RED TRAIL ENERGY, LLC (Form: 10-Q, Received: 05/15/2015 13:22:31)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

	For the quarterly period ended March 31, 2015

	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 000-52033

RED TRAIL ENERGY, LLC

(Exact name of registrant as specified in its charter)



North Dakota				76-0742311
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)

3682 Highway 8 South, P.O. Box 11, Richardton, ND 58652
(Address of principal executive offices)

(701) 974-3308
(Registrant's telephone number, including area code)

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

x Yes o No

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

x Yes o No

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



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

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

o Yes x No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

As of May 15, 2015 , there were 40,148,160 Class A Membership Units outstanding.

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INDEX



	Page Number
PART I. FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3. Quantitative and Qualitative Disclosures about Market Risk	22
Item 4. Controls and Procedures	23
PART II. OTHER INFORMATION	23
Item 1. Legal Proceedings	23
Item 1A. Risk Factors	23
Item 2. Unregistered Sales of Equity Securities	23
Item 3. Defaults Upon Senior Securities	23
Item 4. Mine Safety Disclosures	23
Item 5. Other Information	23
Item 6. Exhibits	24
SIGNATURES	25

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PART I FINANCIAL INFORMATION

Item 1. Financial Statements

RED TRAIL ENERGY, LLC

Condensed Balance Sheets



ASSETS	March 31, 2015		September 30, 2014
	(Unaudited)
Current Assets
Cash and equivalents	$	1,790,974	$	21,952,259
Restricted cash	1,938,405		—
Accounts receivable, primarily related party	4,212,806		1,011,411
Other receivables	149,685		617,955
Commodities derivative instruments, at fair value	835,574		3,615,151
Inventory	21,069,580		13,318,724
Prepaid expenses	179,795		107,012
Total current assets	30,176,819		40,622,512

Property, Plant and Equipment
Land	836,428		836,428
Land improvements	4,127,372		4,127,372
Buildings	8,205,636		5,498,862
Plant and equipment	81,425,402		77,739,946
Construction in progress	353,015		3,326,725
	94,947,853		91,529,333
Less accumulated depreciation	42,139,439		40,049,818
Net property, plant and equipment	52,808,414		51,479,515

Other Assets
Debt issuance costs, net of amortization	36,920		45,962
Investment in RPMG	605,000		605,000
Patronage equity	2,865,440		2,865,440
Deposits	40,000		40,000
Total other assets	3,547,360		3,556,402

Total Assets	$	86,532,593	$	95,658,429

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

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RED TRAIL ENERGY, LLC

Condensed Balance Sheets



LIABILITIES AND MEMBERS' EQUITY	March 31, 2015		September 30, 2014
	(Unaudited)
Current Liabilities
Accounts payable	$	860,848	$	3,052,375
Accrued expenses	3,918,159		3,167,994
Accrued loss on firm purchase commitments (see note 7)	497,000		3,270,000
Current maturities of notes payable	2,034,422		9,266,343
Total current liabilities	7,310,429		18,756,712

Long-Term Liabilities
Notes payable, net of current maturities	4,371,426		5,372,713
Contracts payable	275,000		275,000
Total long-term liabilities	4,646,426		5,647,713

Members’ Equity (40,148,160 Class A Membership Units issued and outstanding)	74,575,738		71,254,004

Total Liabilities and Members’ Equity	$	86,532,593	$	95,658,429

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

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RED TRAIL ENERGY, LLC

Statements of Operations (Unaudited)



	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	March 31, 2015			March 31, 2014			March 31, 2015			March 31, 2014
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues, primarily related party	$	16,991,326		$	41,922,206		$	46,604,177		$	75,708,170

Cost of Goods Sold
Cost of goods sold	15,142,878			37,707,453			42,878,458			66,870,757
Lower of cost or market inventory adjustment	304,439			—			304,439			—
Loss on firm purchase commitments	—			—			46,000			—
Total Cost of Goods Sold	15,447,317			37,707,453			43,228,897			66,870,757

Gross Profit	1,544,009			4,214,753			3,375,280			8,837,413

General and Administrative Expenses	588,286			566,584			1,133,053			1,037,672

Operating Income	955,723			3,648,169			2,242,227			7,799,741

Other Income (Expense)
Interest income	(20,997		)	31,821			(2,749		)	39,824
Other income	1,275,754			14,994			1,282,648			91,729
Interest expense	(62,666		)	(156,429		)	(200,392		)	(325,019		)
Total other income (expense), net	1,192,091			(109,614		)	1,079,507			(193,466		)

Net Income	$	2,147,814		$	3,538,555		$	3,321,734		$	7,606,275

Weighted Average Units Outstanding
Basic	40,148,160			40,148,160			40,148,160			40,148,160
							—
Diluted	40,148,160			40,148,160			40,148,160			40,148,160

Net Income Per Unit
Basic	$	0.05		$	0.09		$	0.08		$	0.19

Diluted	$	0.05		$	0.09		$	0.08		$	0.19

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

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RED TRAIL ENERGY, LLC

Condensed Statements of Cash Flows (Unaudited)



	Six Months Ended			Six Months Ended
	March 31, 2015			March 31, 2014
Cash Flows from Operating Activities	(Unaudited)			(Unaudited)
Net income	$	3,321,734		$	7,606,275
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,098,664			2,068,856
Change in fair value of derivative instruments	2,779,576			11,466,085
Lower of cost or market inventory adjustment	(304,439		)	—
Loss on firm purchase commitments	497,000			—
Noncash patronage equity	—			(238,088		)
Change in operating assets and liabilities:
Restricted cash	(1,938,405		)	(12,714,850		)
Accounts receivable	(2,733,125		)	(3,669,645		)
Other receivables	—			(1,199,148		)
Inventory	(7,943,417		)	(3,066,617		)
Prepaid expenses	(72,783		)	(162,039		)
Accounts payable	(2,191,528		)	(248,957		)
Accrued expenses	750,165			4,268,944
Distribution payable				(2,007,452		)
Accrued purchase commitment losses	(2,773,000		)	(203,000		)
Net cash (used in) provided by operating activities	(8,509,558		)	1,900,364

Cash Flows from Investing Activities
Capital expenditures	(3,418,520		)	(528,701		)
Net cash (used in) investing activities	(3,418,520		)	(528,701		)

Cash Flows from Financing Activities
Disbursements in excess of bank balances	—			(224,070		)
Net advances on short-term borrowings	—			637,000
Debt repayments	(8,233,207		)	(1,784,593		)
Net cash (used in) financing activities	(8,233,207		)	(1,371,663		)

Net (Decrease) in Cash and Equivalents	(20,161,285		)	—
Cash and Equivalents - Beginning of Period	21,952,259			1,000
Cash and Equivalents - End of Period	$	1,790,974		$	1,000

Supplemental Disclosure of Cash Flow Information
Interest paid	$	232,890		$	345,461

Distribution declared but not paid	$	—		$	2,007,452
Capital expenditures in accounts payable	$	16,987		$	—

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

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RED TRAIL ENERGY, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED MARCH 31, 2015

The accompanying condensed unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company's audited financial statements for the fiscal year ended September 30, 2014, contained in the Company's Annual Report on Form 10-K.

