause fluctuations in cost of goods sold. While we do not use hedge accounting to match gains or losses on derivative instruments, we believe the derivative instruments provide an economic hedge.

Operating Expenses

Operating expenses include wages, salaries and benefits of administrative employees at the plant, insurance, professional fees and similar costs and generally do not vary with the level of production at the plant. These expenses were approximately $3.2 million in both the fiscal years ended October 31, 2013 and 2012. The Company recorded an impairment charge of approximately $27.8 million as of October 31, 2012. The impairment charge was recorded after analysis by the Company whereby the fair value of long-lived assets was less than the carrying value. There was no similar impairment in 2013. The Company also recorded settlement expense of $900,000 during the fiscal year ended October 31, 2012 related to a dispute with its former coal supplier.

Operating Income

Our income from operations for fiscal year 2013 was $5.0 million, compared to an operating loss of $29.8 million for fiscal year 2012, which includes the impairment charge of $27.8 million.

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Other Expense

Other expense in fiscal years 2013 and 2012 consisted primarily of interest expense. Interest expense consists primarily of interest payments on our credit facilities described below. Interest expense for fiscal year 2013, which was up as compared to fiscal year 2012, is dependent on the balances outstanding and interest rate fluctuations. As of October 31, 2013, debt balances were down 31.5% as compared to balances at October 31, 2012. The balance on our term note decreased from $36.6 million at October 31, 2012, to $16.6 million at October 31, 2013. Balances on our revolving term note were $6.0 million at October 31, 2013 as compared to $4.2 million at October 31, 2012. During the year ended October 31, 2013, we also issued $4.1 million in subordinated convertible debt.

Fiscal Year Ended October 31, 2012 Compared to Fiscal Year Ended October 31, 2011



	2012					2011
Income Statement Data	Amount			%		Amount			%
Revenues	$	168,659,935		100.0	%	$	164,120,375		100.0	%
Cost of Goods Sold	166,529,283			98.7	%	157,163,624			95.8	%
Gross Profit	2,130,652			1.3	%	6,956,751			4.2	%
Operating Expenses	(3,171,331		)	(1.9	)%	(3,613,465		)	(2.2	)%
Impairment Charge	(27,844,579		)	(16.5	)%	—			—	%
Settlement Expense	(900,000		)	(0.5	)%	—			—	%
Operating Income (Loss)	(29,785,258		)	(17.7	)%	3,343,286			2.0	%
Other Expense	(2,567,385		)	(1.5	)%	(2,800,269		)	(1.7	)%
Net Income (Loss) before noncontrolling interest	(32,352,643		)	(19.2	)%	543,017			0.3	%
Noncontrolling Income (Loss)	353,019			0.2	%	(27,838		)	—	%
Net Income (Loss) attributable to Heron Lake BioEnergy, LLC	$	(32,705,662	)	(19.4	)%	$	570,855		0.3	%

Revenues

Ethanol revenues during the fiscal year ended October 31, 2012 were approximately $128.6 million, comprising 76.2% of our revenues, as compared to approximately $130.6 million during the fiscal year ended October 31, 2011, representing 80% of our revenues.

For the year ended October 31, 2012, we sold approximately 58.2 million gallons of ethanol at an average price of $2.20 per gallon. For the year ended October 31, 2011, we sold approximately 53.4 million gallons of ethanol at an average price of $2.45 per gallon.

Total sales of DGS during fiscal years 2012 and 2011 equaled approximately $33.1 million and $24.8 million, respectively, comprising 19.6% and 15% of our revenues for fiscal years 2012 and 2011, respectively. In fiscal years 2012 and 2011, we sold approximately 148,000 tons and 136,000 tons, respectively, of dried distillers' grain. The average price we received for distillers' grain was approximately $221 per ton in fiscal year 2012 and approximately $176 per ton in fiscal year 2011.

Since we did not commence corn oil separation until February 2012, we did not have any sales of corn oil during fiscal year 2011, compared to total sales of corn oil of $2.7 million in fiscal year 2012, comprising 1.6% of our revenues.

Cost of Goods Sold

Our costs of sales (including lower of cost or market adjustments) as a percentage of revenues were 98.7% and 95.8% for the fiscal years ended October 31, 2012 and October 31, 2011, respectively. The per bushel cost of corn purchased increased approximately 10.0% in the fiscal year ended October 31, 2012 as compared to the fiscal year ended October 31, 2011. Cost of goods sold includes lower of cost or market adjustments of approximately $1.6 million for the fiscal year ended October 31, 2011. There were no such losses for the fiscal year ended October 31, 2012. We had gains and losses related to corn derivative instruments of approximately $1.1 million and $0.4 million for the fiscal year ended October 31, 2012 and 2011, respectively,

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which were charged to cost of sales. In summary, lower of cost or market adjustments decreased approximately $1.6 million for the fiscal year ended October 31, 2012 as compared to the fiscal year ended October 31, 2011. The 10.0% increase in the per bushel cost of corn outweighed the 10.0% decrease in the per gallon sales price of ethanol which caused the increase in the cost of goods sold as a percent of revenues for the fiscal year ended October 31, 2012. Our gross margin for the fiscal year ended October 31, 2012 decreased to 1.3% from 4.2% for the fiscal year ended October 31, 2011.

Operating Expenses

Operating expenses include wages, salaries and benefits of administrative employees at the plant, insurance, professional fees and similar costs and generally do not vary with the level of production at the plant. These expenses were $3.2 million for the fiscal year ended October 31, 2012, down 12.2% from $3.6 million for the fiscal year ended October 31, 2011. These expenses generally do not vary with the level of production at the plant and were relatively constant from period to period. The decline in operating expenses was primarily due to a reduction in professional fees. The Company recorded an impairment charge of approximately $27.8 million as of October 31, 2012. The impairment charge was recorded after analysis by the Company whereby the fair value of long-lived assets was less than the carrying value. There was no similar impairment in 2011. The Company also recorded settlement expense of $900,000 in fiscal 2012 related to a dispute with its former coal supplier.

Operating Income

Our loss from operations for fiscal year 2012 was $29.8 million compared to operating income of $3.3 million for fiscal year 2011. The operating loss for fiscal year 2012 includes the impairment charge of $27.8 million.

Other Expense

Other expense in fiscal years 2012 and and 2011 consisted primarily of interest expense. Interest expense consists primarily of interest payments on our credit facilities described below. Interest expense for fiscal year 2012, which was down as compared to fiscal year 2011, is dependent on the balances outstanding and interest rate fluctuations. As of October 31, 2012, debt balances were down 9% as compared to balances at October 31, 2011, which was the main factor in the loan interest expense.

Liquidity and Capital Resources

As of October 31, 2013, we had cash and equivalents (other than restricted cash) of approximately $0.5 million, current assets of approximately $7.8 million and total assets of approximately $60.8 million.

Our principal sources of liquidity consist of available borrowings under our master loan agreement with AgStar, cash provided by operations, and cash and cash equivalents on hand. Under the master loan agreement with AgStar, we have two forms of debt: a term note and a revolving term note. The total indebtedness to AgStar at October 31, 2013 was $22.6 million, consisting of $16.6 million under the term note and $6.0 million under the revolving term note. Our revolving term note allows borrowing up to $18.5 million, reduced by $2 million at October 31 each year until maturity, subject to letters of credit outstanding. Among other provisions, our master loan agreement contains covenants requiring us to maintain various financial ratios and tangible net worth. It also limits our annual capital expenditures and membership distributions. All of our assets and real property are subject to security interests and mortgages in favor of AgStar as security for the obligations of the master loan agreement. Please see "Credit Arrangements—Credit Arrangement with AgStar" for a description of our indebtedness and agreements relating to our indebtedness with AgStar. In fiscal 2013 we raised $6.9 million in equity and another $5.1 million in subordinated convertible notes before conversion. The proceeds were used to reduce our debt obligations to AgStar and for operating working capital purposes.

There is no assurance that our cash, cash generated from operations and, if necessary, available borrowing under our agreement with AgStar, will be sufficient to fund our anticipated capital needs and operating expenses, particularly if the sale of ethanol and DGS does not produce revenues in the amounts currently anticipated or if our operating costs, including specifically the cost of corn, natural gas and other inputs, are greater than anticipated. Historically, our cash and cash generated from operations have been insufficient to fund our capital needs and operating expenses, primarily due to the volatility in the ethanol and corn markets, thereby reducing or eliminating profit margins. Accordingly, we have relied on available borrowing under our agreement with AgStar for capital necessary to fund our business. The company has implemented measures to address these issues, including raising additional capital in fiscal year 2013 and entering into a management services agreement with Granite Falls Energy, LLC, the owner and operator of an ethanol plant located in Granite Falls, Minnesota, under which Granite Falls Energy provides us with management services. However, we previously had instances of unwaived debt covenant violations with AgStar and our working capital was at a lower level than desired. These conditions contributed to our long-

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term debt with AgStar being classified as current in previously filed financial statements. These factors and continually volatile commodity prices raise substantial doubt about our ability to continue as a going concern.

Year Ended October 31, 2013 Compared to Year Ended October 31, 2012

Our principal uses of cash are to pay operating expenses of the plant and to make debt service payments.

The following table summarizes our sources and uses of cash and equivalents from our consolidated statements of cash flows for the periods presented (in thousands):



	Year Ended October 31 (in thousands)
	2013			2012
Net cash provided by operating activities	$	3,958		$	398
Net cash provided by (used in) investing activities	2,812			(1,561		)
Net cash used in financing activities	(6,880		)	(5,324		)
Net decrease in cash and equivalents	$	(110	)	$	(6,487	)

During the twelve months ended October 31, 2013, we received approximately $4.0 million in cash for operating activities. This consists primarily of generating a net income of $2.3 million plus non-cash expenses and charges including depreciation and amortization expense and net cash uses for changes in other current assets and liabilities. During the twelve months ended October 31, 2012, we received approximately $398,000 in cash for operating activities. This consists primarily of generating a net loss of $32.4 million plus non-cash expenses and charges including depreciation and amortization expense, impairment charges of $27.8 million and net cash uses for changes in other current assets and liabilities.

During the twelve months ended October 31, 2013, investing activities provided approximately $2.8 million, primarily from proceeds from the sale by our subsidiary, Lakefield Farmers Elevator, LLC, of grain facilities at Lakefield and Wilder, Minnesota. These proceeds were offset by $0.9 million in capital expenditures. During the twelve months ended October 31, 2012, we used approximately $1.6 million for investing activities primarily to pay for capital expenditures which included costs for the corn oil separation system.

During the twelve months ended October 31, 2013, we used approximately $6.9 million from financing activities consisting primarily of payments on our long term debt and line of credit of approximately $20.0 million. Offsetting cash sources from financing activities included issuances of member units and convertible subordinated debt. During the twelve months ended October 31, 2012, we used approximately $5.3 million from financing activities consisting primarily of payments on our long term debt of approximately $6.9 million. Offsetting cash sources from financing activities included member contributions and modest borrowing.

Year Ended October 31, 2012 Compared to Year Ended October 31, 2011

The following table summarizes our sources and uses of cash and equivalents from our consolidated statements of cash flows for the periods presented (in thousands):



	Year Ended October 31 (in thousands)
	2012			2011
Net cash provided by operating activities	$	398		$	14,258
Net cash used in investing activities	(1,561		)	(4,493		)
Net cash used in financing activities	(5,324		)	(4,148		)
Net increase (decrease) in cash and equivalents	$	(6,487	)	$	5,617

During the twelve months ended October 31, 2012, we received approximately $398,000 in cash for operating activities. This consists primarily of generating a net loss of $32.4 million plus non-cash expenses and charges including depreciation and amortization expense, impairment charges of $27.8 million and net cash uses for changes in other current assets and liabilities. During the twelve months ended October 31, 2011, we received $14.3 million in cash for operating activities. This consists primarily of generating net income of $0.5 million plus non-cash expenses including depreciation and amortization of $5.5 million and reductions in inventory and accounts receivable.

During the twelve months ended October 31, 2012, we used approximately $1.6 million for investing activities primarily to pay for capital expenditures which included costs for the corn oil separation system. During the twelve months ended

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October 31, 2011, we used approximately $4.5 million for investing activities, primarily to pay for capital expenditures which included costs for the conversion from coal to natural gas.

During the twelve months ended October 31, 2012, we used approximately $5.3 million from financing activities consisting primarily of payments on our long term debt of approximately $6.9 million. Offsetting cash sources from financing activities included member contributions and modest borrowing. During the twelve months ended October 31, 2011, we used approximately $4.1 million from financing activities, consisting primarily of payments on our term note of approximately $4.2 million and $3.5 million on our line of credit. We also raised $3.5 million from member contributions.

Contractual Obligations

The following table provides information regarding the consolidated contractual obligations of the Company as of October 31, 2013:



	Total		Less than One Year		One to Three Years		Four to Five Years		Greater Than Five Years
Long-term debt obligations(1)	$	34,736,887	$	4,501,215	$	23,866,342	$	5,226,570	$	1,142,760
Operating lease obligations	2,844,423		1,294,367		1,203,556		346,500		—
Total contractual obligations	$	37,581,310	$	5,795,582	$	25,069,898	$	5,573,070	$	1,142,760

_______________________________________________________________________________


(1)	Long-term debt obligations include estimated interest and interest on unused debt.

Off Balance-Sheet Arrangements

We have no off balance-sheet arrangements.

Credit Arrangements

Credit Arrangements with AgStar

We have entered into an amended and restated master loan agreement with AgStar Financial Services, PCA ("AgStar") under which we have two forms of debt as of October 31, 2013, a term note and a revolving term note. Our total indebtedness to AgStar as of October 31, 2013 was approximately $22.6 million, consisting of approximately $16.6 million under the term note and approximately $6.0 million under the revolving term note.

Our loan agreements with AgStar are secured by substantially all business assets and are subject to various financial and non-financial covenants that limit distributions and debt and require minimum debt service coverage, net worth, and working capital requirements. The Company was in compliance with the covenants of its loan agreements with AgStar as of October 31, 2013. In the past, the Company’s failure to comply with the covenants of the master loan agreement and failure to timely pay required installments of principal has resulted in events of default under the master loan agreement, entitling AgStar to accelerate and declare due all amounts outstanding under the master loan agreement. If AgStar accelerated and declared due all amounts outstanding under the master loan agreement, the Company would not have adequate cash to repay the amounts due, resulting in a loss of control of our business or bankruptcy. There can be no assurance that the Company will be able to maintain compliance with its agreements with AgStar. Upon an occurrence of an event of default or an event that will lead to our default, AgStar may upon notice terminate its commitment to loan funds and declare the entire unpaid principal balance of the loans, plus accrued interest, immediately due and payable. An event of default includes, but is not limited to, our failure to make payments when due, insolvency, any material adverse change in our financial condition or our breach of any of the covenants, representations or warranties we have given in connection with the transaction.

Term Note

With respect to the term loan, the Company must make equal monthly payments of principal and interest on the term loan based on a 10-year amortization, provided the entire principal balance and accrued and unpaid interest on the term loan is due and payable in full on the maturity date of September 1, 2016. In addition, the Company is required to make additional payments annually on debt for up to 25% of the excess cash flow, as defined by the agreement, up to $2 million per year. Through September 1, 2014, the loan bears interest at 5.75% as long as the Company is in compliance with its debt covenants. On September 1, 2014, the interest on the term loan will be adjusted to LIBOR plus 3.50%, but the total interest rate shall not be less than 5%.

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Revolving Term Note

With respect to the revolving term loan, the loan matures in September 2016. Amounts borrowed by the Company under the term revolving loan can be repaid and may be re-borrowed at any time prior to maturity date of the term revolving loan, provided that outstanding advances may not exceed the amount of the term revolving loan commitment. Amounts outstanding on the term revolving loan bear interest at a variable rate equal to the greater of a LIBOR rate plus 3.50% or 5.0%, payable monthly. At October 31, 2013, the revolving term loan carried an interest rate of 5.0%. The Company also pays an unused commitment fee on the unused portion of the term revolving term loan commitment at the rate of 0.35% per annum, payable in arrears in quarterly installments during the term of the revolving term loan. At October 31, 2013, the Company had $6.0 million outstanding under the revolving term loan and an additional $12.5 million was available. The amount available under the revolving term loan is reduced by $2 million at October 31 each year until September 2016, when the unpaid balance is due.

Subordinated Convertible Debt

On September 18, 2013, we entered into an indenture with U.S. Bank National Association (“U.S. Bank”), as trustee and collateral agent, in connection with the closing of our offering of a maximum of $12 million aggregate principal amount of 7.25% Secured Subordinated Notes due 2018 (the “Notes”). On September 18, 2013, we sold an aggregate principal amount of approximately $2.8 million of the Notes. Additionally, subscribers from our prior interim subordinated notes offering holding an aggregate principal amount of approximately $1.3 million of our interim subordinated notes elected to exchange their notes for Notes under the indenture, per the original terms of the interim subordinated notes. Therefore we have an aggregate principal amount of approximately $4.1 million in Notes. The Notes are subordinated secured obligations, with interest payable on April 1 and October 1 of each year, beginning April 1, 2014, through the maturity date of October 1, 2018 at a rate of 7.25% per annum. The Notes are secured by a second mortgage and lien position on, among other assets, our property, plant and equipment located in Heron Lake, Minnesota, which mortgage and lien position are junior to and subordinated to our senior debt with AgStar. Beginning on October 1, 2014, and each anniversary date thereafter prior to the maturity date of the Notes, and on the maturity date of the Notes, and prior to the effective time of certain corporate actions, each holder of Notes has the right, at such holder’s option, to irrevocably convert all (but not less than all) of such holder’s Notes into our membership units at the rate of $0.30 of principal amount per unit. In addition to the anniversary and event conversion rights, prior to any prepayment date, each holder of Notes has the right, at such holder’s option, to irrevocably convert the principal amount to be prepaid into our membership units at the rate of $0.30 of principal amount per unit. Subject to this conversion right, we may, with at least 45 days but not more than 60 days notice to the holders thereof, prepay the outstanding amount of the Notes in whole or in part with accrued interest to the date of such prepayment on the amount prepaid, without penalty or premium, provided that any prepayment of Notes must be done pro rata to all holders of Notes.

Other Credit Arrangements

In addition to our primary credit arrangement with AgStar and our subordinated convertible debt, we have other material credit arrangements and debt obligations.

In October 2003, we entered into an industrial water supply development and distribution agreement with the City of Heron Lake, Jackson County, and Minnesota Soybean Processors. In consideration of this agreement, we and Minnesota Soybean Processors are allocated equally the debt service on $735,000 in water revenue bonds that were issued by the City to support this project that mature in February 2019. The parties have agreed that prior to the scheduled expiration of the agreement, they will negotiate in good faith to replace the agreement with a further agreement regarding the wells and related facilities. In May 2006, we entered into an industrial water supply treatment agreement with the City of Heron Lake and Jackson County. Under this agreement, we pay monthly installments over 24 months starting January 1, 2007 equal to one years' debt service on approximately $3.6 million in water revenue bonds, which will be returned to us if any funds remain after final payment in full on the bonds and assuming we comply with all payment obligations under the agreement. As of October 31, 2013 and 2012, there was a total of $2.6 million and $2.9 million in outstanding water revenue bonds, respectively. We classify our obligations under these bonds as assessments payable. The interest rates on the bonds range from 0.50% to 8.73%.

In November 2007, we entered into a shared savings contract with Interstate Power and Light Company ("IPL"), our electrical service provider. Under the agreement, IPL is required to pay $1,850,000 to fund project costs for the purchase and installation of electrical equipment. In exchange, we are required to share a portion of the energy savings with IPL that may be derived from the decreased energy consumption from the new equipment. We are required to pay IPL approximately $30,000 for the first thirteen billing cycles, $140,000 at the end of the thirteenth billing cycle, and thereafter, approximately $30,000 for the remainder of the billing cycles. These amounts represent IPL's portion of the shared savings. We also granted IPL a security interest in the electrical equipment to be installed on our site. The shared savings contract expired December 31, 2012.

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To fund the purchase of the distribution system and substation for the plant, we entered into a loan agreement with Federated Rural Electric Association pursuant to which we borrowed $600,000 by a secured promissory note. Under the note we are required to make monthly payments to Federated Rural Electric Association of $6,250 consisting of principal and an annual fee of 1% beginning on October 10, 2009. In exchange for this loan, Federated Rural Electric Association was granted a security interest in the distribution system and substation for the plant. The balances of this loan at October 31, 2013 and 2012 were $293,750 and $368,750, respectively.

We have a note payable in connection with the construction of our pipeline assets. This loan was initially due in December 2011, but was converted in February 2012 to a term loan with a three-year repayment period. The balances of this loan at October 31, 2013 and 2012 were $1,013,132 and $818,884, respectively. Interest on the loan is at 5.29%. The note is secured by the assets of Agrinatural Gas, LLC.

We financed our corn oil separation equipment from the equipment vendor. We pay approximately $40,000 per month on this debt, conditioned upon revenue generated from the corn oil separation equipment. The monthly payment includes implicit interest of 5.57% until maturity in May 2015. The note is secured by the corn oil separation equipment. The balances of this loan at October 31, 2013 and 2012 were $640,653 and $1,072,310, respectively.

We also have a note payable to the minority owner of Agrinatural Gas, LLC in the amount of $300,000 at October 31, 2013. Interest on the note is 5.43% and the note has a maturity date in October 2014.

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 FASB ASC 815, Derivatives and Hedging .

Interest Rate Risk

We may be exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from holding a variable term note and a revolving term note. The specifics of these notes are discussed in greater detail in "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations."

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, 2013		Interest Rate at October 31, 2013	Interest Rate Following 10% Adverse Change		Approximate Adverse Change to Income
$	16,577,641	5.75%	6.325	%	$	95,321
$	5,979,876	5.00%	5.500	%	$	29,899

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

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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, 2013, net of the forward and future contracts used to hedge our market risk for corn and natural gas usage requirements. The volumes are based on our expected use and sale of these commodities for a one year period from October 31, 2013. The results of this analysis, which may differ from actual results, are as follows:



	Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)	Unit of Measure	Hypothetical Adverse Change in Price as of 10/31/2013		Approximate Adverse Change to Income
Ethanol	58,000,000	Gallons	10	%	$	10,440,000
Corn	20,000,000	Bushels	10	%	$	8,600,000
Natural Gas	1,500,000	MMBTU	10	%	$	705,000

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements are included in this Annual Report on Form 10-K beginning at the "F" page noted:



	Page Reference
Report of Independent Registered Public Accounting Firm	F-1

Consolidated Balance Sheets as of October 31, 2013 and 2012	F-2

Consolidated Statements of Operations for the fiscal years ended October 31, 2013, 2012 and 2011	F-4

Consolidated Statements of Changes in Members' Equity for the fiscal years ended October 31, 2013, 2012 and 2011	F-5

Consolidated Statements of Cash Flows for the fiscal years ended October 31, 2013, 2012 and 2011	F-6

Notes to Consolidated Financial Statements	F-8

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

We maintain a system of "disclosure controls and procedures," as defined by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended.

Our Chief Executive Officer, Steve Christensen, and our Chief Financial Officer, Stacie Schuler, have evaluated our disclosure controls and procedures as of October 31, 2013. Based upon their review, they have concluded that our disclosure controls and procedures were not effective as of October 31, 2013. During fiscal 2013, we experienced turnover in our finance group impacting our financial close process. In July 2013, the Company entered into a management agreement with Granite Falls Energy to provide, among other things, assistance with our finance and accounting functions. The Company is continuing to improve processes. In addition, we previously reported a material weakness related to revenue recognition. These material weaknesses will not be considered fully remediated until procedures and processes have operated for an appropriate period and have been tested to allow management to conclude that they are operating effectively. Accordingly, the Company’s disclosure controls and procedures are likewise not considered effective.

Our management plans to remediate the material weaknesses through ongoing process improvements and the implementation of enhanced policies and procedures related to revenue recognition and the financial close process. We are in the process of strengthening internal controls including enhancing our internal control systems and procedures to assure that this weakness is corrected and remediated. No material weakness is considered remediated until the remedial procedures have operated for an appropriate period, have been tested, and management has concluded that they are operating effectively.

(b) Management's Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a15-(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A 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 assets of the Company;

(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 receipts and expenditures of the Company are being made only in accordance with authorizations of management and governors of the Company; 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.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision of our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In conducting the aforementioned evaluation, management concluded that the Company's internal control over financial reporting was not effective as of October 31, 2013 due to material weaknesses in internal control over financial reporting relating to revenue recognition and the financial close process as described in paragraph (a) to this Item 9A. A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a control deficiency, or a combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

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Other than as described above, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the fourth fiscal quarter ended October 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

Entry into a Material Definitive Agreement

On September 24, 2013, we finalized a Distiller's Grain Off-Take Agreement (the “Off-Take Agreement”) with Gavilon Ingredients, LLC (“Gavilon”). Under the Off-Take Agreement, Gavilon will purchase all of the distillers grains produced at our ethanol production facility in Heron Lake, Minnesota. Gavilon is required to use commercially reasonable efforts to achieve the highest price available under prevailing market conditions based on bids from Gavilon's customers and taking into account freight and other logistics costs. We will pay Gavilon a service fee for its services under the Off-Take Agreement. The term of the Off-Take Agreement commenced on November 1, 2013. The Off-Take Agreement is attached to this Annual Report as Exhibit 10.78.

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, 2013).

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The Information required by this Item is incorporated by reference to the 2014 Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The Information required by this Item is incorporated by reference to the 2014 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 2014 Proxy Statement.

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

The Information required by this Item is incorporated by reference to the 2014 Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The Information required by this Item is incorporated by reference to the 2014 Proxy Statement.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES


(a)	Financial Statements



		Page Reference
	Audited Financial Statements

	Report of Independent Registered Public Accounting Firm	F-1

	Consolidated Balance Sheets as of October 31, 2013 and 2012	F-2

	Consolidated Statements of Operations for the fiscal years ended October 31, 2013, 2012, and 2011	F-4

	Consolidated Statements of Changes in Members' Equity for the fiscal years ended October 31, 2013, 2012 and 2011	F-5

	Consolidated Statements of Cash Flows for the fiscal years ended October 31, 2013, 2012 and 2011	F-6

	Notes to Consolidated Financial Statements	F-8


(b)	Exhibits

See "Exhibit Index" on the page following the Signature Page.

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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.



		HERON LAKE BIOENERGY, LLC

Date:	January 29, 2014	/s/ Steve Christensen
		Steve Christensen
		Chief Executive Officer

Date:	January 29, 2014	/s/ Stacie Schuler
		Stacie Schuler
		Chief Financial Officer

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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, 2014	/s/ Steve Christensen
		Steve Christensen, Chief Executive Officer and General Manager
		(Principal Executive Officer)

Date:	January 29, 2014	/s/ Stacie Schuler
		Stacie Schuler, Chief Financial Officer
		(Principal Financial and Accounting Officer)

Date:	January 29, 2014	/s/ Paul Enstad
		Paul Enstad, Governor and Chairman

Date:	January 29, 2014	/s/ Rodney R. Wilkison
		Rodney R. Wilkison, Governor and Vice Chairman

Date:	January 29, 2014
		Michael Kunerth, Governor and Secretary

Date:	January 29, 2014	/s/ Dean Buesing
		Dean Buesing, Governor

Date:	January 29, 2014
		Robert Ferguson, Governor

Date:	January 29, 2014	/s/ Marten Goulet
		Marten Goulet, Governor

Date:	January 29, 2014	/s/ Shannon Johnson
		Shannon Johnson, Governor

Date:	January 29, 2014	/s/ Doug Schmitz
		Doug Schmitz, Governor

Date:	January 29, 2014	/s/ David Woestehoff
		David Woestehoff, Governor

Date:	January 29, 2014	/s/ Leslie Bergquist
		Leslie Bergquist, Alternate Governor

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Date:	January 29, 2014	/s/ Milton McKeown
		Milton McKeown, Alternate Governor

Date:	January 29, 2014	/s/ David Thompson
		David Thompson, Alternate Governor

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HERON LAKE BIOENERGY, LLC

INDEX TO EXHIBITS TO FORM 10-K FOR FISCAL YEAR ENDED OCTOBER 31, 2013



Exhibit Number	Exhibit Title	Incorporated by Reference To:

3.1	First Amended and Restated Articles of Organization of Heron Lake BioEnergy, LLC, as amended effective August 30, 2011	Exhibit 3.1 to Current Report on Form 8-K dated September 2, 2011.

