UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

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

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

GRANITE FALLS ENERGY, LLC

(Exact name of registrant as specified in its charter)

Minnesota (State or other jurisdiction of incorporation or organization)		41-1997390 (I.R.S. Employer Identification No.)
15045 Highway 23 SE Granite Falls, MN (Address of principal executive offices)		56241-0216 (Zip Code)

320-564-3100
(Registrant’s telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act:

Securities registered under Section 12(g) of the Exchange Act:

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

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

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

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

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. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller Reporting Company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes þ No

As of January 23, 2009, the aggregate market value of the membership units held by non-affiliates (computed by reference to the most recent offering price of Class A membership units) was $20,800,000.

As of January 23, 2009, there were 31,156 membership units outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant has incorporated by reference into Part III of this Annual Report on Form 10-K/A 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, 2008). This proxy statement is referred to in this report as the 2009 Proxy Statement.

 

 

This Amendment No. 1 to the Annual Report on Form 10-K of Granite Falls Energy, LLC (the “Company”) for the fiscal year ended October 31, 2008, is being filed for the purpose of amending the Section 302 and Section 906 Certifications contained in Item 13 to correct improperly dated certifications. The remainder of the Company’s Form 10-K is unchanged and is reproduced in this Amendment No. 1.  This report speaks as of the original filing date of the Form 10-K and has not been updated to reflect events occurring subsequent to the original reporting date.

INDEX

		Page No.
PART I			4
ITEM 1. BUSINESS			4
ITEM 1A. RISK FACTORS			19
ITEM 2. PROPERTIES			23
ITEM 3. LEGAL PROCEEDINGS			24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			25
PART II			25
ITEM 5. MARKET FOR REGISTRANT’S MEMBERSHIP UNITS, RELATED MEMBER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES			25
ITEM 6. SELECTED FINANCIAL DATA			28
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			55
ITEM 9A(T). CONTROLS AND PROCEDURES			55
ITEM 9B. OTHER INFORMATION			56
PART III			56
ITEM 10. GOVERNORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE			56
ITEM 11. EXECUTIVE COMPENSATION			56
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED MEMBER MATTERS			56
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND GOVERNOR INDEPENDENCE			56
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES			56
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES			57
SIGNATURES			58
Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

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

•

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

•

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

•

Results of our hedging transactions and other risk management strategies;

•

Decreases in the market prices of ethanol and distillers grains;

•

Ethanol supply exceeding demand; and corresponding ethanol price reductions;

•

Changes in the environmental regulations that apply to our plant operations;

•

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

•

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

•

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

•

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

•

Changes in federal and/or state laws (including the elimination of any federal and/or state ethanol tax incentives);

•

Changes and advances in ethanol production technology;

•

Effects of mergers, consolidations or contractions in the ethanol industry;

•

Competition from alternative fuel additives;

•

The development of infrastructure related to the sale and distribution of ethanol;

•

Our inelastic demand for corn, as it is the only available feedstock for our plant;

•

Our ability to retain key employees and maintain labor relations; and

•

Volatile commodity and financial markets.

The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or any persons acting on our behalf. We undertake no duty to update these forward-looking statements, even though our situation may change in the future. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits, completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.

AVAILABLE INFORMATION

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

PART I.

ITEM 1. BUSINESS.

Business Development

Granite Falls Energy, LLC (“Granite Falls” or the “Company”) is a Minnesota limited liability company formed on December 29, 2000, for the purpose of constructing and operating an ethanol manufacturing facility near Granite Falls, Minnesota. On November 13, 2005, we began plant operations and we currently produce fuel-grade ethanol and distillers grains for sale. Our plant has an approximate annual production capacity of 50 million gallons, although until September 2008 our environmental permit was for 47.25 million gallons of denatured ethanol (i.e., 45 million gallons of undenatured ethanol) on an annualized rolling sum basis. In late September 2008 we obtained amendments to our environmental permits allowing us to increase ethanol production to 49.9 million gallons of undenatured ethanol on an annualized rolling sum basis. We expect to fund our operations during the next 12 months using cash flow from continuing operations and our credit facilities.

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

Over the past 12 months we have installed corn oil extraction equipment at our plant. This equipment was installed and became operational in May 2008. While ethanol and distillers grain sales constitute the majority of our revenues, in our third fiscal quarter we began to realize revenue from the sale of corn oil that we are now able to separate from our distillers syrup.

Financial Information

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

Principal Products

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

Ethanol

Ethanol is ethyl alcohol, a fuel component made primarily from corn and various other grains, which can be used as: (i) an octane enhancer in fuels; (ii) an oxygenated fuel additive for the purpose of reducing ozone and carbon monoxide vehicle emissions; and (iii) a non-petroleum-based gasoline substitute. More than 99% of all ethanol produced in the United States is used in its primary form for blending with unleaded gasoline and other fuel products. The principal purchasers of ethanol are generally wholesale gasoline marketers or blenders. The principal markets for our ethanol are petroleum terminals in the continental United States.

Approximately 83.8% of our revenue, net of derivative activity, was derived from the sale of ethanol during our fiscal year ended October 31, 2008. Ethanol sales accounted for approximately 89.2% and 92.1% of our revenue, net of derivative activity, for the fiscal years ended October 31, 2007 and 2006 respectively.

Distillers Grains

A principal co-product of the ethanol production process is distillers grains, a high protein, high-energy animal feed supplement primarily marketed to the dairy, poultry and beef industries. Distillers grains contain by-pass protein that is superior to other protein supplements such as cottonseed meal and soybean meal. By-pass proteins are more digestible to the animal, thus generating greater lactation in milk cows and greater weight gain in beef cattle and swine. Distillers grains can also be included in the rations of breeder hens and laying hens which can potentially contain up to 20% and 15% percent distillers grains, respectively. In late September 2008 we obtained amendments to our environmental permits allowing us to produce modified wet distillers grains.

Approximately 15.1% of our revenue was derived from the sale of distillers grains during our fiscal year ended October 31, 2008. Distillers grains sales accounted for approximately 10.8% and 7.9% of our revenue for the fiscal years ended October 31, 2007 and 2006 respectively.

Corn Oil

In May 2008 the corn oil extraction equipment we installed at our plant became operational. We independently market our corn oil which is used primarily as a biodiesel feedstock and as a supplement for animal feed. Corn oil sales accounted for approximately 1.1% of our revenues during our fiscal year ended October 31, 2008.

Principal Product Markets

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

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

Distribution of Principal Products

Our ethanol plant is located near Granite Falls, Minnesota in Chippewa County. We selected the Granite Falls site because of its accessibility to road and rail transportation and its proximity to grain supplies. It is served by the TC&W Railway which provides connection to the Burlington Northern Santa Fe Railroad. Our site is in close proximity to major highways that connect to major population centers such as Minneapolis, Minnesota; Chicago, Illinois; and Detroit, Michigan.

Ethanol Distribution

As of our fiscal year ended October 31, 2008, Aventine Renewable Energy, Inc., (“Aventine”) was marketing and distributing all of the ethanol we produce at the plant. Pursuant to our Ethanol Marketing Agreement (“Aventine Agreement”) with Aventine we received the average net selling price (net of freight, transportation costs and commissions paid to Aventine) in a given month of ethanol sales by Aventine on behalf of us and the other ethanol plants with which it has marketing contracts. Aventine was responsible for negotiating freight rates with railroads and trucking firms for the transportation of our ethanol.

In October 2008 we concluded that we had reasonable grounds for insecurity regarding Aventine’s ability to perform under the Aventine Agreement. Accordingly, in both October 2008 and December 2008 we requested from Aventine adequate assurance of Aventine’s ability to perform its obligations under the Aventine Agreement. Aventine did not provide such assurance; therefore, we terminated the Aventine Agreement subsequent to our fiscal year on December 24, 2008. Aventine currently owns 500 of our membership units.