In the opinion of management, the interim condensed unaudited financial statements reflect all adjustments considered necessary for fair presentation. The adjustments made to these statements consist only of normal recurring adjustments. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2015.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Red Trail Energy, LLC, a North Dakota limited liability company (the “Company”), owns and operates a 50 million gallon annual name-plate production ethanol plant near Richardton, North Dakota (the “Plant”).

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. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment, valuation of derivatives, inventory, patronage equity and purchase commitments, the analysis of long-lived assets impairment and other contingencies. Actual results could differ from those estimates.

Net Income (Loss) Per Unit

Net income (loss) per unit is calculated on a basic and fully diluted basis using the weighted average units outstanding during the period. The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not expect the future adoption of any such pronouncements to have a material impact on the Company's financial condition or results of operations.

Revenue from Contracts with Customers

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” which supersedes the guidance in “Revenue Recognition (Topic 605)” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and is to be applied retrospectively, with early application not permitted. We are evaluating the new standard, but do not at this time expect this standard to have a material impact on our consolidated financial statements.

2. DERIVATIVE INSTRUMENTS

Commodity Contracts

As part of its hedging strategy, the Company may enter into ethanol, soybean, soybean oil, and corn commodity-based derivatives in order to protect cash flows from fluctuations caused by volatility in commodity prices in order to protect gross profit margins from potentially adverse effects of market and price volatility on ethanol sales, corn oil sales, and corn purchase commitments where the prices are set at a future date. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Ethanol derivative fair market value gains or losses are included in the

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RED TRAIL ENERGY, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED MARCH 31, 2015

results of operations and are classified as revenue and corn derivative changes in fair market value are included in cost of goods sold.



As of:	March 31, 2015 (unaudited)					September 30, 2014
Contract Type	# of Contracts	Notional Amount (Qty)		Fair Value		# of Contracts	Notional Amount (Qty)		Fair Value
Corn futures	918	4,590,000	bushels	$	299,250	1,377	6,885,000	bushels	$	7,162,638
Corn options	550	2,750,000	bushels	$	387,812	250	1,250,000	bushels	$	(745,313	)
Soybean oil options	—	—	gal	$	—	200	1,000,000	gal	$	2,618,750
Soybean oil futures	—	—	gal	$	—	77	46,200	gal	$	370,446
Ethanol futures	30	1,260,000	gal	$	148,512	90	3,780,000	gal	$	506,436
Total fair value				$	835,574				$	9,912,957
Amounts are combined on the balance sheet - negative numbers represent liabilities

The following tables provide details regarding the Company's derivative financial instruments at March 31, 2015 and September 30, 2014 :



Derivatives not designated as hedging instruments:

Balance Sheet - as of March 31, 2015 (unaudited)	Asset		Liability
Commodity derivative instruments, at fair value	$	835,574	$	—
Total derivatives not designated as hedging instruments for accounting purposes	$	835,574	$	—

Balance Sheet - as of September 30, 2014	Asset		Liability
Commodity derivative instruments, at fair value	$	3,615,151	$	—
Total derivatives not designated as hedging instruments for accounting purposes	$	3,615,151	$	—



Statement of Operations Income/(Expense)	Location of gain (loss) in fair value recognized in income	Amount of gain(loss) recognized in income during the three months ended March 31, 2015 (unaudited)			Amount of gain (loss) recognized in income during the three months ended March 31, 2014 (unaudited)			Amount of gain(loss) recognized in income during the six months ended March 31, 2015 (unaudited)			Amount of gain (loss) recognized in income during the six months ended March 31, 2014 (unaudited)
Corn derivative instruments	Cost of Goods Sold	$	(1,700,123	)	$	(2,546,783	)	$	(1,085,203	)	$	(1,798,878	)
Ethanol derivative instruments	Revenue	(512,370		)	(9,786,664		)	(486,571		)	(10,351,984		)
Soybean oil derivative instruments	Revenue	10,926			—			(913,438		)	—
Total		$	(2,201,567	)	$	(12,333,447	)	$	(2,485,212	)	$	(12,150,862	)

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RED TRAIL ENERGY, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED MARCH 31, 2015

3. INVENTORY

Inventory is valued at the lower of cost or market. Inventory values as of March 31, 2015 and September 30, 2014 were as follows:



As of	March 31, 2015 (unaudited)		September 30, 2014
Raw materials, including corn, chemicals and supplies	$	17,335,518	$	9,962,057
Work in process	857,016		893,141
Finished goods, including ethanol and distillers grains	1,014,505		661,159
Spare parts	1,862,541		1,802,367
Total inventory	$	21,069,580	$	13,318,724

Lower of cost or market adjustments for the three and six months ended March 31, 2015 and 2014 were as follows:



	For the three months ended March 31, 2015 (unaudited)		For the three months ended March 31, 2014 (unaudited)		For the six months ended March 31, 2015 (unaudited)		For the six months ended March 31, 2014 (unaudited)
Loss on firm purchase commitments	$	—	$	—	$	46,000	$	—
Total loss on lower of cost or market adjustments	$	304,439	$	—	$	304,439	$	—

The Company has entered into forward corn purchase contracts under which it is required to take delivery at the contract price. At the time the contracts were created, the price of the contract approximated market price. Subsequent changes in market conditions could cause the contract prices to become higher or lower than market prices. As of March 31, 2015 , the average price of corn purchased under certain fixed price contracts, that had not yet been delivered, was equal to approximated market price. Based on this information, the Company has an estimated loss on firm purchase commitments of $46,000 and $0 for the six months ended March 31, 2015 and 2014 , respectively. The loss is recorded in “Loss on firm purchase commitments” on the statements of operations. The amount of the loss was determined by applying a methodology similar to that used in the impairment valuation with respect to inventory. Given the uncertainty of future ethanol prices, this loss may or may not be recovered, and further losses on the outstanding purchase commitments could be recorded in future periods.

4. BANK FINANCING



As of	March 31, 2015 (unaudited)		September 30, 2014
Long-term notes payable under loan agreement to bank	$	6,362,000	$	14,579,000
Capital lease obligations (Note 6)	43,848		60,056
Total Long-Term Debt	6,405,848		14,639,056
Less amounts due within one year	2,034,422		9,266,343
Total Long-Term Debt Less Amounts Due Within One Year	$	4,371,426	$	5,372,713

The Company's notes payable consists of a term loan. As of March 31, 2015 , the fixed interest rate on the term loan was 4.96% . This loan matures on March 20, 2020.

The Company also has a $10,000,000 operating line-of-credit that matures on March 20, 2016. At March 31, 2015 , the Company had $0 drawn on this line-of-credit leaving a balance of $10,000,000 available. The variable interest rate was 3.68% for amounts drawn on the operating line of credit.

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RED TRAIL ENERGY, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED MARCH 31, 2015



Scheduled debt maturities for the twelve months ending March 31	Totals

2015	$	2,034,422
2016	2,002,588
2017	2,002,607
2018	364,627
Thereafter	1,604
Total	$	6,405,848

As of March 31, 2015 , the Company was in compliance with all of its debt covenants.

5. FAIR VALUE MEASUREMENTS

The following table provides information on those assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2015 and September 30, 2014 , respectively.