3.2	Member Control Agreement of Heron Lake BioEnergy, LLC, as amended through August 30, 2011	Exhibit 3.2 to Current Report on Form 8-K dated September 2, 2011.

4.1	Form of Class A Unit Certificate	Exhibit 4.1 of the Company's Registration Statement on Form 10 (File No. 000-51825) filed on August 22, 2008 (the "2008 Registration Statement").

4.2	Unit Transfer Policy adopted November 5, 2008	Exhibit 4.1 of the Company's Current Report on Form 8-K dated November 5, 2008.

4.3	Indenture dated as of September 18, 2013, by and between Heron Lake BioEnergy, LLC and U.S. Bank National Association	Exhibit 4.1 of the Company's Current Report on Form 8-K dated September 8, 2013.

10.1	Fourth Amended and Restated Loan Agreement dated October 1, 2007 by and between AgStar Financial Services, PCA and Heron Lake BioEnergy, LLC	Exhibit 10.1 of the Company's 2008 Registration Statement.

10.2	Third Supplement dated October 1, 2007 to Fourth Amended and Restated Loan Agreement by and between AgStar Financial Services, PCA and Heron Lake BioEnergy, LLC	Exhibit 10.2 of the Company's 2008 Registration Statement.

10.3	Fourth Supplement dated October 1, 2007 to Fourth Amended and Restated Loan Agreement by and between AgStar Financial Services, PCA and Heron Lake BioEnergy, LLC	Exhibit 10.3 of the Company's 2008 Registration Statement.

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Exhibit Number	Exhibit Title	Incorporated by Reference To:
10.4	Term Note dated October 1, 2007 in principal amount of $59,583,000 by Heron Lake BioEnergy, LLC to AgStar Financial Services, PCA as lender	Exhibit 10.4 of the Company's 2008 Registration Statement.

10.5	Term Revolving Note dated October 1, 2007 in principal amount of $5,000,000 by Heron Lake BioEnergy, LLC to AgStar Financial Services, PCA as lender	Exhibit 10.5 of the Company's 2008 Registration Statement.

10.6	Personal Guaranty dated October 1, 2007 by Roland Fagen, guarantor, in favor of AgStar Financial Services, PCA	Exhibit 10.6 of the Company's 2008 Registration Statement.

10.7	Fourth Amended and Restated Guaranty dated October 1, 2007 by Lakefield Farmers Elevator, LLC in favor of AgStar Financial Services, PCA	Exhibit 10.7 of the Company's 2008 Registration Statement.

10.8	Fifth Supplement dated November 19, 2007 to Fourth Amended and Restated Loan Agreement by and between AgStar Financial Services, PCA and Heron Lake BioEnergy, LLC	Exhibit 10.8 of the Company's 2008 Registration Statement.

10.9	Revolving Line of Credit Note dated November 19, 2007 in principal amount of $7,500,000 by Heron Lake BioEnergy, LLC to AgStar Financial Services, PCA as lender	Exhibit 10.9 of the Company's 2008 Registration Statement.

10.10	Industrial Water Supply Development and Distribution Agreement dated October 27, 2003 among Heron Lake BioEnergy, LLC (f/k/a Generation II Ethanol, LLC), City of Heron Lake, Jackson County, and Minnesota Soybean Processors	Exhibit 10.10 of the Company's 2008 Registration Statement.

10.11	Industrial Water Supply Treatment Agreement dated May 23, 2006 among Heron Lake BioEnergy, LLC, City of Heron Lake and County of Jackson	Exhibit 10.11 of the Company's 2008 Registration Statement.

10.12	Standard Form of Agreement between Owner and Designer—Lump Sum dated September 28, 2005 by and between Fagen, Inc. and Heron Lake BioEnergy, LLC†	Exhibit 10.12 of Amendment No. 4 to the Company's 2008 Registration Statement.

10.13	Distiller's Grain Marketing Agreement dated October 5, 2005 by and between Heron Lake BioEnergy, LLC and Commodity Specialist Company as assigned to CHS Inc. as of August 17, 2007	Exhibit 10.13 of the Company's 2008 Registration Statement.

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Exhibit Number	Exhibit Title	Incorporated by Reference To:
10.14	Ethanol Fuel Marketing Agreement dated August 7, 2006 by and between RPGM, Inc. and Heron Lake BioEnergy, LLC	Exhibit 10.14 of the Company's 2008 Registration Statement.

10.15	Letter Agreement re: Environmental Compliance Support dated March 12, 2007 by and between Fagen Engineering, LLC Heron Lake BioEnergy, LLC	Exhibit 10. 15 of the Company's 2008 Registration Statement.

10.16	Coal Loading, Transport, and Delivery Agreement effective as of April 1, 2007 by and between Tersteeg Transport Inc. and Heron Lake BioEnergy, LLC	Exhibit 10.16 of the Company's 2008 Registration Statement.

10.17	Coal Transloading Agreement dated June 1, 2007 by and between Southern Minnesota Beet Sugar Cooperative and Heron Lake BioEnergy, LLC†	Exhibit 10.17 of the Company's 2008 Registration Statement.

10.18	Master Coal Purchase and Sale Agreement dated June 1, 2007 by and between Northern Coal Transport Company and Heron Lake BioEnergy, LLC, including confirmation letter dated July 13, 2007†	Exhibit 10.18 of the Company's 2008 Registration Statement.

10.19	Loan Agreement dated December 28, 2007 by and between Federated Rural Electric Association and Heron Lake BioEnergy, LLC	Exhibit 10.19 of the Company's 2008 Registration Statement.

10.20	Secured Promissory Note issued December 28, 2007 by Heron Lake BioEnergy, LLC as borrower to Federated Rural Electric Association as lender in principal amount of $600,000	Exhibit 10.20 of the Company's 2008 Registration Statement.

10.21	Security Agreement dated December 28, 2007 by Heron Lake BioEnergy, LLC in favor of Federated Rural Electric Association	Exhibit 10.21 of the Company's 2008 Registration Statement.

10.22	Electric Service Agreement dated October 17, 2007 by and between Interstate Power and Light Company and Heron Lake BioEnergy, LLC	Exhibit 10.22 of the Company's 2008 Registration Statement.

10.23	Shared Savings Contract dated November 16, 2007 by and between Interstate Power and Light Company and Heron Lake BioEnergy, LLC	Exhibit 10.23 of the Company's 2008 Registration Statement.

10.24	Escrow Agreement dated November 16, 2007 by and between Heron Lake BioEnergy, LLC, Farmers State Bank of Hartland for the benefit of Interstate Power and Light Company	Exhibit 10.24 of the Company's 2008 Registration Statement.

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Exhibit Number	Exhibit Title	Incorporated by Reference To:
10.25	Employment Agreement dated February 1, 2008 by and between Heron Lake BioEnergy, LLC and Robert J. Ferguson*	Exhibit 10.25 of the Company's 2008 Registration Statement.

10.26	Compliance Agreement effective January 23, 2007 by and between Heron Lake BioEnergy, LLC and the Minnesota Pollution Control Agency	Exhibit 10.28 to Amendment No. 1 to the Company's 2008 Registration Statement.

10.27	Letter Agreement dated November 25, 2008 by and between Heron Lake BioEnergy, LLC, CFO Systems, LLC and Brett L. Frevert relating to the services of Brett L. Frevert*	Exhibit 10.1 to Current Report on Form 8-K dated November 26, 2008.

10.28	Ethanol Purchase and Marketing Agreement dated September 2, 2009 by and between Heron Lake BioEnergy, LLC and C&N Ethanol Marketing Corporation	Exhibit 10.1 to Current Report on Form 8-K dated September 2, 2009.

10.29	Amendment No. 4 to Fifth Supplement dated December 8, 2009 by and between Heron Lake BioEnergy, LLC and AgStar Financial Services, PCA	Exhibit 10.32 to Annual Report on Form 10-K for the year ended October 31, 2009.

10.30	Amendment No. 5 to Fifth Supplement to the Master Loan Agreement dated March 25, 2010 by and between Heron Lake BioEnergy, LLC and AgStar Financial Services, PCA	Exhibit 10.1 to Current Report on Form 8-K dated March 25, 2010

10.31	Amendment No. 6 to Fifth Supplement to the Master Loan Agreement dated May 27, 2010 by and between Heron Lake BioEnergy, LLC and AgStar Financial Services, PCA	Exhibit 10.2 to Current Report on Form 8-K dated March 25, 2010

10.32	Amended and Restated Fifth Supplement dated as of July 2, 2010 to the Master Loan Agreement by and between AgStar Financial Services, PCA and Heron Lake BioEnergy, LLC	Exhibit 10.1 to Current Report on Form 8-K dated July 2, 2010

10.33	Second Amended and Restated Revolving Line of Credit Note dated July 2, 2010 in the maximum principal amount of $6,750,000 by Heron Lake BioEnergy, LLC as borrower to AgStar Financial Services, PCA as lender	Exhibit 10.2 to Current Report on Form 8-K dated July 2, 2010

10.34	Forbearance Agreement dated July 2, 2010 by and between Heron Lake BioEnergy, LLC and AgStar Financial Services, PCA	Exhibit 10.3 to Current Report on Form 8-K dated July 2, 2010

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Exhibit Number	Exhibit Title	Incorporated by Reference To:
10.35	Mutual Release and Settlement Agreement dated July 2, 2010 among Heron Lake BioEnergy, LLC, Fagen, Inc. and ICM, Inc.†	Exhibit 10.1 to Current Report on Form 8-K dated July 2, 2010

10.36	Subscription Agreement dated July 2, 2010 by Heron Lake BioEnergy, LLC and Project Viking, L.L.C.	Exhibit 10.1 to Current Report on Form 8-K dated July 2, 2010

10.37	First Amendment to Fifth Supplement to the Master Loan Agreement dated as of December 30, 2010 by and between AgStar Financial Services, PCA and Heron Lake BioEnergy, LLC	Exhibit 10.1 to Current Report on Form 8-K dated December 30, 2010

10.38	Third Amended and Restated Revolving Line of Credit Note dated December 30, 2010 in the maximum principal amount of $6,750,000 by Heron Lake BioEnergy, LLC as borrower to AgStar Financial Services, PCA as lender	Exhibit 10.2 to Current Report on Form 8-K dated December 30, 2010

10.39	First Amendment to Forbearance Agreement dated December 30, 2010 by and between Heron Lake BioEnergy, LLC and AgStar Financial Services, PCA	Exhibit 10.3 to Current Report on Form 8-K dated December 30, 2010

10.40	Fifth Amended and Restated Master Loan Agreement dated to be effective as of September 1, 2011 between AgStar Financial Services, PCA and Heron Lake BioEnergy, LLC†	Exhibit 10.40 to Annual Report on Form 10-K for the year ended October 31, 2011.

10.41	Amended and Restated Term Note dated September 1, 2011 in principal amount of $40,000,000 by Heron Lake BioEnergy, LLC to AgStar Financial Services, PCA as lender	Exhibit 10.41 to Annual Report on Form 10-K for the year ended October 31, 2011.

10.42	Amended and Restated Term Revolving Note dated September 1, 2011 in principal amount of $8,008,689 by Heron Lake BioEnergy, LLC to AgStar Financial Services, PCA as lender	Exhibit 10.42 to Annual Report on Form 10-K for the year ended October 31, 2011.

10.43	Fourth Amended and Restated Mortgage, Security Agreement and Assignment of Rents and Leases dated September 1, 2011 between Heron Lake BioEnergy, LLC and AgStar Financial Services, PCA	Exhibit 10.43 to Annual Report on Form 10-K for the year ended October 31, 2011.

10.44	Fifth Amended and Restated Guaranty dated September 1, 2011 by Lakefield Farmers Elevator, LLC in favor of AgStar Financial Services, PCA	Exhibit 10.44 to Annual Report on Form 10-K for the year ended October 31, 2011.

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Exhibit Number	Exhibit Title	Incorporated by Reference To:
10.45	Amended and Restated Guaranty dated September 1, 2011 by HLBE Pipeline Company, LLC in favor of AgStar Financial Services, PCA	Exhibit 10.45 to Annual Report on Form 10-K for the year ended October 31, 2011.

10.46	Collateral Assignment dated September 1, 2011 between Heron Lake BioEnergy, LLC and AgStar Financial Services, PCA	Exhibit 10.46 to Annual Report on Form 10-K for the year ended October 31, 2011.

10.47	Collateral Assignment dated September 1, 2011 between Lakefield Farmers Elevator, LLC and AgStar Financial Services, PCA	Exhibit 10.47 to Annual Report on Form 10-K for the year ended October 31, 2011.

10.48	Corn Supply Agreement dated effective as of September 1, 2011 between Heron Lake BioEnergy, LLC and Gavilon, LLC†	Exhibit 10.48 to Annual Report on Form 10-K for the year ended October 31, 2011.

10.49	Ethanol and Distiller's Grains Marketing Agreement dated effective as of September 1, 2011 between Heron Lake BioEnergy, LLC and Gavilon, LLC†	Exhibit 10.49 to Annual Report on Form 10-K for the year ended October 31, 2011.

10.50	Master Netting, Setoff, Credit and Security Agreement dated effective as of September 1, 2011 between Heron Lake BioEnergy, LLC and Gavilon, LLC†	Exhibit 10.50 to Annual Report on Form 10-K for the year ended October 31, 2011.

10.51	Corn Storage Agreement dated effective as of September 1, 2011 between Lakefield Farmers Elevator, LLC, Heron Lake BioEnergy, LLC and Gavilon, LLC	Exhibit 10.51 to Annual Report on Form 10-K for the year ended October 31, 2011.

10.52	Amended and Restated Forbearance Agreement dated January 22, 2013 between Heron Lake BioEnergy, LLC and AgStar Financial Services, PCA	Exhibit 10.52 to Annual Report of Form 10-K for the year ended October 31, 2012.

10.53	Second Amended and Restated Forbearance Agreement dated February 12, 2013 between Heron Lake BioEnergy, LLC and AgStar Financial Services, PCA	Exhibit 10.1 to Current Report on Form 8-K dated February 12, 2013.

10.54	Asset Purchase Agreement dated January 3, 2013, by Heron Lake BioEnergy, LLC, as the sole member and owner of all of the outstanding membership interests of Lakefield Farmers Elevator, LLC, the Seller, and FCA Co-op, the Buyer	Exhibit 2.1 to Annual Report of Form 10-K for the year ended October 31, 2012.

10.55	Asset Purchase Agreement dated January 22, 2013, by and between Heron Lake BioEnergy, LLC and Guardian Energy Heron Lake, LLC	Exhibit 2.2 to Annual Report of Form 10-K for the year ended October 31, 2012.

10.56	Third Amended and Restated Forbearance Agreement dated March 29, 2013 between Heron Lake BioEnergy, LLC and AgStar Financial Services, PCA †	Exhibit 10.1 to Current Report on Form 8-K dated March 29, 2013.

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Exhibit Number	Exhibit Title	Incorporated by Reference To:
10.57	Fourth Amended and Restated Forbearance Agreement dated April 12, 2013 between Heron Lake BioEnergy, LLC and AgStar Financial Services, PCA †	Exhibit 10.1 to Current Report on Form 8-K dated April 12, 2013.

10.58	Fifth Amended and Restated Forbearance Agreement dated May 10, 2013 between Heron Lake BioEnergy, LLC and AgStar Financial Services, PCA †	Exhibit 10.1 to Current Report on Form 8-K dated May 10, 2013.

10.59	Sixth Amended and Restated Master Loan Agreement dated to be effective as of May 17, 2013 by and among AgStar Financial Services, PCA and Heron Lake BioEnergy, LLC	Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended April 30, 2013.

10.60	Second Amended and Restated Term Note dated May 17, 2013 in principal amount of $17,404,344 by Heron Lake BioEnergy, LLC to AgStar Financial Services, PCA as lender	Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended April 30, 2013.

10.61	Second Amended and Restated Term Revolving Note dated May 17, 2013 in principal amount of $20,500,000 by Heron Lake BioEnergy, LLC to AgStar Financial Services, PCA as lender	Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended April 30, 2013.

10.62	Sixth Amended and Restated Mortgage, Security Agreement and Assignment of Rents and Leases dated May 17, 2013 between Heron Lake BioEnergy, LLC and AgStar Financial Services, PCA	Exhibit 10.4 to Quarterly Report on Form 10-Q for the quarter ended April 30, 2013.

10.63	Sixth Amended and Restated Guaranty dated May 17, 2013 by Lakefield Farmers Elevator, LLC in favor of AgStar Financial Services, PCA	Exhibit 10.5 to Quarterly Report on Form 10-Q for the quarter ended April 30, 2013.

10.64	Second Amended and Restated Guaranty dated May 17, 2013 by HLBE Pipeline Company, LLC in favor of AgStar Financial Services, PCA	Exhibit 10.6 to Quarterly Report on Form 10-Q for the quarter ended April 30, 2013.

10.65	Form of Subscription Agreement and Subordinated Loan Agreement dated May 17, 2013, by and among Heron Lake BioEnergy, LLC and initial subscribers of the 7.25% Subordinated Secured Notes due 2018	Exhibit 10.7 to Quarterly Report on Form 10-Q for the quarter ended April 30, 2013.

10.66	Form of Interim Subordinated Note dated May 17, 2013 by Heron Lake BioEnergy, LLC to initial subscribers of the 7.25% Subordinated Secured Notes due 2018	Exhibit 10.8 to Quarterly Report on Form 10-Q for the quarter ended April 30, 2013.

10.67	Subordination Agreement dated effective as of May 17, 2013 by and among AgStar Financial Services, PCA and David J. and Krista R. Woestehoff, Schmitz Grain, Inc., Doug Schmitz, Michael Kunerth and Dawn Kunerth, Robert J. and Jean M. Ferguson, and Project Viking, L.L.C.	Exhibit 10.9 to Quarterly Report on Form 10-Q for the quarter ended April 30, 2013.

10.68	Subordinated Security Agreement dated May 17, 2013 by and between Heron Lake BioEnergy, LLC and the Collateral Agent for the benefit of David J. and Krista R. Woestehoff, Schmitz Grain, Inc., Doug Schmitz, Michael Kunerth and Dawn Kunerth, Robert J. and Jean M. Ferguson, and Project Viking, L.L.C.	Exhibit 10.10 to Quarterly Report on Form 10-Q for the quarter ended April 30, 2013.

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Exhibit Number	Exhibit Title	Incorporated by Reference To:
10.69	Subordinated Mortgage dated May 17, 2013 between Heron Lake BioEnergy, LLC to David J. and Krista R. Woestehoff, Schmitz Grain, Inc., Doug Schmitz by Michael Kunerth and Dawn Kunerth, Robert J. and Jean M. Ferguson, and Project Viking, L.L.C.	Exhibit 10.11 to Quarterly Report on Form 10-Q for the quarter ended April 30, 2013.

10.70	Letter Agreement between CFO Systems, LLC and Heron Lake BioEnergy, LLC effective July 8, 2013*	Exhibit 10.1 to Current Report on Form 8-K dated July 5, 2013.

10.71	Amendment No. 1 to Sixth Amended and Restated Master Loan Agreement dated effective as of July 31, 2013 between Heron Lake BioEnergy, LLC and AgStar Financial Services, PCA	Exhibit 10.1 to Current Report on Form 8-K dated August 27, 2013.

10.72	Assignment and Amendment Agreement dated July 2, 2013 by and among Heron Lake BioEnergy, LLC, Gavilon, LLC and Gavilon Global Ag Holdings, LLC †	Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended July 31, 2013.

10.73	Subscription Agreement Including Investment Representations, dated July 31, 2013, by and between Heron Lake BioEnergy, LLC and Project Viking, L.L.C.	Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended July 31, 2013.

10.74	Subscription Supplement Agreement dated July 31, 2013, by and among Heron Lake BioEnergy, LLC, Granite Falls Energy, LLC and Project Viking, L.L.C.	Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended July 31, 2013.

10.75	Management Services Agreement effective as of July 31, 2013 between Granite Falls Energy, LLC and Heron Lake BioEnergy, LLC*	Exhibit 10.4 to Quarterly Report on Form 10-Q for the quarter ended July 31, 2013.

10.76	Corn Oil Marketing Agreement dated September 4, 2013 by and among Heron Lake BioEnergy, LLC and RPMG, Inc. †	Attached hereto.

10.77	Ethanol Marketing Agreement dated September 17, 2013 by and among Heron Lake BioEnergy, LLC and Eco-Energy, LLC †	Attached hereto.

10.78	Distiller's Grain Off-Take Agreement dated September 24, 2013 by and among Heron Lake Bio-Energy, LLC and Gavilon Ingredients, LLC †	Attached hereto.

21.1	Subsidiaries of the Registrant	Exhibit 21.1 to Annual Report on Form 10-K for the year ended October 31, 2011.

31.1	Certification of Chief Executive Officer (principal executive officer) pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act.	Attached hereto.

31.2	Certifications of Chief Financial Officer (principal financial officer) pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act.	Attached hereto.

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Exhibit Number	Exhibit Title	Incorporated by Reference To:
32	Certification pursuant to 18 U.S.C. § 1350.	Attached hereto.

101.1	The following materials from Heron Lake BioEnergy, LLC's Annual Report on Form 10-K for the fiscal year ended October 31, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets as of October 31, 2013 and October 31, 2012, (ii) the Consolidated Statements of Operations for the fiscal years ended October 31, 2013, 2012, and 2011, (iii) the Consolidated Statements of Changes in Members' Equity, (iv) the Consolidated Statements of Cash Flows for the fiscal years ended October 31, 2013, 2012, and 2011, and (v) the Notes to Consolidated Financial Statements.

_______________________________________________________________________________

* Indicates compensatory agreement.

† Certain portions of this exhibit have been redacted and filed on a confidential basis with the Commission pursuant to a request for confidential treatment under Rule 24b-2 of under the Exchange Act. Spaces corresponding to the deleted portions are represented by brackets with asterisks [* * *].

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Audit Committee and Board of Directors

Heron Lake BioEnergy, LLC

Heron Lake, Minnesota

We have audited the accompanying consolidated balance sheets of Heron Lake BioEnergy, LLC as of October 31, 2013 and 2012, and the related consolidated statements of operations, changes in members’ equity, and cash flows for each of the years in the three-year period ended October 31, 2013. Heron Lake BioEnergy, 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 Heron Lake BioEnergy, LLC as of October 31, 2013 and 2012, and the results of its operations and its cash flows for each of the years in the three-year period ended October 31, 2013 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred losses due to difficult market conditions and had lower levels of working capital than was desired. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Boulay PLLP

Certified Public Accountants

Minneapolis, Minnesota

January 29, 2014

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HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES Consolidated Balance Sheets

	October 31, 2013			October 31, 2012
ASSETS
Current Assets
Cash and equivalents	$	543,238		$	653,361
Restricted cash	—			65,259
Restricted certificates of deposit	—			650,000
Accounts receivable	749,426			1,784,761
Inventory	5,604,309			3,588,572
Prepaid expenses	952,271			796,829
Total current assets	7,849,244			7,538,782

Property and Equipment
Land and improvements	9,111,838			9,252,379
Plant buildings and equipment	71,275,334			76,155,846
Vehicles and other equipment	611,976			645,481
Office buildings and equipment	612,151			622,711
Construction in progress	1,394,191			645,486
	83,005,490			87,321,903
Less accumulated depreciation	(31,335,218		)	(29,222,617		)
	51,670,272			58,099,286

Other Assets
Other intangible assets, net	218,370			256,513
Other assets	1,056,031			686,438
Total other assets	1,274,401			942,951
Total Assets	$	60,793,917		$	66,581,019

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

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HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES Consolidated Balance Sheets

	October 31, 2013		October 31, 2012
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities
Line of credit	$	—	$	480,000
Current maturities of long-term debt	3,371,575		42,051,402
Trade accounts payable	1,300,727		2,085,882
Accrued expenses	389,608		382,953
Total current liabilities	5,061,910		45,000,237

Long-Term Debt, net of current maturities	28,181,155		4,031,335

Commitments and Contingencies

Members' Equity
Members' Equity Attributable to Heron Lake BioEnergy, LLC:
64,812,107 and 38,622,107 multiple classes of units issued and outstanding at October 31, 2013 and 2012, respectively	27,142,275		17,344,433
Noncontrolling interest	408,577		205,014
Total members' equity	27,550,852		17,549,447
Total Liabilities and Members' Equity	$	60,793,917	$	66,581,019

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

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HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES Consolidated Statements of Operations

	Year Ended October 31, 2013			Year Ended October 31, 2012			Year Ended October 31, 2011
Revenues	$	163,764,144		$	168,659,935		$	164,120,375

Cost of Goods Sold
Cost of goods sold	155,536,974			166,529,283			155,571,814
Lower of cost or market adjustment	—			—			1,591,810
Total Cost of Goods Sold	155,536,974			166,529,283			157,163,624
Gross Profit	8,227,170			2,130,652			6,956,751

Operating Expenses	(3,214,036		)	(3,171,331		)	(3,613,465		)
Impairment Charge	—			(27,844,579		)	—
Settlement Expense	—			(900,000		)	—
Operating Income (Loss)	5,013,134			(29,785,258		)	3,343,286

Other Income (Expense)
Interest income	17,335			10,773			37,078
Interest expense	(2,789,373		)	(2,625,322		)	(2,900,470		)
Other income	26,764			47,164			63,123
Total other expense, net	(2,745,274		)	(2,567,385		)	(2,800,269		)
Net Income (Loss)	2,267,860			(32,352,643		)	543,017
Net Income (Loss) Attributable to Noncontrolling Interest	327,018			353,019			(27,838		)
Net Income (Loss) Attributable to Heron Lake BioEnergy, LLC	$	1,940,842		$	(32,705,662	)	$	570,855

Weighted Average Units Outstanding—Basic	44,868,463			38,510,066			33,391,636
Net Income (Loss) Per Unit Attributable to Heron Lake BioEnergy, LLC—Basic (Class A and B)	$	0.04		$	(0.85	)	$	0.02

Weighted Average Units Outstanding—Diluted	48,086,445			38,510,066			33,391,636
Net Income (Loss) Per Unit Attributable to Heron Lake BioEnergy, LLC—Diluted (Class A and B)	$	0.04		$	(0.85	)	$	0.02

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

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HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Consolidated Statements of Changes in Members' Equity



Balance—October 31, 2010	$	45,437,268
Capital issuance—7,000,000 Class B units, $0.50 per unit, May 2011, immediately converted to Class A units	3,500,000
Capital issuance for noncontrolling interest	1,000
Net loss attributable to noncontrolling interest	(27,838		)
Net income attributable to Heron Lake BioEnergy, LLC	570,855
Balance—October 31, 2011	49,481,285
Capital issuance—1,414,033 Class A units, $.50 per unit, November 2011	707,017
Distributions to noncontrolling interest	(121,167		)
Costs of raising capital	(165,045		)
Net income attributable to noncontrolling interest	353,019
Net loss attributable to Heron Lake BioEnergy, LLC	(32,705,662		)
Balance—October 31, 2012	17,549,447
Capital issuance - 8,075,000 Class A units and 15,000,000 Class B units, $0.30 per unit, July 2013	6,922,500
Conversion of subordinated convertible debt - 3,115,000 Class A units, $0.30 per unit, September 2013	934,500
Distributions to noncontrolling interest	(123,455		)
Net income attributable to noncontrolling interest	327,018
Net income attributable to Heron Lake BioEnergy, LLC	1,940,842
Balance—October 31, 2013	$	27,550,852

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

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HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES Consolidated Statements of Cash Flows

	Year Ended October 31, 2013			Year Ended October 31, 2012			Year Ended October 31, 2011
Cash Flow From Operating Activities
Net income (loss)	$	2,267,860		$	(32,352,643	)	$	543,017
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	4,282,523			5,693,459			5,490,240
Impairment charge	—			27,844,579			—
Lower of cost or market adjustment	—			—			1,591,810
Change in operating assets and liabilities:
Restricted cash	—			103,697			205,212
Accounts receivable	1,035,335			(406,541		)	3,639,009
Inventory	(2,015,737		)	176,044			6,857,746
Derivative instruments	—			—			(107,271		)
Prepaid expenses and other	(155,442		)	117,396			(936,192		)
Accounts payable	(1,390,905		)	(727,926		)	(993,412		)
Accrued expenses	(65,864		)	(50,357		)	(454,026		)
Lower of cost or market accrued expense	—			—			(1,577,856		)
Net cash provided by operating activities	3,957,770			397,708			14,258,277

Cash Flows from Investing Activities
Payments for restricted certificates of deposit	—			—			(250,000		)
Capital expenditures	(917,020		)	(1,560,616		)	(4,243,171		)
Proceeds from disposal of property and equipment	3,728,669			—			—
Net cash provided by (used in) investing activities	2,811,649			(1,560,616		)	(4,493,171		)

Cash Flows from Financing Activities
Checks written in excess of bank balance	—			—			(913,492		)
Proceeds from (payments on) line of credit, net	(480,000		)	480,000			(3,500,000		)
Payments on long-term debt	(19,493,936		)	(6,922,038		)	(4,219,512		)
Proceeds from note payable	820,929			262,250			737,750
Issuance of convertible subordinated debt	5,077,500			—			—
Issuance of member units	6,922,500			707,017			3,500,000
Deferred financing fees	(390,858		)	—			—
Release of restricted cash	715,259			257,630			336,408
Costs of raising capital	—			—			(90,005		)
Noncontrolling interest investment	—			—			1,000
Distributions to noncontrolling interest	(50,936		)	(109,163		)	—
Net cash used in financing activities	(6,879,542		)	(5,324,304		)	(4,147,851		)
Net Increase (Decrease) in cash and equivalents	(110,123		)	(6,487,212		)	5,617,255
Cash and Equivalents—Beginning of period	653,361			7,140,573			1,523,318
Cash and Equivalents—End of period	$	543,238		$	653,361		$	7,140,573

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

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HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES Consolidated Statements of Cash Flows

	Year Ended October 31, 2013		Year Ended October 31, 2012		Year Ended October 31, 2011
Supplemental Disclosure of Cash Flow Information
Interest expense paid	$	2,961,259	$	2,642,087	$	3,377,199

Supplemental Disclosure of Non-Cash Activities
Cost of raising capital offset against member contributions	$	—	$	165,045	$	—
Capital expenditure included as accounts payable	605,750		—		—
Capital expenditure financed with note payable	—		1,325,000		—
Distribution to non-controlling interest in accrued expenses	72,519		12,004		—
Conversion of subordinated convertible debt to member units	934,500		—		—

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

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Table of Contents

HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

October 31, 2013 and 2012

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

The Company owns and operates an ethanol plant near Heron Lake, Minnesota with a permitted capacity of approximately 59.2 million gallons. In addition, the Company produces and sells distillers grains with solubles and corn oil as co-products of ethanol production.