Also on December 24, 2008, we entered into an Ethanol Marketing Agreement (“Eco Agreement”) with Eco-Energy, Inc. (“Eco-Energy”). Pursuant to the Eco Agreement, Eco-Energy agreed to purchase the entire ethanol output of our ethanol plant and to arrange for the transportation of ethanol; however, we are responsible for securing all of the rail cars necessary for the transportation of ethanol by rail. We will pay Eco-Energy a certain percentage of the FOB plant price in consideration of Eco-Energy’s services.

Distillers Grains Distribution

CHS, Inc. (“CHS”) markets our distillers grains throughout the continental United States. CHS markets all of the distillers grains that are shipped by rail from our plant. The remainder of our distillers grains product is transported by truck and we have the discretion to designate the portion of the trucked distillers grains marketed by CHS. We independently market the balance of the distillers grains to local livestock producers using truck transportation. Our distillers grains must meet minimum quality feed trade standards. In late September 2008 we obtained amendments to our environmental permits allowing us to produce modified wet distillers grains. Accordingly, we anticipate independently marketing more of our modified wet distillers grains to local livestock producers using truck transportation.

Corn Oil Distribution

We independently market our corn oil which is used primarily as a biodiesel feedstock and as a supplement for animal feed. Our corn oil is transported by truck to end users located primarily in the upper Midwest.

New Products and Services

We introduced corn oil as a new product during the fiscal year ended October 31, 2008. We installed equipment which allows us to extract corn oil from the distillers syrup we produce. This equipment became operational in May 2008. We did not introduce any new services during our fiscal year ended October 31, 2008.

Sources and Availability of Raw Materials

Corn Supply

To produce approximately 50 million gallons of undenatured ethanol per year our ethanol plant needs approximately 18 million bushels of corn per year, or approximately 50,000 bushels per day, as the feedstock for its dry milling process. The grain supply for our plant is obtained from the Farmers Cooperative Elevator Company, our exclusive grain procurement agent. We will be forced to seek alternative corn suppliers if the Farmers Cooperative Elevator cannot meet our needs.

Our grain procurement agreement with Farmers Cooperative Elevator is for an initial term of 12 years which started in 2005. The price of the corn purchased is the price Granite Falls Energy negotiates with Farmers Cooperative Elevator plus a fee of $0.05 per bushel. Adjustments are made to the price for corn of inferior quality or excess moisture. The Farmers Cooperative Elevator currently owns 650 of our membership units.

On January 12, 2009, the United States Department of Agriculture (“USDA”) released its Crop Production report, which estimated the 2008 grain corn crop at 12.10 billion bushels. The January 12, 2009 estimate of the 2008 corn crop is approximately 7.44% below the USDA’s estimate of the 2007 corn crop of 13.07 billion bushels. Corn prices reached historical highs in July 2008, but have come down sharply since that time as stronger than expected yields materialized and the global financial crisis brought down prices of most commodities generally. In addition to the fundamental reasons for the extreme volatility in the corn market, we believe speculation in the commodities markets played a significant role in driving up corn prices in 2008. The Food and Agriculture Organization of the United Nations estimates that approximately 30 percent of the volatility in the corn market was beyond what could be accounted for by market fundamentals. We expect continued volatility in the price of corn, which could significantly impact our cost of goods sold. An increase in the number of operating ethanol plants in our surrounding area and nationwide could significantly increase the demand for corn. This demand could drive up the price of corn in our market which will impact our ability to operate profitably.

The price and availability of corn are subject to significant fluctuations depending upon a number of factors affecting grain commodity prices in general, including crop conditions, weather, governmental programs and foreign purchases. The market price of ethanol is not directly related to grain prices, and as a result, ethanol producers are generally not able to compensate for increases in the cost of grain feedstock through adjustments in prices charged for their ethanol. We therefore anticipate that our plant’s profitability will be negatively impacted during periods of high grain prices.

In an attempt to minimize the effects of volatile corn costs on operating profits, we take hedging positions in corn futures markets. Hedging means protecting the price at which we buy corn and the price at which we will sell our products in the future. It is a way to attempt to reduce the risk caused by price fluctuation. The effectiveness of hedging activities is dependent upon, among other things, the cost of corn and our ability to sell sufficient amounts of ethanol and distillers grains to utilize all of the corn subject to the futures contracts. Hedging activities can result in costs to us because price movements in grain contracts are highly volatile and are influenced by many factors beyond our control.

Utilities

Natural Gas. Natural gas is a significant input to our manufacturing process. We estimate our natural gas usage at approximately 125,000 million British thermal units (“mmBTU”) per month. We use natural gas to dry our distillers grains product to moisture contents at which it can be stored for long periods and transported greater distances, so that we can market the product to broader livestock markets, including poultry and swine markets in the continental United States.

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

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

Electricity. Our plant requires a continuous supply of 4.5 megawatts of electricity. We have an agreement with Minnesota Valley Electric Cooperative (‘MVEC”) to supply electricity to our plant. Under this agreement, we paid MVEC a base fee of $8,000 per month plus regular rates for delivery of electricity to our plant through December 2007. In January 2008, we began paying MVEC an additional 12% per month for delivery of electricity to our plant.

Water. We currently obtain the water necessary to operate our plant from the Minnesota River. In September 2006, we began construction of an intake structure in the Minnesota River and a water pipeline to the plant from the Minnesota River to provide a redundant water supply. We also constructed a water treatment facility to pre-treat the water we use for operations. The new water pipeline and water treatment equipment became operational in February 2007 and the Minnesota River is our primary source of water.

Patents, Trademarks, Licenses, Franchises and Concessions

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

Seasonality of Ethanol Sales

One of the major uses of ethanol in the United States is to meet the oxygenated fuel requirement of the Clean Air Act. The Clean Air Act contains an oxygenated fuel requirement for areas classified as carbon monoxide non-attainment areas. These areas are required to establish an oxygenated fuels program for a period of not less than three months each winter. The minimum oxygen requirement for gasoline sold in these areas is 2.7% by weight. This is the equivalent of 7.7% ethanol by volume in a gasoline blend. The other major oxygenate that was previously used was MTBE. MTBE use as a fuel oxygenate has been replaced by ethanol due to liability and environmental concerns associated with MTBE. Several states have banned the use of MTBE as a fuel oxygenate due to these environmental concerns, however MTBE has not been banned federally. Due to other ethanol use mandates including the Federal Renewable Fuels Standard which requires a certain amount of ethanol be used each year in the United States, the seasonal effect of the Clean Air Act oxygenation requirement has been reduced.

Working Capital

In order to protect the price of our inputs, namely corn and natural gas, we enter into hedging transactions that are designed to limit our exposure to increases in the price of corn, ethanol and natural gas. As a result of the volatility of corn and ethanol prices during our 2008 fiscal year, decreasing prices had a significant impact on the cash we had available for working capital at the end of our 2008 fiscal year. We experienced historic high prices for corn during July 2008 and these prices decreased significantly during the remaining months of our 2008 fiscal year. The result of this volatility is that we were forced to dedicate significant amounts of cash to meet margin calls associated with our derivative instruments. We anticipate adjusting our hedging strategy in the future so we will not be as exposed to significant margin calls during times when corn prices are volatile.

Dependence on One or a Few Major Customers

As discussed above, we recently entered into an exclusive ethanol marketing agreement with Eco Energy and we have an agreement with CHS for the marketing of our distillers grains. We rely on Eco Energy and CHS for the sale and distribution of almost all of our products, except for those distillers grains that we market locally and our corn oil. Therefore, we are highly dependent on Eco Energy and CHS for the successful marketing of our products. Any loss of Eco Energy or CHS as our marketing agent for our ethanol or distillers grains could have a negative impact on our revenues.

Competition

We are in direct competition with numerous ethanol producers, many of whom have greater resources than we do. During our 2008 fiscal year, there was relatively slower growth in the number of new ethanol producers entering the market due to high corn prices and relatively lower ethanol prices as compared to 2006 and 2005. We anticipate that ethanol production will continue to increase in order to meet the ethanol use mandates included in the Federal Renewable Fuels Standard. However, we also expect increased competition from other forms of renewable energy, specifically cellulosic ethanol.