					Fair Value Measurement Using
	Carrying Amount as of March 31, 2015 (unaudited)		Fair Value as of March 31, 2015 (unaudited)		Level 1		Level 2		Level 3
Assets
Commodities derivative instruments	$	835,574	$	835,574	$	835,574	$	—	$	—
Total	$	835,574	$	835,574	$	835,574	$	—	$	—

					Fair Value Measurement Using
	Carrying Amount as of September 30, 2014		Fair Value as of September 30, 2014		Level 1		Level 2		Level 3
Assets
Commodities derivative instruments	$	3,615,151	$	3,615,151	$	3,615,151	$	—	$	—
Total	$	3,615,151	$	3,615,151	$	3,615,151	$	—	$	—

The fair value of the corn, ethanol and soybean oil derivative instruments is based on quoted market prices in an active market.

Financial Instruments Not Measured at Fair Value

The estimated fair value of the Company's long-term debt, including the short-term portion, at March 31, 2015 and September 30, 2014 approximated the carrying value of approximately $6.4 million and $14.6 million , respectively. Fair value was estimated using estimated variable market interest rates as of March 31, 2015 . The fair values and carrying values consider the terms of the related debt and exclude the impacts of debt discounts and derivative/hedging activity.

6. LEASES

The Company leases equipment under operating and capital leases through January 2020. The Company is generally responsible for maintenance, taxes, and utilities for leased equipment. Equipment under operating lease includes a locomotive and rail cars.

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RED TRAIL ENERGY, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED MARCH 31, 2015

Rent expense for operating leases was approximately $119,000 and $142,000 for the three months ended March 31, 2015 and 2014 , respectively. Equipment under capital leases consists of office equipment and plant equipment.

Equipment under capital leases is as follows at:



As of	March 31, 2015 (unaudited)			September 30, 2014
Equipment	$	564,648		$	564,648
Less accumulated amortization	(92,759		)	(73,906		)
Net equipment under capital lease	$	471,889		$	490,742

At March 31, 2015 , the Company had the following minimum commitments, which at inception had non-cancelable terms of more than one year. Amounts shown below are for the 12 months period ending March 31:



	Operating Leases		Capital Leases
2015	$	361,606	$	34,422
2016	231,913		2,588
2017	190,900		2,607
2018	100,800		2,627
2019	84,000		1,604
Thereafter	—		—
Total minimum lease commitments	$	969,219	43,848
Less amount representing interest			—
Present value of minimum lease commitments included in current maturities of long-term debt on the balance sheet			$	43,848

7. COMMITMENTS AND CONTINGENCIES

Firm Purchase Commitments for Corn

To ensure an adequate supply of corn to operate the Plant, the Company enters into contracts to purchase corn from local farmers and elevators. At March 31, 2015 , the Company had various fixed price contracts for the purchase of approximately 2.6 million bushels of corn. Using the stated contract price for the fixed price contracts, the Company had commitments of approximately $9.7 million related to the 2.6 million bushels under contract. The Company also has a contract with Modern Grain Inc. in Hebron to purchase 1 million bushels of corn. The purchase price for these bushels was set on April 15, 2015 and the purchase price was paid by the Company.

8. RELATED-PARTY TRANSACTIONS

The Company has balances and transactions in the normal course of business with various related parties for the purchase of corn, sale of distillers grains and sale of ethanol. The related parties include unit holders, members of the board of governors of the Company, and RPMG, Inc. (“RPMG”). During the Company's first quarter of 2015, the Company received a capital account refund from RPMG which is included in other income (expense) in the Company's Statement of Operations. Significant related party activity affecting the financial statements is as follows:

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RED TRAIL ENERGY, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED MARCH 31, 2015



	March 31, 2015 (unaudited)		September 30, 2014
Balance Sheet
Accounts receivable	$	4,134,592	$	1,476,130
Accounts Payable	156,583		482,046



	For the three months ended March 31, 2015 (unaudited)		For the three months ended March 31, 2014 (unaudited)		For the six months ended March 31, 2015 (unaudited)		For the six months ended March 31, 2014 (unaudited)
Statement of Operations
Revenues	$	16,494,415	$	40,806,314	$	45,575,639	$	73,859,955
Realized gain on corn hedge	—		—		925,400		827,500
Cost of goods sold	20,049		819,589		62,602		1,382,438
General and administrative	15,618		8,327		33,691		23,508
Other income/expense	$	1,190,501	$	—	$	1,190,501	$	—
Inventory Purchases	$	3,720,427	$	3,966,412	$	5,660,355	$	6,590,073

9. UNCERTAINTIES IMPACTING THE ETHANOL INDUSTRY AND OUR FUTURE OPERATIONS

The Company has certain risks and uncertainties that it experiences during volatile market conditions, which 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 United States. Corn for the production process is supplied to the plant primarily from local agricultural producers and from purchases on the open market. The Company's operating and financial performance is largely driven by prices at which the Company sells ethanol and distillers grains and by the cost at which it is able to purchase corn for operations. The price of ethanol is influenced by factors such as prices, supply and demand, weather, government policies and programs, and unleaded gasoline and the petroleum markets, although since 2005 the prices of ethanol and gasoline began a divergence with ethanol selling for less than gasoline at the wholesale level. Excess ethanol supply in the market, in particular, puts downward pressure on the price of ethanol. The Company's largest cost of production is corn. The cost of corn is generally impacted by factors such as supply and demand, weather, government policies and programs. The Company's risk management program is used to protect against the price volatility of these commodities.

The Company's financial performance is highly dependent on the Federal Renewable Fuels Standard ("RFS") which requires that a certain amount of renewable fuels must be used each year in the United States. Corn based ethanol, such as the ethanol the Company produces, can be used to meet a portion of the RFS requirement. In November 2013, the EPA issued a proposed rule which would reduce the RFS for 2014, including the RFS requirement related to corn based ethanol. The EPA proposed rule was subject to a comment period which expired in January 2014. The EPA has not yet finalized the proposed rule. If the EPA reduces the ethanol use requirement of the RFS, it may have a significant negative impact on the Company's financial performance.

The Company anticipates that the results of operations during the remainder of fiscal 2015 will continue to be affected by volatility in the commodity markets. The volatility is due to various factors, including uncertainty with respect to the availability and supply of corn, increased demand for grain from global and national markets, speculation in the commodity markets, demand for corn from the ethanol industry and drought conditions currently being experienced by much of the United States.

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

We prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition, and results of operations for the three and six month periods ended March 31, 2015 , compared to the same periods of the prior fiscal year. This discussion should be read in conjunction with the condensed financial statements, notes and information contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2014 . Unless otherwise stated, references in this report to particular years, quarters, months, or periods refer to our fiscal years ended in September and the associated quarters, months, or periods of those fiscal years.

Forward Looking Statements

This report contains forward-looking statements that involve future events, our future performance and our future operations and actions. In some cases you can identify forward-looking statements by the use of words such as "may," "should," "anticipate," "believe," "expect," "plan," "future," "intend," "could," "estimate," "predict," "hope," "potential," "continue," or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the following factors:


•	Negative operating margins which result from lower ethanol prices;


•	Reduction in ethanol demand due to a decrease or elimination of the ethanol use requirement in the Federal Renewable Fuels Standard;


•	Logistics difficulties preventing us from delivering our products to our customers;


•	Fluctuations in the price and market for ethanol, distillers grains and corn oil;


•	Availability and costs of products and raw materials, particularly corn and natural gas;


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


•	Ethanol supply exceeding demand and corresponding ethanol price reductions impacting our ability to operate profitably and maintain a positive spread between the selling price of our products and our raw material costs;


•	Our ability to generate and maintain sufficient liquidity to fund our operations, meet debt service requirements and necessary capital expenditures;


•	Our ability to continue to meet our loan covenants;


•	Limitations and restrictions contained in the instruments and agreements governing our indebtedness;


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


•	Changes and advances in ethanol production technology; and


•	Competition from alternative fuels and alternative fuel additives.