The Company entered into an asset purchase agreement dated January 22, 2013, which provided for the sale of substantially all of the Company’s assets to, and the assumption of certain of the Company’s liabilities by, Guardian Energy Heron Lake, LLC (Guardian). On April 4, 2013, the Company terminated the agreement in accordance with its terms. As a result of terminating the purchase agreement and the Company renegotiating their loan agreements with AgStar Financial Services, PCA (“AgStar”), AgStar required certain principal pay downs by July 31, 2013. The Company raised all the required funds to pay down its debt to AgStar, to provide adequate working capital to operate the Company effectively and to meet AgStar’s requirements.

Pursuant to an asset purchase agreement dated January 3, 2013, the Company’s subsidiary, Lakefield Farmers Elevator, LLC, sold substantially all of its assets consisting of the elevator and grain storage facilities in Lakefield, Minnesota and Wilder, Minnesota to FCA Co-op, a Minnesota cooperative, for approximately $3.75 million plus the purchase price for corn and fuel inventory. The sale closed on February 1, 2013.

Principles of Consolidation

The financial statements include the accounts of Heron Lake BioEnergy, LLC and its wholly owned subsidiaries, Lakefield Farmers Elevator, LLC and HLBE Pipeline Company, LLC, collectively, "the Company." HLBE Pipeline Company, LLC owns 73% of Agrinatural Gas, LLC ("Agrinatural"). Given the Company’s control over the operations of Agrinatural and its majority voting interest, the Company consolidates the financial statements of Agrinatural with its consolidated financial statements, with the equity and earnings (loss) attributed to the remaining 27% noncontrolling interest identified separately in the accompanying Consolidated Balance Sheets and Statements of Operations. All significant intercompany balances and transactions are eliminated in consolidation.

Fiscal Reporting Period

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

Accounting Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The Company uses estimates and assumptions in accounting for significant matters including, among others, the analysis of impairment of long-lived assets, contingencies and valuation of forward purchase contract commitments and inventory. The Company periodically reviews estimates and assumptions, and the effects of revisions are reflected in the period in which the revision is made. Actual results could differ from those estimates.

Noncontrolling Interest

Amounts recorded as noncontrolling interest relate to the net investment by an unrelated party in Agrinatural. Income and losses are allocated to the members of Agrinatural based on their respective percentage of membership units held. Agrinatural will provide natural gas to the plant with a specified price per MMBTU for an initial term of 10 years , with two renewal options for five years periods.

Revenue Recognition

Revenue from sales is recorded when title transfers to the customer, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists, and the sales price is fixed and determinable. The title transfers when the product is loaded into the railcar or truck, the customer takes ownership and assumes risk of loss.

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HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

October 31, 2013 and 2012

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

Cash and Equivalents

The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash and equivalents.

The Company maintains its accounts at multiple financial institutions. At times throughout the year, the Company's cash balances may exceed amounts insured by the Federal Deposit Insurance Corporation and the Securities Investor Protection Corporation. The Company does not believe it is exposed to any significant credit risk on cash and equivalents.

Restricted Cash

The Company is periodically required to maintain cash balances at its broker related to derivative instrument positions and as part of a loan agreement.

Restricted Certificates of Deposit

The Company maintains restricted certificates of deposit as part of its grain dealer's license.

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 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's estimate of the allowance for doubtful accounts is based on historical experience, its evaluation of the current status of receivables, and unusual circumstances, if any. At October 31, 2013 and 2012 , the Company was of the belief that such accounts would be collectable and thus an allowance was not considered necessary.

Inventory

Inventory consists of raw materials, work in process, finished goods, supplies, and other grain inventory. Raw materials are stated at the lower of cost or market on a first-in, first-out (FIFO) basis. Work in process and finished goods, which consists of ethanol, distillers grains and corn oil produced, if any, is stated at the lower of average cost or market. Other grain inventory, which consists of agricultural commodities, is valued at market value (net realizable value). Other grain inventory is readily convertible to cash because of its commodity characteristics, widely available markets and international pricing mechanisms. Other grain inventory is also freely traded, has quoted market prices, may be sold without significant further processing, and has predictable and insignificant disposal costs.

Derivative Instruments

From time to time, the Company enters into derivative transactions to protect gross margins from potentially adverse effects of market and price volatility in future periods. In order to reduce the risks caused by market fluctuations, the Company hedges a portion of its anticipated corn and natural gas 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 and natural gas in the Company's ethanol production activities and the related sales price of ethanol produced. The fair value of these contracts is based on quoted prices in active exchange-traded or over-the-counter market conditions.

The Company generally does not designate these derivative instruments as hedges for accounting purposes and derivative positions are recorded on the balance sheet at their fair market value, with changes in fair value caused from marking these instruments to market, recognized in current period earnings or losses on a monthly basis. While the Company does not designate the derivative instruments that it enters into as hedging instruments because of the administrative costs associated with the related accounting, the Company believes that the derivative instruments represent an economic hedge.

In order for a derivative to qualify as a hedge, specific criteria must be met and appropriate documentation maintained. 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

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HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

October 31, 2013 and 2012

recognized in other comprehensive income until the hedged item is recognized in earnings. Gains and losses from derivatives that do not qualify as hedges, or are undesignated, must be recognized immediately in earnings.

The Company evaluates 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. Certain corn, ethanol and distillers grains contracts that meet the requirement of normal purchases or sales are documented as normal and exempted from the accounting and reporting requirements, and therefore, are not marked to market in our financial statements.

Other Intangibles

Other intangibles are stated at cost and include road improvements located near the plant in which the Company has a beneficial interest in but does not own the road. The Company amortizes the assets over the economic useful life of 15 years . The Company recorded amortization expense in the amount of approximately $18,000 , $32,000 and $37,000 during the years ended October 31, 2013 , 2012 and 2011 , respectfully.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided over an estimated useful life by use of the straight-line deprecation method. Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized. Construction in progress is comprised of costs related to the construction of the ethanol plant facilities. Interest is capitalized during the construction period. Depreciable useful lives are as follows:



Land improvements	15 Years
Plant building and equipment	7 - 40 Years
Vehicles and equipment	5 - 7 Years
Office buildings and equipment	3 - 40 Years

The Company recorded depreciation expense in the amount of approximately $4,258,000 , $5,661,000 and $5,453,000 during the years ended October 31, 2013 , 2012 and 2011 , respectively.

Long-Lived Assets

The Company reviews property, plant and equipment and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the assets; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. If circumstances require a long-lived asset to 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 basis, impairment is recognized to the extent the carrying value exceeds fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

The Company's ethanol production facilities have a nameplate capacity of 50 million gallons per year. As of October 31, 2012 , the Company recorded an impairment charge of approximately $27,845,000 against long-lived assets. There was no impairment charge recorded in fiscal year 2013 or 2011. In accordance with the Company's policy for evaluating impairment of long-lived assets described above, management had evaluated the recoverability of the facilities based on projected future cash flows from operations over the facilities' estimated useful lives. Management determined that the projected future undiscounted cash flows from operations of these facilities did not exceed their carrying value at October 31, 2012. The Company performed an impairment analysis estimating the discounted cash flows to determine the impairment to record. In determining the projected future discounted cash flows, the Company made significant assumptions concerning the future viability of the ethanol industry, the future price of corn in relation to the future price of ethanol and the overall demand in relation to production and supply capacity.

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HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

October 31, 2013 and 2012

Deferred Offering Costs

The Company defers the costs incurred to raise equity financing until that financing occurs. At such time that the issuance of new equity occurs, these costs will be netted against the proceeds received.

Debt Financing Costs

Costs associated with the issuance of loans are classified as financing costs. Financing costs are amortized over the term of the related debt by use of the effective interest method. Amortization for the year ended October 31, 2013 was approximately $21,000 .

Fair Value of Financial Instruments

The Company follows guidance for accounting for fair value measurements of financial assets and liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the consolidated financial statements on a recurring and 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 includes:

1. Quoted prices in active markets for similar assets or liabilities.

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

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

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

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

Except for those assets and liabilities which are required by authoritative accounting guidance to be recorded at fair value in our balance sheets, the Company has elected not to record any other assets or liabilities at fair value. Except for the impairment charge recorded in 2012, no events occurred during the fiscal 2013 , 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 and equivalents, restricted cash, restricted certificates of deposit, accounts receivable, accounts payable and accrued liabilities approximates fair value due to the short maturity of these instruments. The fair value of debt has been estimated using discounted cash flow analysis based upon the Company's current incremental borrowing rates for similar types of financing arrangements. The fair value of outstanding debt will fluctuate with changes in applicable interest rates. Fair value will exceed carrying value when the current market interest rate is lower than the interest rate at which the debt was originally issued. The fair value of a company's debt is a measure of its current value under present market conditions. It does not impact the financial statements under current accounting rules. The Company believes the carrying amount of the debt and line of credit approximates the fair value.

As of October 31, 2013 , loans with AgStar consist of term loans of approximately $22,557,000 with interest at market rates that are believed to approximate fair value. As of October 31, 2012, due to the defaults under the senior debt loan agreement which triggered an additional 2.0% default interest, the forbearance agreement that anticipated the sale of assets and repayments of term loans, and the underlying collateral of the loans, the Company believes the fair value continues to approximate the carrying value.

Income Taxes

The Company is treated as a partnership for federal and state income tax purposes and generally does not incur income taxes. Instead, its earnings and losses are included in the income tax returns of the members. Therefore, no provision or liability for federal or state income taxes has been included in these financial statements. Differences between financial statement basis

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Table of Contents

HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

October 31, 2013 and 2012

of assets and tax basis of assets is related to capitalization and amortization of organization and start-up costs for tax purposes, whereas these costs are expensed for financial statement purposes. In addition, the Company uses the alternative depreciation system (ADS) for tax depreciation instead of the straight-line method that is used for book depreciation, which also causes temporary differences. The Company's tax year end is December 31. Primarily due to the partnership tax status, the Company does not have any significant tax uncertainties that would require disclosure. The Company recognizes and measures tax benefits when realization of the benefits is uncertain under a two-step approach. The first step is to determine whether the benefit meets the more-likely-than-not condition for recognition and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%. Primarily due to the Company's tax status as a partnership, the adoption of this guidance had no material impact on the Company's financial condition or results of operations.

The Company files income tax returns in the U.S. federal and Minnesota state jurisdictions. The Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2010.

Net Income (Loss) per Unit

Basic net income (loss) per unit is computed by dividing net income (loss) by the weighted average number of members' units outstanding during the period. Diluted net income or loss per unit is computed by dividing net income (loss) by the weighted average number of members' units and members' unit equivalents outstanding during the period.

Environmental Liabilities

The Company's operations are subject to environmental laws and regulations adopted by various governmental entities in the jurisdiction in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its location. Accordingly, the Company has adopted policies, practices, and procedures in the areas of pollution control, occupational health, and the production, handling, storage and use of hazardous materials to prevent material environmental or other damage, and to limit the financial liability, which could result from such events. Environmental liabilities are recorded when the liability is probable and the costs can be reasonably estimated.

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Table of Contents

HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

October 31, 2013 and 2012

2. GOING CONCERN

The financial statements have been prepared on a going-concern basis, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. The Company has previously disclosed losses related to operations related to difficult market conditions and operating performance. The Company has had instances of unwaived debt covenant violations and had been operating under forbearance agreements with AgStar Financial Services, PCA (“Agstar”). In addition, the Company’s working capital was at a lower level than desired. These conditions contributed to the long-term debt with Agstar being classified as current in previously filed financial statements. These factors and the continual volatile commodity prices raise substantial doubt about the Company’s ability to continue as a going concern.

The Company has continued to make changes to plant operations, including converting from a coal-fired ethanol plant to a natural gas plant in October 2011 and the addition of corn oil separation in February 2012. These changes have improved the operating performance of the plant, and lead to lower operating costs. Additionally, market conditions have improved during the year ended October 31, 2013 . The Company raised additional equity of approximately $6.9 million and issued convertible debt of $5.1 million in 2013 . As a result, the Company was able to reduce their debt obligations as of October 31, 2013 and is in compliance with their debt covenants as of October 31, 2013 .

The Company renegotiated its loans with AgStar into a Term Loan and a Revolving Term Loan and entered into a Sixth Amended and Restated Master Loan Agreement with AgStar on May 17, 2013. The Revolving Term Loan will be used by the Company to optimize its cash management. The additional equity raised was used to improve working capital availability by paying down the Revolving Term Loan and meeting the required $5 million payment obligation by July 31, 2013 . The Company’s Board of Governors loaned the Company $1.4 million in convertible secured debt, which was used to bring the previous AgStar loans up to date. In addition during 2013, the Company raised an additional $3.7 million , in convertible secured debt as described in Note 9.

While the Company believes these changes will improve the operating performance of the plant, provide additional working capital, and reduce the effects on our plant of volatility in the industry, it is not yet certain as to whether these efforts and changes will be successful.

3. UNCERTAINTIES

The Company has certain risks and uncertainties that it experienced 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 primarily located in the U.S. Corn for the production process is supplied to the plant primarily from local agricultural producers. Ethanol sales average 75% - 85% of total revenues and corn costs average 65% - 85% of cost of goods sold.

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

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Table of Contents

HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

October 31, 2013 and 2012

4. FAIR VALUE MEASUREMENTS

The following table provides information on those assets measured at fair value on a nonrecurring basis.



			Fair Value Measurement Using
	Fair Value as of October 31, 2012		Fair Value Measurement Using						Impairment Charge During 2012
	Fair Value as of October 31, 2012		Level 1		Level 2		Level 3		Impairment Charge During 2012
Property and Equipment	$	58,099,286	$	—	$	—	$	58,099,286	$	27,722,183
Other Intangible Assets, net	$	256,513	$	—	$	—	$	256,513	$	122,396

The Company's assessment of fair value of long-lived assets is based on various valuation techniques including discounted cash flow models, comparable activity in the market place, and third-party independent appraisals, as considered necessary. There were no impairment charges for the fiscal years ended October 31, 2013 and 2011. An impairment charge of approximately $27,845,000 against long-lived assets in the fiscal year ended October 31, 2012 which included significant assumptions concerning the future viability of the ethanol industry, the future price of corn in relation to the future price of ethanol and the overall demand in relation to production and supply capacity.

5. CONCENTRATIONS

The Company sells all of the ethanol and distiller grains produced to one customer under marketing agreements at October 31, 2013 and 2012 . At October 31, 2013 and 2012 , this customer comprised nearly all of accounts receivable. Prior to the change in marketers in 2011, the Company sold all of its ethanol and distillers grain to two customers.

6. INVENTORY

Inventory consists of the following at October 31:



	2013		2012
Raw materials	$	632,790	$	521,865
Work in process	845,628		1,149,214
Finished Goods	3,324,166		—
Supplies	801,725		922,384
Other grains	—		995,109
Totals	$	5,604,309	$	3,588,572

There were no significant losses in fiscal 2013, 2012 or 2011. All insignificant losses were recorded with the lower of cost or market adjustment in the statement of operations. In addition, the Company stored grain inventory for farmers at October 31, 2012 . The value of these inventories owned by others was approximately $790,000 based on market prices at October 31, 2012 and is not included in the amounts above. As result of the sale of the grain storage asset, the Company is no longer storing grain for farmers.

7. DERIVATIVE INSTRUMENTS

As of October 31, 2013 and 2012 , the Company has no corn, ethanol, or natural gas derivative instruments. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the derivative instrument and the related change in value of the underlying hedged item and when the Company formally documents, designates, and assesses the effectiveness of transactions that receive hedge accounting initially and on an on-going basis. The Company must designate the hedging instruments based upon the exposure being hedged as a fair value hedge or a cash flow hedge. The Company does not enter into derivative transactions for trading purposes.

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Table of Contents

HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

October 31, 2013 and 2012

The Company enters into corn, ethanol, and natural gas derivatives in order to protect cash flows from fluctuations caused by volatility in commodity prices for periods up to 24 months . These derivatives are put in place to protect gross profit margins from potentially adverse effects of market and price volatility on ethanol sales and corn purchase commitments where the prices are set at a future date. Although these derivative instruments serve the Company's purpose as an economic hedge, they are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change.

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



	Statement of Operations location	Twelve Months Ended October 31,
	Statement of Operations location	2013		2012			2011
Corn contracts	Cost of goods sold	$	—	$	1,088,000		$	(432,000	)
Natural gas contracts	Cost of goods sold	—		(446,000		)	—
Ethanol contracts	Revenues	—		—			(24,000		)
Totals		$	—	$	642,000		$	(456,000	)

8. LINES OF CREDIT

Agrinatural obtained a line of credit with lending institution in September 2012 which provided up to $600,000 until March 31, 2013. Interest is charged at 5.43% . This line was paid in full in 2013.

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HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

October 31, 2013 and 2012

9. LONG-TERM DEBT

Long-term debt consists of the following:



	October 31, 2013		October 31, 2012
Term note payable to lending institution, see terms below.	$	16,577,641	$	36,627,901
Revolving term note payable to lending institution, see terms below.	5,979,876		4,211,163
Assessment payable as part of water treatment agreement, due in semi-annual installments of $189,393 with interest at 6.55%, enforceable by statutory lien, with the final payment due in 2021. The Company made deposits for one years' worth of debt service payments included with other assets that are held on deposit to be applied with the final payments of the assessment.	2,246,771		2,456,372
Assessment payable as part of water treatment agreement, due in semi-annual installments of $25,692 with interest at 0.50%, enforceable by statutory lien, with the final payment due in 2016.	152,698		202,998
Assessment payable as part of water supply agreement, due in monthly installments of $3,942 with interest at 8.73%, enforceable by statutory lien, with the final payment due in 2019.	205,209		235,781
Note payable to electrical provider, with monthly payments of $29,775 including implicit interest of 1.50%, due in December 2012, secured by equipment and restricted cash.	—		88,578
Note payable to electrical company with monthly payments of $6,250 with a 1% maintenance fee due each October, due September 2017. The electrical company is a member of the Company.	293,750		368,750
Note payable to a lending institution for the construction of the pipeline assets initially due in December 2011, converted in February 2012 to a term loan with a three year repayment period. Interest is at 5.29% and the note is secured by substantially all assets of Agrinatural.	1,013,132		818,884
Note payable to noncontrolling interest member of Agrinatural. Interest is at 5.43%, with a maturity date of October 2014.	300,000		—
Equipment payable on corn oil separation equipment from a vendor. The Company pays approximately $40,000 per month conditioned upon revenue generated from the corn oil equipment. The monthly payment includes implicit interest of 5.57% until maturity in May 2015 and the note is secured by the equipment.	640,653		1,072,310
Subordinated Convertible Debt, see terms below.	4,143,000		—
Totals	31,552,730		46,082,737
Less amounts due within one year	3,371,575		42,051,402
Net long-term debt	$	28,181,155	$	4,031,335

The Company’s loan agreements with AgStar contain certain covenants including minimum working capital amount, minimum tangible net worth amount, and the fixed charge coverage ratio. At October 31, 2012, the Company was out of compliance with certain covenants identified above in the Agstar loan agreements and as a result, the Company reclassified the debt with AgStar to current. For the period of December 2012 through May 2013, the Company did not make their required monthly principal payments.

On December 21, 2012, the Company and AgStar entered into a forbearance agreement whereby the Company agreed to, among other things, sell substantially all plant assets to Guardian. AgStar also began charging a default interest premium on the AgStar loans of an additional 2.0% . Advances on the revolving term note were frozen until the Company entered into an asset sale agreement for substantially all plant assets. The forbearance agreement dated December 21, 2012 was subsequently amended and restated on January 22, 2013, February 12, 2013 and March 29, 2013, in order to permit the Company to close on the transactions contemplated by the asset purchase agreement dated January 22, 2013 between the Company and Guardian. The asset purchase agreement with Guardian was terminated by the Company on April 4, 2013. The forbearance agreement

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Notes to Consolidated Financial Statements

October 31, 2013 and 2012

was amended and restated again on April 12, 2013 in order to accommodate certain proposals related to recapitalization and restructuring of the loans.

The forbearance agreement was amended and restated for a fifth time on May 10, 2013 in order to extend the forbearance period relating to the above-described covenant defaults and required monthly principal installment payments to permit the Company additional time to document and implement a written management, governance improvement and capitalization plan. On May 17, 2013, the Company entered into a Sixth Amended and Restated Master Loan Agreement and related loan documents with AgStar to replace and supersede the Fifth Amended and Restated Master Loan Agreement dated as of September 1, 2011, the Fifth Amended and Restated Forbearance Agreement dated May 10, 2013, and related loan documents. Under the Sixth Amended and Restated Master Loan Agreement, AgStar agreed to restructure the Term Loan and the Term Revolving Loan based upon the submission of a loan restructuring proposal and payment of approximately $1.4 million in cash for Term Loan principal payments in arrears and reduction of the Term Revolving Note.

In connection with the forbearance agreement, and the renegotiated loan agreements, the Company made the required monthly principal payments for the period of December 2012 through May 2013.

Term Note Payable

On May 17, 2013, the Company renegotiated its term loan with AgStar in the amount of $17.4 million . The Company must make equal monthly payments of principal and interest on the term loan based on a 10 -year amortization, provided the entire principal balance and accrued and unpaid interest on the term loan is due and payable in full on the maturity date of September 1, 2016. In addition, the Company is required to make additional payments annually on debt for up to 25% of the excess cash flow, as defined by the agreement, up to $2 million per year. Through September 1, 2014, the loan bears interest at 5.75% as long as the Company is in compliance with their debt covenants.

On September 1, 2014, the interest term loan will be adjusted to LIBOR plus 3.50% but not less than 5% . The loan agreements are secured by substantially all business assets and are subject to various financial and non-financial covenants that limit distributions and debt and require minimum debt service coverage, net worth, and working capital requirements.

Revolving Term Note

The Company also obtained a three -year revolving term loan commitment in the amount of $20.5 million , under which AgStar agreed to make periodic advances to the Company up to this original amount until September 1, 2016. Amounts borrowed by the Company under the term revolving loan and repaid or prepaid may be re-borrowed at any time prior to maturity date of the term revolving loan, provided that outstanding advances may not exceed the amount of the term revolving loan commitment. Amounts outstanding on the term revolving loan bear interest at a variable rate equal to the greater of a LIBOR rate plus 3.50% or 5.0% , payable monthly. The Company also pays an unused commitment fee on the unused portion of the term revolving loan commitment at the rate of 0.35% per annum, payable in arrears in quarterly installments during the term of the term revolving loan. Under the terms of the new agreement, the term revolving loan commitment is scheduled to decline by $2.0 million annually, beginning on October 31, 2013 and each anniversary date thereafter. The maturity date of the term revolving loan is September 1, 2016. The Company had a $0.6 million outstanding standby letter of credit at October 31, 2012. No such letter standby letter of credit was held at October 31, 2013.

Subordinated Convertible Debt

On May 17, 2013, the Company’s Board of Governors loaned the Company approximately $1.4 million as part of the subordinated convertible debt offering. An additional $3.7 million was raised as part of a subordinated convertible debt offering during September 2013. The convertible secured debt is subordinated to the AgStar debt. The notes bear interest at 7.25% and are due in October 1, 2018 . On October 1, 2014, or immediately prior to the sale of all or effectively all of the Company assets, each note is convertible into Class A stock at a rate of $0.30 per Class A unit. The Company reserves the right to issue Class B units upon conversion if the principal balance of the convertible debt exceeds the authorized Class A units at the conversion date. At the issuance, each debt holder had the option to convert to Class A units. As a result, holders elected to convert $934,500 in September 2013 for 3,115,000 Class A units.

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HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

October 31, 2013 and 2012

Estimated maturities of long-term debt at October 31, 2013 are as follows:



2014	$	3,371,575
2015	2,722,838
2016	19,450,337
2017	511,602
2018	4,509,139
After 2018	987,239
Total long-term debt	$	31,552,730

10. MEMBERS' EQUITY

Company is authorized to issue 80,000,000 capital units, of which 65,000,000 have been designated Class A units and 15,000,000 have been designated as Class B units. Members of the Company are holders of units who have been admitted as members and who hold at least 2,500 units. Any holder of units who is not a member will not have voting rights. Transferees of units must be approved by our board of governors to become members. Members are entitled to one vote for each unit held. Subject to the Member Control Agreement, all units share equally in the profits and losses and distributions of assets on a per unit basis.