Cellulose is the main component of plant cell walls and is the most common organic compound on earth. Cellulose is found in wood chips, corn stalks, rice straw, amongst other common plants. Cellulosic ethanol is ethanol produced from cellulose. Many of the government incentives that have recently been passed, including the expanded Renewable Fuels Standard and the 2008 Farm Bill, have included significant incentives to assist in the development of commercially viable cellulosic ethanol. Currently, the technology is not sufficiently advanced to produce cellulosic ethanol on a commercial scale, however, due to these new government incentives, we anticipate that commercially viable cellulosic ethanol technology will be developed in the near future. Several companies and researchers have commenced pilot projects to study the feasibility of commercially producing cellulosic ethanol. If this technology can be profitably employed on a commercial scale, it could potentially lead to ethanol that is less expensive to produce than corn based ethanol, especially if corn prices remain high. We do not believe it would be feasible to convert our ethanol plant to a new cellulosic ethanol production technology. Cellulosic ethanol may also capture more government subsidies and assistance than corn based ethanol. This could decrease demand for our product or result in competitive disadvantages for our ethanol production process.

Ethanol is a commodity product, like corn, which means our ethanol plant competes with other ethanol producers on the basis of price and, to a lesser extent, delivery service. We believe we compete favorably with other ethanol producers due to our proximity to ample grain supplies and multiple modes of transportation. However, during our 2008 fiscal year, some consolidation of the ethanol industry occurred, especially with the merger between Verasun Energy and U.S. BioEnergy. Management believes that conditions are right for a contraction in the ethanol industry as a result of the significant financial hardship that has been occurring in the ethanol industry recently.

According to the Renewable Fuels Association, as of January 8, 2009, the ethanol industry has grown to 172 production facilities in the United States. There are 23 new plants currently under construction along with approximately 8 plant expansions. The Renewable Fuels Association currently estimates that the United States ethanol industry has capacity to produce nearly 10.6 billion gallons of ethanol per year. The new ethanol plants under construction along with the plant expansions under construction could push United States production of fuel ethanol in the near future to nearly 13 billion gallons per year. The largest ethanol producers include POET, Archer Daniels Midland, Vera Sun Energy Corporation and Hawkeye Renewables each of which are capable of producing more ethanol than we produce. However, VeraSun recently filed for Chapter 11 Bankruptcy and has announced that it intends to auction off seven of its ethanol plants at some point between March 16, 2009 and March 31, 2009. Other ethanol producers may be in a position to purchase the assets of VeraSun which could further consolidate the ethanol industry.

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

U.S. FUEL ETHANOL BIOREFINERIES AND PRODUCTION CAPACITY
million gallons per year (mmgy)

Operating

Expansion

Under

Capacity

Capacity

Construction

Company

Location

Feedstock

(mgy)

(mgy)

Capacity (mgy)

Abengoa Bioenergy Corp. (Total)

168.0

176.0

Abengoa Bioenergy Corp.

Madison, IL

Corn

Abengoa Bioenergy Corp.

Mt. Vernon, IN

Corn

Abengoa Bioenergy Corp.

Colwich, KS

Corn/milo

Abengoa Bioenergy Corp.

Ravenna, NE

Corn

Abengoa Bioenergy Corp.

York, NE

Corn

Absolute Energy, LLC*

St. Ansgar, IA

Corn

100.0

ACE Ethanol, LLC

Stanley, WI

Corn

41.0

Adkins Energy, LLC*

Lena, IL

Corn

40.0

Advanced Bioenergy, LLC

Fairmont, NE

Corn

100.0

Advanced Bioenergy, LLC

Aberdeen, SD

Corn

50.0

Operating

Expansion

Under

Capacity

Capacity

Construction

Company

Location

Feedstock

(mgy)

(mgy)

Capacity (mgy)

Advanced Bioenergy, LLC

Huron, SD

Corn

32.0

33.0

Ag Energy Resources, Inc.

Benton, IL

Corn

5.0

AGP*

Hastings, NE

Corn

52.0

Agri-Energy, LLC*

Luverne, MN

Corn

21.0

Al-Corn Clean Fuel*

Claremont, MN

Corn

42.0

Amaizing Energy, LLC*

Atlantic, IA

Corn

110.0

Amaizing Energy, LLC*

Denison, IA

Corn

48.0

Archer Daniels Midland (Total)

1,070.0

550.0

Archer Daniels Midland

Cedar Rapids, IA

Corn

Archer Daniels Midland

Clinton, IA

Corn

Archer Daniels Midland

Decatur, IL

Corn

Archer Daniels Midland

Peoria, IL

Corn

Archer Daniels Midland

Marshall, MN

Corn

Archer Daniels Midland

Wallhalla, ND

Corn/barley

Archer Daniels Midland

Columbus, NE

Corn

Arkalon Energy, LLC

Liberal, KS

Corn

110.0

Aventine Renewable Energy, LLC (Total)

207.0

Aventine Renewable Energy, LLC

Pekin, IL

Corn

Aventine Renewable Energy, LLC

Aurora, NE

Corn

Badger State Ethanol, LLC*

Monroe, WI

Corn

48.0

Big River Resources Galva, LLC

Galva, IL

Corn

100.0

Big River Resources, LLC*

West Burlington, IA

Corn

92.0

BioEnergy International

Clearfield, PA

Corn

110.0

BioFuel Energy — Buffalo Lake Energy, LLC

Fairmont, MN

Corn

115.0

BioFuel Energy — Pioneer Trail Energy, LLC

Wood River, NE

Corn

115.0

Blue Flint Ethanol

Underwood, ND

Corn

50.0

Bonanza Energy, LLC

Garden City, KS

Corn/milo

55.0

Bunge-Ergon Vicksburg

Vicksburg, MS

Corn

54.0

Bushmills Ethanol, Inc.*

Atwater, MN

Corn

50.0

Calgren Renewable Fuels, LLC

Pixley, CA

Corn

55.0

Cardinal Ethanol

Union City, IN

Corn

100.0

Cargill, Inc.

Eddyville, IA

Corn

35.0

Operating

Expansion

Under

Capacity

Capacity

Construction

Company

Location

Feedstock

(mgy)

(mgy)

Capacity (mgy)

Cargill, Inc.

Blair, NE

Corn

85.0

Cascade Grain

Clatskanie, OR

Corn

108.0

Castle Rock Renewable Fuels, LLC

Necedah, WI

Corn

50.0

Center Ethanol Company

Sauget, IL

Corn

54.0

Central Indiana Ethanol, LLC

Marion, IN

Corn

40.0

Central MN Ethanol Coop*

Little Falls, MN

Corn

21.5

Chief Ethanol

Hastings, NE

Corn

62.0

Chippewa Valley Ethanol Co.*

Benson, MN

Corn

45.0

Cilion Ethanol

Keyes, CA

Corn

50.0

Clean Burn Fuels, LLC

Raeford, NC

Corn

60.0

Commonwealth Agri-Energy, LLC*

Hopkinsville, KY

Corn

33.0

Corn Plus, LLP*

Winnebago, MN

Corn

44.0

Corn, LP*

Goldfield, IA

Corn

55.0

Cornhusker Energy Lexington, LLC

Lexington, NE

Corn

40.0

Dakota Ethanol, LLC*

Wentworth, SD

Corn

50.0

DENCO, LLC

Morris, MN

Corn

21.5

Didion Ethanol

Cambria, WI

Corn

40.0

E Caruso (Goodland Energy Center)

Goodland, KS

Corn

20.0

E Energy Adams, LLC

Adams, NE

Corn

50.0

East Kansas Agri-Energy, LLC*

Garnett, KS

Corn

35.0

ESE Alcohol Inc.

Leoti, KS

Seed corn

1.5

Ethanol Grain Processors, LLC

Obion, TN

Corn

100.0

Front Range Energy, LLC

Windsor, CO

Corn

40.0

Glacial Lakes Energy, LLC*

Watertown, SD

Corn

100.0

Global Ethanol/Midwest Grain Processors

Lakota, IA

Corn

97.0

Global Ethanol/Midwest Grain Processors

Riga, MI

Corn

57.0

Golden Cheese Company of California*

Corona, CA

Cheese whey

5.0

Golden Grain Energy, LLC*

Mason City, IA

Corn

115.0

Golden Triangle Energy, LLC*

Craig, MO

Corn

20.0

Grain Processing Corp.