Overview

Red Trail Energy, LLC, a North Dakota limited liability company (the "Company," "Red Trail," or "we," "our," or "us"), owns and operates a 50 million gallon annual name-plate production ethanol plant near Richardton, North Dakota. Our revenues are derived from the sale and distribution of our ethanol, distillers grains and corn oil primarily in the continental United States. Corn is our largest cost component and our profitability is highly dependent on the spread between the price of corn and the price of ethanol.

During our second quarter of 2014, we commenced a project to convert our ethanol plant from a coal fired plant to a natural gas based ethanol plant. This project was completed during the second quarter of our 2015 fiscal year. We financed the natural gas conversion project from cash we had on hand as well as funds we had available to borrow on our line of credit.

Our revenue was significantly lower than we expected during the second quarter of our 2015 fiscal year as a result of additional plant downtime. We experienced a failure in our coal boiler in early February 2015 which required us to accelerate our conversion of the ethanol plant from coal to natural gas as the fuel source. However, this resulted in an unexpected shutdown of the ethanol plant for approximately three weeks in February of 2015. We are in the process of filing an insurance claim for losses we incurred as a result of this plant shutdown. We did not receive any proceeds from insurance during the second quarter of our 2015 fiscal year. We have not experienced any additional unplanned shutdowns since the conversion to natural gas took place in February 2015.

On March 4, 2015, our board of governors voluntarily decided to suspend trading of our membership units on the qualified matching service operated by FNC Ag Stock LLC. Our board of governors decided to suspend trading on the qualified matching service indefinitely while it conducts due diligence on a potential transaction in order to protect the interests of our members.

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On March 26, 2015, we executed amended loan agreements with our primary lender, First National Bank of Omaha (FNBO) to extend the maturity dates of our loans, to modify the the interest rate terms of our loans and to modify the financial covenants associated with our loans.

On April 2, 2015, our board of governors declared a cash distribution of $0.20 per membership unit to the holders of units of record at the close of business on April 2, 2015, for a total distribution of $8,029,632. We paid the distribution on April 6, 2015.

Results of Operations for the Three Months Ended March 31, 2015 and 2014

The following table shows the results of our operations and the percentages of revenues, cost of goods sold, general and administrative expenses and other items to total revenues in our unaudited statements of operations for the three months ended March 31, 2015 and 2014 :



	Three Months Ended March 31, 2015 (Unaudited)			Three Months Ended March 31, 2014 (Unaudited)
Statement of Operations Data	Amount		%	Amount			%
Revenues	$	16,991,326	100.00	$	41,922,206		100.00
Cost of Goods Sold	15,447,317		90.91	37,707,453			89.95
Gross Profit	1,544,009		9.09	4,214,753			10.05
General and Administrative Expenses	588,286		3.46	566,584			1.35
Operating Income	955,723		5.62	3,648,169			8.70
Other Income (Expense)	1,192,091		7.02	(109,614		)	(0.26	)
Net Income	$	2,147,814	12.64	$	3,538,555		8.44

The following table shows additional data regarding production and price levels for our primary inputs and products for the three months ended March 31, 2015 and 2014 .



	Three Months ended March 31, 2015 (unaudited)		Three Months ended March 31, 2014 (unaudited)
Production:
Ethanol sold (gallons)	10,568,594		13,669,925
Dried distillers grains sold (tons)	17,607		22,916
Modified distillers grains sold (tons)	20,568		20,032
Corn oil sold (pounds)	1,475,990		2,809,130
Revenues:
Ethanol average price per gallon (net of hedging)	$	1.31	$	2.51
Dried distillers grains average price per ton	109.3		207.16
Modified distillers grains average price per ton	44.28		97.46
Corn oil average price per pound	0.18		0.27
Primary Inputs:
Corn ground (bushels)	3,904,775		4,845,196
Costs of Primary Inputs:
Corn average price per bushel (net of hedging)	$	3.10	$	3.99
Other Costs (per gallon of ethanol sold):
Chemical and additive costs	$	0.110	$	0.103
Denaturant cost	0.035		0.054
Electricity cost	0.065		0.053
Direct labor cost	0.078		0.050

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Revenue

Our revenue was significantly lower for the second quarter of our 2015 fiscal year compared to the same period of our 2014 fiscal year due to lower prices for our products in addition to decreased production due to additional plant downtime. During the second quarter of our 2015 fiscal year , approximately 81.2% of our total revenue was derived from ethanol sales, approximately 16.7% was from distillers grains sales and approximately 1.6% was from corn oil sales. During the second quarter of our 2014 fiscal year , approximately 81.8% of our total revenue was derived from ethanol sales, approximately 16.0% was from distillers grains sales and approximately 1.8% was from corn oil sales.

Ethanol

The average price we received for our ethanol was approximately 47.8% less during the second quarter of our 2015 fiscal year compared to the second quarter of our 2014 fiscal year . Management attributes this decrease in the price we received for our ethanol during the second quarter of our 2015 fiscal year to a combination of higher ethanol prices during the 2014 period due to rail logistics issues which increased ethanol prices during that time and lower ethanol prices during the 2015 period due to lower gasoline and corn prices. Many ethanol producers experienced rail shipping delays during the beginning of 2014 which restricted the supply of ethanol in the market. This lower ethanol supply resulted in a significant increase in ethanol prices which positively impacted our operations. However, due to falling oil prices, gasoline prices have been lower during our 2015 fiscal year which has resulted in lower ethanol prices and decreased ethanol demand which impacted our revenue during the second quarter of our 2015 fiscal year . Management believes that increased gasoline demand due to lower gasoline prices has positively impacted ethanol prices, however, this additional demand has not been sufficient to maintain ethanol prices. Management believes lower ethanol prices may positively impact ethanol exports which could support ethanol prices.

Uncertainty exists regarding ethanol demand due to a proposal by the EPA in November 2013 to reduce the ethanol use requirement in the Federal Renewable Fuels Standard (RFS) in 2014. However, the EPA failed to release the final rule during 2014 and instead announced that it would not issue a final rule for 2014 until sometime during 2015. Management expects the EPA to make an announcement regarding the RFS by the end of June 2015, however, there is no certainty regarding this date. If the ethanol use requirement in the RFS is reduced either in 2015 or in the future, it could negatively impact demand for ethanol which could decrease market ethanol prices. Lower ethanol prices, especially at times when corn prices are higher, can result in negative operating margins in the ethanol industry which can negatively impact our financial performance. Management anticipates that ethanol exports will continue to play a pivotal role in ethanol prices during our 2015 fiscal year. If ethanol exports fall off, especially at a time when domestic ethanol demand is lower, it may result in lower ethanol prices and unfavorable operating conditions in the ethanol industry. Further, if gasoline prices remain low, management anticipates that ethanol prices will remain low, despite increased ethanol demand due to higher gasoline demand. These uncertainties could lead to further ethanol price volatility during our 2015 fiscal year which could negatively impact our profitability.