At October 31, 2013 , there are 49,812,107 Class A units issued and outstanding and 15,000,000 Class B units issued and outstanding. At October 31, 2012 , there were 38,622,107 Class A units and - 0 - Class B units issued and outstanding.

In May 2011, Project Viking invested $3.5 million in the Company for 7,000,000 Class B units at a purchase price of $0.50 per unit. These units sold to Project Viking were immediately converted to Class A units.

On August 30, 2011, the Company commenced a subscription rights offering to holders of its Class A units who are residents of the State of Minnesota for an aggregate of 16,500,000 Class A units at a purchase price of $0.50 per unit. No eligible Class A unit holder could purchase more than 77.73% of the Units currently held by such unit holder as of August 30, 2011. In addition, purchasers of units were required to deposit $.125 per unit into an escrow account that was to be held to guarantee a portion of the debt of Agrinatural. Amounts collected related to this guarantee were subsequently returned. The offering period expired on October 15, 2011. The Company closed on the offering in November 2011 having sold 1,414,033 Class A units for approximately $707,000 .

On July 31, 2013, the Company issued 8,075,000 Class A units and 15,000,000 Class B units, at a purchase price of $0.30 per unit, to Project Viking for total proceeds of approximately $6.9 million .

On September 18, 2013, the Company issued 3,115,000 Class A units, at a conversion price of $0.30 per unit, to current members upon conversion of subordinated convertible debt of $934,500 .

11. LEASES

The Company leases equipment, primarily rail cars, under operating leases through 2017. Rent expense for fiscal 2013 , 2012 , and 2011 was approximately $1.8 million , $2.2 million , and $1.8 million , respectively.

At October 31, 2013 , the Company had the following minimum future lease payments, which at inception had non-cancelable terms of more than one year :



2014	$	1,294,367
2015	606,636
2016	596,920
2017	346,500
2018	—
Total lease commitments	$	2,844,423

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HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

October 31, 2013 and 2012

12. INCOME TAXES

The differences between consolidated financial statement basis and tax basis of assets and liabilities are estimated as follows at October 31:



	2013			2012
Consolidated financial statement basis of assets	$	60,793,917		$	66,581,019
Plus: Organization and start-up costs capitalized	1,406,418			1,564,147
Less: Accumulated tax depreciation and amortization greater than financial statement basis	(39,647,694		)	(32,928,411		)
Plus: Impairment charge	27,844,579			27,844,579
Income tax basis of assets	$	50,397,220		$	63,061,334

There were no significant differences between the consolidated financial statement basis of liabilities and the income tax basis of liabilities at October 31, 2013 and 2012 .

13. RELATED PARTY TRANSACTIONS

As discussed in Note 10, Project Viking, L.L.C. ("Project Viking") invested $3.5 million in the Company in May 2011 for 7,000,000 Class B units at a purchase price of $0.50 per unit, which were converted to Class A units.

On July 31, 2013, Project Viking invested $6.9 million in the Company for 8,075,000 Class A units and 15,000,000 Class B units at a purchase price of $0.30 per unit.

In May 2013, Project Viking participated in the initial subordinated convertible debt offering and lent the Company $102,000 .

On July 31, 2013, Project Viking held a controlling interest in the Company. On July 31, 2013, Project Viking sold its interest to Granite Falls Energy, L.L.C. ("GFE"), which is now considered a related party. GFE operates an ethanol plant in the Midwest. The Company entered into a Management Services Agreement with GFE. Under the Management Services Agreement, GFE agreed to supply its own personnel to act as part-time officers and managers of the Company for the positions of Chief Executive Officer, Chief Financial Officer, and Commodity Risk Manager. The initial term of the Management Services Agreement is three years.

The Company agreed to pay GFE $35,000 per month during the first year of the agreement.

During years two and three of the agreement, the Company agreed to pay GFE 50% of the total salary, bonuses, and other expenses and costs incurred by GFE for the three management positions. At the expiration of the initial term, the agreement will automatically renew for successive one-year terms unless and until the Company or GFE gives the other party 90-days written notice of termination prior to expiration of the initial term or the start of a renewal term. Total expenses under this agreement were $105,000 for fiscal year 2013 .

As part of the purchase of Project Viking, GFE obtained the interest in Project Viking's convertible subordinated debt in the amount of $102,000 . In September 2013, the Company completed the convertible subordinated debt offering of $5,077,000 and each subscriber had the option to convert to units at $0.30 per unit conversion price. GFE converted their $102,000 of subordinated debt for 340,000 Class A units. The Company paid approximately $2,000 in interest expense to GFE related to the subordinated convertible debt for the year ended October 31, 2013.

The Company purchased approximately $57,451,000 of corn from members in fiscal years 2011 and none in 2013 and 2012.

During 2013, the Company borrowed $300,000 from the noncontrolling interest member of Agrinatural. Total interest paid in relation to this note payable amounted to approximately $16,000 during the year ended October 31, 2013 .

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HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

October 31, 2013 and 2012

14. COMMITMENTS AND CONTINGENCIES

Water Agreements

In October 2003, the Company entered into an industrial water supply development and distribution agreement with the City of Heron Lake for 15 years. The Company has the exclusive rights to the first 600 gallons per minute of capacity that is available from the well, and provides for the Company, combined with Minnesota Soybean Processors, to approve any other supply contracts that the City may enter into. In consideration, the Company will pay one half of the City's water well bond payments of $735,000 , plus a 5% administrative fee, totaling approximately $594,000 , and operating costs, relative to the Company's water usage, plus a 10% profit. These costs will be paid as water usage fees. The Company recorded an assessment of approximately $367,000 with long-term debt as described in Note 9. The Company pays operating and administrative expenses of approximately $12,000 per year.

In May 2006, the Company entered into a water treatment agreement with the City of Heron Lake and Jackson County for 30 years. The Company will pay for operating and maintenance costs of the plant in exchange for receiving treated water. In addition, the Company agreed to an assessment for a portion of the capital costs of the water treatment plant. The Company recorded assessments with long-term debt of $500,000 and $3,550,000 in fiscal 2007 and 2006, respectively, as described in Note 9. The Company paid operating and maintenance expenses of approximately $289,000 , $349,000 , and $287,000 in fiscal 2013 , 2012 , and 2011 , respectively.

Marketing Agreements

The Company entered into termination agreements with its previous marketers utilized during 2011 and prior to terminate the marketing agreements the Company had with each, with termination dates of August 31, 2011. The Company assumed certain rail car leases with the termination of the ethanol marketing agreement and paid a termination fee of $325,000 over the remaining term of the original contract, which ended September 30, 2012.

On August 20, 2013, the Company gave notice to their marketer to terminate the agreements related to corn purchases as well as ethanol sales effective October 31, 2013. As a result of the termination of the agreement, the Company repurchased approximately $1,580,000 of corn inventory from Gavilon on November 1, 2013.

During the fourth quarter of fiscal year 2013, the Company entered into a marketing agreement with a new marketer, Eco-energy, for the sale of ethanol. Under this ethanol agreement, Eco-energy will purchase, market and resell 100% of the ethanol produced at the Company's ethanol production facility and the Company will pay Eco-energy a marketing fee based on a percentage of the applicable sale price of the ethanol. The marketing fee was negotiated based on prevailing market-rate conditions for comparable ethanol marketing services.

Forward Contracts

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

Legal Proceedings

Permit Matters

The Company completed the plant conversion from coal to natural gas in November 2011. The Company also completed an amendment to the existing air emissions permit allowing the conversion from coal to natural gas. The Company is now seeking the final amendments to its air emissions permit related to the natural gas conversion pending regulatory approvals in form acceptable to the Company, and may incur additional costs in connection with the permit amendment, as well as improvements to its plant as part of the natural gas conversion and to ensure compliance with its permit and planned amendments.

On December 16, 2010, the Company entered into a stipulation agreement with the Minnesota Pollution Control Agency ("MPCA") to resolve a notice of violation issued by the MPCA in March 2008 that alleged violations of certain rules,

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HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

October 31, 2013 and 2012

statutes, and permit conditions, including emission violations and reporting violations. Under the stipulation agreement, the Company agreed to pay a civil penalty and complete other corrective actions. On April 12, 2012, the Company received a letter from the MPCA acknowledging that the Company had completed all the corrective action requirements described in the stipulation agreement and the stipulation agreement was therefore terminated effective as of the date of the letter.

Coal Contract Termination Dispute and Settlement

Following conversion by the Company from coal to natural gas as its primary fuel, the Company and Cloud Peak Energy Logistics LLC, formerly known as Northern Coal Transportation Company ("Cloud Peak"), the Company and Cloud Peak entered into a Confidential Settlement Agreement and Mutual Release ("Settlement Agreement") to resolve all claims related to the coal contract dispute on April 30, 2012. Under the terms of the Settlement Agreement, the Company made a one-time cash payment to Cloud Peak in the amount of $900,000 (the "Settlement Payment").

In general, the parties agreed that the terms and conditions of the Settlement Agreement are confidential, subject to public reporting company obligations and applicable accounting rules and principles. Accordingly, no party (including board members, officers or other representatives of the parties with knowledge of the terms of the Settlement Agreement) is permitted to discuss or otherwise disclose such confidential information, except as required by law or pursuant to such public reporting company obligations and applicable accounting rules and principles.

15. QUARTERLY FINANCIAL DATA (UNAUDITED)

Summary quarterly results are as follows:



	First Quarter			Second Quarter			Third Quarter		Fourth Quarter
Fiscal year ended October 31, 2013
Revenues	$	44,121,305		$	35,498,926		$	45,583,441	38,560,472
Gross profit	920,219			698,812			4,060,158		2,547,981
Operating income (loss)	(95,367		)	(192,887		)	3,385,958		1,915,430
Net income (loss) attributable to Heron Lake BioEnergy, LLC	(920,554		)	(998,139		)	2,554,493		1,305,042
Basic earnings (loss) per unit (Class A and B)	$	(0.02	)	$	(0.03	)	$	0.07	$	0.03
Diluted earnings (loss) per unit (Class A and B)	$	(0.02	)	$	0.03		$	0.06	$	0.03



	First Quarter			Second Quarter			Third Quarter		Fourth Quarter
Fiscal year ended October 31, 2012
Revenues	$	38,861,794		$	41,186,236		$	41,908,904	$	46,703,001
Gross profit (loss)	264,570			1,102,346			1,921,833		(1,158,097		)
Operating income (loss)	(586,037		)	(660,787		)	1,206,927		(29,745,361		)
Net income (loss) attributable to Heron Lake BioEnergy, LLC	(1,312,813		)	(1,356,345		)	470,598		(30,507,102		)
Basic and diluted earnings (loss) per unit (Class A and B)	$	(0.04	)	$	(0.04	)	$	0.01	$	(0.84	)

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HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

October 31, 2013 and 2012



	First Quarter		Second Quarter		Third Quarter			Fourth Quarter
Fiscal year ended October 31, 2011
Revenues	$	39,199,181	$	38,022,811	$	43,013,930		$	43,884,453
Gross profit (loss)	3,226,245		1,840,466		688,880			1,201,160
Operating income (loss)	2,530,477		1,071,699		(182,475		)	(76,415		)
Net income (loss) attributable to Heron Lake BioEnergy, LLC	1,676,923		438,674		(724,890		)	(819,852		)
Basic and diluted earnings (loss) per unit (Class A and B)	$	0.06	$	0.01	$	(0.02	)	$	(0.02	)

The above quarterly financial date 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.

16. SALE OF PLANT ASSETS

The Company entered into an asset purchase agreement on January 3, 2013 with FCA Co-op for the sale of the Company's grain storage and handling facilities. The sale closed on February 1, 2013 for approximately $3,750,000 . The net proceeds of the sale were used to repay AgStar debt.

The Company entered into an asset purchase agreement on January 22, 2013, with Guardian Energy for the sale of the ethanol assets. The purchase price was to be the sum of $55,000,000 plus closing net working capital, less the amount owed on the closing date under assumed debt. On April 4, 2013, the Company terminated the asset purchase agreement dated January 22, 2013 between the Company and Guardian.

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CERTAIN INFORMATION INDICATED BY [***] HAS BEEN DELETED FROM THIS EXHIBIT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 24b-2.

CORN OIL MARKETING AGREEMENT

THIS CORN OIL MARKETING AGREEMENT (the “ Agreement ”) is made and entered into as of the 4th day of September, 2013, and effective as of September 16th , 2013 (the “ Effective Date ”) by and between RPMG, INC., a Minnesota corporation (“ RPMG ”) and Heron Lake BioEnergy, LLC, a Minnesota limited liability company (“ Producer ”), collectively referred to hereinafter as “Parties” or individually as a “Party”.

RECITALS


A.	RPMG markets corn oil (as hereinafter defined).


B.	Producer produces or shall produce corn oil at Producer’s ethanol production facility located or to be located at Heron Lake, Minnesota (the “ Ethanol Facility ”).


C.	The Parties desire that RPMG shall market corn oil produced at the Ethanol Facility.

NOW, THEREFORE, in consideration of the foregoing, the mutual promises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows.

AGREEMENT

Marketing of Corn Oil. Producer shall sell to RPMG, and RPMG shall purchase and market, all of Producer’s production, of corn oil produced at the Ethanol Facility, including any expansion or increase in capacity at the Ethanol Facility. RPMG shall be the exclusive marketer of corn oil and Producer shall not, either itself or through any affiliate or any third party, market any corn oil during the term of this Agreement. RPMG shall provide management resources to market and sell corn oil, including the management of logistics and collection.


2.	Payments to Producer; Commissions; Audit Rights


(a)	Payments to Producer . Subject to the other terms of this Agreement, RPMG shall make payments for Producer’s corn oil in accordance with the terms set forth in Exhibit A . RPMG shall use commercially reasonable efforts to make such payments to Producer on an average net ten (10) days.

(b)

RPMG Commission . Producer shall pay RPMG commissions as follows: [***] for each pound of corn oil sold to third party end purchasers (each, an “ End Customer ”). Parties shall from time to time, but no more than once per year, or upon the reasonable request of RPMG, negotiate in good faith adjustments to the foregoing commissions to reflect prevailing commissions being paid to marketers of corn oil produced by third parties in the United States.


(c)	Accessorial Charges . As set forth on Exhibit A , RPMG shall be responsible for payment of Accessorial Charges (as defined in Exhibit A ) to third parties; provided, however, that Producer agrees (1) to promptly reimburse RPMG for such Accessorial Charges upon submission to Producer of an invoice itemizing such Accessorial Charges, and (ii) that RPMG

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may deduct and setoff the Accessorial Charges from and against payments due to Producer by RPMG.


(d)	Late Payments . Overdue amounts not disputed in good faith payable to either Party shall be subject to late payment fees equal to interest accrued on such amounts at the maximum rate permitted by applicable law.

(e)

No Warranty as to Prices . RPMG shall market Producer’s corn oil using commercially reasonable efforts and the same standards it uses to market the corn oil production of third parties for whom RPMG provides corn oil marketing services. RPMG shall endeavor to (i) maximize the corn oil price and minimize freight and other costs relevant to corn oil sales and (ii) achieve the best available return to Producer, subject to relevant market conditions. PRODUCER ACKNOWLEDGES THAT RPMG MAKES NO REPRESENTATIONS, GUARANTEES OR WARRANTIES OF ANY NATURE WHATSOEVER AS TO THE PRICES AT WHICH IT SHALL BE ABLE TO SELL PRODUCER’S CORN OIL TO END CUSTOMERS.

(f)

Waiver of Certain Claims . Producer acknowledges (i) that RPMG shall use its reasonable judgment in making decisions related to the quantity and price of corn oil marketed under this Agreement, in light of varying freight and other costs, and (ii) that RPMG may sell and market corn oil of third parties into the same markets where RPMG sells Producer’s corn oil. Producer waives any claim of conflict of interest against RPMG or for failure by RPMG to maximize the economic benefits of this Agreement for Producer in light of the foregoing.

(g)

Audit Rights . Within ninety (90) days following the end of RPMG’s fiscal year end, Producer shall give written notice to RPMG of its desire to conduct an audit of its corn oil payments to Producer for the preceding fiscal year of RPMG and RPMG shall provide reasonable access to all financial information necessary to complete such audit. The audit shall be conducted by an accounting firm agreeable to both Parties and shall be completed within forty-five (45) days after the completion of RPMG’s annual audit, but no later than one hundred and fifty (150) days following RPMG’s fiscal year end. The cost of the audit shall be the responsibility of Producer unless the auditor determines that RPMG underpaid Producer by more than three percent (3%) for the period audited, in which case RPMG shall pay the cost of the audit. If the auditor determines that RPMG underpaid Producer, RPMG shall promptly pay such underpayment to Producer and if the auditor determines that RPMG overpaid Producer, Producer shall promptly pay the overpayment to RPMG. The determination of the auditor shall be final and binding on both Parties. If Producer fails to exercise its right to audit as provided in this Section 2(g) for any year, it shall be deemed to have waived any rights to dispute payments made to Producer for that year.


3.	Scheduled Production

(a)

Notices of Scheduled Production . Beginning on the Effective Date, and on the 1st and 15th of each month thereafter, Producer shall provide to RPMG a rolling best estimate of production and inventory by corn oil product for that month and each of the following twelve (12) months. Beginning on the Effective Date and each Wednesday thereafter, Producer shall provide to RPMG a best estimate of production and inventory by corn oil product for that day and the next seven days.

(b)

Additional Production Notices . Producer shall notify RPMG of anticipated production downtime or disruption in corn oil availability at least one (1) month in advance of such outage. Producer shall timely inform RPMG of daily inventories, plant shutdowns, daily production projections, and any other information (i) to facilitate RPMG’s performance of the Agreement or (ii) that may have a material adverse effect on RPMG’s ability to perform the Agreement.

(c)

RPMG Entitled to Rely on Producer Estimates and Notices . RPMG, in marketing and selling Producer’s corn oil, is entitled to rely upon the production estimates and other notices provided by Producer, including without limitation those described in Sections 3(a) or (b). Producer’s failure to provide accurate information to facilitate RPMG’s performance of the Agreement may negatively impact RPMG’s ability to market and sell corn oil at prevailing prices. Producer’s failure to provide accurate information to facilitate RPMG’s performance of the Agreement may be deemed by RPMG, in its sole but reasonable discretion, a material breach of the Agreement by Producer.

(e)

Sale Commitments . From time to time during the term of this Agreement and in (e) order to maximize the sales price of corn oil, RPMG may enter sales contracts or other agreements with End Customers for future delivery of corn oil. In the event Producer fails to produce corn oil in accordance with the information provided to RPMG under Sections 3(a) or (b) above for reasons other than Force Majeure (as defined in Section 10 herein), and as a result RPMG is required to purchase corn oil from third parties to meet previous corn oil sale commitments that are based upon such information, RPMG may charge Producer the amount (if any) that the price of such replacement corn oil exceeded the price that RPMG would have paid to Producer for the applicable corn oil under this Agreement.


4.	Logistics and Transportation

(a)

No Liens, Title and Risk of Loss . Producer warrants that corn oil delivered to RPMG hereunder shall be free and clear of all liens and encumbrances of any nature whatsoever other than liens in favor of RPMG. Title to and risk of loss of each load of corn oil shall pass to RPMG at the time such load passes across the scale into rail cars or trucks at the Ethanol Facility (the “ Title Transfer Point ”). Until such time, Producer shall be deemed to be in control of and in possession of the corn oil.

(b)

Loading . RPMG shall schedule the loading and shipping of all outbound corn oil purchased hereunder, but all labor and equipment necessary to load trucks and rail cars and other associated costs shall be supplied and borne by Producer without charge to RPMG. Producer shall handle the corn oil in a good and workmanlike manner in accordance with RPMG’s written requirements and normal industry practice. Producer shall maintain the truck and rail loading facilities in safe operating condition in accordance with normal industry standards and shall visually inspect all trucks and rail cars to assure (i) cleanliness so as to avoid contamination, and (ii) that such trucks and railcars are in a condition suitable for transporting the corn oil. RPMG and RPMG’s agents shall have adequate access to the Ethanol Facility to load Producer’s corn oil on an industry standard basis that allows RPMG to economically market Producer’s corn oil. RPMG’s employees shall follow all reasonable safety rules and procedures promulgated by Producer and provided to RPMG reasonably in advance and in writing. Producer shall supply product description tags, certificates of analysis, bills of lading and/or material safety data sheets that are applicable to all shipments.

In the event that Producer fails to provide the labor, equipment and facilities necessary to meet RPMG’s loading schedule, Producer shall be responsible for all costs and expenses, including without limitation actual demurrage and wait time, incurred by RPMG resulting from or arising in connection with Producer’s failure to do so.

(c)

Transportation and Certain Transportation Costs . RPMG shall perform certain logistics functions for Producer, including the arranging of rail and truck freight, inventory management, contract management, bills of lading, and scheduling pick-up appointments. RPMG shall determine the method of transporting corn oil to End Customers. Notwithstanding any provision to the contrary herein, Producer shall be solely responsible for any damage to any trucks, railcars, equipment, or vessels caused by acts or omissions of Producer and its consignees. All truck freight charges and rail tariff rate charges shall be billed directly to RPMG and, as set forth in Exhibit A , be recouped by RPMG from the proceeds of RPMG’s sales of corn oil to End Customers. Notwithstanding the foregoing, rail cars required to transport the corn oil will be leased directly by Producer. If requested in writing by Producer, RPMG will make lease payments for such rail cars on behalf of Producer, and in such event RPMG shall recoup lease payments from the proceeds of RPMG’s sales of corn oil to End Customers.

(d)

Weight . The quantity of corn oil delivered to RPMG at the. Ethanol Facility shall be established by weight certificates obtained from Producer’s scales or from such other scales as the Parties shall mutually agree, which are certified as of the time of weighing and which comply with all applicable laws, rules and regulations. Producer shall provide RPMG with a fax/emailed copy of the outbound weight certificates on a daily basis and, except as otherwise expressly agreed upon, such outbound weight certificates shall be determinative of the quantity of corn oil for which RPMG is obligated to pay Producer pursuant to this Agreement.


(e)	Corn oil Storage at Ethanol Facility . The estimated storage capacity of the Ethanol Facility, is as follows:

Corn Oil [***] gallons


5.	Specifications; Quality.

(a)

Corn oil Specifications . Producer covenants that it shall produce corn oil that, upon delivery to RPMG at the Ethanol Facility, meets the respective specifications (“ Specifications ”) set forth in Exhibit B and such other specifications that may be, from time-to-time, promulgated by the industry for corn oil. RPMG shall have the right to test each shipment of corn oil to ascertain that the Specifications are being met. If the corn oil provided by Producer to RPMG is shown, by independent testing or analysis of a representative sample or samples taken consistent with industry standards, to not meet the Specifications through no fault of RPMG or any third party engaged by RPMG, then RPMG may, in its sole discretion, (i) reject such corn oil and require Producer to promptly replace such non-conforming corn oil with corn oil that complies with the Specifications, or (ii) accept such corn oil for marketing and, if necessary, adjust the price to reflect the inferior quality, as provided in Exhibit A . Payment and acceptance of delivery by RPMG shall not waive RPMG’s rights if corn oil does not comply with the terms of this Agreement, including the Specifications.


(b)	Trade Rules . This Agreement shall be governed by the then-current Feed Trade Rules of the National Grain and Feed Association (the “ Trade Rules ”), unless otherwise specified. In the event the Trade Rules and the terms and conditions of this Agreement conflict, this Agreement shall control.

(c)

Compliance With FDA and Other Standards . Producer warrants that, unless caused by the negligence or intentional misconduct of RPMG or a third party engaged by RPMG, corn oil provided by Producer to RPMG (1) shall not be “adulterated” or “misbranded” within the meaning of the Federal Food, Drug and Cosmetic Act (the “ Act ”), (ii) may lawfully be introduced into interstate commerce under the Act, and (iii) shall comply with all state and federal laws, rules and regulations (including without limitation the Trade Rules) including those governing quality, naming and labeling of bulk product. If Producer knows or reasonably suspects that any corn oil produced at the Ethanol Facility is adulterated or misbranded, or otherwise not in compliance with the terms of the Agreement, Producer shall immediately so notify RPMG in writing.

(d)

Regulatory Seizure . Should any corn oil provided by Producer to RPMG hereunder be seized or condemned by any federal or state department or agency as a result of its failure to conform to any applicable law, rule or regulation prior to delivery to an End Customer, such seizure or condemnation shall operate as a rejection by RPMG of the goods seized or condemned and RPMG shall not be obligated to offer any defense in connection with such seizure or condemnation. When such rejection occurs, RPMG shall deliver written notice to Producer within a reasonable time of the rejection and identify the deficiency that resulted in such rejection. In addition to other obligations under this Agreement or at law, Producer shall reimburse RPMG for all out-of-pocket costs reasonably incurred by RPMG in storing, transporting, returning and disposing of the rejected goods in accordance with this Agreement.

(e)

Sampling . Producer shall take one representative origin sample (pint size) from each lot of the corn oil before it leaves the Ethanol Facility (each, a “ Sample ”). RPMG shall be entitled to witness the taking of Sample. Producer shall label Sample to indicate the applicable corn oil lot numbers, date of shipment, and the truck or railcar number. Producer shall send half of Sample to RPMG promptly upon RPMG’s request. Producer may request that RPMG test results be provided to it at any time after the tests are completed. Producer shall retain corn oil Sample for no less than three (3) months or any longer period required by law. If RPMG knows or reasonably suspects that any corn oil produced by Producer at the Ethanol Facility is not in compliance with the terms of this Agreement, then RPMG may obtain independent laboratory tests of such corn oil, and, if such corn oil is found not to be in compliance with the terms of this Agreement, Producer shall, in addition to its other obligations hereunder, pay all such testing costs.


6.	Term and Termination

(a)

Term . The initial term of this Agreement shall commence on the date hereof and continue for [***] from the Effective Date. Thereafter, this Agreement shall remain in effect until terminated by either party at its unqualified option by providing the other party hereto not less than [***] written notice of its election to terminate this agreement. Either party may terminate this Agreement if the other party breaches this Agreement and fails to cure the breach within 30 days after receipt of notice of such breach or if the other party becomes

insolvent, files or has filed against it a petition in bankruptcy that is not dismissed within 30 days, or has a receiver appointed over its assets.


(b)	Producer Termination Right . Producer may immediately terminate this Agreement upon written notice to RPMG if RPMG fails on three (3) separate occasions within any 12-month period to purchase corn oil or to market corn oil under circumstances where such breach or failure is not excused by this Agreement.

(c)

RPMG Termination Right . RPMG may immediately terminate this Agreement upon written notice to Producer, if, for reasons other than a Force Majeure (as defined in Section 10 herein) event, during any consecutive three (3) months, Producer’s actual production or inventory of any corn oil product at the Ethanol Facility varies by twenty percent (20%) or more from the monthly production and inventory estimates provided by Producer to RPMG pursuant to Section 3(b) hereunder.

(d)

Termination for Insolvency . Either Party may immediately terminate the Agreement upon written notice to the other Party if the other Party files a voluntary petition in bankruptcy, has filed against it an involuntary petition in bankruptcy, makes an assignment for the benefit of creditors, has a trustee or receiver appointed for any or all of its assets, is insolvent or fails or is generally unable to pay its debts when due, in each case where such petition, appointment or insolvency is not dismissed, discharged or remedied, as applicable, within thirty (30) days.


7.	Indemnification; Limitation on Liability

(a)

Producer’s Indemnification Obligation . Producer shall indemnify, defend and hold harmless RPMG and its shareholders, directors, officers, employees, agents and representatives, from and against any and all Damage (as defined in Section 7(c) herein) to the extent arising out of (i) any fraud, negligence or willful misconduct of Producer or any of its directors/governors, officers, employees, agents, representatives or contractors or (ii) any breach of this Agreement by Producer. RPMG shall promptly notify Producer of any suit, proceeding, action or claim for which Producer may have liability pursuant to this Section 7(a).