Muscatine, IA

Corn

20.0

Operating

Expansion

Under

Capacity

Capacity

Construction

Company

Location

Feedstock

(mgy)

(mgy)

Capacity (mgy)

Granite Falls Energy, LLC*

Granite Falls, MN

Corn

52.0

Greater Ohio Ethanol, LLC

Lima, OH

Corn

54.0

Green Plains Renewable Energy

Shenandoah, IA

Corn

55.0

Green Plains Renewable Energy

Superior, IA

Corn

55.0

Hawkeye Renewables, LLC

Fairbank, IA

Corn

120.0

Hawkeye Renewables, LLC

Iowa Falls, IA

Corn

105.0

Hawkeye Renewables, LLC

Menlo, IA

Corn

110.0

Hawkeye Renewables, LLC

Shell Rock, IA

Corn

110.0

Heartland Corn Products*

Winthrop, MN

Corn

100.0

Heron Lake BioEnergy, LLC

Heron Lake, MN

Corn

50.0

Highwater Ethanol LLC

Lamberton, MN

Corn

50.0

Homeland Energy

New Hampton, IA

Corn

100.0

Husker Ag, LLC*

Plainview, NE

Corn

75.0

Idaho Ethanol Processing

Caldwell, ID

Potato Waste

4.0

Illinois River Energy, LLC

Rochelle, IL

Corn

100.0

Indiana Bio-Energy

Bluffton, IN

Corn

101.0

Iroquois Bio-Energy Company, LLC

Rensselaer, IN

Corn

40.0

KAAPA Ethanol, LLC*

Minden, NE

Corn

40.0

Kansas Ethanol, LLC

Lyons, KS

Corn

55.0

KL Process Design Group

Upton, WY

Wood waste

1.5

Land O’ Lakes*

Melrose, MN

Cheese whey

2.6

LDCommodities

Grand Junction, IA

Corn

100.0

LDCommodities

Norfolk, NE

Corn

45.0

Levelland/Hockley County Ethanol, LLC

Levelland, TX

Corn

40.0

Lifeline Foods, LLC

St. Joseph, MO

Corn

40.0

Lincolnland Agri-Energy, LLC*

Palestine, IL

Corn

48.0

Lincolnway Energy, LLC*

Nevada, IA

Corn

50.0

Little Sioux Corn Processors, LP*

Marcus, IA

Corn

92.0

Marquis Energy, LLC

Hennepin, IL

Corn

100.0

Marysville Ethanol, LLC

Marysville, MI

Corn

50.0

Operating

Expansion

Under

Capacity

Capacity

Construction

Company

Location

Feedstock

(mgy)

(mgy)

Capacity (mgy)

Merrick & Company

Aurora, CO

Waste beer

3.0

MGP Ingredients, Inc.

Pekin, IL

Corn/wheat starch

78.0

MGP Ingredients, Inc.

Atchison, KS

Mid America Agri Products/Horizon

Cambridge, NE

Corn

44.0

Mid America Agri Products/Wheatland

Madrid, NE

Corn

44.0

Mid-Missouri Energy, Inc.*

Malta Bend, MO

Corn

50.0

Midwest Renewable Energy, LLC

Sutherland, NE

Corn

25.0

Minnesota Energy*

Buffalo Lake, MN

Corn

18.0

NEDAK Ethanol

Atkinson, NE

Corn

44.0

New Energy Corp.

South Bend, IN

Corn

102.0

North Country Ethanol, LLC*

Rosholt, SD

Corn

20.0

Northeast Biofuels

Volney, NY

Corn

114.0

Northwest Renewable, LLC

Longview, WA

Corn

55.0

One Earth Energy

Gibson City, IL

corn

100.0

Otter Tail Ag Enterprises

Fergus Falls, MN

Corn

57.5

Pacific Ethanol

Madera, CA

Corn

40.0

Pacific Ethanol

Stockton, CA

Corn

60.0

Pacific Ethanol

Burley, ID

Corn

50.0

Pacific Ethanol

Boardman, OR

Corn

40.0

Panda Ethanol

Hereford, TX

Corn/milo

115.0

Parallel Products

Rancho Cucamonga, CA

Parallel Products

Louisville, KY

Beverage waste

5.4

Patriot Renewable Fuels, LLC

Annawan, IL

Corn

100.0

Penford Products

Cedar Rapids, IA

Corn

45.0

Phoenix Biofuels

Goshen, CA

Corn

31.5

Pinal Energy, LLC

Maricopa, AZ

Corn

55.0

Pine Lake Corn Processors, LLC

Steamboat Rock, IA

Corn

20.0

Platinum Ethanol, LLC*

Arthur, IA

Corn

110.0

Plymouth Ethanol, LLC*

Merrill, IA

Corn

50.0

POET Biorefining — Alexandria

Alexandria, IN

Corn

68.0

Operating

Expansion

Under

Capacity

Capacity

Construction

Company

Location

Feedstock

(mgy)

(mgy)

Capacity (mgy)

POET Biorefining — Ashton

Ashton, IA

Corn

56.0

POET Biorefining — Big Stone

Big Stone City, SD

Corn

79.0

POET Biorefining — Bingham Lake

Bingham Lake, MN

35.0

POET Biorefining — Caro

Caro, MI

Corn

53.0

POET Biorefining — Chancellor

Chancellor, SD

Corn

110.0

POET Biorefining — Coon Rapids

Coon Rapids, IA

Corn

54.0

POET Biorefining — Corning

Corning, IA

Corn

65.0

POET Biorefining — Emmetsburg

Emmetsburg, IA

Corn

55.0

POET Biorefining — Fostoria

Fostoria, OH

Corn

68.0

POET Biorefining — Glenville

Albert Lea, MN

Corn

42.0

POET Biorefining — Gowrie

Gowrie, IA

Corn

69.0

POET Biorefining — Hanlontown

Hanlontown, IA

Corn

56.0

POET Biorefining — Hudson

Hudson, SD

Corn

56.0

POET Biorefining — Jewell

Jewell, IA

Corn

69.0

POET Biorefining — Laddonia

Laddonia, MO

Corn

50.0

5.0

POET Biorefining — Lake Crystal

Lake Crystal, MN

Corn

56.0

POET Biorefining — Leipsic

Leipsic, OH

Corn

68.0

POET Biorefining — Macon

Macon, MO

Corn

46.0

POET Biorefining — Marion

Marion, OH

Corn

65.0

POET Biorefining — Mitchell

Mitchell, SD

Corn

68.0

POET Biorefining — North Manchester

North Manchester, IN

Corn

68.0

POET Biorefining — Portland

Portland, IN

Corn

68.0

POET Biorefining — Preston

Preston, MN

Corn

46.0

POET Biorefining — Scotland

Scotland, SD

Corn

11.0

POET Biorefining — Groton

Groton, SD

Corn

53.0

Operating

Expansion

Under

Capacity

Capacity

Construction

Company

Location

Feedstock

(mgy)

(mgy)

Capacity (mgy)