We sold significantly less gallons of ethanol during the second quarter of our 2015 fiscal year compared to the second quarter of our 2014 fiscal year due to additional plant downtime during the 2015 period. Management anticipates that ethanol production and sales will be be higher going forward as we have addressed the issues which resulted in the decreased production. However, if operating margins in the ethanol industry are reduced, we may decide to either decrease or cease production which could result in lower production in the future.

From time to time we enter into forward sales contracts for our products. At March 31, 2015 , we had approximately 1.26 million gallons of ethanol futures contracts. These ethanol futures contracts resulted in a gain of approximately $149,000 during the second quarter of our 2015 fiscal year which increased our revenue. By comparison, our ethanol futures contracts resulted in a gain of approximately $506,000 for the second quarter of our 2014 fiscal year .

Distillers Grains

The average price we received for our distillers grains during the second quarter of our 2015 fiscal year was significantly lower compared to the second quarter of our 2014 fiscal year . Management attributes this decrease in distillers grains prices with lower corn and soybean prices which both impact demand and prices for distillers grains. Recently, China reversed its position regarding importing distillers grains which has positively impacted distillers grains demand and prices. However, distillers grains sellers are concerned that China could once again refuse distillers grains shipments which could negatively impact distillers grains prices in the United States. Management anticipates that distillers grains prices will continue to primarily track corn prices. If unfavorable margins occur in the ethanol industry, it may lead to lower distillers grains production which could increase distillers grains demand and prices. This increase results from the fact that many animal feeders rely on an established ration of distillers grains in their animal feed. It can be difficult for some animal feeding operations to change their rations in the short term which could support distillers grains prices.

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We produced and sold less total tons of distillers grains during the second quarter of our 2015 fiscal year compared to the second quarter of our 2014 fiscal year due to our additional plant downtime in February 2015. Management anticipates that our distillers grains production will return to more normal levels during the third quarter of our 2015 fiscal year provided operating margins remain positive.

Corn Oil

The total pounds of corn oil we sold was lower during the second quarter of our 2015 fiscal year compared to the second quarter of our 2014 fiscal year . Management attributes this decrease in corn oil sales with decreased corn oil production due to additional plant downtime in February 2015. Further, the amount of corn oil which is contained in the corn we are using during our 2015 fiscal year is less than the corn we were using during our 2014 fiscal year which impacts our corn oil production efficiency. Management anticipates that corn oil production will return to more normal levels during the third quarter of our 2015 fiscal year. Corn oil prices were lower during the second quarter of our 2015 fiscal year compared to the second quarter of our 2014 fiscal year due primarily to less corn oil demand from the biodiesel industry and lower corn and soybean oil prices. Management anticipates continued lower corn oil prices as the market supply of corn oil continues to increase with lower corn oil demand.

Cost of Goods Sold

Our cost of goods sold is primarily made up of corn and energy expenses. Since we converted the ethanol plant from a coal fired plant to a natural gas based ethanol plant, our profitability will in part depend on natural gas prices instead of coal prices. Our cost of goods sold as a percentage of revenues was 90.9 % for the second quarter of our 2015 fiscal year as compared to 89.9 % for the second quarter of our 2014 fiscal year . The increase in our cost of goods sold as a percentage of revenue was due to tighter operating margins during our 2015 fiscal year which decreased our total revenue more than the decrease we experienced in our cost of goods sold. Further, our additional plant downtime during February 2015 increased our fixed costs as a percentage of our revenue.

Corn Costs

Our cost of goods sold related to corn was lower for the second quarter of our 2015 fiscal year compared to the second quarter of our 2014 fiscal year due to lower corn prices and consumption during the second quarter of our 2015 fiscal year . Corn consumption was lower due to additional plant downtime in February 2015. In addition, market corn prices have been lower recently due to the record corn crop which was harvested in the fall of 2014 along with increased corn supplies due to more corn carryover from the prior marketing year. Management anticipates that corn prices will remain lower during our 2015 fiscal year due to increased corn supplies and uncertainty regarding corn demand, especially due to the efforts to reduce the ethanol use requirement in the RFS and uncertainty regarding corn exports to China.

From time to time we enter into forward purchase contracts for our commodity purchases and sales. At March 31, 2015 , we had forward corn purchase contracts for various delivery periods through December 2015 for a total commitment of approximately $9.7 million. We also had a commitment to purchase 1 million bushels of corn at March 31, 2015 which had not yet been priced. The price for these bushels of corn will be set when they are purchased at the July 2015 index price less basis. Our corn derivative positions resulted in a loss of approximately $1.7 million during the second quarter of our 2015 fiscal year which increased our cost of goods sold. By comparison, our corn derivative positions resulted in a loss of approximately $2.5 million during the second quarter of our 2014 fiscal year which increased our cost of goods sold.

Energy Costs

During the second quarter of our 2015 fiscal year, our natural gas conversion project came online. As a result, moving forward, our profitability will depend on our natural gas costs instead of our coal costs. Even though we maintain the ability to use coal as the fuel source for our ethanol plant, we do not anticipate using coal going forward. Management anticipates that due to our location near a major source of natural gas production, we will be able to purchase natural gas at very favorable prices and will have sufficient natural gas supplies to meet our plant's operational needs. We have all of the natural gas supply and distribution agreements we need in place to continue to operate the ethanol plant.

General and Administrative Expenses

Our general and administrative expenses were higher for the second quarter of our 2015 fiscal year compared to the second quarter of our 2014 fiscal year due to additional consulting services purchased in our 2015 fiscal year.

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Other Income/Expense

We had less interest income during the second quarter of our 2015 fiscal year compared to the second quarter of our 2014 fiscal year due to finance charges we agreed to reverse in order to settle certain outstanding accounts receivable. In addition, we had less interest expense during the second quarter of our 2015 fiscal year compared to the second quarter of our 2014 fiscal year because we had less borrowings on our credit facilities. We had significantly more other income during the second quarter of our 2015 fiscal year compared to the second quarter of our 2014 fiscal year due to a capital account refund we received from RPMG, our marketer.

Results of Operations for the Six Months Ended March 31, 2015 and 2014



	Six Months Ended March 31, 2015 (Unaudited)			Six Months Ended March 31, 2014 (Unaudited)
Statement of Operations Data	Amount		%	Amount			%
Revenues	$	46,604,177	100.00	$	75,708,170		100.00
Cost of Goods Sold	43,228,897		92.76	66,870,757			88.33
Gross Profit	3,375,280		7.24	8,837,413			11.67
General and Administrative Expenses	1,133,053		2.43	1,037,672			1.37
Operating Income	2,242,227		4.81	7,799,741			10.30
Other Income (Expense)	1,079,507		2.32	(193,466		)	(0.26	)
Net Income	$	3,321,734	7.13	$	7,606,275		10.05

The following table shows additional data regarding production and price levels for our primary inputs and products for the six months ended March 31, 2015 and 2014 .