(b)

RPMG’s Indemnification Obligation . RPMG shall indemnify, defend and hold harmless Producer and its shareholders/members, directors/governors, officers, employees, agents and representatives from and against any and all Damages to the extent arising out of (i) any fraud, negligence or willful misconduct of RPMG or any of its directors, officers, employees, agents, representatives or contractors or (ii) any breach of this Agreement by RPMG. Producer shall promptly notify RPMG of any suit, proceeding, action or claim for which Producer may have liability pursuant to this Section 7(b).

(c)

Definition of Damages . As used in this Agreement, the capitalized term “Damages” means any and all losses, costs, damages, expenses, obligations, injuries, liabilities, insurance deductibles and excesses, claims, proceedings, actions, causes of action, demands, deficiencies, lawsuits, judgments or awards, fines, penalties and interest, including reasonable attorneys’ fees, but excluding any indirect, incidental, special, exemplary, consequential or punitive damages.

(d)

Limitation on Liability . NEITHER PARTY MAKES ANY GUARANTEE, WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO ANY PROFIT, OR OF ANY PARTICULAR ECONOMIC RESULTS FROM TRANSACTIONS HEREUNDER. EXCEPTING FOR A BREACH OF ITS NONDISCLOSURE OBLIGATIONS OR PERFORMANCE OF ITS INDEMNIFICATION OBLIGATIONS HEREUNDER, RPMG’S AGGREGATE LIABILITY TO PRODUCER SHALL IN NO EVENT EXCEED THE AMOUNT PAID BY PRODUCER TO RPMG UNDER THIS AGREEMENT.

Insurance. During the term of this Agreement, each party shall maintain insurance coverage that is standard for a company of its type and size that is engaged in the production and/or selling of corn oil. At a minimum, each party’s insurance coverage shall include: (i) comprehensive general product and public liability insurance, with liability limits of at least $5 million in the aggregate; (ii) property and casualty insurance adequately insuring its facilities and its other assets against theft, damage and destruction on a replacement cost basis; and (iii) workers’ compensation insurance to the extent required by law. RPMG, or Producer, as the case may be, shall be added as a loss payee under the comprehensive general product and public liability insurance policy and the property and casualty insurance policy. In relation to insurance requirements on the corn oil leased railcars, (a) the Producer will be responsible for the liability insurance on the corn oil leased railcars in the form and amount as required by the railcar lessor’s contract, or at a minimum in the amounts required by this Article 8 and (b) RPMG will carry property/physical damage insurance for the corn oil railcars for loss or destruction, but will not be responsible for the insurance deductible, maintenances (scheduled or otherwise), including normal wear and tear related to such corn oil railcars. The Producer will be listed as a Loss Payee on RPMG’s Rolling Stock Policy in relation to the corn oil leased railcars. A party shall not change its insurance coverage during the term of this Agreement, except to increase it or enhance it, without the prior written consent of the other Party which consent shall not be unreasonably withheld.


9.	Confidentiality

(a)

Confidential Information . As used in this Agreement, the capitalized term “Confidential Information” means (i) the terms and conditions of this Agreement and (ii) any information disclosed by one Party to the other, including, without limitation, trade secrets, strategies, marketing and/or development plans, End Customer lists and other End Customer information, prospective End Customer lists and other prospective End Customer information, vendor lists and other vendor information, pricing information, financial information, production or inventory information, and/or other information with respect to the operation of its business and assets, in whatever form or medium provided.


(b)	Nondisclosure . Each Party shall maintain all Confidential Information of the other in trust and confidence and shall not without the prior written consent of the other Party:

(i)

disclose, disseminate or publish Confidential Information to any person or entity without the prior written consent of the disclosing Party, except to employees of the receiving Party who have a need to know, who have been informed of the receiving Party’s obligations hereunder, and who have agreed not to disclose Confidential Information or to use Confidential Information except as permitted herein, or


(ii)	use Confidential Information for any purpose other than the performance of its obligations under the Agreement.


(c)	Standard of Care . The receiving Party shall protect the Confidential Information of the disclosing Party from inadvertent disclosure with the same level of care (but in no event less than reasonable care) with which the receiving Party protects its own Confidential Information from inadvertent disclosure.


(d)	Exceptions . The receiving Party shall have no obligation under this Agreement to maintain in confidence any information which it can prove:


(i)	is in the public domain at the time of disclosure or subsequently becomes part of the public domain through no act or failure to act on the part of the receiving Party or persons or entities to whom the receiving Party has disclosed such information;


(ii)	is in the possession of the receiving Party prior to the time of disclosure by the disclosing Party and is not subject to any duty of confidentiality;


(iii)	the receiving Party obtains from any third party not under any obligation to keep such information confidential; or


(iv)	the receiving Party is compelled to disclose or deliver in response to a law, regulation, or governmental or court order (to the least extent necessary to comply with such order), provided that the receiving Party notifies the disclosing Party promptly after receiving such order to give the disclosing Party sufficient time to contest such order and/or to seek a protective order.


(e)	Ownership of Confidential Information . All Confidential Information shall remain the exclusive property of the disclosing Party.

(f)

Injunctive Relief for Breach . The receiving Party acknowledges that monetary damages may not be a sufficient remedy for unauthorized disclosure or use of Confidential Information, and that the disclosing Party may be entitled, in addition to all other rights or remedies in law and equity, to obtain injunctive or other equitable relief, without the necessity of posting bond in connection therewith.

10.

Force Majeure . In the event either Party is unable by Force Majeure (as defined below) to carry out its obligations under this Agreement, it is agreed that on such Party’s giving notice in writing, or by telephone and confirmed in writing, to the other Party as soon as possible after the commencement of such Force Majeure event, the obligations of the Party giving such notice, so far as and to the extent they are affected by such Force Majeure, shall be suspended from the commencement of such Force Majeure and during the remaining period of such Force Majeure, but for no longer period, and such Force Majeure shall so far as possible be remedied with all reasonable dispatch; provided, however, the obligation to make payments then accrued hereunder prior to the occurrence of such Force Majeure shall not be suspended and Producer shall remain obligated for any loss or expense to the extent otherwise provided in this Agreement. The capitalized term “Force Majeure” as used in this Agreement shall mean events beyond the reasonable control and without the fault of the Party claiming Force Majeure, including acts of God, war, riots, insurrections, laws,

proclamations, regulations, strikes of a regional or national nature, acts of terrorism, sabotage, and acts of any government body.


11.	Dispute Resolution . In the event a dispute arises under this Agreement that cannot be resolved by those with direct responsibility for the matter in dispute, such dispute shall be resolved by way of the following process:


(a)	Senior management from Producer and from RPMG shall meet to discuss the basis for the dispute and shall use their best efforts to reach a reasonable resolution to the dispute.

(b)

If negotiations pursuant to Section 11(a) are unsuccessful, the matter shall promptly be submitted by either Party to arbitration in accordance with NGFA® ARBITRATION OF DISPUTES: The parties to this contract agree that the sole remedy for resolution of any and all disagreements or disputes arising under or related to this contract shall be through arbitration proceedings before the National Grain and Feed Association (NGFA) pursuant to the NGFA® Arbitration Rules. The decision and award determined through such arbitration shall be final and binding upon the Buyer and Seller. Judgment upon the arbitration award may be entered and enforced in any court having jurisdiction thereof. (Copies of the NGFA® Arbitration Rules are available from the National Grain and Feed Association, 1250 Eye Street, N.W., Suite 1003, Washington, D.C. 20005; Telephone: 202-289-0873; Website: http://www.ngfa.org ). If the Parties reach agreement pertaining to any dispute pursuant to the procedures set forth in this Section 11, such agreement shall be reduced to writing, signed by authorized representatives of each Party, and shall be final and binding upon the Parties.


12.	Miscellaneous.

(a)

Successors and Assigns; Assignment . All of the terms, covenants, and conditions of this Agreement shall be binding upon, and inure to the benefit of and be enforceable by the Parties and their respective successors, heirs, executors and permitted assigns. No Party may assign its rights, duties or obligations under this Agreement to any other person or entity without the prior written consent of the other Party, such consent not to be unreasonably withheld or delayed; notwithstanding the foregoing, a Party may, without the consent of the other Party, assign its rights and obligations under this Agreement to (i) its parent, a subsidiary, or affiliate under common control with the Party or (ii) a third party acquiring all or substantially all of the assets or business of such Party.


(b)	Notices . Any notice or other communication required or permitted hereunder shall be in writing and shall be considered delivered in all respects when delivered by hand, mailed by first class mail postage prepaid, or sent by facsimile with delivery confirmed, addressed as follows:

To RPMG: RPMG, Inc.

1157 Valley Park Drive, Suite 100

Shakopee, MN 55379

Fax: 952-465-3222

To Producer: Heron Lake Bioenergy, LLC

Fax:

Either Party may, from time to time, furnish, in writing, to the other Party, notice of a change in the address and/or fax number(s) to which notices are to be given hereunder.


(c)	Applicable Law . This Agreement shall be governed in all respects by the laws of the State of Minnesota, except with respect to its choice of law provisions.


(d)	Severability . In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, either in whole or in part, this Agreement shall continue in full force and effect without said provision.


(e)	No Third Party Beneficiaries . No provision of this Agreement is intended, or shall be construed, to be for the benefit of any third party, including, without limitation, the Designee.

(f)

Entire Agreement Amendment . This Agreement constitutes The entire understanding and agreement between the Parties with respect to the subject matter hereof, and supersedes all prior and contemporaneous understandings and/or agreements, written or oral, regarding the subject matter of this Agreement. No amendment or modification to this Agreement shall be binding unless in writing and signed by a duly authorized officer of both Parties.


(g)	Counterparts . This Agreement may be executed in counterparts, including facsimile or .pdf counterparts, each of which shall be deemed an original but together shall constitute but one and the same instrument.

(h)

Waiver . The failure of either Party at any time to require performance of any provision of the Agreement or to exercise any right provided for in the Agreement shall not be deemed a waiver of such provision or right unless made in writing and executed by the Party waiving such performance or right. No waiver by either Party of any breach of any provision of the Agreement or of any right provided for in the Agreement shall be construed as a waiver of any continuing or succeeding breach of such provision or right or a waiver of the provision or right itself.


(i)	Independent Contractors . The Parties to this Agreement are independent contractors. There is no relationship of partnership, joint venture, employment, franchise, or agency between the Parties, and no Party shall make any representation to the contrary.


(j)	Additional Rules of Interpretation .


(i)	The words “include,” “includes” and “including” as used in this Agreement shall be deemed to be followed by the phrase “without limitation” and shall not be construed to mean that the examples given are an exclusive list of the topics covered.


(ii)	The headings as to contents of particular sections of this Agreement are inserted for convenience and shall not be construed as part of the Agreement or as a limitation on the scope of any terms or provisions of this Agreement.


(k)	Survival . The following provisions of this Agreement shall survive its termination: (i) to the extent of outstanding payment obligations, Sections 2(a), 2(b), 2(c), and 2(d) and (ii) Sections 2(e), 2(f), 7, 9, 11, and 12.

IN WITNESS THEREOF, each of the Parties hereto has caused this Agreement to be executed by its respective duly authorized representative as of the day and year first above written.

RPMG, INC.

By: /s/ Douglas E. Punke

Name: Douglas E. Punke

Its (title): CEO

PRODUCER:

HERON LAKE BIOENERGY, LLC

By: /s/ Steve A. Christensen

Name: Steve A. Christensen

Its (title): CEO & General Manager

EXHIBIT A

Terms Relating to Payment and Commission Calculation

RPMG shall pay Producer for all Standard-Grade and Non-Standard Grade corn oil loaded into railcars and trucks and weighed at the Ethanol Facility for shipment to End Customers an amount equal to [***] of the estimated F.O.B. Ethanol Facility Price per pound, with RPMG being entitled to retain its commission, with settlement weights as described in Section 4(d) of the Agreement. After month-end is completed and any differences will be reconciled, RPMG will make the final payment to the Producer for corn oil shipped during the month.

“ Accessorial Charges ” shall mean charges imposed by third parties for the off-loading, movement and storage of Producer’s corn oil, including without limitation taxes, tonnage taxes, hard-to-unload truck or railcar charges/transloading charges, railcar repair charges, fuel surcharges, storage charges, demurrage charges, product shrinkage, detention charges, switching, and weighing charges (but excluding Tariff Freight Costs). Neither Party shall be responsible for demurrage charges caused solely by the negligence or willful misconduct of the other Party.

“ Delivered Sale Price ” shall mean sales dollars received by RPMG for Producer’s corn oil, inclusive of tariff freight, as evidenced by RPMG’s invoices to End Customers.

“ F.O.B. Ethanol Facility Price ” shall mean the F.O.B. sale price equivalent net of applicable deductions and costs as described in this Agreement, including without limitation Accessorial Charges and Tariff Freight Costs (or, if applicable, the Delivered Sales Price net of applicable deductions and costs as described in this Agreement, including without limitation Accessorial Charges and Tariff Freight Costs) that RPMG invoices End Customers.

“ Tariff Freight Costs ” shall mean freight and related costs incurred by RPMG to transport Producer’s corn oil.

“ Standard-Grade ” shall mean corn oil that meet the Specifications set forth in this Agreement.

“ Non-Standard-Grade ” shall mean corn oil that fail to meet the Specifications set forth in this Agreement, but which RPMG nonetheless accepts for marketing under this Agreement.

EXHIBIT B

Corn Oil Specifications

Producer covenants that all corn oil shall, upon delivery to RPMG at the Ethanol Facility, conform to the following Specification:



Component	Maximum %
Moisture; wt%	[***]
Impurities; wt%	[***]
Unsaponafiables; wt%	[***]
FFA; wt%	[***]

ETHANOL MARKETING AGREEMENT

THIS ETHANOL MARKETING AGREEMENT (this “ Agreement ”), dated as of September 17 , 2013 (the “Execution Date”), is entered into by and between Eco-Energy, LLC, a Tennessee limited liability company with its registered office at 725 Cool Springs Boulevard, Suite 500, Franklin, Tennessee 37067 (“ Eco ”), and Heron Lake Bio Energy, LLC, a Minnesota limited liability company, with its principal office located at 91246 390th Avenue, Heron Lake, Minnesota (“Heron”).

RECITALS

A. HLBE operates an ethanol production facility located at Heron Lake, Minnesota (the “ Plant ”) that is capable of producing up to approximately 60 million gallons per year of commercially marketable ethanol (the “Output”) and desires to enter into a marketing agreement for the Output.

B. Eco is an ethanol marketer and is experienced in the marketing, selling and transportation of ethanol, and is willing to purchase and market the entire Output of the Plant and to supply to the Plant the Railcars to be used in transporting the Output.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, IT IS AGREED BETWEEN THE PARTIES:

1. Exclusivity :

(a) HLBE shall sell exclusively to Eco, and Eco shall purchase from HLBE, the entire Output during the Term (as defined in Section 21(a) ), on the terms set forth in this Agreement.

(b) [***].

(c) Eco may purchase and otherwise market and sell ethanol and other products for Eco’s own use or account, and Eco may also market and sell ethanol and other products of other persons (including affiliates or related parties of Eco) as well as provide services to other persons, on such terms and conditions as are determined by Eco from time to time.

2. Purchase and Sale :

(a) Eco shall use commercially reasonable efforts to solicit competitive market offers for the ethanol purchased from HLBE. Eco shall use reasonable efforts to optimize freight, fuel characteristics, and other marketing tools to provide competitive market pricing for HLBE’s ethanol production. Eco’s efforts shall include working with current, developing, and emerging markets to provide favorable ethanol pricing back to HLBE when compared with market alternatives. When commercially reasonable, Eco shall assist HLBE in determining if offers are competitive with alternative markets by providing market insight as part of the purchase offers or contracts.

#2419638

(b) Eco shall use its commercially reasonable efforts to, from time to time, submit purchase orders or purchase contracts similar to Exhibit B (each, a “ Purchase Order ”) to HLBE for purchases of ethanol produced at the Plant, all upon and subject to the terms and conditions of this Agreement. Eco may place a Purchase Order with HLBE orally, by email or by a written Purchase Order in a form mutually acceptable to HLBE and Eco. The terms of any Purchase Order shall specify a purchase price F.O.B. the Plant (the “ Purchase Price ”) and shall specify the method of transport of the ethanol (i.e., via truck, rail or some combination thereof) and include a request for the sale and delivery of ethanol on a one-time basis or on a daily, weekly, monthly or other periodic basis. Any Purchase Order may be cancelled by Eco at any time, prior to the earlier of: (i) the time at which such Purchase Order becomes an Accepted Purchase Order (as that term is defined in Section 2(c) below) or (ii) prior to the time that HLBE has entered into a legally binding commitment based upon the Purchase Order.

(c) HLBE may accept or reject each Purchase Order in whole but not in part. HLBE shall notify Eco of HLBE’s acceptance or rejection of each particular Purchase Order within the time period specified in such Purchase Order, or if no time period is specified in such Purchase Order, within twenty-four (24) hours of HLBE’s receipt of such Purchase Order (in either case, the “ Acceptance Period ), and if HLBE fails to notify Eco within the Acceptance Period, HLBE shall be deemed to have rejected such Purchase Order. HLBE may accept or reject any Purchase Order orally, by e-mail or by written notice, provided, however, that Eco reserves the right to require HLBE to accept or reject any particular Purchase Order or Purchase Orders only in writing. Any Purchase Order that is accepted by HLBE is referred to in this Agreement as an “ Accepted Purchase Order ” and is binding on both parties and becomes incorporated into this Agreement. Thus, each Accepted Purchase Order becomes assimilated into this Agreement for purposes of determining the parties’ rights, duties, and/or liabilities. Notwithstanding any other term or condition of this Agreement or any Accepted Purchase Order, in the event of any inconsistency between the terms and conditions of this Agreement and any Accepted Purchase Order, this Agreement shall govern unless such Accepted Purchase Order expressly states its intent to supersede this Agreement and is in writing and signed by both Eco and HLBE. Eco shall summarize the terms of the Accepted Purchase Order in the form of a Purchase Contract (“ Purchase Contract ”).

(d) Each party shall designate one or more persons (each a “Representative”) who shall be authorized and directed to deal with the other party hereunder and to make all sales decisions on behalf of such party. All directions, transactions and authorizations given by such Representative(s) whether orally, electronically (including, without limitation, by email), by facsimile or in writing shall be binding upon the party that appointed the Representative. Both parties shall be entitled to rely on the authorization of the other party’s Representative(s) until it receives written notification from the other party that such authorization has been revoked and the name and contact information of the replacement representative(s).

3. Lease of Railcars :

(a) Eco hereby leases to HLBE railcars (the “Railcars”), and HLBE hereby

accepts the lease of the Railcars.

(b) The lease payment for each Railcar equals (collectively, the “Lease Fee”):

(i) $750 per Railcar per month for 20 Railcars, and

(c) Eco and HLBE will work together to determine the number of Railcars needed by HLBE pursuant to this Agreement, which amount shall be agreed upon by each of Eco and HLBE. If additional Railcars are determined to be necessary Eco shall provide such Railcars to HLBE at a market price.

(d) If this agreement is terminated, HLBE will be responsible to take over all rail leases assigned to HLBE, if so determined by Eco.

4. Purchase Price and Fees :

(a) The amount payable by Eco to HLBE for ethanol that is purchased by Eco pursuant to this Agreement shall be [***].

(b) The amount Payable by HLBE to Eco for services to be provided by Eco under this Agreement (the “ Marketing Fee ”) shall be [***].

5. Payment :

(a) Subject to the term and conditions set forth in this Agreement, upon Eco’s receipt from HLBE of an invoice, bill of lading, return bill of lading, and certificate of analysis, Eco will pay to HLBE by wire transfer within 10 calendar days of each unit (i.e., truck or railcar) being shipped from the HLBE facility. If HLBE desires to receive payment more expeditiously than the aforementioned 10 day payment term, Eco will act in good faith to accommodate the request; however, the expedited payment to GFE will be charged an additional daily interest expense equal to the Wall Street Journal Prime Rate plus 2.75% based on the number of days each payment is expedited.

(b) Eco shall deliver to HLBE a bill of lading that identifies the ethanol for which payment is being made, the Purchase Contract that is the subject of the payment, the Purchase Price, and the final amount being paid.

(c) Subject to the term and conditions set forth in this Agreement, upon HLBE’s receipt from Eco of an invoice, HLBE will pay to Eco by wire transfer within ten (10) days of receipt of the invoice, as reflected in the invoice:

(i) the Marketing Fee; and

(ii) the Lease Fee.

(d) Eco will negotiate all freight fees regarding the shipment of ethanol from the Plant. Eco will be responsible for remitting payment directly to all truck and rail carriers for all outbound shipments.

6. Renewable Identification Numbers : HLBE shall accurately and timely assign Renewable Identification Numbers (singly, a “ RIN ” and, collectively, “ RINs ”) for all ethanol delivered hereunder with the equivalency value of 1.0 for corn ethanol. Such RINs shall comply with the rules and regulations promulgated by the Environmental Protection Agency pursuant to the Renewable Fuels Standard (as it may hereafter be amended, restated or modified). Simultaneously with the transfer of title to any ethanol from HLBE to Eco hereunder (on invoice), HLBE shall accurately assign and transfer the RIN or RINs for such ethanol to Eco. Alternatively, if it is later determined feasible, HLBE shall permit Eco to generate, assign and transfer the RIN or RINs for such ethanol, acting as an Agent on behalf of HLBE, including, without limitation, the creation and delivery of all necessary product transfer documents as required under applicable federal laws and regulations through the EPA EMTS. Upon request, Eco shall provide HLBE with a transaction summary of all quarterly transactions; however, HLBE shall remain responsible and accountable for the correct report submission of such required reports to the EPA. If the opportunity is available to create a value from buying or selling RINs that were generated by HLBE and transferred to Eco, (i) Eco will advise HLBE of such opportunity and (ii) Eco and HLBE will strategize together how to optimize the opportunity, then (iii) any profit generated from such activity will be shared equally by both parties. Eco is obligated to provide HLBE with undenatured export offers on a continuous basis during the Term in an effort to assist HLBE in managing its Renewable Identification Number (RIN) regulatory requirements.

7. Production and Loading Reports and Schedules :

(a) HLBE shall provide to Eco production forecasts, as well as daily plant inventory balances. The aforementioned information should include at a minimum the following:

(i) quarterly production schedules that accurately specify to the greatest extent possible the ethanol production schedule at the Plant for the following six calendar months; and

(ii) a daily status report by 1000 A.M. (CST) that provides:

(1) that day’s ethanol inventory, prior day’s production, that day’s production schedule for the Plant and the estimated production for the succeeding day;

(2) the volume of ethanol then stored at the Facility;

(3) the number of Railcars at the Facility on such day that have not yet left the Facility and are:

a. empty; or

b. loaded with ethanol; and

(4) such other increased or changed information as the parties may agree.

(b) Eco shall schedule the loading and shipment of all ethanol at the Plant, and shall provide to HLBE no later than 3 p.m. on Wednesday of each week during the term of this Agreement:

(i) a loading schedule for the following week specifying the total loads to be shipped for the week, loads to be shipped for each Accepted Purchase Order, quantities of ethanol to be removed from the Plant each day and the method of transportation from the Plant (i.e. by truck or rail); and

(ii) rolling monthly estimates for the following month specifying the total loads to be shipped for the month, loads to be shipped for each Accepted Purchase Order, quantities of ethanol to be removed from the Plant each day, and method of transportation from the Plant (i.e. by truck or rail).

(c) On Monday and Wednesday of each week, Eco shall notify HLBE of the then current estimate of the dates and times that railcars and trucks that Eco has scheduled to arrive at the Facility to take delivery of Ethanol

(d) No later than 5 p.m. each Friday (or such other day and time as Eco and HLBE mutually agree) and such other times as HLBE may reasonably request, Eco shall deliver a report listing each outstanding Accepted Purchase Order, which shall include:

(i) the Accepted Purchase Order number;

(ii) the amount of ethanol of such Accepted Purchase Order previously filled and the dates on which such portion or portions were filled and the remaining volumes of ethanol to be delivered in connection such Accepted Purchase Order; and

(iii) the scheduled delivery dates for each outstanding Accepted Purchase Order.

(e) Eco and HLBE shall cooperate in coordinating production and loading schedules, including by promptly notifying the other of any changes in any production or loading reports or schedules delivered hereunder; provided, however, that Eco shall be entitled to act and rely upon the production forecasts provided to Eco by HLBE as described in Section 7 of this Agreement.

(f) No later than the fifth day of each calendar month during the Term, HLBE shall provide Eco a report specifying the number of gallons of ethanol produced by the Plant in the immediately preceding calendar month.

(g) In order to assist HLBE with analyzing the market and market opportunities, from time to time, as reasonably requested by HLBE, Eco shall deliver to HLBE a market insight report that provides indication key marked drivers, stocks and production reports. Eco agrees to make generally available to HLBE all market insight, analysis and recommendations it derives from its involvement with and knowledge of ethanol production, supplies, trading and logistics.

(h) Eco assumes responsibility for logistics, railcar, and truck schedule management through a combination of the above activities partnered with active analysis of railcar fleet traces and projections of turn times, car movements, etc.

8. Delivery, Storage, Loading, Title :

(a) The place of delivery by HLBE and pick-up by Eco for all ethanol purchased by Eco under this Agreement shall be F.O.B. the loading flange at the truck/rail load out of the Plant. HLBE shall grant and allow Eco and its agents (including, without limitation, all truck and rail carriers) reasonable access to the Plant in the manner and at the times requested by Eco in order to allow Eco to take delivery of ethanol in accordance with the loading schedules provided by Eco pursuant to Section 7 .

(b) HLBE shall confirm, no later than the next day, meter or weight certificates, bills of lading and certificates of quality analysis for the previous day’s deliveries of ethanol to Eco.

(c) Eco shall arrange for all trucks and rail cars as needed to take delivery of all ethanol. Eco shall use its commercially reasonable efforts to manage the arrival of trucks and rail cars to be at the Plant for pick-up of ethanol in accordance with Eco’s loading schedules as provided to HLBE pursuant to Section 7, or as otherwise mutually agreed by Eco and HLBE.

(d) HLBE shall provide and supply, without charge to Eco, all facilities, equipment and labor necessary to load the ethanol into trucks and rail cars (as applicable) at the Plant. HLBE shall maintain all loading facilities and equipment at the Plant in accordance with industry standards and in good and safe operating condition and repair, subject to ordinary wear and tear. Without limiting the preceding sentence, HLBE shall ensure (i) all trucks and rail cars shall be loaded to their full legal capacity (except as otherwise requested by Eco), and (ii) all trucks and rail cars shall be loaded without delay as quickly as is reasonably possible. HLBE will not pay demurrage charges for instances where truck loading is delayed due to multiple trucks arriving for loadout within the same general timeframe. In the event foreign matter or a foreign substance is discovered in any load of ethanol delivered hereunder, HLBE shall take all action (at its cost and expense) to cooperate with Eco to determine such foreign matter or foreign substance and its content. HLBE shall handle all ethanol during the loading process in a good and workmanlike manner and in accordance with Eco’s reasonable requirements and customary industry practices.

(e) Subject to Sections 10(b) and 11 , title and risk of loss for ethanol shall pass from HLBE to Eco after the loading of the ethanol into trucks and rail cars at the loading flange between the Plant and the transportation vehicle.

(f) HLBE shall provide storage space equal to 1.0M gallons at the Plant, and such storage space shall be continuously available for Eco’s use for storage of HLBE’s ethanol, without charge to Eco.