Prairie Horizon Agri-Energy, LLC

Phillipsburg, KS

Corn

40.0

Quad-County Corn Processors*

Galva, IA

Corn

30.0

Range Fuels

Soperton, GA

Wood waste

20.0

Red Trail Energy, LLC

Richardton, ND

Corn

50.0

Redfield Energy, LLC *

Redfield, SD

Corn

50.0

Reeve Agri-Energy

Garden City, KS

Corn/milo

12.0

Renew Energy

Jefferson Junction, WI

Corn

130.0

Renova Energy

Torrington, WY

Corn

5.0

Riverland Biofuels

Canton, IL

Corn

37.0

Show Me Ethanol

Carrollton, MO

Corn

55.0

Siouxland Energy & Livestock Coop*

Sioux Center, IA

Corn

60.0

Siouxland Ethanol, LLC

Jackson, NE

Corn

50.0

Southwest Georgia Ethanol, LLC

Mitchell Co., GA

Corn

100.0

Southwest Iowa Renewable Energy, LLC *

Council Bluffs, IA

Corn

110.0

Sterling Ethanol, LLC

Sterling, CO

Corn

42.0

Tate & Lyle

Ft. Dodge, IA

Corn

105.0

Tate & Lyle

Loudon, TN

Corn

67.0

38.0

Tharaldson Ethanol

Casselton, ND

Corn

110.0

The Andersons Albion Ethanol LLC

Albion, MI

Corn

55.0

The Andersons Clymers Ethanol, LLC

Clymers, IN

Corn

110.0

The Andersons Marathon Ethanol, LLC

Greenville, OH

Corn

110.0

Trenton Agri Products, LLC

Trenton, NE

Corn

40.0

United Ethanol

Milton, WI

Corn

52.0

United WI Grain Producers, LLC*

Friesland, WI

Corn

49.0

Utica Energy, LLC

Oshkosh, WI

Corn

48.0

VeraSun Energy Corporation (Total)

450.0

110.0

VeraSun Energy Corporation

Charles City, IA

Corn

VeraSun Energy Corporation

Ft. Dodge, IA

Corn

VeraSun Energy Corporation

Hartley, IA

Corn

Operating

Expansion

Under

Capacity

Capacity

Construction

Company

Location

Feedstock

(mgy)

(mgy)

Capacity (mgy)

VeraSun Energy Corporation

Welcome, MN

Corn

VeraSun Energy Corporation

Aurora, SD

Corn

Verenium

Jennings, LA

Sugar Cane bagasse

1.5

Western New York Energy LLC

Shelby, NY

50.0

Western Plains Energy, LLC*

Campus, KS

Corn

45.0

Western Wisconsin Renewable Energy, LLC*

Boyceville, WI

Corn

40.0

White Energy

Russell, KS

Milo/wheat starch

48.0

White Energy

Hereford, TX

Corn/Milo

100.0

White Energy

Plainview, TX

Corn

100.0

Wind Gap Farms

Baconton, GA

Brewery waste

0.4

Xethanol BioFuels, LLC

Blairstown, IA

Corn

5.0

Yuma Ethanol

Yuma, CO

Corn

40.0

TOTALS

10,582.9

626.0

1,770.0

mgy for

mgy for

mgy for

172

expanding

23

operating

refineries

refineries under

refineries

construction

Last updated: January 8, 2009

Source: Renewable Fuels Association (“RFA”)

Ethanol production is also expanding internationally. Ethanol produced or processed in certain countries in Central America and the Caribbean region is eligible for tariff reduction or elimination on importation to the United States under a program known as the Caribbean Basin Initiative. Some ethanol producers, including Cargill, have started taking advantage of this situation by building dehydration plants in participating Caribbean Basin countries, which convert ethanol into fuel-grade ethanol for shipment to the United States. Ethanol imported from Caribbean Basin countries may be a less expensive alternative to domestically produced ethanol and may affect our ability to sell our ethanol profitably. Further, despite the fact that there is a significant amount of ethanol produced in the United States, ethanol produced abroad and shipped by sea may be a more favorable alternative to supply coastal cities that are located on international shipping ports.

Our ethanol plant also competes with producers of other gasoline additives having similar octane and oxygenate values as ethanol. Alternative fuels, gasoline oxygenates and alternative ethanol production methods are also continually under development. The major oil companies have significantly greater resources than we have to market other additives, to develop alternative products, and to influence legislation and public perception of ethanol. These companies also have sufficient resources to begin production of ethanol should they choose to do so.

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

Demand for ethanol may increase as a result of increased consumption of E85 fuel. E85 fuel is a blend of 85% ethanol and 15% gasoline. According to United States Department of Energy estimates, there are currently more than 7 million flexible fuel vehicles capable of operating on E85 in the United States. Further, the United States Department of Energy reports that there are currently more than 1,600 retail gasoline stations supplying E85. The number of retail E85 suppliers increases significantly each year, however, this remains a relatively small percentage of the total number of U.S. retail gasoline stations, which is approximately 170,000. In order for E85 fuel to increase demand for ethanol, it must be available for consumers to purchase it. As public awareness of ethanol and E85 increases along with E85’s increased availability, management anticipates some growth in demand for ethanol associated with increased E85 consumption.

Research and Development

We do not currently conduct any research and development activities associated with the development of new technologies for use in producing ethanol, distillers grains or corn oil.

Governmental Regulation and Federal Ethanol Supports

Federal Ethanol Supports

The effect of the renewable fuel standard (“RFS”) program in the Energy Independence and Security Act signed into law on December 19, 2007 (the “2007 Act”) is uncertain. The mandated minimum level of use of renewable fuels in the RFS under the 2007 Act increased to 9 billion gallons per year in 2008 (from 5.4 billion gallons under the RFS enacted in 2005), and is scheduled to increase to 36 billion gallons per year in 2022. The 2007 Act also requires the increased use of “advanced” biofuels, which are alternative biofuels produced without using corn starch, such as cellulosic ethanol and biomass-based diesel, with 21 billion gallons of the mandated 36 billion gallons of renewable fuel required to come from advanced biofuels by 2022. Required RFS volumes for both general and advanced renewable fuels in years to follow 2022 will be determined by a governmental administrator, in coordination with the U.S. Department of Energy and U.S. Department of Agriculture. The scheduled RFS for 2009 is approximately 11 billion gallons.

Waivers of the RFS minimum levels of renewable fuels included in gasoline could have a material adverse effect on our results of operations. Under the RFS, as originally passed as part of the Energy Policy Act of 2005, the U.S. Environmental Protection Agency, or EPA, in consultation with the Secretary of Agriculture and the Secretary of Energy, may waive the renewable fuels mandate with respect to one or more states if the Administrator of the EPA determines upon the petition of one or more states that implementing the requirements would severely harm the economy or the environment of a state, a region or the nation, or that there is inadequate supply to meet the requirement.

The Renewable Fuels Association estimates that current domestic ethanol production as of January 2009 is approximately 10.6 billion gallons. This high level of ethanol production is placing downward pressure on the price of ethanol as demand has struggled to keep pace with the increase in supply.

On June 18, 2008, the United States Congress overrode a presidential veto to approve the Food, Conservation and Energy Act of 2008 (the “2008 Farm Bill”) and to ensure that all parts of the 2008 Farm Bill are enacted into law. Passage of the 2008 Farm Bill reauthorizes the 2002 farm bill and adds new provisions regarding energy, conservation, rural development, crop insurance as well as other subjects. The energy title continues the energy programs contained in the 2002 farm bill but refocuses certain provisions on the development of cellulosic ethanol technology. The new legislation provides assistance for the production, storage and transport of cellulosic feedstocks and provides support for ethanol production from such feedstocks in the form of grants, loans and loan guarantees. The 2008 Farm Bill also modifies the ethanol fuels tax credit from 51 cents per gallon to 45 cents per gallon beginning in 2009. The bill also extends the 54 cent per gallon tariff on imported ethanol for two years, to January 2011. The 2008 Farm Bill is distinct from the Energy Independence and Security Act of 2007, which contains the increased renewable fuels standard described above. There is currently some debate in the U.S. Senate about whether to repeal the 54 cent per gallon tariff on imported ethanol. If the 54 cent per gallon tariff is repealed, the demand for domestically produced ethanol may be offset by the supply of ethanol imported from Brazil or other foreign countries.

Effect of Governmental Regulation

The ethanol industry and our business depend upon continuation of the federal ethanol supports discussed above. These incentives have supported a market for ethanol that might disappear without the incentives. Alternatively, the incentives may be continued at lower levels. The elimination or reduction of such federal ethanol supports would likely reduce our net income and negatively impact our future financial performance.

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, the generation, storage, handling, use, transportation and disposal of hazardous materials, and the health and safety of employees. In addition, some of these laws and regulations require our plant to operate under permits that are subject to renewal or modification. The government’s regulation of the environment changes constantly. It is possible that more stringent federal or state environmental rules or regulations could be adopted, which could increase our operating costs and expenses.