	Six Months ended March 31, 2015 (unaudited)		Six Months ended March 31, 2014 (unaudited)
Production:
Ethanol sold (gallons)	24,258,675		26,029,418
Dried distillers grains sold (tons)	43,197		51,590
Modified distillers grains sold (tons)	39,759		38,442
Corn oil sold (pounds)	3,596,530		5,455,990
Revenues:
Ethanol average price per gallon (net of hedging)	$	1.61	$	2.31
Dried distillers grains average price per ton	109.34		195.11
Modified distillers grains average price per ton	45.24		89.31
Corn oil average price per pound	0.21		0.27
Primary Inputs:
Corn ground (bushels)	8,752,908		9,721,484
Costs of Primary Inputs:
Corn average price per bushel (net of hedging)	$	3.28	$	4.31
Other Costs (per gallon of ethanol sold):
Chemical and additive costs	$	0.113	$	0.109
Denaturant cost	0.040		0.053
Electricity cost	0.066		0.055
Direct labor cost	0.071		0.054

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Revenue

Our revenue was lower for the six months ended March 31, 2015 compared to the same period of our 2014 fiscal year due to lower prices for our products along with decreased sales of our products. During the six months ended March 31, 2015 , approximately 83.8% of our total revenue was derived from ethanol sales, approximately 14.0% was from distillers grains sales and approximately 1.6% was from corn oil sales. During the six months ended March 31, 2014 , approximately 79.6% of our total revenue was derived from ethanol sales, approximately 18.0% was from distillers grains sales and approximately 1.9% was from corn oil sales.

Ethanol

The average price we received for our ethanol was approximately 30.3% less during the six months ended March 31, 2015 compared to the same period of our 2014 fiscal year . Management attributes this decrease in the price we received for our ethanol during the six months ended March 31, 2015 with lower market ethanol prices from reduced gasoline prices and lower corn prices, both of which impact ethanol prices. We sold approximately 6.8% less gallons of ethanol during the six months ended March 31, 2015 compared to the same period of our 2014 fiscal year , due in part to the plant downtime we experienced during February 2015.

From time to time we enter into derivative instruments related to our ethanol sales. During the six months ended March 31, 2015 , we experienced a loss on our ethanol derivative instruments which lowered our revenue. During the six months ended March 31, 2014 , we also experienced a loss on our ethanol derivative instruments which lowered our revenue.

Distillers Grains

The average price we received for our distillers grains during the six months ended March 31, 2015 was significantly lower compared to the same period of our 2014 fiscal year . Management attributes this decrease in distillers grains prices with lower corn and soybean prices which both impact demand and prices for distillers grains. In addition, we produced and sold less total tons of distillers grains during the six months ended March 31, 2015 compared to the same period of our 2014 fiscal year due to additional plant downtime during February 2015.

Corn Oil

The total pounds of corn oil we sold was lower during the six months ended March 31, 2015 compared to the same period of our 2014 fiscal year , due to increased plant downtime and less oil in the corn we have been using during our 2015 fiscal year. In addition, corn oil prices were lower during the six months ended March 31, 2015 compared to the same period of our 2014 fiscal year due primarily to less corn oil demand from the biodiesel industry and lower corn and soybean oil prices.

Cost of Goods Sold

Our cost of goods sold is primarily made up of corn and energy expenses. Our cost of goods sold as a percentage of revenues was 92.8% for the six months ended March 31, 2015 as compared to 88.3% for the six months ended March 31, 2014 . The increase in our cost of goods sold as a percentage of revenue was due to increased plant downtime during the 2015 period which increased our fixed costs as a percentage of revenue along with overall tighter operating margins in the ethanol industry.

Corn Costs

Our cost of goods sold related to corn was lower for the six months ended March 31, 2015 compared to the same period of our 2014 fiscal year due to lower corn consumption and lower average corn prices during our 2015 fiscal year. Market corn prices have been lower recently due to the record corn crop which was harvested in the fall of 2014 along with increased corn supplies due to more corn carryover from the prior marketing year. In addition, due to our increased plant downtime during the 2015 period, we consumed fewer bushels of corn.

Energy Costs

During the second quarter of our 2015 fiscal year, our natural gas conversion project came online. As a result, moving forward, our profitability will depend on our natural gas costs instead of our coal costs. Management believes that using natural gas as the fuel source for our ethanol plant will decrease our cost of goods sold related to energy, however, the impact the natural

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gas conversion project will have depends on market natural gas prices and the cost required to transport the natural gas to our ethanol plant.

General and Administrative Expenses

Our general and administrative expenses were slightly higher for the six months ended March 31, 2015 compared to the same period of our 2014 fiscal year due to additional consulting services purchased in our 2015 fiscal year and higher property taxes.

Other Income/Expense

We had less interest income during the six months ended March 31, 2015 compared to the same period of our 2014 fiscal year due to finance charges we agreed to reverse in order to settle certain outstanding accounts receivable. In addition, we had less interest expense during the six months ended March 31, 2015 compared to the same period of our 2014 fiscal year because we had less borrowings on our credit facilities. We had significantly more other income during the six months ended March 31, 2015 compared to the same period of our 2014 fiscal year due to a capital account refund we received from RPMG, our marketer.

Changes in Financial Condition for the Six Months Ended March 31, 2015

Current Assets . We had less cash and equivalents at March 31, 2015 compared to September 30, 2014 primarily due to an excess cash flow prepayment we made on our long-term debt during our first fiscal quarter of 2015 and cash we used to purchase corn inventory during our 2015 fiscal year. We had approximately $1.9 million of restricted cash at March 31, 2015 related to cash we deposit in our margin account for our hedging transactions. Due to the timing of payments from our marketers, we had more accounts receivable at March 31, 2015 compared to September 30, 2014 . Due primarily to changing corn and ethanol prices, the value of our derivative instruments was lower at March 31, 2015 compared to September 30, 2014 . We had more inventory on hand at March 31, 2015 compared to September 30, 2014 due to having more corn inventory. Due to the current favorable corn prices, we have increased our corn storage licensed capacity in order to purchase additional bushels.

Property, Plant and Equipment . The value of our property, plant and equipment was higher at March 31, 2015 compared to September 30, 2014 due to plant improvements we made to convert the facility from a coal fired plant to natural gas. These plant improvements were placed into service during our 2015 fiscal year.

Other Assets . Our other assets were comparable at March 31, 2015 and September 30, 2014 .

Current Liabilities . Our accounts payable was lower at March 31, 2015 compared to September 30, 2014 due to decreased corn payables because we purchased much of our corn inventory earlier in our 2015 fiscal year. Our accrued expenses were higher at March 31, 2015 compared to September 30, 2014 due to deferred corn payments. The accrued loss we had on our firm purchase commitments was lower at March 31, 2015 compared to September 30, 2014 because many of the open contracts were filled during the second quarter of our 2015 fiscal year, and the market price of corn was closer to the prices we agreed to pay on our forward corn purchase contracts. We had less current maturities on long-term debt at March 31, 2015 compared to September 30, 2014 due to the excess cash flow payment we made during our first fiscal quarter of 2015.

Long-term Liabilities . Our long-term liabilities were lower at March 31, 2015 compared to September 30, 2014 , due to scheduled quarterly loan payments we made during our 2015 fiscal year.

Liquidity and Capital Resources

Based on financial forecasts performed by our management, we anticipate that we will have sufficient cash from our current credit facilities and cash from our operations to continue to operate the ethanol plant for the next 12 months. Should we experience unfavorable operating conditions in the future, we may have to secure additional debt or equity sources for working capital or other purposes.