9. Quantity of Ethanol; Production :

(a) The quantity of ethanol delivered to Eco under this Agreement and loaded by truck and rail shall be definitively established by outbound meter and weight certificates obtained from meters and scales of HLBE that are properly certified as of the time of loading in accordance with any requirements imposed by any governmental or regulatory authorities and that otherwise comply in all material respects with all reasonable commercial standards and applicable laws, rules and regulations. HLBE agrees to maintain at the Plant, in good and safe operating condition and repair and in accordance in all material respects with all applicable laws, rules and regulations, truck scales or metered pumps suitable for weighing/measuring ethanol. All costs and expenses incurred in connection with obtaining such certificates, and maintaining such truck weights, shall be borne by HLBE.

(b) If HLBE determines to expand the capacity of the Plant beyond 115% of its current Annual Production Capacity, HLBE shall give Eco written notice of such expansion and of the estimated monthly production of ethanol at the Plant after such expansion, as soon as reasonably possible. Eco shall then have the first option to purchase all or any portion of the additional ethanol to be produced, under the same terms as this Agreement, as a result of such expansion if the product is not directly marketed as E85 or direct marketed product.

10. Quality of Ethanol :

(a) All ethanol sold to Eco hereunder shall meet all of the following specifications (the “ Specifications ”): (i) it shall be fuel grade, of consistent quality and composition, (ii) it shall meet the minimum quality standards set forth in Exhibit A , (iii) it shall be of merchantable quality, stable and unadulterated, (iv) it shall be suitable for lawful introduction into commerce under the laws of the United States of America and any other nation to which the ethanol is shipped, and (v) it shall not change composition during or after loading.

(b) Notwithstanding any other term or condition of this Agreement, HLBE agrees and acknowledges that it will be solely responsible for the quality of the ethanol produced at the Plant while it is within HLBE’s control.

11. Rejection of Ethanol by Eco : Eco may reject, before or after delivery to Eco, any ethanol that fails to conform to or satisfy the requirements of Section 10 . Eco shall provide HLBE written notice as soon as possible of any such rejection of ethanol.

If any ethanol is properly rejected by Eco (the “ Rejected Ethanol ”), Eco will, in its discretion:

(a) Offer HLBE a reasonable opportunity to examine and take possession of the Rejected Ethanol, at HLBE’s cost and expense, if Eco reasonably determines that the condition of the Rejected Ethanol permits such examination and delivery prior to disposal;

(b) Dispose of the Rejected Ethanol in the manner as directed by HLBE, and at HLBE’s cost and expense, subject to the requirements of applicable laws, rules and regulations and any third-party rights; or

(c) If Eco has no reasonably available means of disposing of the Rejected Ethanol, and if HLBE fails to direct Eco to dispose of the Rejected Ethanol or directs Eco to dispose of the Rejected Ethanol in a manner inconsistent with applicable laws, rules or regulations or any third-party rights, then Eco may return the Rejected Ethanol to HLBE, at HLBE’s cost and expense.

Eco’s obligation with respect to any Rejected Ethanol shall be fulfilled upon HLBE taking possession of the Rejected Ethanol, the disposal of the Rejected Ethanol or the return of the Rejected Ethanol to HLBE, as the case may be, in accordance with subparagraphs (a), (b) or (c) above.

HLBE shall reimburse Eco for all costs and expenses incurred by Eco for storing, transporting, returning, disposing of or otherwise handling Rejected Ethanol, and Eco shall provide HLBE with reasonable substantiating documentation for all such costs and expenses. HLBE shall also refund any amounts paid by Eco to HLBE for Rejected Ethanol within ten (10) days of the date of HLBE’s receipt of Eco’s written notice of the rejection. Eco shall have no obligation to pay HLBE for Rejected Ethanol, and after written approval from HLBE Eco may deduct from payments otherwise due from Eco to HLBE under this Agreement the amount of any reimbursable costs or any required refund by HLBE as described above.

If any ethanol is rejected following the transfer of title and risk of loss to Eco under Section 8(e) , title and risk of loss to the Rejected Ethanol shall automatically revert to HLBE effective upon the rejection of the ethanol.

12. Testing and Samples : If HLBE knows or has reason to believe that any ethanol sold hereunder does not conform to or satisfy the requirements of Section 10 or may be subject to rejection under Section 11 , HLBE shall promptly notify Eco so that such ethanol can be tested before entering the stream of commerce. If Eco knows or has reason to believe that any ethanol does not conform to or satisfy the requirements of Section 10 or may be subject to rejection under Section 11 , then Eco may obtain independent laboratory tests of such ethanol. If a test is initiated by Eco pursuant to the preceding sentence and the ethanol is tested and found to comply with Section 10 and to not be subject to rejection, then Eco shall be responsible for the costs of testing such ethanol. HLBE shall be responsible for all testing costs in all other circumstances.

HLBE will take an origin sample of ethanol representative of every truck and rail car loaded at the Plant, using sampling methodology that is consistent with industry standards. HLBE will label the samples to indicate the date of testing and keep records identifying specific units that were loaded

from such sample. The samples and identifying records will be retained by HLBE for sixty (60) days. Testing of sulfate levels shall be done on all ethanol produced at this Plant.

Upon written request of Eco HLBE shall deliver to Eco a composite analysis of all ethanol produced at the Plant on a monthly basis, and also at such other times and for such production periods as are reasonably requested by Eco from time to time. The composite analysis shall be in a format reasonably acceptable to Eco and HLBE.

13. Other Expenses : HLBE shall be responsible for paying all sales taxes, fees and charges assessed or imposed by any governmental authority or industry organization with respect to the export, sale and delivery of ethanol to Eco as contemplated by this Agreement, including, without limitation, taxes, fees and charges for export, import, ad valorem, value added, assessment, sales, inspection or otherwise. HLBE shall also be responsible for paying any and all local, state and federal tax liabilities. If any such taxes, fees and charges of HLBE are paid by Eco, HLBE shall promptly reimburse Eco for such fees and charges or Eco shall have a right to offset such taxes, fees and charges against amounts determined to be owed to Eco by HLBE, pursuant to Section 30 . Eco shall be responsible for any and all taxes or fees directly attributable to it after title transfer.

14. Duties of HLBE : HLBE agrees as follows:

(a) HLBE shall cooperate with Eco in the performance of the services to be provided by Eco under this Agreement in a commercially reasonable manner, including by providing Eco, in a timely manner, any records or information that Eco may reasonably request from time to time as part of Eco’s marketing of ethanol.

(b) HLBE shall use commercially reasonable efforts to (i) operate the Plant for the production of ethanol in compliance with this Agreement, and (ii) maintain the Plant in good and safe operating repair and condition, subject to ordinary wear and tear. However, nothing herein shall be deemed to require HLBE to produce any minimum amount of ethanol and, subject to any Purchase Orders accepted by HLBE pursuant and subject to Sections 2(b) and 7(0 of this Agreement, HLBE may reduce or eliminate its ethanol production for any reason without such reduction constituting a breach of this Agreement.

(c) HLBE shall promptly notify and advise Eco of any laws, rules, regulations, court orders, requirements and standards, taxes, fees or charges of any governmental authority or industry organization (or any changes thereof) which could materially impact the ethanol sold hereunder or the sale or resale thereof, or any other transactions contemplated by this Agreement.

(d) HLBE shall perform its duties and obligations under this Agreement in a commercially reasonable manner and in compliance in all material respects with all governmental laws, rules and regulations that are applicable to HLBE’s duties and obligations under this Agreement.

(e) HLBE shall advise Eco of any problems that come to its attention with respect to any ethanol sold hereunder.

(f) HLBE shall advise Eco of any matter regarding any ethanol sold hereunder that raises an issue of compliance of such ethanol with applicable governmental laws, rules or regulations or industry standards known to HLBE.

(g) HLBE shall use commercially reasonable efforts to obtain and continuously maintain in effect any and all material governmental and other consents, approvals, authorizations, registrations, licenses and permits that are necessary or appropriate for HLBE to fully and timely perform all of its duties and obligations under this Agreement, including, without limitation, all licenses, permits and other approvals that are necessary or appropriate to market and sell the ethanol sold hereunder as contemplated herein.

(h) All ethanol shall be delivered and sold to Eco by HLBE free and clear of all liens, restrictions on transferability, reservations, security interests, financing statements, licenses, mortgages, tax liens, charges, contracts of sale, mechanics’ and statutory liens and all other liens, claims, demands, restrictions and encumbrances whatsoever (collectively, “Encumbrances”).

(i) HLBE will establish and maintain at all times true and accurate books, records, documents, contracts, accounts and electronic data in accordance with generally accepted accounting principles (GAAP) applied consistently from year to year consistent with good industry practices, distinguishable from all other books and records, in respect of all transactions undertaken by such party pursuant to this Agreement.

15. Duties of Eco : Eco agrees as follows:

(a) Eco shall perform its duties and obligations under this Agreement in a commercially reasonable manner and in compliance in all material respects with all governmental laws, rules and regulations that are applicable to its performance under this Agreement.

(b) Eco shall be responsible for Eco’s relationship and dealings with all third-party purchasers of ethanol from Eco, including with respect to and for billing, collections and account servicing and management, and, except as provided in Section 5(a) , Eco shall bear all credit and collection risk with respect to Eco’s sales of ethanol to third parties.

(c) Eco shall promptly advise HLBE of any matter regarding any ethanol sold hereunder that comes to the attention of Eco and that raises an issue of compliance of such ethanol with applicable governmental laws, rules, regulations or industry standards.

(d) Eco will establish and maintain at all times true and accurate books, records, documents, contracts, accounts and electronic data in accordance with generally accepted accounting principles (GAAP) applied consistently from year to year consistent with good industry practices, distinguishable from all other books and records, in respect of all transactions undertaken by such party pursuant to this Agreement.

(e) Eco shall promptly notify and advise HLBE of any laws, rules, regulations, court orders, requirements and standards, taxes, fees or charges of any governmental authority or industry organization (or any changes thereof) which could in any way impact the ethanol bought hereunder or the purchase or resale thereof, or any other transactions contemplated by this Agreement.

(f) Eco shall use commercially reasonable efforts to obtain and continuously maintain in effect any and all governmental and other consents, approvals, authorizations, registrations, licenses and permits that are necessary or appropriate for Eco to fully and timely perform all of its duties and obligations under this Agreement, including, without limitation, all licenses, permits and other approvals that are necessary or appropriate to market and sell the ethanol sold hereunder as contemplated herein.

16. Representations and Warranties of HLBE : HLBE represents and warrants to Eco as follows:

(a) HLBE is duly organized, validly existing and in good standing under the laws of the state in which HLBE was organized, and has and shall maintain all requisite power and authority to own or otherwise hold and use its property and carry on its business as now conducted and as to be conducted pursuant to this Agreement.

(b) This Agreement has been duly authorized, executed and delivered by HLBE, and constitutes the legal, valid and binding obligation of HLBE, enforceable against HLBE in accordance with its terms. HLBE has and shall maintain all requisite power and authority to enter into and perform this Agreement, and all necessary actions and proceedings of HLBE have been taken to authorize the execution, delivery and performance of this Agreement.

(c) The execution and performance of this Agreement does not and will not conflict with, breach or otherwise violate any of the terms or provisions of the organizational or governing documents of HLBE or of any agreement, document or instrument to which HLBE is a party or by which HLBE or any of its assets or properties are bound.

(d) There is no civil or criminal action or other litigation, action, suit, investigation, claim or demand pending or, to the knowledge of HLBE, threatened, against HLBE that may have a material adverse effect upon the transactions contemplated by this Agreement or HLBE’s ability to perform its duties and obligations under, or to otherwise comply with, this Agreement.

(e) HLBE shall have good and marketable title to all ethanol to be delivered hereunder, free and clear of all Encumbrances.

(f) HLBE is now in compliance with all applicable federal, state, local and foreign laws, ordinances, orders, rules and regulations (collectively, “Laws”), other than Laws where neither the costs or potential costs of failing to comply, nor the costs or potential costs of causing compliance, would be material to HLBE or its business or assets. The definition of Laws set forth

above includes, without limitation, the Toxic Substances Control Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Air Act, the Federal Water Pollution Control Act of 1986, the Emergency Planning and Community Right-to-Know Act of 1986, the Occupational Safety and Health Act, the Resource Conservation and Recovery Act, any state equivalent thereof and all other laws related to the protection of the environment (“Environmental Laws”).

(g) HLBE has not withheld from Eco any material facts relating to HLBE’s ethanol production capabilities, and/or relating to the business operations of HLBE. Further, no representation or warranty in this Agreement, or in any letter, certificate, exhibit, schedule, statement or other document furnished pursuant to this Agreement, contains any untrue statement of a material fact.

(h) As of the date of this Agreement, HLBE has, and will at all times during the Term continuously maintain in effect, any and all governmental and other consents, approvals, authorizations, registrations, licenses and permits that are necessary or appropriate for HLBE to fully and timely perform all of its duties and obligations under this Agreement, including, without limitation, all licenses, permits and other approvals that are necessary or appropriate to market and sell the ethanol sold hereunder as contemplated herein.

(i) Throughout the Term, HLBE will have the technical capability to produce the quality of ethanol required under this Agreement.

17. Representations and Warranties of Eco : Eco represents and warrants to HLBE as follows:

(a) Eco is a corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee, and has and shall maintain all requisite power and authority to own or otherwise hold and use its property and carry on its business as now conducted and as to be conducted pursuant to this Agreement.

(b) This Agreement has been duly authorized, executed and delivered by Eco, and constitutes the legal, valid and binding obligation of Eco, enforceable against Eco in accordance with its terms. Eco has and shall maintain all requisite power and authority to enter into and perform this Agreement, and all necessary actions and proceedings of Eco have been taken to authorize the execution, delivery and performance of this Agreement.

(c) The execution and performance of this Agreement do not and will not conflict with, breach or otherwise violate any of the terms or provisions of the organizational or governing documents of Eco or of any agreement, document or instrument to which Eco is a party or by which Eco or any of its assets or properties are bound.

(d) There is no civil or criminal action or other litigation, action, suit, investigation, claim or demand pending or, to the knowledge of Eco, threatened, against Eco that

may have a material adverse effect upon the transactions contemplated by this Agreement or Eco’s ability to perform its duties and obligations under, or to otherwise comply with, this Agreement.

(e) Eco is now in compliance with all applicable federal, state, local and foreign laws, ordinances, orders, rules and regulations (collectively, “Laws”), other than Laws where neither the costs or potential costs of failing to comply, nor the costs or potential costs of causing compliance, would be material to Eco or its business or assets. The definition of Laws set forth above includes, without limitation, the Toxic Substances Control Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Air Act, the Federal Water Pollution Control Act of 1986, the Emergency Planning and Community Right-to-Know Act of 1986, the Occupational Safety and Health Act, the Resource Conservation and Recovery Act, any state equivalent thereof and all other laws related to the protection of the environment (“Environmental Laws”).

(f) Eco has not withheld from HLBE any material facts relating to Eco’s ethanol marketing capabilities, and/or relating to the business operations of Eco. Further, no representation or warranty in this Agreement, or in any letter, certificate, exhibit, schedule, statement or other document furnished pursuant to this Agreement, contains any untrue statement of a material fact.

(g) As of the date of this Agreement, Eco has, and will at all times during the Term continuously maintain in effect, any and all governmental and other consents, approvals, authorizations, registrations, licenses and permits that are necessary or appropriate for Eco to fully and timely perform all of its duties and obligations under this Agreement, including, without limitation, all licenses, permits and other approvals that are necessary or appropriate to market and sell the ethanol sold hereunder as contemplated herein.

(h) Throughout the Term, Eco will have the technical capability to market the quantity of ethanol required under this Agreement.

18. Eco Limitations :

(a) Subject to Section 29 , HLBE is responsible and liable for all non-deliveries of ethanol that it is contracted to supply to Eco hereunder. Without limiting the foregoing or HLBE’s obligations and liabilities hereunder, Eco, in conjunction with HLBE, shall reasonably assist in procuring ethanol from other suppliers to cover any such non-deliveries by HLBE; provided, however, HLBE will reimburse Eco for any losses, costs and expenses incurred by Eco relating thereto and HLBE shall remain responsible and liable for any additional expense related to any failure to supply ethanol by HLBE to Eco. In the event Eco procures product for HLBE, Eco is obligated to act in good faith and in the best interests of HLBE, and must keep HLBE informed of such procurement to the greatest extent possible.

(b) Eco shall reserve the right to refuse to do business with any party who it reasonably deems to be a credit or performance risk. At HLBE’s written request, Eco will offer guidance as to why any otherwise desirable counterparty has been deemed a credit risk unsuitable to do business with.

(c) Upon any termination of this Agreement, both parties will be responsible to take all actions reasonably necessary to complete any valid and existing Purchase Contracts.

19. Confidentiality :

(a) During the Term and for a period of three (3) years thereafter, the parties agree, to the extent permitted by law, to preserve and protect the confidentiality and terms of this Agreement, and to not disclose any terms hereof unless required by a court of competent jurisdiction or as agreed to by the other party. Both parties recognize that applicable law may require the filing of this Agreement with, or the furnishing of information to, governmental authorities or regulatory agencies. Both parties further recognize the need, from time to time, for the submission of this Agreement to affiliates, consultants or contractors performing work on, or related to, the subject matter of this Agreement. The parties agree to allow the submission of this Agreement to affiliates, consultants and contractors only if such affiliates, consultants and contractors agree to protect the confidentiality of this Agreement. In the event either party is of the opinion that applicable law requires it to file this Agreement with, or to disclose information related to this Agreement to, any judicial body, governmental authority or regulatory agency, that party shall so notify the other party in writing promptly upon learning of such requirement and prior to the disclosure or filing of this Agreement and, notwithstanding any other provision of this Section 19 , shall disclose only those portions of this Agreement required by law and shall use its best efforts to maintain the confidentiality of the remainder.

(b) In the event that HLBE is a reporting company pursuant to the Securities Exchange Act of 1934, as amended (the “ Act ”), and HLBE determines that HLBE is required to publicly disclose this Agreement or any of the terms hereof pursuant to HLBE’s obligations under the Act, then HLBE shall (i) provide prompt written notice of such determination to Eco, (ii) use its best efforts to seek the maximum level of confidential treatment of this Agreement and its terms including, specifically, seeking confidential treatment of all financial information in this Agreement, and (iii) provide Eco the opportunity to review, comment on and approve (which approval shall not be unreasonably withheld or delayed) all correspondence to and from HLBE and the Securities Exchange Commission, including requests for confidential treatment.

20. Solicitation : During the Term, both Parties agree not to interfere with, solicit, disrupt or attempt to disrupt any relationships, contractual or otherwise, between either Parties customers, employees or vendors.

21. Term and Termination :

(a) The term of this Agreement shall commence on 00:00 a.m. (CST) on November 1, 2013 and shall continue for until December 31, 2016 (the “Term”). Upon the expiration of the Term, this Agreement will automatically renew for additional consecutive terms of three (3) years each unless either party hereto gives written notice to the other at least ninety (90) days prior to the end of the Term or the then current renewal term, in which case this Agreement shall terminate at the end of the Term or such then current renewal term. Notwithstanding any other provision of this Agreement, this Agreement may be terminated as follows:

(i) By HLBE in the event of a material breach of any of the terms hereof by Eco, by written notice (by certified mail, return receipt requested) specifying the breach, which notice shall be effective fifteen (15) days after it is given to Eco unless Eco cures the breach within such 15-day period, except for a breach of Section 5(a) for which notice shall not be required and Eco shall only have five (5) days to cure.

(ii) By Eco in the event of a material breach of any of the terms hereof by HLBE, by written notice (by certified mail, return receipt requested) specifying the breach, which notice shall be effective fifteen (15) days after it is given to HLBE unless HLBE cures the breach within such fifteen (15) day period.

(iii) By either party hereto, without cause, after twelve (12) months from the 1St day of ethanol production (the “One Year Anniversary”), provided that the terminating party provides written notice of the termination to the non-terminating party ninety (90) days prior to the One Year Anniversary.

(iv) By the mutual consent of both parties on such terms as the parties may agree.

(v) By either party upon the occurrence of a Change of Control of the other party. For purposes of this section 21(a)(v), “Change of Control” shall mean (A) the acquisition by any person, not affiliated with the party, of an aggregate of more than fifty percent (50%) of the shares of voting stock of the party outstanding immediately prior to the acquisition; or (B) any sale or liquidation of all or substantially all of the assets of the party (other than to a wholly-owned subsidiary of the party), or any merger, consolidation or reorganization in which the party is not the surviving entity or the sole owner of the surviving entity.

(vi) By either party immediately in the event that the other party is in a state of bankruptcy. For purposes hereof, a party is in a state of bankruptcy in the event a voluntary or involuntary proceeding is commenced with respect to such party under any applicable bankruptcy laws of any jurisdiction to which such party is subject, or otherwise, for arrangement, reorganization, dissolution, liquidation, settlement of claims or winding up of affairs and, if involuntary, such proceeding is consented to by such party or remains undismissed for more than sixty (60) days.

(vii) By written notice pursuant to the terms of Sections 29 or 31(d) .

(b) The termination of this Agreement pursuant to the terms hereof shall not act as a waiver or release of any rights or remedies available at law, in equity or otherwise that may have accrued prior to such termination.

22. Licenses, Bonds, and Insurance : Each party represents that it now has and will maintain in full force and effect during the Term, at its sole cost, all necessary licenses, bonds and

insurance, including general commercial insurance, in accordance with applicable laws and regulations. The commercial general liability insurance policy issued to HLBE shall (i) be with an insurance carrier reasonably acceptable to the other, (ii) name Eco as an additional insured, and (iii) provide for a minimum of thirty (30) days’ written notice to the Eco prior to any cancellation, termination, nonrenewal, amendment or other change of such insurance policy. HLBE shall provide reasonable proof of such insurance to Eco upon the reasonable request of Eco from time to time.

23. Limitation of Liability : Each party acknowledges and agrees that the other party does not make any guarantee, express or implied, to the other of profit, or any particular results from the transactions hereunder. In no event shall Eco be responsible for any loss or damages resulting from a mechanical, operational, accidental, or environmental event of any kind occurring prior to the ethanol being delivered to the trucks.

24. Disclaimer : Except as otherwise required herein, the parties to this Agreement understand and agree that neither party makes any warranty to the other respecting legal or regulatory requirements and risks of the transactions contemplated hereby.

25. Indemnity :

(a) HLBE shall indemnify, defend and hold Eco (and its respective officers, directors, managers, members, shareholders, agents and representatives) harmless from claims, demands and causes of action asserted against Eco by any person (including, without limitation, employees of Eco) for personal injury or death, or for loss of or damage to property resulting from the willful misconduct or negligent acts or omissions of HLBE or any of its officers, directors, managers, employees, agents or representatives.

(b) Eco shall indemnify, defend and hold HLBE (and its respective officers, directors, managers, members, shareholders, agents and representatives) harmless from claims, demands and causes of action asserted against HLBE by any person (including, without limitation, employees of HLBE) for personal injury or death, or for toss of or damage to property resulting from the willful misconduct or negligent acts or omissions of Eco or any of its officers, directors, managers, employees, agents or representatives.

(c) Where personal injury, death or loss of or damage to property is the result of the joint negligence or misconduct of HLBE and Eco, the parties expressly agree to indemnify each other in proportion to their respective share of such joint negligence or misconduct.

26. Nature of Relationship : Each party hereto is an independent contractor providing or purchasing services or products from the other. No employment relationship, agency, partnership or joint venture is intended, nor shall any such relationship be deemed created hereby. Except as may be specifically set forth in this Agreement, each party shall be solely and exclusively responsible for its own expenses and costs of performance.

27. Notices : All notices under this Agreement shall be in writing and deemed duly given, if delivered: (a) personally by hand or by a nationally recognized overnight courier service, when

delivered at the address specified in this Section 27 ; (b) by United States certified or registered first class mail when delivered at the address specified in this Section 27 , on the date appearing on the return receipt therefor; (c) by facsimile transmission, when such facsimile transmission is transmitted to the facsimile transmission number specified in this Section 27 ; or (d) by electronic mail when such electronic mail is transmitted to the electronic mail address specified in this Section 27 :

HLBE : Heron Lake BioEnergy, LLC

ATTENTION: General Manager

ADDRESS: 91246 390 ^th Avenue

Heron Lake, MN 56137

PHONE: (507) 793-0077

FAX:

EMAIL:

Eco-Energy : Eco-Energy, LLC

ATTENTION: Executive Officer

ADDRESS: 725 Cool Springs Blvd, Suite 500

Franklin, TN 37067

PHONE: (615) 778-2898

FAX: (615) 778-2897

EMAIL:

28. Compliance with Governmental Controls; No Breach :

(a) To the extent applicable, the parties agree to comply with all laws, ordinances, rules, codes, regulations and lawful orders of any government authority applicable to the performance of this Agreement, including, without limitation, safety, health, social security, pension and benefits, wage hour laws, Environmental Laws, and laws regarding unemployment compensation, nondiscrimination on the basis of race, religion, color, sex or national origin and affirmative action (collectively, the “ Regulations ”).

(b) The parties enter this Agreement in reliance upon the Regulations in effect on the date of the Agreement with respect to or directly or indirectly affecting the ethanol to be delivered, including without limitation, production, gathering, manufacturing, transportation, sale and delivery thereof insofar as said Regulations affect the parties and their customers. In the event that at any time subsequent to the date of the Agreement, any of said Regulations are changed or new Regulations are promulgated whether by law, decree, interpretation or regulation, or by response to the insistence or request of any governmental authority or person purporting to act therefore, and the effect of such changed or new Regulation (i) is or will not be covered by any other provisions of the Agreement, or (ii) has or will have an adverse economic effect upon the parties to this Agreement or the suppliers or customers of said parties, the parties shall have the option to request renegotiation of the prices and other pertinent terms provided for in the Agreement and their respective effective dates. Said option may be exercised by either party at any time after such changed or new Regulation is promulgated by giving notice of the exercise of its option to renegotiate

prior to the time of delivery of ethanol or any part thereof. Such notice shall contain proposed new prices and terms requested. If the parties do not agree upon new prices and terms satisfactory to both parties within ten (10) days after such notice is given, either party shall have the right to terminate the Agreement at the end of said ten (10) day period.

29. Force Majeure : If any term or condition of this Agreement to be performed or observed by Eco or HLBE (other than a payment or indemnification obligation) is rendered impossible of performance or observance due to any force majeure event or any other act, omission, matter, circumstance, event or occurrence beyond the commercially reasonable control of Eco or HLBE, as the case may be (each, an “ Force Majeure Event ”), the affected party shall, for so long as such Force Majeure Event exists, be excused from such performance or observance, provided the affected party (i) promptly notifies the other party of the occurrence of the Force Majeure Event, (ii) takes all such steps as are reasonably necessary or appropriate to terminate, remedy or otherwise discontinue the effects of the Force Majeure Event, and (iii) recommences performance after the termination or discontinuance of the Force Majeure Event; provided, however, that if after thirty (30) days from the occurrence of the Force Majeure Event the affected party is still unable to perform its obligations under this Agreement, the other party may, in such party’s sole discretion, terminate this Agreement effective upon the giving of written notice to the affected party. The term “ Force Majeure Event ” includes an actual or threatened act or acts of war or terrorism, earthquake, acts of God including persistent weather conditions that materially affect the Plant’s ability to procure feedstock, receive shipments, ship ethanol, civil disturbance, hostilities, disorders, riots, sabotage, strikes, lockouts and labor disputes; provided, however, that nothing in this Section 29 is intended or shall be interpreted to require the resolution of labor disputes by acceding to the demands of labor when such course is inadvisable in the discretion of the party subject to such dispute. The term “ Force Majeure Event ” does not include (A) events affecting the performance of third-party suppliers of goods or services except to the extent caused by an event that otherwise is a Force Majeure Event; (B) changes to market conditions that affect the price of ethanol or other outputs of the Plant or corn or other feedstocks of the Plant that are not caused directly by a Force Majeure Event; (C) any obligation of either party to make payments hereunder; or (D) any event caused solely or primarily by the acts or omissions of the party claiming a Force Majeure Event.