Our business may be indirectly affected by environmental regulation of the agricultural industry as well. It is also possible that federal or state environmental rules or regulations could be adopted that could have an adverse effect on the use of ethanol. For example, changes in the environmental regulations regarding ethanol’s use due to currently unknown effects on the environment could have an adverse effect on the ethanol industry. Furthermore, plant operations are governed by the Occupational Safety and Health Administration (OSHA). OSHA regulations may change such that the costs of the operation of the plant may increase. Any of these regulatory factors may result in higher costs or other materially adverse conditions affecting our operations, cash flows and financial performance.

Employees

We currently have thirty-five full-time employees. The following table represents the current positions within our plant, all of which are filled by persons employed by Granite Falls:

Position		Employees
Chief Executive Officer			1
Chief Financial Officer			1
Environmental, Health and Safety Manager			1
Operations Manager			1
Plant Manager			1
Maintenance Manager			1
Maintenance Assistants and Electrician			4
Boiler Operators			5
Plant Operators			12
Lab Supervisor			1
Lab Assistant			1
Grains Supervisor			1
Grains Operators/Material Handlers			2
Receptionist			1
Administrative Assistant/Feed			1
Assistant Controller			1
Total			35

We do not expect to hire a significant number of employees in the next 12 months.

Financial Information about Geographic Areas

All of our operations are domiciled in the United States. All of the products sold to our customers for fiscal years 2008, 2007 and 2006 were produced in the United States and all of our long-lived assets are domiciled in the United States. We have engaged third-party professional marketers who decide where our products are marketed and we have no control over the marketing decisions made by our third-party professional marketers. These third-party marketers may decide to sell our products in countries other than the United States. However, we anticipate that our products will primarily be sold in the United States.

ITEM 1A. RISK FACTORS.

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

Risks Relating to Our Business

Increases in the price of corn or natural gas would reduce our profitability. Our results of operations and financial condition are significantly affected by the cost and supply of corn and natural gas. Changes in the price and supply of corn and natural gas are subject to and determined by market forces over which we have no control.

As we experienced during the early summer of 2008, weather factors can have a very significant impact on the selling price of corn. Following unfavorable weather conditions and flooding in the Midwest during the beginning of the 2008 growing season, the price per bushel of corn increased significantly and peaked during July 2008. Following this unfavorable weather in the early part of the growing season, the United States experienced favorable weather conditions through the rest of the 2008 growing season. According to USDA reports, despite the early poor weather, the corn crop harvested in the fall of 2008 was the second largest on record following last year’s crop. Ethanol production requires substantial amounts of corn. Generally, higher corn prices will produce lower profit margins and, therefore, negatively affect our financial performance. Our total corn cost per bushel during our 2008 fiscal year was approximately 42% higher than the corn costs we experienced in our 2007 fiscal year. While corn prices have significantly decreased following a peak in July 2008, current corn prices are higher than historical averages. If a period of high corn prices were to be sustained for some time, such pricing may reduce our ability to operate profitably because of the higher cost of operating our plant. We may not be able to offset any increase in the price of corn by increasing the price of our products. If we cannot offset increases in the price of corn, our financial performance may be negatively affected.

The prices for and availability of natural gas are subject to volatile market conditions. These market conditions often are affected by factors beyond our control such as higher prices as a result of colder than average weather conditions or natural disasters, overall economic conditions and foreign and domestic governmental regulations and relations. Significant disruptions in the supply of natural gas could impair our ability to manufacture ethanol and more significantly, distillers grains for our customers. Furthermore, increases in natural gas prices or changes in our natural gas costs relative to natural gas costs paid by competitors may adversely affect our results of operations and financial condition. We seek to minimize the risks from fluctuations in the prices of corn and natural gas through the use of hedging instruments. However, these hedging transactions also involve risks to our business. See “Risks Relating to Our Business — We engage in hedging transactions which involve risks that could harm our business.”

Declines in the price of ethanol or distillers grain would significantly reduce our revenues. The sales prices of ethanol and distillers grains can be volatile as a result of a number of factors such as overall supply and demand, the price of gasoline and corn, level of government support, and the availability and price of competing products. Recently, the price of ethanol and distillers grains have trended downward as the prices of corn and gasoline have fallen. We are dependant on a favorable spread between the price we receive for our ethanol and distillers grains and the price we pay for corn and natural gas. Any continued lowering of ethanol and distillers grains prices, especially if it is associated with increases in corn and natural gas prices, may reduce our revenues and affect our ability to operate profitably.

The average price we received for our ethanol increased by approximately 6.6% during our 2008 fiscal year compared to our 2007 fiscal year, however the price we paid for corn increased by approximately 42% during the same time periods. We anticipate the price of ethanol and distillers grains to continue to be volatile in our 2009 fiscal year as a result of the net effect of changes in the price of gasoline and corn and increased ethanol supply offset by increased ethanol demand. Continued declines in the prices we receive for our ethanol and distillers grains will lead to decreased revenues and may result in our inability to operate the ethanol plant profitably for an extended period of time which could decrease the value of our units.

Additional credit facilities may become difficult to obtain. Due to current conditions in the credit markets, it has been increasingly difficult for businesses to secure financing. While we do not currently require more financing than we have, in the future we may need additional financing. If we require financing in the future and we are unable to secure such financing, it may have a negative impact on our liquidity. This could negatively impact the value of our units.

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

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

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

Changes and advances in ethanol production technology could require us to incur costs to update our plant or could otherwise hinder our ability to compete in the ethanol industry or operate profitably. Advances and changes in the technology of ethanol production are expected to occur. Such advances and changes may make the ethanol production technology installed in our plant less desirable or obsolete. These advances could also allow our competitors to produce ethanol at a lower cost than we are able. We do not believe it would be feasible to convert our ethanol plant to a new cellulosic ethanol production technology. If we are unable to adopt or incorporate technological advances, our ethanol production methods and processes could be less efficient than our competitors, which could cause our plant to become uncompetitive or completely obsolete. If our competitors develop, obtain or license technology that is superior to ours or that makes our technology obsolete, we may be required to incur significant costs to enhance or acquire new technology so that our ethanol production remains competitive. Alternatively, we may be required to seek third-party licenses, which could also result in significant expenditures. These third-party licenses may not be available or, once obtained, they may not continue to be available on commercially reasonable terms, if at all. These costs could negatively impact our financial performance by increasing our operating costs and reducing our net income.

Risks Related to Ethanol Industry

A reduction in the consumption of gasoline may decrease the demand for ethanol as a blending agent which may negatively affect our profitability. Recently the demand for gasoline has decreased nationally which has in turn reduced the demand for ethanol. According to the Energy Information Administration (“EIA”), gasoline consumption in the United States for 2008 decreased by 3.1 billion gallons or 2.2% compared to 2007. This decline in gasoline consumption may exacerbate the blend wall dilemma by reducing the aggregate amount of ethanol that our nation consumes. The blend wall refers to the amount of ethanol that may be blended with petroleum based fuel. Current federal standards set the amount of ethanol that can be blended with gasoline at a maximum rate of ten percent. Gasoline consumption in 2008 was estimated by the Energy Information Administration to be approximately 140 billion gallons, which means that even if ethanol is blended with 90 percent of the gasoline at a rate of ten percent, the nation would use approximately 12.5 billion gallons of ethanol. This 12.5 billion gallon figure is referred to as the blend wall. Accordingly, if either gasoline consumption or the percentage of gasoline containing ethanol declines, the blend wall figure will also decline. If demand for gasoline and ethanol continues to decrease, we may not be able to operate our ethanol plant profitably.