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The following table shows cash flows for the six months ended March 31, 2015 and 2014 :



	2015 (unaudited)			2014 (unaudited)
Net cash (used in) provided by operating activities	$	(8,509,558	)	$	1,900,364
Net cash (used in) investing activities	(3,418,520		)	(528,701		)
Net cash (used in) financing activities	(8,233,207		)	(1,371,663		)
Net (decrease) in cash	$	(20,161,285	)	$	—
Cash and cash equivalents, end of period	$	1,790,974		$	1,000

Cash Flow from Operations

Our operations provided less cash during the second quarter of our 2015 fiscal year compared to the second quarter of our 2014 fiscal year due to less net income and more cash being used for corn inventory during the 2015 period. We also experienced changes in our accounts payable and accrued purchase commitment losses related to our corn purchases which decreased the cash generated by our operations during the second quarter of our 2015 fiscal year compared to the second quarter of our 2014 fiscal year .

Cash Flow From Investing Activities

We used more cash for capital expenditures during the second quarter of our 2015 fiscal year compared to the second quarter of our 2014 fiscal year primarily due to our natural gas conversion and hammer mill projects which were in process during our 2015 fiscal year. During the first six months of our 2014 fiscal year, we primarily used cash for ordinary repair and replacement of equipment at the ethanol plant.

Cash Flow from Financing Activities

During the first quarter of our 2015 fiscal year, we made a significant excess cash flow prepayment on our long-term loan which used cash. By comparison, during the first six months of our 2014 fiscal year, we used additional cash to repay checks we had issued in excess of bank balances and amounts we borrowed on our short-term revolving loan.

Our liquidity, results of operations and financial performance will be impacted by many variables, including the market price for commodities such as, but not limited to, corn, ethanol and other energy commodities, as well as the market price for any co-products generated by the facility and the cost of labor and other operating costs. Assuming future relative price levels for corn, ethanol and distillers grains remain consistent, we expect operations to generate adequate cash flows to maintain operations.

Capital Expenditures

The Company had approximately $353,000 in construction in progress as of March 31, 2015 which relates to our scrubber project. During the six months ended March 31, 2015 , the Company placed in service approximately $3,400 000 in capital projects with the majority of these costs related to the natural gas conversion project and the addition of a new hammer mill.

Capital Resources

Short-Term Debt Sources

The Company has a revolving line-of-credit of $10,000,000 with $0 drawn on this line-of-credit as of March 31, 2015 . This revolving line-of-credit matures on March 20, 2016. The variable interest rate on this line-of-credit is 3.5% over the one-month LIBOR with a rate of 3.68% as of March 31, 2015 .

Long-Term Debt Sources

In March of 2015, we refinanced our outstanding debt with our senior lender. As of March 31, 2015 , our long-term debt consisted of a term loan. The following table summarizes our long-term debt instruments with our senior lender.

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	Outstanding Balance (Millions)				Interest Rate				Estimated
Term Note	March 31, 2015 (Unaudited)		September 30, 2014		March 31, 2015 (Unaudited)		September 30, 2014		Quarterly Principal and Interest Payment Amounts		Notes
Term Note	$	6.4	$	14.6	4.96	%	3.74	%	$	345,243	1, 2

Notes

1 - Maturity date extended to March 2020 from April 2017.

2 - Variable interest rate of 3.5% over the three-month LIBOR was replaced by a fixed per annum interest rate equal to 4.96%.

Restrictive Covenants

We are subject to a number of covenants and restrictions in connection with our credit facilities, including:


•	Providing FNBO with current and accurate financial statements;


•	Maintaining certain financial ratios including minimum working capital and debt service coverage ratio;


•	Maintaining adequate insurance;


•	Making, or allowing to be made, any significant change in our business or tax structure;


•	Limiting our ability to make distributions to members; and


•	Maintaining a threshold of capital expenditures.

Excess Cash Flow Payments

We are required to make a prepayment on our Term Loan within 120 days of the end of each of our fiscal years in an amount equal to 25% of our excess cash flow. Excess cash flow is defined in our loan agreement as our adjusted EBITDA earnings less scheduled payments which are due on our loans. Our adjusted EBITDA is calculated by reducing our EBITDA by approved capital expenditures and distributions we make during our fiscal year.

As of March 31, 2015 , we were in compliance with our loan covenants.

Industry Support

North Dakota Grant

In 2006, we entered into a contract with the State of North Dakota through the Industrial Commission for a lignite coal grant not to exceed $350,000. We received $275,000 from this grant during 2006 with this amount currently shown in the long-term liability section of our Balance Sheet as Contracts Payable. Because we have not met the minimum lignite usage requirements specified in the grant for any year in which the plant has operated, we expect to have to repay the grant and are awaiting instructions from the Industrial Commission as to the terms of the repayment schedule. This repayment could begin at some point in 2015, but as of March 31, 2015 we have not received any instructions from the Industrial Commission.

Critical Accounting Estimates

Our most critical accounting policies, which are those that require significant judgment, include policies related to the carrying amount of property, plant and equipment; valuation of derivatives, inventory and purchase commitments of inventory. An in-depth description of these can be found in our Annual Report on Form 10-K for the fiscal year ended September 30, 2014. For valuation allowances related to firm purchase commitments of inventory, please refer to the disclosures in Note 3 of the Notes to the Unaudited Condensed Financial Statements in this Quarterly Report. Management has not changed the method of calculating and using estimates and assumptions in preparing our condensed financial statements in accordance with generally accepted accounting principles. There have been no changes in the policies for our accounting estimates for the quarter ended March 31, 2015 .

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

Commodity Price Risk

We expect to be exposed to market risk from changes in commodity prices. Exposure to commodity price risk results from our dependence on corn in the ethanol production process and the sale of ethanol.

We enter into fixed price contracts for corn purchases on a regular basis. It is our intent that, as we enter into these contracts, we will use various hedging instruments (puts, calls and futures) to maintain a near even market position. For example, if we have 1 million bushels of corn under fixed price contracts we would generally expect to enter into a short hedge position to offset our price risk relative to those bushels we have under fixed price contracts. Because our ethanol marketing company (RPMG) is selling substantially all of the gallons it markets on a spot basis we also include the corn bushel equivalent of the ethanol we have produced that is inventory but not yet priced as bushels that need to be hedged.

Although we believe our hedge positions will accomplish an economic hedge against our future purchases, they are not designated as hedges for accounting purposes, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged. We use fair value accounting for our hedge positions, which means as the current market price of our hedge positions changes, the gains and losses are immediately recognized in our cost of sales. The immediate recognition of hedging gains and losses under fair value accounting can cause net income to be volatile from quarter to quarter and year to year due to the timing of the change in value of derivative instruments relative to the cost of the commodity being hedged. However, it is likely that commodity cash prices will have the greatest impact on the derivatives instruments with delivery dates nearest the current cash price.

As of March 31, 2015 , we had approximately 2.6 million bushels of corn under fixed price contracts. As of March 31, 2015 we accrued a $497,000 loss on firm purchase commitments related to these corn contracts.

It is the current position of our ethanol marketing company, RPMG, that under current market conditions selling ethanol in the spot market will yield the best price for our ethanol. RPMG will, from time to time, contract a portion of the gallons they market with fixed price contracts.