30. Arbitration. Any dispute that arises pursuant to the Agreements shall be subject to this Section 30 as follows:

(a) In the event any dispute arises from any of the Agreements, and the parties are unable to resolve such controversy, dispute or disagreement within sixty (60) days after notice thereof is first delivered, the parties agree to submit such to arbitration in accordance with the rules of the American Arbitration Association (“AAA”). However, the parties also agree that they are not required to use the services of the AAA and may mutually agree to appoint an arbitrator to hear any dispute.

(b) Any arbitrator selected by mutual agreement of the parties shall be experienced in the matter or action that is the subject of the arbitration. The arbitrator so chosen shall be impartial and independent of both parties. If the parties cannot agree to the mutual selection of an arbitrator within twenty (20) days after the end of such thirty-day period, then any party may

in writing request AAA to select an appropriate arbitrator, and such arbitrator shall hear all arbitration matters arising under this section.

(c) Any arbitration shall take place in the county of Williamson, state of Tennessee. The decision of the arbitrator is binding and no suit at law or equity shall be instituted by any party to this agreement except to enforce the decision of the arbitrator. Any award rendered by the arbitrator shall be final and judgment may be entered on it in any court having jurisdiction.

31. General :

(a) This Agreement is the entire understanding of the parties concerning the subject matter hereof and supersedes any and all prior agreements. Additionally, if this Agreement expires and/or is terminated for any reason and there are existing Purchase Contracts that have yet to be completed at the time of such expiration and/or termination these Purchase Contracts remain legally enforceable between the parties. Any amendment to this Agreement shall only be effective and binding if in writing and executed by the parties hereto. No waiver by any party, whether by conduct or otherwise, in any one or more instances, shall be deemed or construed as a further or continuing waiver of any such term or condition.

(b) If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

(c) This Agreement is not intended to, and does not, create or give rise to any fiduciary duty on the part of any party to any other.

(d) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.

(e) All issues, questions and disputes concerning the validity, interpretation, enforcement, performance or termination of this Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee, without giving effect to any other choice of law or conflict of laws rules or provisions. The state and county courts located in Williamson County, Tennessee, or the Federal District Court for the Middle District of Tennessee shall be the exclusive forum for the adjudication of any disputes arising under the term of this Agreement and each of the parties irrevocably consents to the personal jurisdiction and subject matter jurisdiction of such courts.

(f) This Agreement may be executed in two counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may be executed by facsimile or electronic signature.

(g) Time is of the essence in the performance by each of Eco and HLBE of their obligations pursuant to this Agreement.

(h) Except as otherwise stated herein, each of Eco and HLBE shall have all rights and remedies available in law, equity or otherwise in the event of the breach of failure to perform by the other of any term or condition of this Agreement.

(i) The recitals to this Agreement are an integral part hereof and are incorporated herein by reference.

[Reminder of Page Intentionally Left Blank; Signature Page Follows.]

IN WITNESS WHEREOF, the parties hereto have executed this Ethanol Marketing Agreement as of the Execution Date.

ECO ENERGY, LLC

By: /s/ Chad Martin

Name: Chad Martin

Its: CEO

HLBE

By: /s/ Steve A. Christensen

Name: Steve A. Christensen

Its: CEO & GM

Ethanol Marketing Agreement

Signature Page

EXHIBIT A

E GRADE DENATURED FUEL ETHANOL SPECIFICATIONS

E Grade Denature Fuel Ethanol Specifications



Specification Points	Test Method	Shipments	Deliveries
Apparent Proof, 60° F	Hydrometer	Report
Or Density, 60° F	ASTM D-4052	Report

Water, Volume %, Maximum	ASTM E-203 or E-1064	1.0

Ethanol, Volume %	ASTM D-5501
Minimum		93.5	93.0
Methanol, Volume %, Maximum	ASTM D-5501	0.5

Sulfur, ppm (wt/wt), Maxium	ASTM D5453	10

Solvent Washed Gum,	ASTM D-381
Mg/100mL	Air Jet Method
Maximum		5

Potential Sulfate, mass ppm	ASTM D7319
Maximum		4

Chloride, mg/L	ASTM D-512-81
Maximum	Procedure C,	32
	Modified per D-4806
Copper, mg/L	ASTM D-1688
Maximum	Method A,	0.08
	Modified per D-4806

Acidity (as acetic acid), Mass %	ASTM D-1613
Maximum		0.007

pHe	ASTM D-6434
Minimum		6.5
Maximum		9.0

Appearance @60 F	Visual Examination	Visibly free of suspended or precipitated contaminants. Must be clear and bright.
Denaturant Content and Type
Volume %		2

Corrosion Inhibitor Additive,	Minimum treat rate	Vendor		Additive
One of the following is	10 lbs./1000 bbls.	Innospec		DCI-11 Plus
Required:	20 lbs./1000 bbls.	G.E. Betz		Endcor GCC9711
	20 lbs./1000 bbls.	Petrolite		Tolad 3222
	20 lbs./1000 bbls.	Nalco		5403
	20 lbs./1000 bbls.	Betz		ACN 13
	20 lbs./1000 bbls.	Midcontinental		MCC5011E
	13 lbs./1000 bbls.	Midcontinental		MCC5011PHE
	13 lbs./1000 bbls.	Petrolite		Tolad 3224



13 lbs./1000 bbls.	US Water Services	Corrpro 654
10 lbs./1000 bbls.	Nalco	5624A
10 lbs./1000 bbls.	Nalco	5624ATR
13 lbs./1000 bbls.	US Water Services	Corrpro 656
6 lbs./1000 bbls.	Ashland	Amergy ECI-6
3 lbs./1000 bbls.	G.E. Power & Water	8Q123ULS
10 lbs./1000 bbls.	NALCO	EC5624A Plus
6 lbs./1000 bbls.	US Water Services	Corrpro Pro NT

EXHIBIT B

PURCHASE ORDER

Eco-Energy, LLC

725 Cool Springs Blvd Suite 500

Franklin, TN 37067

[***]

DISTILLER’S GRAIN OFF-TAKE AGREEMENT
(HERON LAKE, MINNESOTA)

THIS DISTILLER’S GRAIN OFF-TAKE AGREEMENT (“ Agreement ”) is dated as of September 24, 2013, by and between HERON LAKE BIOENERGY LLC a Minnesota limited liability company (“ Producer ”), and GAVILON INGREDIENTS, LLC , a Delaware limited liability company (“ Gavilon ”) (each, a “ Party ”, and collectively, the “ Parties ”).

RECITALS:

(a) Producer owns and operates an ethanol production facility (the “ Facility ”) located in Heron Lake, Minnesota ; and

(b) Producer has agreed to sell to Gavilon, and Gavilon has agreed to purchase from Producer, all distiller’s grains produced at the Facility on the terms and conditions set forth hereinafter.

AGREEMENT:

NOW THEREFORE, in consideration of these premises and for the mutual promises and covenants contained herein, the Parties agree as follows:


1.1	Term. This Agreement shall become effective on November 1, 2013 and shall remain in effect for [***]. Thereafter, this Agreement shall continue until terminated by either Party upon no less than sixty (60) days prior written notice, provided that such termination shall have no effect with respect to any Confirmed Orders entered into prior to the effectiveness of such termination.

2. Delivery Obligations; Price and Payment.


2.1	Delivery . During the Term, Producer shall sell and make available for delivery to Gavilon, and Gavilon shall purchase and take delivery of all distiller’s grains produced at the Facility. Such distiller’s grains shall meet the applicable specifications set forth herein (“ Product ”).

2.2

Price; Payment Terms . The price for Product sold hereunder (the “Price”) shall be based on market-price bids from Gavilon’s customers, less (a) Logistics Costs and (b) the applicable Service Fee. Gavilon agrees to use commercially reasonable efforts to achieve the highest Price available under prevailing market conditions. Payments on all undisputed amounts shall be made within ten (10) business days from Gavilon’s receipt of the information set forth in Section 2.4. Payments shall be made via wire to a bank account specified by the Producer.

2.3

Logistics Costs; Fees; Net Price . For purposes of this Agreement, “Logistics Costs” means the costs, without markup, for providing services related to or connected with either (i) transporting, storing, transloading, and otherwise handling (including demurrage, and shrinkage costs unless caused by the acts or omissions of Gavilon) Product after delivery to Gavilon, or (ii) the delivery of Transport Vessels to the Delivery Point (as defined in Section 5.5) for loading. The applicable Service Fee for Gavilon purchase shall be as follows:

#2419907


2.3.1	With respect to dried distillers grains, [***].


2.3.2	With respect to wet distillers grains, [***] of wet distillers grains sold

The term “Net Price” means the delivered price of Product to the customer, less Gavilon’s Logistics’ Costs (as communicated to Producer by Gavilon at the time the Parties enter into a Confirmed Order) to deliver such Product from the Facility to the customer, expressed in dollars per ton. Thereafter, any variance in Logistics Costs occurring with respect to each such Confirmed Order shall be for Gavilon's account.


2.4	Billing Information . For each shipment of Product to Gavilon, Producer shall furnish the following in reasonable detail: (i) an invoice giving the actual quantity and date of shipment of the Product, (ii) the applicable weight certificate(s) described in Section 3.2.


2.5	Payment Verification . Any payment made pursuant to this Section will not preclude a Party from subsequently verifying payments of the other Party as permitted in Section 14.3 of this Agreement. Each party shall use commercially reasonable efforts to resolve any disputed payment amounts within 72 hours of the time notice of such dispute was received by the non-disputing party.

2.6

Taxes . Producer shall pay or cause to be paid all valid levies, assessments, duties, rates and taxes (together “ Taxes ”) on Product delivered hereunder that arise prior to, or as a result of, the sale and delivery of Product at the Delivery Point. Gavilon shall pay or cause to be paid all Taxes, including fuel or excise Taxes, on Product that arise after the sale (other than third-party sales) and delivery of Product to Gavilon at the Delivery Point.

3. Quantity and Quality.


3.1	Delivery . Delivery and receipt of Product purchased hereunder shall take place at the applicable Delivery Point (as defined in Section 5.5) in accordance with the corresponding Confirmed Order. The Parties shall establish a mutually agreed Delivery Schedule as defined and described in Exhibit “A” .

3.2

Quantities . The quantity of Product delivered to Gavilon shall be established by outbound weight certificates, as evidenced by the weight documentation provided by Producer. The certificates shall be obtained daily from either scales or other metering devices which are certified as of the time of weighing and which comply with all applicable laws, rules and regulations. Gavilon shall have the right to test such scales or devices at any time provided that such testing shall not cause any unreasonable disruption to Producer’s operations at the Facility.

3.3

Standards . Producer understands that Gavilon intends to sell the Product as a primary animal feed ingredient and that such Product are subject to minimum quality standards for such use. Producer agrees and warrants that the Product shall be accepted in the feed trade under current industry standards, shall fully comply with any applicable state and federal laws governing quality of product, and shall be free and clear of liens and encumbrances.


3.4	Specifications . Producer warrants that unless otherwise mutually agreed in writing all Product sold hereunder shall, at the time of delivery to Gavilon, conform to the minimum quality requirements set forth in this Section 3.4. The values quoted below are on an “as

fed” basis. Each shipment of Product shall include a copy of the guaranteed analysis, which shall be registered with the State of Minnesota. Producer may modify the specifications set forth in this Section 3.4 upon no less than 60 days written notice to Gavilon, provided that the specifications of Product that is the subject of a Confirmed Order may only be modified upon mutual written agreement of Gavilon and Producer.



Dried Distillers Grains
	Crude Protein		Crude Fat		Crude Fiber		Moisture
	Min	Max	Min	Max	Min	Max	Min	Max
	25		7.0			15		12.5

Wet Distillers Grains
	Crude Protein		Crude Fat		Crude Fiber		Moisture
	Min	Max	Min	Max	Min	Max	Min	Max
	11		4.0			5.5		60

3.5

No Adulteration or Misbranding . Producer warrants that at the time of loading, the Product will not be adulterated or misbranded within the meaning of the Federal Food, Drug and Cosmetic Act and that each shipment may lawfully be introduced into interstate commerce under such Act. Payment of invoices does not waive Gavilon’s rights if the Product do not comply with terms or specifications of this Agreement.


3.6	Product Certification. Weekly samples from Product will be sent to an outside laboratory for testing by Producer to ensure the Product conform to the specifications in Section 3.4. The results of such test will be forwarded from Producer to Gavilon upon receipt at the Facility.


3.7	Samples . Producer agrees to maintain a representative daily aggregate sample for a period of three (3) months. Producer will retain these samples and shall provide Gavilon access to such samples promptly upon request.

3.8

Nonconforming Product . If within five (5) days after arrival at customer Product are found to be out of specification by Gavilon or by an independent laboratory using industry approved analysis and sampling methods (“ Nonconforming Product ”), such condition will be promptly communicated to Producer. Gavilon will provide a copy of the certified laboratory report(s) evidencing the Nonconforming Product along with available chain of custody documentation. Producer may, within the succeeding five (5) days of receipt of such notice, take steps to refute or verify such nonconformance, including by obtaining an independent certified lab test and by observing conditions at the customer’s site that may impact test results including chain of custody of sample. All disputes regarding nonconforming product shall be settled pursuant to NGFA rules. Upon verification of such nonconformance, Producer will then direct Gavilon to either (i) sell the Nonconforming Product at a discounted

price, or (ii) return the Nonconforming Product to Producer. If such Nonconforming Product are not discountable, Producer may replace the Nonconforming Product with an acceptable type and/or quality of Product within five (5) days of receipt of written notice that the delivered Product are nonconforming and that such nonconformance has been confirmed. In the event Producer cannot replace the Nonconforming Product within the five (5) day period, Gavilon shall have the option to return the Nonconforming Product, withhold payment therefor and purchase replacement Product. Producer will be responsible for all direct costs of replacing or disposing of any Nonconforming Product, including any costs reasonably incurred by Gavilon as a result of the Nonconforming Product and/or any unreasonable delay by Producer in obtaining conforming Product. Such costs may include, without limitation, reasonably incurred storage costs or costs reasonably incurred by Gavilon to return such Nonconforming Product to Producer. If such Nonconforming Product are sold by Gavilon at a discount, the Price payable by Gavilon will be calculated in the normal manner.

3.9

Quality Control Procedures. Upon Producer’s receipt of the applicable truck or railcar, as (the “Transport Vessel”) and prior to product loading in each such Transport Vessel, Producer will visually inspect for equipment integrity, safety, and potential contamination. Producer shall notify Gavilon immediately in the event any Transport Vessel does not meet the minimum requirements. In the event a Transport Vessel provided by Gavilon is unsuitable for loading due to any of the aforementioned reasons, Gavilon shall arrange for a substitute Transport Vessel to arrive for loading within twenty-four (24) hours of Producer’s notification to Gavilon, or such longer period of time as may be agreed between Producer and Gavilon acting in a commercially-reasonable manner.

4. Third-Party Sales; Shortfalls.

4.1

Third-Party Sales. Section 2.1 notwithstanding, should Producer receive offers to purchase Product (i) in which delivery would occur more than fifteen (15) days forward, and (ii) at prices that would be more favorable to Producer than the gross price (exclusive of Service Fee) offered by Gavilon (but on terms that are otherwise customary and comparable to those set forth herein), Producer shall give Gavilon written notice of the delivery terms, quantity and sales price available to Producer as well as the third party offering those more favorable terms. If Gavilon does not match the third-party terms within one (1) business day of receipt of such notice, Producer may then sell Product to such third party in the quantities and prices as notified to Gavilon. In such event, at Producer’s written request, Gavilon shall generally assist Producer with the logistics relating to third-party sales. To the extent Producer requests Gavilon to assist with logistics of third-party sales, Producer shall pay Gavilon a service fee equal to [***]. No third-party sales shall affect any Confirmed Orders (as defined in Exhibit “A” ) previously established between the Parties unless agreed upon in writing by both Parties.

4.2

Purchase Shortfall . If Gavilon fails to purchase and take delivery of any quantities of Product specified in Confirmed Orders, and Producer after using commercially reasonable efforts to mitigate any damage, has produced and must sell such Product to a substitute purchaser at a price lower than the applicable Price, Gavilon shall pay Producer the amount by which the applicable Price exceeds the actual sales price per ton, multiplied by the number of tons sold to the substitute purchaser. If Producer exercises commercially reasonable efforts and is still unable to sell any such Product to a substitute purchaser, then Gavilon

shall pay Producer an amount equal to the Price multiplied by the entire unsold portion. Gavilon shall remit payment within five (5) business days following the invoice date and receipt of supporting documentation. In either case, Gavilon shall also pay any additional costs solely and directly incurred by Producer to identify a substitute purchaser, to store the Product until they can be sold or disposed of, or to dispose of the Product remedy specified in this Section 4.2 shall be Producer’s sole and exclusive remedy in the event Gavilon fails to purchase and take delivery of the Product specified in the Confirmed Order.

4.3

Delivery Shortfall . If Producer fails to make available for purchase the quantity of Product specified in Confirmed Orders, and Gavilon, using commercially reasonable efforts to mitigate any damage, is unable to obtain a substitute supply of Product at a price equal to or less than the Price, Producer shall pay Gavilon the amount by which the Price is less than the price paid by Gavilon for substitute supply, multiplied by the delivery shortfall (Confirmed Order quantity less the amount actually delivered by Producer); plus any additional costs solely and directly incurred by Gavilon to identify a substitute purchaser. Such payment shall be remitted within five (5) business days following the invoice date and receipt of supporting documentation. The remedy specified in this Section 4.3 shall be Gavilon’s sole and exclusive remedy in the event that Producer fails to supply the quantity of Product specified in the Confirmed Order.

5. Transportation and Logistics.

5.1

Logistics Responsibilities . Gavilon shall be responsible for the management of logistics which arise prior to the Transport Vessel reaching the Delivery Point, and which arise after the Product is completely loaded onto the Transport Vessel (“ Delivery ”). This responsibility will include the management of Producer’s railcar fleet as further described in Section 5.6. Producer shall be responsible for all logistics that arise once the Transport Vessel has reached the Delivery Point up through Delivery. Gavilon will be responsible for monitoring logistics while the Transport Vessel is at destination to ensure efficient offloading. Gavilon will secure and maintain all licenses, documents and contracts necessary to transport Product following Delivery.

5.2

Hours of Operation. Producer shall use commercially reasonable efforts to keep the Facility open for truck delivery between the hours of 7:00 am to 5:00 pm Monday through Friday (“ Normal Operating Hours ”). Gavilon may from time to time request that the Facility be accessible during other times or days. Producer will attempt to accommodate these requests provided Gavilon pays for any associated overtime costs incurred by Producer. Producer will promptly notify Gavilon in advance of scheduled events where truck delivery will not be possible. In instances where an unscheduled event makes truck delivery impossible, Producer will immediately notify Gavilon so that Gavilon may contact the applicable carriers.

5.3

Producer’s Demurrage Obligations . Producer’s responsibility for Demurrage if actual Demurrage compensation is sought, for trucks will begin to accrue after the second (2nd) hour waiting to load at the Facility provided the truck arrived during Normal Operating Hours. For purposes of this Agreement, the term “ Demurrage ” includes all costs, damages, penalties and charges resulting from any delay in loading and/or unloading of DDG shipments, whether due to mechanical failure or other event outside the course of normal

operations but not including delays resulting from the occurrence of multiple trucks arriving to load within the same general time period.

5.4

Notification of Problems with Delivery . Producer shall inform Gavilon of any problem regarding any shipment of Product, without delay, by fax, telephone, or email, after Producer becomes aware of any such problem. This may include an event that could result in an unscheduled Facility shutdown, or the possible event that one or more Product orders are not available from Producer in the quantity originally set out in the Confirmed Order. Gavilon shall inform Producer of any problems in delivering Transport Vessels in accordance with the Delivery Schedule.

5.5

Delivery Point. For purposes of this Agreement, the term “ Delivery Point ” means, with respect to Transport Vessels, the location at the Facility where the Transport Vessel is received for loading, as follows: the Delivery Point for railcar shipments is the railroads’ “constructively placed” designation; and the Delivery Point for trucks is the arrival of the truck at the Facility within the loading hours specified in this Agreement. “Delivery Point” means, with respect to Product, the location at the Facility where the loading of Product is completed on railcars or trucks, as follows: the Delivery Point for railcar shipments is the railroads’ “constructively placed” designation and the Delivery Point for truck shipments is the departure of the loaded truck from the Facility.

5.6

Railcars. Producer will provide at its cost and expense all railcars required for Gavilon to deliver the Product sold hereunder. Consequently, railcar lease costs will not be included in Logistics Costs. In the event Producer experiences a shortage of railcars, Gavilon will sublease, on a monthly basis, such railcars as it may have available upon request by Producer. The monthly sublease charges will be based on market value (values proposed by Gavilon and accepted by Producer) lease costs and will be deducted from amounts otherwise payable by Gavilon to Producer.

6. Possession and Title .


6.1	Title; Risk of Loss . Title to and risk of loss in Product purchased hereunder shall pass from Producer to Gavilon upon Delivery. Until such time, Producer shall be deemed to be in control of and in possession of and shall have title to and risk of loss in the Product.

6.2

Responsibility for Product . Gavilon shall have no responsibility or liability with respect to any Product until Delivery thereof pursuant to this Agreement. Without prejudice to Gavilon’s right to reject Nonconforming Product as set forth in Section 3 and without affecting Producer’s liability for the Delivery of Nonconforming Product, Producer shall have no responsibility or liability with respect to Product after its Delivery.

7. Producer Representation


7.1	Producer represents and warrants that entry into this Agreement with Gavilon will not cause and/or result in a breach of any agreement in existence between Producer and any other party and that Producer is fully able to perform the terms of this Agreement and doing so will not result in or cause a breach of any obligation and/or duty that Producer has to any other Party.

8. Default and Termination.


8.1	Events of Default . The occurrence of any of the following shall be an “ Event of Default ” under this Agreement:


8.1.1	Breach by either Party in the performance of any material covenant or agreement set forth in this Agreement (subject to Section 8.1.3) and such breach continues uncured for more than thirty (30) days following written notice thereof from the non-defaulting Party; or

8.1.2

If either Party becomes insolvent or generally fails to pay its debts as they come due, or makes a general assignment for the benefit of creditors or to an agent authorized to liquidate any substantial amount of its assets, or is adjudicated bankrupt or has a receiver or custodian appointed with respect to a substantial part of its property, or files a petition in bankruptcy, or applies to a court for the appointment of a receiver for any of its assets or properties; or


8.1.3	If either Party fails to make payment hereunder within five (5) business days following receipt of written notice from the non-defaulting Party; or


8.1.4	The making of a materially incorrect or misleading representation or warranty under this Agreement; or

8.2

Remedies; Termination. Upon an Event of Default, the non-defaulting Party shall notify the other Party thereof and shall have available all remedies set forth in this Agreement. Without limiting the foregoing, if an Event of Default occurs and is not waived, the non-defaulting Party may immediately terminate or suspend performance under this Agreement by promptly thereafter delivering written notice thereof to the other Party. The defaulting Party shall be responsible for any other costs and expenses (including, without limitation, reasonable attorneys’ fees and disbursements) incurred by the non-defaulting Party in connection with an Event of Default.

8.3

Right to Close Out Transactions. Upon an Event of Default, the non-defaulting Party shall (in addition to any other rights or remedies available to it, whether at law or in equity, by contract or otherwise) have the right, upon twenty four (24) hours notice to the defaulting Party to liquidate and terminate any or all transactions then outstanding between the Parties (except to the extent that in the good faith opinion of the non-defaulting Party certain of such transactions may not be closed out and liquidated under applicable law) at any time and from time to time. No such notice shall be required with respect to termination pursuant to Section 8.2. The non-defaulting Party shall then calculate, in a commercially reasonable manner, a Settlement Amount (as defined below) for each transaction as of the time of its termination or as soon thereafter as is reasonably practicable and shall net such Settlement Amounts in the manner provided for below.

The Settlement Amount shall be due to or from the non-defaulting Party as appropriate. In calculating a Settlement Amount, the non-defaulting Party shall discount to present value (in a commercially reasonable manner based on rates for the applicable period) any amount which would otherwise have been due at a later date and shall add interest (at a rate determined in the same manner) to any amount due prior to the date of the calculation.

The non-defaulting Party shall set off (i) all such Settlement Amounts that are due to the defaulting Party, plus any margin then held by the non-defaulting Party, plus (at the non-

defaulting Party’s election) any or all other amounts due to the defaulting Party under this Agreement, against (ii) all such Settlement Amounts that are due to the non-defaulting Party, plus (at the non-defaulting Party’s election) any or all other amounts due to the non-defaulting Party under this Agreement or otherwise, so that all such amounts shall be netted to a single liquidated amount (“ Net Settlement Amount ”) payable by one Party to the other. The Party with the Net Settlement Amount shall pay such amount to the other Party within one (1) business day of demand therefor.

If an Event of Default occurs, the non-defaulting Party (at its election) may set off any or all amounts which the defaulting Party owes to it (whether under this Agreement or otherwise and whether or not then due) against any or all amounts which it owes to the defaulting Party (whether under this Agreement or otherwise and whether or not then due), provided that any amount not then due which is included in such setoff shall be discounted to present value as at the time of setoff (to take account of the period between the date of setoff and the date on which such amount would have otherwise been due).

For purposes of this Agreement, “ Settlement Amount ” means, with respect to each transaction arising under a Confirmed Order, the losses and costs (or gains), which the non-defaulting Party incurs as a result of a liquidation pursuant to this Section 8.3 including, but not limited to, losses and costs (or gains) based upon the then-current replacement value of such transaction (taking into account any portion of the Confirmed Order quantity already delivered as of the liquidation), together with, at the non-defaulting Party’s option but without duplication, all losses and costs which such Party incurs as a result of maintaining, terminating, obtaining, or re-establishing any hedge or related trading positions.

9. Confidentiality.

9.1

Nondisclosure of Confidential Information . Each Party acknowledges that, by reason of this Agreement it and its principals, employees, advisors, lenders, and affiliates may receive confidential or proprietary information belonging to the other Party. In no event will the terms and conditions of this Agreement be disclosed except to the extent required by applicable law or as agreed upon in writing by both Parties. The confidentiality obligations hereunder shall survive any expiration or termination of this Agreement. Notwithstanding the foregoing, confidential information may be delivered to third parties for the sole purpose of calculating a published pricing index.

9.2

Announcements . Any public statements, press releases, and similar announcements concerning the negotiation or consummation of the transactions contemplated hereby, including such statements made by any representative of the Parties, shall be jointly planned and coordinated by the Parties. Neither Party shall issue any such statement without the prior review (for which the reviewing Party shall have a minimum of five (5) business days) and consent of the other Party, which consent shall not be unreasonably withheld or delayed. In no event will the terms and conditions of this Agreement be disclosed except to the extent required by applicable law.

10. Limitation of Liability; Indemnification; Insurance.


10.1	Limitation of Liability . Without limiting any express remedies set forth in this Agreement, and except for any acts of willful misconduct or fraud, or damages arising from third-party product liability and product warranty claims, neither Producer nor Gavilon will be liable

to each other or any third party for any indirect, consequential, punitive, exemplary or special damages, loss of business expectations, lost profits, or business or facility interruption or shut-down costs.