Technology advances in the commercialization of cellulosic ethanol may decrease demand for corn based ethanol which may negatively affect our profitability. 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, municipal solid waste, and energy crops. 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 which are unable to grow corn. The Energy Independence and Security Act of 2007 and the 2008 Farm Bill offer a very strong incentive to develop commercial scale cellulosic ethanol. The RFS requires that 16 billion gallons per year of advanced bio-fuels be consumed in the United States by 2022. Additionally, state and federal grants have been awarded to several companies who are seeking to develop commercial-scale cellulosic ethanol plants. We expect this will encourage innovation that may lead to commercially viable cellulosic ethanol plants in the near future. If an efficient method of producing ethanol from cellulose-based biomass is developed, we may not be able to compete effectively. We do not believe it will be cost-effective to convert our ethanol plant into a plant which will use cellulose-based biomass to produce ethanol. If we are unable to produce ethanol as cost-effectively as cellulose-based producers, our ability to generate revenue and our financial condition will be negatively impacted.

New plants under construction or decreases in the demand for ethanol may result in excess production capacity in our industry. The supply of domestically produced ethanol is at an all-time high. According to the Renewable Fuels Association, as of January 8, 2009, there are 172 ethanol plants operating in the United States with capacity to produce more than approximately 10.5 billion gallons of ethanol per year. In addition, there are 23 new ethanol plants under construction and approximately 8 plant expansions underway which together are estimated to increase ethanol production capacity by more than 2.4 billion gallons per year. Excess ethanol production capacity may have an adverse impact on our results of operations, cash flows and general financial condition. If the demand for ethanol does not grow at the same pace as increases in supply, we expect the selling price of ethanol to decline. If excess capacity in the ethanol industry occurs, the market price of ethanol may decline to a level that is inadequate to generate sufficient cash flow to cover our costs. This could negatively affect our future profitability.

Decreasing gasoline prices may negatively impact the selling price of ethanol which could reduce our ability to operate profitably. The price of ethanol tends to change in relation to the price of gasoline. Recently, as a result of a number of factors including a slowing world economy, the price of gasoline has decreased. In correlation to the decrease in the price of gasoline, the price of ethanol has also decreased. Decreases in the price of ethanol reduce our revenue. Our profitability depends on a favorable spread between our corn and natural gas costs and the price we receive for our ethanol. If ethanol prices fall during times when corn and/or natural gas prices are high, we may not be able to operate our ethanol plant profitably.

Growth in the ethanol industry is dependent on growth in the fuel blending infrastructure to accommodate ethanol, which may be slow and could result in decreased demand for ethanol. The ethanol industry depends on the fuel blending industry to blend the ethanol that is produced with gasoline so it may be sold to the end consumer. In many parts of the country, the blending infrastructure cannot accommodate ethanol so no ethanol is used in those markets. Substantial investments are required to expand this blending infrastructure and the fuel blending industry may choose not to expand the blending infrastructure to accommodate ethanol. Should the ability to blend ethanol not expand at the same rate as increases in ethanol supply, it may decrease the demand for ethanol. Should the fuel blending industry not make the required investments to expand the blending infrastructure, it may lead to a decrease in the selling price of ethanol which could impact our ability to operate profitably.

We operate in an intensely competitive industry and compete with larger, better financed entities which could impact our ability to operate profitably. There is significant competition among ethanol producers. There are numerous producer-owned and privately-owned ethanol plants planned and operating throughout the Midwest and elsewhere in the United States. We also face competition from outside of the United States. The number of ethanol plants being developed and constructed in the United States continues to increase at a rapid pace. The passage of the Energy Policy Act of 2005 included a renewable fuels mandate. The Energy Independence and Security Act of 2007 increased the RFS to 36 billion gallons by 2022. Further, some states have passed renewable fuel mandates. These increases in ethanol demand have encouraged companies to enter the ethanol industry. The largest ethanol producers include POET, Archer Daniels Midland, VeraSun Energy Corporation and Hawkeye Renewables, LLC, all of which are each capable of producing more ethanol than we produce. Further, many believe that there will be consolidation occurring in the ethanol industry in the near future which will likely lead to a few companies who control a significant portion of the ethanol production market. We may not be able to compete with these larger entities. These larger ethanol producers may be able to affect the ethanol market in ways that are not beneficial to us which could affect our financial performance.

Competition from the advancement of alternative fuels may lessen the demand for ethanol. Alternative fuels, gasoline oxygenates and ethanol production methods are continually under development. A number of automotive, industrial and power generation manufacturers are developing alternative clean power systems using fuel cells or clean burning gaseous fuels. Like ethanol, the emerging fuel cell industry offers a technological option to address increasing worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns. Fuel cells have emerged as a potential alternative to certain existing power sources because of their higher efficiency, reduced noise and lower emissions. 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. If the fuel cell and hydrogen industries continue to expand and gain broad acceptance, and hydrogen becomes readily available to consumers for motor vehicle use, we may not be able to compete effectively. This additional competition could reduce the demand for ethanol, resulting in lower ethanol prices that might adversely affect our results of operations and financial condition.

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

Negative media attention associated with the use of corn in the ethanol production process may lead to decreases in demand for the ethanol we produce which could negatively affect our profitability. Recent media attention associated with the use of corn as the feedstock in ethanol production has been unfavorable to the ethanol industry. This negative media attention has focused on the effect ethanol production has on domestic and foreign food prices. While some recent media reports have recognized that food prices have remained high despite significant decreases in the price of corn following peaks in July 2008, some of this negative perception of ethanol production may persist. Ethanol production has previously received favorable coverage by the news media which may have increased demand for ethanol. This negative perception of ethanol production may have a negative effect on demand for ethanol which may decrease the price we receive for our ethanol. Decreases in the selling price of ethanol may have a negative effect on our financial condition.

Risks Related to Regulation and Governmental Action

Government incentives for ethanol production, including federal tax incentives, may be eliminated in the future, which could hinder our ability to operate at a profit. The ethanol industry is assisted by various federal ethanol production and tax incentives, including the RFS set forth in the Energy Policy Act of 2005 and increased by the Energy Independence and Security Act of 2007. The RFS helps support a market for ethanol that might disappear without this incentive; as such, waiver of the RFS minimum levels of renewable fuels included in gasoline could negatively impact our results of operations.

In addition, the elimination or reduction of tax incentives to the ethanol industry, such as the Volumetric Ethanol Excise Tax Credit (“VEETC”) available to gasoline refiners and blenders, could also reduce the market demand for ethanol, which could reduce prices and our revenues by making it more costly or difficult for us to produce and sell ethanol. If the federal tax incentives are eliminated or sharply curtailed, we believe that decreased demand for ethanol will result, which could negatively impact our ability to operate profitably.

Also, elimination of the tariffs that protect the United States ethanol industry could lead to the importation of ethanol producers in other countries, especially in areas of the United States that are easily accessible by international shipping ports. While the 2008 Farm Bill extended the tariff on imported ethanol through 2011, this tariff could be repealed earlier which could lead to increased ethanol supplies and decreased ethanol prices.

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

Carbon dioxide may be regulated in the future by the EPA as an air pollutant requiring us to obtain additional permits and install additional environmental mitigation equipment, which could adversely affect our financial performance. In 2007, the Supreme Court decided a case in which it ruled that carbon dioxide is an air pollutant under the Clean Air Act for the purposes of motor vehicle emissions. The Supreme Court directed the EPA to regulate carbon dioxide from vehicle emissions as a pollutant under the Clean Air Act. Similar lawsuits have been filed seeking to require the EPA to regulate carbon dioxide emissions from stationary sources such as our ethanol plant under the Clean Air Act. Our plant produces a significant amount of carbon dioxide that we currently vent into the atmosphere. While there are currently no regulations applicable to us concerning carbon dioxide, if the EPA or the State of Minnesota were to regulate carbon dioxide emissions by plants such as ours, we may have to apply for additional permits or we may be required to install carbon dioxide mitigation equipment or take other as yet unknown steps to comply with these potential regulations. Compliance with any future regulation of carbon dioxide, if it occurs, could be costly and may prevent us from operating the ethanol plant profitably which could decrease or eliminate the value of our units.

ITEM 2. PROPERTIES.