We estimate that our expected corn usage will be between 18 million and 20 million bushels per calendar year for the production of approximately 50 million to 54 million gallons of ethanol. 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.

A sensitivity analysis has been prepared to estimate our exposure to corn, natural gas and ethanol price risk. Market risk related to our corn, natural gas and ethanol prices is estimated as the potential change in income resulting from a hypothetical 10% adverse change in the average cost of our corn and natural gas, and our average ethanol sales price as of March 31, 2015, net of the forward and future contracts used to hedge our market risk for corn, natural gas and ethanol. The volumes are based on our expected use and sale of these commodities for a one year period from March 31, 2015. 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		Approximate Adverse Change to Income
Ethanol	53,765,000	Gallons	10	%	$	(7,527,100	)
Corn	10,048,000	Bushels	10	%	$	(3,315,840	)
Natural gas	1,570,400	MMBtu	10	%	$	(439,712	)

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Interest Rate Risk

We are exposed to market risk from changes in interest rates on our senior debt which bears variable interest rates. We anticipate that a hypothetical 1% change in the interest rate on our senior debt as of March 31, 2015 , would cause an adverse change to our income in the amount of approximately $64,000 for a 12 month period.

Item 4. Controls and Procedures

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

Our management, including our President and Chief Executive Officer (the principal executive officer), Gerald Bachmeier, along with our Chief Financial Officer, (the principal financial officer), Jodi Johnson, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2015 . Based on this review and evaluation, these officers believe that our disclosure controls and procedures are effective in ensuring that material information related to us is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission.

For the fiscal quarter ended March 31, 2015 , there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time in the ordinary course of business, we may be named as a defendant in legal proceedings related to various issues, including without limitation, workers' compensation claims, tort claims, or contractual disputes. We are not currently involved in any material legal proceedings.

Item 1A. Risk Factors

The following risk factor is provided due to material changes from the risk factors previously disclosed in our annual report on Form 10-K. The risk factor set forth below should be read in conjunction with the risk factors section and the Management's Discussion and Analysis section for the fiscal year ended September 30, 2014 , included in our annual report on Form 10-K.

Decreasing gasoline prices may lower ethanol prices which could negatively impact our ability to operate profitably . In recent years, the price of ethanol has been less than the price of gasoline which increased demand for ethanol from fuel blenders. However, recently the price of gasoline has decreased significantly which has reduced the spread between the price of gasoline and the price of ethanol. This trend has reduced demand for ethanol and has negatively impacted ethanol prices. These lower ethanol prices have come at a time when corn prices are increasing which has decreased our profit margins. If this trend continues for a significant period of time, it could hurt our ability to profitably operate the ethanol plant which could decrease the value of our units.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information

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None.

Item 6. Exhibits.


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



Exhibit No.			Exhibits
10.1			Fourth Amendment of First Amended and Restated Construction Loan Agreement between First National Bank of Omaha, and Red Trail Energy L.L.C., dated March 7, 2014*
10.2			First Amended and Restated Term Note between First National Bank of Omaha, and Red Trail Energy L.L.C., dated March 20, 2015*
10.3			Second Amendment of First Amended and Restated Mortgage between First National Bank of Omaha, and Red Trail Energy L.L.C., dated March 20, 2015*
10.4			Third Amended and Restated Revolving Credit Note between First National Bank of Omaha, and Red Trail Energy L.L.C., dated March 20, 2015*
10.5			Fifth Amendment of First Amended and Restated Construction Loan Agreement between First National Bank of Omaha, and Red Trail Energy L.L.C., dated March 20, 2015*
31.1			Certificate Pursuant to 17 CFR 240.13a-14(a)*
31.2			Certificate Pursuant to 17 CFR 240.13a-14(a)*
32.1			Certificate Pursuant to 18 U.S.C. Section 1350*
32.2			Certificate Pursuant to 18 U.S.C. Section 1350*
101			The following financial information from Red Trail Energy, LLC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of March 31, 2015 and September 30, 2014, (ii) Statements of Operations for the three and six months ended March 31, 2015 and 2014, (iii) Statements of Cash Flows for the six months ended March 31, 2015 and 2014, and (iv) the Notes to Unaudited Condensed Financial Statements.**

(*) Filed herewith.

(**) Furnished herewith.

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SIGNATURES

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



		RED TRAIL ENERGY, LLC

Date:	May 15, 2015	/s/ Gerald Bachmeier
		Gerald Bachmeier
		President and Chief Executive Officer
		(Principal Executive Officer)

Date:	May 15, 2015	/s/ Jodi Johnson
		Jodi Johnson
		Chief Financial Officer
		(Principal Financial and Accounting Officer)



	RED TRAIL ENERGY, LLC

	By: /s/ Jodi Johnson
	Title: CFO

	By: /s/ Gerald Bachmeier
	Title: CEO

	By: /s/ Ambrose Hoff
	Title: Secretary

	FIRST NATIONAL BANK OF OMAHA, as
	Agent and Lender

	By: /s/ Blake Swing
	Title: Loan Officer



	RED TRAIL ENERGY, LLC

	By: /s/ Jodi Johnson
	Title: CFO

	By: /s/ Gerald Bachmeier
	Title: CEO

	By: /s/ Ambrose Hoff
	Title: Secretary



	RED TRAIL ENERGY, LLC

	By: /s/ Jodi Johnson
	Title: CFO

	By: /s/ Gerald Bachmeier
	Title: CEO

	By: /s/ Ambrose Hoff
	Title: Secretary

	FIRST NATIONAL BANK OF OMAHA

	By: /s/ Brad Brummund
	Title: Vice President



	RED TRAIL ENERGY, LLC

	By: /s/ Jodi Johnson
	Title: CFO

	By: /s/ Gerald Bachmeier
	Title: CEO

	By: /s/ Ambrose Hoff
	Title: Secretary



	RED TRAIL ENERGY, LLC

	By: /s/ Gerald Bachmeier
	Title: CEO

	By: /s/ Jodi Johnson
	Title: CFO

	By: /s/ Ambrose Hoff
	Title: Secretary

	FIRST NATIONAL BANK OF OMAHA

	By: /s/ Brad Brummund
	Title: Vice President


(a)	Subject to the satisfaction of the requirements contained in subsection (b) below, in each fiscal year the Borrower may make cash distributions of Net Income for the immediately preceding fiscal year to its members in an amount not to exceed fifty percent (50%) of Net Income for the immediately preceding fiscal year; and


(a)	This Amendment, duly executed by Borrower and First National Bank of Omaha, as Agent and a Lender;


(b)	The amended Notes required in this Amendment above executed and delivered by Borrower in favor of First National Bank of Omaha, as Agent and a Lender;


(c)	A Second Amendment of First Amended and Restated Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement executed and delivered by Borrower in favor of First National Bank of Omaha, as Agent and a Lender; and


(d)	Such other documents and matters as are reasonably required by Agent.


1.	I have reviewed this quarterly report on Form 10-Q of Red Trail Energy, LLC;


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


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


4.	The registrant's other certifying 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


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.


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


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



	/s/ Gerald Bachmeier
	Gerald Bachmeier
	Chief Executive Officer

	Dated:	May 15, 2015