10.2

Indemnification . Each Party (the “ Indemnitor ”) shall release, defend, indemnify and hold harmless the other party, its affiliates, its contractors, and their respective members, partners, directors, officers, shareholders, managers, employees, agents and representatives from and against any and all losses, damages, fines, liens, levies, penalties, claims, demands, causes of action, suits, legal or administrative proceedings, orders, governmental actions and judgments of every kind and character, and any and all costs and expenses (including, without limitation, reasonable attorneys’ fees, reasonable expert witness fees, and court costs) related thereto (collectively, “ Claims ”) which arise out of, result from or relate in any way, directly or indirectly, to (a) a breach of this Agreement by the Indemnitor, or (b) the acts or omissions hereunder of the Indemnitor or its affiliates, contractors, and their respective members, partners, directors, officers, shareholders, managers, employees, agents and representatives.

Producer shall specifically defend, indemnify and hold Gavilon (and its respective Indemnitee Group) harmless from and against any and all Claims asserted by third parties that arise from the condition or quality of the Product sold hereunder, except to the extent such Claims are the result of the acts or omissions of Gavilon, its agents or any third party following Delivery hereunder.

The Party claiming indemnification shall give prompt written notice to the Indemnitor of any matter for which the Indemnitor may become liable under this provision. Such notice shall contain full details of the matter in order to provide the Indemnitor with sufficient information to assess its potential liability and to undertake defense of the Claim. The indemnified Party shall have the right at all times to participate in the preparation for and conducting of any hearing, trial or other proceeding related to the provisions of this Section, as well as the right to appear on its own behalf at any such hearing, trial or other proceeding. Any such participation or appearance by the indemnified Party shall be at its sole cost and expense. The indemnified Party shall cooperate in all reasonable respects with the Indemnitor and its counsel in defending any Claims and shall not take any action that is reasonably likely to be detrimental to such defense. The Indemnitor shall obtain written approval from the indemnified Party prior to any settlement that might impose obligations or restrictions on the indemnified Party.


10.3	Insurance. Each Party shall, during the Term, provide the insurance coverages as set forth in Exhibit “B” .

11. Force Majeure.

11.1

Force Majeure . In the event either Party hereto is rendered unable by reason of Force Majeure, to carry out its obligations under this Agreement, such Party shall promptly give written notice and reasonably complete particulars of such Force Majeure to the other Party stating the obligation(s) the performance of which are, or are expected to be, delayed or prevented. Notwithstanding anything herein to the contrary, the obligations of the notifying Party shall be suspended during and to the extent affected by Force Majeure and such event shall, so far as possible, be remedied with all reasonable dispatch.

11.2

Definition of Force Majeure . The term “ Force Majeure ” shall mean any act, event or circumstance not reasonably within the control of the Party claiming suspension and which, by the exercise of due diligence, such Party is unable to prevent or overcome. Such term shall include, but not be limited to: (i) acts of God, (ii) strikes, lockouts or other industrial acts of the public enemy, (iii) wars, blockades, insurrections, riots, epidemics, acts of terrorism, (iv) transportation shortages, (v) landslides, lightning, earthquakes, fires, storms, floods, washouts, (vi) civil disturbances, and (vii) explosions. The term “Force Majeure” shall specifically include those events affecting any of Gavilon’s transporters of Product as well as regulatory changes which make the production and sale of Product unfeasible, but shall otherwise exclude any economic or commercial changes involving the production of Product.

12. Risk Management; Reporting .


12.1	Monitoring of DDG Positions . Gavilon will monitor DDG sales made hereunder and may, from time to time, make suggestions concerning Producer’s risk management program and the position of its DDG sales for future physical delivery.

12.2

Marketing Conditions . On an as needed basis, but not less frequently than weekly, Gavilon will review with Producer market conditions relating to Product, and forward marketing strategies in an attempt to assist Producer in maximizing its revenue on DDG sales. It is understood by Producer that all risk management services must be tied to a valid written purchase contract requiring physical delivery of Product to Gavilon.

12.3

No Liability . Producer recognizes that Gavilon’s monitoring of DDG positions, periodic suggestions, review of market conditions and risk management services are informational and optional, and that the final decisions considering sales and risk management strategies, and the implementation of such strategies, will be made by, and is the sole responsibility of, Producer. Gavilon is not responsible for any Producer losses or entitled to any Producer gains resulting from risk management information supplied by Gavilon.

13. Notices. Except as specifically otherwise provided herein, any notice or other written matter required or permitted to be given hereunder by one Party to the other Party shall be deemed to be sufficiently given if delivered by hand or by nationally-recognized overnight courier, or sent by U.S. mail (certified mail, return receipt requested), and addressed as follows:

If to Gavilon: Gavilon Ingredients, LLC

Eleven ConAgra Drive, STE 11-160

Omaha, NE 68102-5011

Attn: VP, Ingredients

With copy to: Legal Department

Gavilon Ingredients, LLC

Eleven ConAgra Drive, STE 11-160

Omaha, NE 68102

If to Producer: Heron Lake BioEnergy, LLC

91246 390th Avenue

Heron Lake, MN 56137

Attn: Eric Baukol

Any notice or other written matter shall be deemed to have been given and received: if delivered by hand, on the date of delivery; and, if sent by telecopy, on the business day following the sending of the notice.

14. Miscellaneous.

14.1

Assignment . Neither Party may assign any of its rights or obligations under this Agreement without the prior written consent of the other Party, not to be unreasonably withheld. A change in fifty percent (50%) or more in the ownership of a Party shall be construed to be an assignment for purposes of this Section. The above notwithstanding, either Party may, without the need for consent from the other Party: (i) transfer, sell, pledge, encumber or assign this Agreement, including the revenues or proceeds hereof, in connection with any financing arrangements; (ii) transfer or assign this Agreement to an affiliate as long as the affiliate is at least as creditworthy as the other Party; or (iii) transfer or assign this Agreement to an entity succeeding to all or substantially all of the assets of the other Party by way of merger, reorganization or otherwise. No assignment permitted hereunder shall in any way relieve the assigning Party from liability for full performance hereunder.

14.2

Records. Each Party will establish and maintain true and accurate books, records and accounts relating to their own transactions under this Agreement with respect to all Prices charged, payments made, and quantities of Product delivered hereunder. These books, records and accounts will be preserved by the applicable Party for a period of at least one (1) year after the expiration of the term of this Agreement, but in no event longer than seven (7) years from the date of creation.

14.3

Audit Rights. Upon five (5) business days notice and during normal business hours each Party has the right to audit such books, records and accounts of the other Party to the extent necessary in order to verify the accuracy of any statement, charge, computation or demand made under or pursuant to any provision of this Agreement. If any material error is discovered in any statement rendered hereunder, such error will be adjusted within seven (7) days from the date of discovery, but no adjustment will be made for errors discovered more than two years after delivery and receipt of such statements. Any error or discrepancy detected which has led to an overpayment or an underpayment between the Parties shall be corrected by an appropriate balancing payment to the underpaid Party or by a refund by the overpaid Party.


14.4	Inurement . This Agreement will inure to the benefit of and be binding upon the respective successors and permitted assigns of the Parties.

14.5

Entire Agreement . This Agreement and the Exhibits attached hereto constitute the entire agreement between the Parties with respect to the subject matter contained herein and any and all previous agreements, written or oral, express or implied, between the Parties or on their behalf relating to the matters contained herein are hereby terminated and canceled. In the event of a conflict between the terms of this Agreement and any Confirmed Orders, this Agreement shall govern.

For avoidance of doubt, the Parties agree that the provisions of Sections 8, 9, 10, and 12 of the Terms and Conditions of a sales contract sent for any Confirmed Orders between Producer

and Gavilon shall not apply provided that, such exclusion shall in no way render any provisions of this Agreement (including, without limitation, Section 8 of this Agreement) inapplicable.


14.6	Amendments . There will be no modification of the term and provisions hereof except by the mutual agreement in writing signed by the Parties.

14.7

Financial Information. If requested by a Party hereto, the other Party shall deliver within one hundred twenty (120) days following the end of each fiscal year, a copy of its audited consolidated financial statements for such fiscal year certified by independent certified public accountants. In all cases the statements shall be for the most recent accounting period and prepared in accordance with generally accepted accounting principles, consistently applied; provided, however, should any such statements not be available timely due to a delay in preparation or certification, such delay shall not be considered a default so long as the Party providing the statements diligently pursues the preparation, certification and delivery of the statements. Notwithstanding the foregoing, Gavilon shall not be obligated to provide such financial information until Producer signs a nondisclosure agreement, in a form acceptable to Gavilon, pertaining to such information.

14.8

Trade Rules; Governing Law; Venue . All purchases and sales made hereunder shall be governed by the Feed Trade Rules of the National Grain and Feed Association (“ NGFA ”). In the event of a conflict between the terms set forth in this Agreement and the NGFA Rules the terms set forth herein shall control. The Agreement will otherwise be interpreted, construed and enforced in accordance with the procedural, substantive and other laws of the State of Nebraska without giving effect to principles and provisions thereof relating to conflict or choice of law even though one or more of the Parties is now or may do business in or become a resident of a different state. All disputes arising out of this Agreement shall be submitted to binding arbitration in accordance with the NGFA Rules. EACH PARTY HEREIN WAIVES ITS RESPECTIVE RIGHT TO ANY JURY TRIAL WITH RESPECT TO ANY LITIGATION ARISING UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY CONFIRMED ORDER.


14.9	Cumulative Remedies . Unless otherwise specifically provided in this Agreement, the rights, powers, and remedies of each of the Parties provided in this Agreement are cumulative and the exercise of any right, power or remedy under this Agreement does not affect any other right, power or remedy that may be available to either Party under this Agreement or otherwise at law or in equity.


14.10	No Partnership . This Agreement shall not create or be construed to create in any respect a partnership or any agency or joint venture relationship between the Parties.


14.11	Costs To Be Borne by Each Party . Producer and Gavilon shall pay its own costs and expenses incurred in the negotiation, preparation and execution of this Agreement and of all documents referred to in it.


14.12	Counterparts . This Agreement may be executed in any number of counterparts with the same effect as if Producer and Gavilon had signed the same document and all counterparts will be construed together and constituted as one and the same instrument.


14.13	Severability . Any provision of this Agreement, which is or becomes prohibited or unenforceable in any jurisdiction shall not invalidate or impair the remaining provisions of this Agreement, and the remaining terms of this Agreement shall continue in full force and effect.

14.14

Forward Contract/Forward Contract Merchants. The Parties agree that each of them is a forward contract merchant as set forth in 11 U.S.C. §101 (25). The Parties also agree that this Agreement is a forward contract as defined in 11 U.S.C. §101 (25). The payments and transfers described herein shall constitute “ Settlement Payments ” or margin as set forth in 11 U.S.C. §§ 101 (51A) and (38).

14.15

Headings; Construction . The article and section headings used herein are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. Unless the context of this Agreement otherwise requires, (i) words using the singular or plural number shall also include the plural or singular number, respectively; and (ii) the terms “hereof,” “herein,” “hereby,” “hereto,” and derivative or similar words shall refer to this entire Agreement. The Agreement is the product of negotiation by and among the Parties hereto. The Agreement shall be interpreted and constructed neutrally as to all Parties, without any Party deemed to be the drafter of the Agreement. Any word, phrase or expression that is not defined in this Agreement and that has a generally accepted meaning in the custom and usage in the renewable fuels industry shall have that meaning in this Agreement.


14.16	Waiver . No delay or omission in the exercise of any right, power, or remedy hereunder shall impair such right, power, or remedy or be construed to be a waiver of any default or acquiescence therein.

IN WITNESS WHEREOF the Parties have executed this Agreement as of the date first above written.

GAVILON INGREDIENTS, LLC HERON LAKE BIOENERGY, LLC

By: /s/ Corey Dencklau By: /s/ Steve A. Christensen

Name: Corey Dencklau Name: Steve A. Christensen

Title: VP of Ingredients Title: CEO & GM

EXHIBIT “A”

PLANNING, ORDERING AND DELIVERY OF PRODUCT

1. Delivery Schedule . The parties shall jointly develop a schedule (the “ Delivery Schedule ”) that will serve as the formal planning tool for Product to be delivered.

The specific format of the Delivery Schedule will be mutually created by the Parties. Gavilon shall review the initial draft of the Delivery Schedule and advise Producer of inventory management, transportation and logistics issues upon receipt. Gavilon shall amend the Delivery Schedule to reflect dates and quantities for each Delivery of Product under Confirmed Orders, and the expected mode of transport for these shipments. The Delivery Schedule will be updated and submitted daily each morning to reflect prior day’s Deliveries or other operational changes. Producer will be notified immediately when new truck orders for Delivery added during a day to be picked up that same day occur. Producer and Gavilon will establish at the start of each week how many rail Deliveries are to be expected and which days they will occur on. Producer will update Gavilon as needed on changes to this schedule.

2. Confirmed Orders . Each purchase and sale of Product hereunder shall be consummated by conversational approval via phone, email or instant message acknowledged by Gavilon and Producer (each, a “ Confirmed Order ”) and shall be evidenced by a separate sales contract, sent by Gavilon to Producer, substantially in the form of Exhibit “C” attached hereto. Each Confirmed Order shall specify the quantity, Delivery date(s), the Price, or Price referenced to a Market Value, and any such other information as the Parties may agree to include. Producer shall execute the applicable Confirmed Order and email the executed document to Gavilon. Confirmed Orders may be executed in counterpart and signatures exchanged by email shall be binding to the same extent as the original, with the executing Party waiving any requirement that the receiving Party produce or otherwise evidence the existence or delivery of the original. To the extent that any terms of any Confirmed Order conflict with the terms of this Agreement, the terms of this Agreement shall govern, unless, both Parties have specifically expressed their intent in writing to supersede the terms of this Agreement.

3. Forward Liquidity and Market Tenor . It is understood that the forward tenor on all bids will be based on, and limited by, market volatility and other factors including Producer’s creditworthiness.

4. Delivery Schedule Deviations . The Parties recognize the need to maintain a degree of flexibility to accommodate unexpected changes in the Facility operating capacity, and changing Product market conditions. Upon notification by either Party of any deviations that potentially impact the normal business operations of the Producer, Gavilon or the end user to the Delivery Schedule, the Parties agree to work in good faith to jointly resolve any such discovered deviations and correct such deviations within fifteen (15) days following first notification.

5. Liability Disclaimer . Each of the Parties understands and agrees that except for quantity, type, quality and price quotations confirmed by the Parties in Confirmed Orders pursuant to this Exhibit “A” , the planned production rates, estimated costs, pricing and market information, and all other information furnished by the Parties in the preparation of the Delivery Schedules is for planning and informational purposes only. Neither Party shall be responsible to the other for any actions taken in reliance on such estimates, plans and other information.

6. Contact Information . Each Party shall appoint at least one (1) person to act as the point of contact regarding delivery coordination, preparation of Delivery Schedules, orders and order confirmation, and other technical and logistical questions relating to Product or the delivery thereof. The respective contact persons shall, unless notified otherwise, be as follows:

Producer:

Eric Baukol

Heron Lake BioEnergy, LLC

91246 390th Avenue

Heron Lake, MN 56137

Phone: 320-564-3100

E-Mail: ebaukol@granitefallsenergy.com

Gavilon: Corey Dencklau

Eleven ConAgra Drive (11-160)

Omaha, NE 68102

Phone: (402) 889-4397

E-Mail: Corey.Dencklau@gavilon.com

EXHIBIT “B”

INSURANCE COVERAGES

Each Party shall purchase, maintain and provide proof (via Certificate of Insurance) of the following insurance:

A. Commercial General Liability Insurance - $2,000,000 per occurrence and $2,000,000 aggregate. Such Policy shall include coverage for liability resulting from Premises/Operations, Products and Completed Operations, Blanket and Contractual Liability, Products Liability, Personal Injury and Advertising Injury. Policy shall also included coverage for Broad Form Property Damage, including explosion, collapse and underground hazards. Such insurance shall be on an occurrence basis.

B. Workers’ Compensation and Employers Liability Insurance including a waiver of subrogation. Such insurance shall include but not be limited to:

(i) Statutory liability under the workers’ compensation laws of the state of Minnesota.

(ii) Employers’ Liability (Part B) with limits of at least $1,000,000 each accident, $1,000,000 by disease policy limit, $1,000,000 by disease each employee.

C. Commercial Automobile Liability Insurance with a $1,000,000 Combined Single Limit, and including coverage for liability resulting from the operation of all owned, non-owned and hired automobiles. Such insurance shall be on an occurrence basis.

D. Each Party shall also carry excess or umbrella liability insurance with limits of at least $4,000,000 per occurrence for bodily injury or property damage in excess of the limits afforded for general liability and automobile liability provided above.

Each party shall name the other as “additional insured” on policies listed in A and C above. All required policies of insurance shall be endorsed to provide that the insurance company shall notify the certificate holder at least thirty (30) days prior to the effective date of any cancellation or material change of such policies. All insurance companies shall have an A.M. Best rating of A- VII or better.

EXHIBIT “C”

FORM OF SALES CONTRACT

BUYER AND SELLER HEREBY AGREE TO, AND CONFIRM, THE PURCHASE AND SALE OF THE REFERENCED COMMODITIES, SUBJECT TO THE TERMS AND CONDITIONS STATED BELOW AND ON THE REVERSE SIDE OF THIS CONFIRMATION. FAILURE TO ADVISE GAVILON VIA E-MAIL, FAX, OR OTHER WRITTEN FORM WITHIN FIVE (5) BUSINESS DAYS FOLLOWING YOUR RECEIPT OF THIS CONFIRMATION OF ANY DISCREPANCY, OBJECTION TO, OR DISAGREEMENT WITH THIS CONFIRMATION SHALL RESULT IN THIS CONFIRMATION'S AUTOMATICALLY BEING DEEMED ACCEPTED BY YOU.

[Letterhead]

Contract of Purchase

Seller: Date: _________________

[SELLER ADDRESS] Our No: _______________

_________________ Your No: ______________

_________________ Broker: Broker No: _______

_________________ Broker Cont. ____________

Buyer:

GAVILON INGREDIENTS, LLC-OMAHA 11 CONAGRA DRIVE OMAHA NE 68102 Ph#: (402)889-4371

Commodity: DISTILLER'S GRAINS

Quantity: Vomitoxin: Not to exceed 5 ppm

Shipment: Aflatoxin: Not to exceed 20 ppb

Price:

Shipping Basis:

Weights To Apply:

Terns:

Remarks:

GAVILON INGREDIENTS, LLC – OMAHA [SELLER]

By ____________________________ By: ___________________________

NOTE: The lack of a signature shall not prevent a valid and binding agreement from being formed between the parties.

The provisions of: (a) the Electronic Signatures in Global and National Commerce Act ("E-Sign"); (b) the Uniform Electronic Transactions Act ("UETA"); and (c) Amended Article 2 of the Uniform Commercial Code relating to electronic contracting ("Amended Article 2") shall apply to this contract. In the event of a conflict between or among the provisions of any of the foregoing, such conflict shall be resolved as follows: (y) the provisions of E-Sign shall have precedence over those of UETA; and (z) the provisions of UETA shall have precedence over those of Amended Article 2. However, all such provisions shall be reasonably interpreted so as to avoid conflicts between or among them. Nothing in this provision shall be interpreted or deemed to be a waiver of any other rule of evidence governing the admissibility of an Imaged Document.

Terms and Conditions

1. Whether or not Seller is an active member of any of the following associations, and to the extent not inconsistent with the terms and conditions of this Contract, the rules, regulations and standards of the following associations (the "Associations") shall apply respectively to each of the commodities governed thereby: the National Grain and Feed Association, the American Fats and Oils Association, the National Oilseed Processors Association, the American Dehydrators Association, the Canadian Oilseed Processors Association, and the National Cottonseed Products Association. If more than one Association purports to govern a given commodity, the rules and regulations of the association appearing later in the list shall apply.

2. Buyer and Seller may be collectively referred to as "the Parties" or individually as "the Party".

3. Whether or not an active member of any of the Associations referenced in Paragraph I hereof, Seller acknowledges that it understands the provisions of the applicable Association's rules, regulations and standards, and Seller agrees to be bound thereby. The Parties agree to settle any controversies hereunder by arbitration, that the arbitration rules of the applicable Association shall be the basis of said arbitration or if the applicable Association does not have arbitration rules, then according to the rules of the American Arbitration Association, and that the decision and award determined by such arbitration shall be final and binding upon the Parties.

4. It is agreed that neither Party to this Contract shall delegate the performance of any obligation hereunder nor assign any rights arising hereunder, to any third person without the prior written consent of the other Party.

5. Seller warrants that commodities delivered under this Contract will be free and clear, from and after time of delivery, of any security interest, lien, claim or encumbrance and that Seller has good and merchantable title thereto. Seller agrees that should any lien, security interest or encumbrance be claimed against any commodity sold hereunder, Seller will immediately cause the same to be discharged and terminated; and, will hold Buyer harmless therefrom; and, indemnity Buyer from any costs or losses incurred as a result of such claim.

6. Seller expressly represents and warrants that the commodity or commodities hereby purchased are of the grade indicated, and if none is indicated, that the commodity or commodities are suitable for feeding to poultry and livestock and in no event shall have a vomitoxin content exceeding 5 parts per million or an aflatoxin content exceeding 20 parts per billion . Seller indemnifies and holds Buyer harmless against any liability, loss, cost, expense or damage related to the failure of any portion of the commodities purchased hereunder to meet Food and Drug Administration or other applicable governmental agency's rules, regulations and standards for said commodity, as well as the applicable Association's (as referenced in paragraph I hereof) rules, regulations, and standards for such commodity. Buyer's payment will not constitute acceptance of a commodity sold hereunder or serve to waive Buyer's rights to reject the commodity or recover damages should the commodity fail to comply with the terms or specifications of this Contract. Buyer specifically reserves all rights and remedies available to it under the applicable Association's (referenced in Paragraph I hereof) rules, regulations, and standards; and the Uniform Commercial Code in effect within the jurisdiction under which this Contract is governed, if any of the commodity sold hereunder fails to comply with the warranties, descriptions, and requirements set forth in this Contract, or the applicable Association's rules, regulations, and standards. In addition to and without waiving any of Buyer's other remedies hereunder, Buyer may, at its sole option, request that the Seller replace any or all portions of any shipment of commodities hereunder which fails to comply with the terms of this Contract; said replacement shipment to be at Sellers sole cost and expense and occur within seven (7)days of Sellers receipt of Buyer’s notice of the commodity's non-compliance with this Contract.

7. Buyer expressly reserves the right to cancel this Contract within the meaning of UCC section 2106 based upon the occurrence of any of the following: (a) the insolvency or financial condition of Seller; (b) the appointment for taking possession of any Seller's assets or any part thereof by any third party, including a trustee, receiver, creditor or other party; (c) the breach of any warranty; or, (d) any other defaults hereunder.

8. This Contract assumes Buyer is purchasing free-flowing commodities. In the event any commodity arrives at its destination and does not freely flow, Buyer reserves the right to reject the shipment. If Buyer rejects the shipment Seller shall be responsible for all transportation, rail, freight and delivery charges.

9. In the event Seller breaches this Contract in any manner, Seller shall be liable to Buyer for any and all damages, including consequential damages, incidental damages, and any lost profits incurred as a result thereof and shall pay Buyers reasonable attorney fees, court costs and expenses incurred in the enforcement of this Contract and any collection activities related thereto.

10. In the event that a party hereto (the "Defaulting Party") becomes insolvent, or suffers or consents to or applies for the appointment of a receiver, trustee, custodian or liquidator of itself or any obits property, or generally fails to pay its debts as they become due, or makes a general assignment for the benefit of creditors, or files a voluntary petition in bankruptcy, or seeks reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Code, Title II of the United States Code, as amended or recodified from time to time, or under any state or federal law granting relief to debtors then the other party (the ''Non-defaulting Party") may (i) immediately cancel this Contract and all other Contracts between the parties hereto, (ii) liquidate such cancelled Contracts in a commercially reasonable manner, and (iii) aggregate such liquidated amounts into a single liquidated settlement amount (the "Settlement Amount") due, which shall be due and payable two (2) business days after written notice by the Non-defaulting Party. In addition, the Non-defaulting Party may set-off any amounts owed by the Defaulting Party to the Non-defaulting Party under any other agreements between the parties against any Settlement Amount owed by the Non-defaulting Party to the Defaulting Party hereunder. The parties agree that each of them is a forward contract merchant as set forth in II U.S.C. Section 101(25). The parties also agree that this Contract and any other commodity contract between the parties are all forward contracts as defined in II U.S.C. Section 101(25). The payments and transfers described herein shall constitute "Settlement Payments" or "Margin Payments" as set forth in II U.S.C. Sections 101(5IA) and (38).

11. Railcars must be loaded to capacity as required by railroad companies. Seller to pay weighing, inspection, trackage, and interest charges, if any. reconsigned rail cars cannot be utilized on this Contract unless consented to by Buyer in writing prior to loading. Buyer reserves the right to change destination offal shipments prior to departure of the railcar from Sellers facility.

12. If confirmation calls for delivery beyond fourteen (14) days from the date of this Contract, Buyer may demand from Seller a margin deposit often percent (10%) of the gross value of this Contract to be considered as margin on equity, and Buyer may demand such further payments from Seller as may be necessary to maintain a deposit on this Contract often percent (10%) of the gross value of this Contract, plus an amount equal to the difference between the contract-price-value and the prevailing market price-value, if the market is above the Contract price. Seller agrees to pay such margin on demand and if not paid, Buyer may exercise the same rights as if Seller had defaulted on this Contract.

13. Each Party consents to the recording of all telephone conversations between its representatives and the representatives of the other Party.

14. Any provision of this Contract which is prohibited or unenforceable in any jurisdiction shall, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.

15. Seller warrants it has read this Contract in its entirety and understands its terms and legal effect. This Contract constitutes the entire understanding between the Parties hereto and no modification or amendment of this Contract shall be valid or binding unless agreed to by both Parties and confirmed by a writing signed by the party to be charged. Seller agrees that the terms hereof are acceptable and that Seller intends to be bound by the terms of this Contract even if said terms differ from or conflict with the terms or conditions contained in Sellers offer, acceptance on form of contract for such purchase.

16. Unless otherwise exempt, this Contract incorporates by reference the EEO Clause contained in 41 C.F.R. Sections 60-1.4, 60-741.5, and 60-250.5.

17. Any original contract and/or transaction confirmation relating to a transaction between the parties may be converted to and saved in electronic format (the "Imaged Document"). Each party waives any objection it may have to the admissibility of such Imaged Document in any judicial, arbitration, mediation, administrative, or other proceeding involving the parties to the extent such objection is based on any rule of evidence that: (a) requires

authentication or identification of the Imaged Document; (b) requires an original document; or (c) governs the admissibility of duplicates. In addition, each party acknowledges that Imaged Documents are business records within the meaning of the business records exception to the hearsay rule.

EXHIBIT 31.1

CERTIFICATIONS

I, Steve Christensen, certify that:


1.	I have reviewed this annual report on Form 10-K of Heron Lake BioEnergy, 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 officer(s) 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 officer(s) 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, 2014
		/s/ Steve Christensen
		Steve Christensen
		Chief Executive Officer
		(principal executive officer)

EXHIBIT 31.2

CERTIFICATIONS

I, Stacie Schuler, certify that:


1.	I have reviewed this annual report on Form 10-K of Heron Lake BioEnergy, 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 officer(s) 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 officer(s) 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, 2014
		/s/ Stacie Schuler
		Stacie Schuler
		Chief Financial Officer
		(principal financial officer and principal accounting officer)

EXHIBIT 32

CERTIFICATION

In connection with the annual report on Form 10-K of Heron Lake BioEnergy, LLC (the “Company”) for the fiscal year ended October 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certify pursuant to 18 U.S.C. Section 1350, 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.



Date:	January 29, 2014
		/s/ Steve Christensen
		Steve Christensen
		Chief Executive Officer
		( Principal executive officer )

		/s/ Stacie Schuler
		Stacie Schuler
		Chief Financial Officer
		(Principal financial officer and principal accounting officer)