Our ethanol plant is located on a 56-acre site located approximately three miles east of Granite Falls, Minnesota in Chippewa County at the junction of Highways 212 and 23. The plant’s address is 15045 Highway 23 SE, Granite Falls, Minnesota. We produce all of our ethanol, distillers grains and corn oil at this site. The ethanol plant has capacity to produce approximately 50 million gallons of ethanol per year. The ethanol plant consists of the following buildings and equipment:

•

A river water intake structure in the Minnesota River and a water pipeline to the plant from the Minnesota River to provide a redundant water supply;

•

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

•

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

•

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

•

A fermentation area comprised principally of four fermentation tanks;

•

Corn oil extraction equipment;

•

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

•

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

The site also contains improvements such as rail tracks and a rail spur, landscaping, drainage systems and paved access roads.

All of our tangible and intangible property, real and personal, serves as the collateral for our $10,000,000 revolving line of credit with Minnwest Bank M.V. of Marshall, Minnesota as well as our EDA loans. Our revolving line of credit and our EDA loans are discussed in more detail under “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — Indebtedness”.

ITEM 3. LEGAL PROCEEDINGS.

Operating and Management Agreement Dispute

Commencing August 8, 2005, Glacial Lakes Energy, LLC (“Glacial Lakes”) began management of plant operations in anticipation of plant start-up pursuant to the terms of an operating and management agreement entered into on July 9, 2004. Under the operating and management agreement between Granite Falls and Glacial Lakes, Granite Falls was to pay Glacial Lakes $35,000 per month plus an annual payment equal to 3% of the plant’s net income from operations for an initial term of five years. The December 2006 resignation of Glacial Lakes’ key management personnel from their positions as executive officers of Granite Falls effectively terminated the operating and management agreement. In January 2007, Granite Falls formally recognized the termination of the operating and management agreement.

On May 21, 2007, Glacial Lakes made a demand for binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association in Yellow Medicine County, Minnesota to resolve a dispute over an operating and management agreement between the two entities. Glacial Lakes claimed that Granite Falls wrongfully terminated the agreement and demanded damages for lost revenues and lost profits of approximately $5,300,000. On December 17, 2007, Granite Falls filed an answering statement and counterclaim in response to Glacial Lakes’ demand for arbitration.

On August 1, 2008, Granite Falls and Glacial Lakes executed a settlement agreement and mutual release. Granite Falls agreed to pay Glacial Lakes $1,825,000. Of this amount, $1,143,290 had been expensed prior to fiscal year 2008, accordingly, $681,710 was charged to operations during the year ended October 31, 2008. We paid the $1,825,000 on August 1, 2008. In addition to this payment, we have agreed to pay Glacial Lakes a contingent amount of 2% of our net income, as defined per the agreement, for each of the fiscal years ending October 31, 2008 and 2009 and 1.5% of our net income, as defined per the agreement, for the fiscal year ending October 31, 2010. As of October 31, 2008, the Company had not accrued for any contingent amounts due under this agreement.

Air Permit Violation

In early 2007, we disclosed that we had received a Notice of Violation from the Minnesota Pollution Control Agency (“MPCA”) notifying us of alleged violations discovered by the MPCA staff during its inspection of the plant in August 2006 while the plant was under previous management. Since January 2007, we have actively cooperated with the MPCA to resolve the alleged violations and have taken measures to address the concerns raised in January 2007. On November 28, 2007, we received confirmation that the MPCA had agreed to a stipulation agreement, therefore settling the dispute. In settling the dispute, we did not admit that the alleged violations occurred, but did agree to pay $300,000 to the MPCA. The $300,000 paid to the MPCA consisted of $65,000 in civil penalties and a $235,000 economic benefit charge. The $300,000 was expensed in fiscal 2007 and is included in accrued liabilities at October 31, 2007. We worked cooperatively with the MPCA and are currently in full compliance with all of our environmental permits. However, in connection with the stipulation agreement we applied for a permit amendment in early January 2008. The permit amendment application requested additional fermentation tank capacity, corrects process throughput parameters, requests authorization for wetcake production, and requests a production capacity increase of 4.9 million gallons per year of undenatured ethanol. In September 2008, we received the amended environmental permits which included all of items requested above. No liabilities were recorded at October 31, 2008.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S MEMBERSHIP UNITS, RELATED MEMBER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

There is no public trading market for our units.

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

As of October 31, 2008, there were approximately 983 holders of record of our membership units.

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

Completed Unit Transactions
		Low Per				High Per
Fiscal Quarter		Unit Price				Unit Price
2007 1st		$	4,000			$	5,650
2007 2nd		$	2,800			$	3,700
2007 3rd		$	2,750			$	3,950
2007 4th		$	2,750			$	3,025
2008 1st		$	2,400			$	3,000
2008 2nd		$	2,100			$	2,400
2008 3rd		$	2,000			$	2,200
2008 4th		$	1,500			$	1,500

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

DISTRIBUTIONS

Distributions by the Company to our unit holders are in proportion to the number of units held by each unit holder. A unit holder’s distribution is determined by dividing the number of units owned by such unit holder by the total number of units outstanding. Our board of governors has complete discretion over the timing and amount of distributions to our unit holders, however, our member control agreement requires the board of governors to endeavor to make cash distributions at such times and in such amounts as will permit our unit holders to satisfy their income tax liability related to owning our units in a timely fashion. Our expectations with respect to our ability to make future distributions are discussed in greater detail in “MANAGEMENT’S DISCUSSION AND ANALYSIS.”

We did not make any distributions to our members in our fiscal year ended October 31, 2008. Management does not anticipate declaring any distribution to our members during the first two fiscal quarters of 2009. During our fiscal year ended October 31, 2007, we made the following distributions to our members: On March 15, 2007, the board of governors declared a cash distribution of $100 per membership unit for total distribution of $3,115,600 to unit holders of record as of April 1, 2007. This distribution was paid on April 3, 2007. On October 19, 2007, the board of governors declared a cash distribution of $200 per membership unit for a total distribution of $6,231,200 to unit holders of record as of October 1, 2007. This distribution was paid on November 30, 2007. Our 2007 distributions are in addition to the distribution of $320.96 per unit or $9,999,830 for unit holders of record as of June 30, 2006 declared by the board of governors on July 10, 2006. The 2006 distribution was paid on July 31, 2006. Our typical member has realized a return on their original investment in Granite Falls Energy of approximately 46% over our 3-year period of operations.

PERFORMANCE GRAPH

The following graph shows a comparison of cumulative total member return since October 1, 2006, 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 1, 2006. Data points on the graph are annual. Note that historic stock price performance is not necessarily indicative of future unit price performance.

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

COMPARISON CUMULATIVE TOTAL RETURN
AMONG GRANITE FALLS ENERGY, LLC,
NASDAQ MARKET INDEX AND SIC CODE INDEX

ASSUMES $100 INVESTED ON OCT. 1, 2006
ASSUMES DIVIDEND REINVESTED
THROUGH OCT. 1, 2008

ITEM 6. SELECTED FINANCIAL DATA.

The following table presents selected consolidated financial and operating data as of the dates and for the periods indicated. The selected balance sheet financial data as of October 31, 2006, 2005 and 2004 and the selected income statement data and other financial data for the years ended October 31, 2005 and 2004 have been derived from our audited financial statements that are not included in this Form 10-K/A. The selected balance sheet financial data as of October 31, 2008 and 2007 and the selected income statement data and other financial data for each of the fiscal years in the three year period ended October 31, 2008 have been derived from the audited Financial Statements included elsewhere in this Form 10-K/A. You should read the following table in conjunction with Item 7 “Management Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and the accompanying notes included elsewhere in this Form 10-K/A. Among other things, those financial statements include more detailed information regarding the basis of presentation for the following financial data.

Statement of Operations Data:		2008				2007				2006				2005				2004
Revenues		$	99,393,373			$	94,776,725			$	93,549,478			$	—			$	—
Cost Goods Sold		$	102,396,467			$	75,772,701			$	54,539,754			$	—			$	—
Lower of Cost or Market Adjustment		$	1,947,000			$	—			$	—			$	—			$	—
Pre-Production Expenses		$	—			$	—			$	—			$	251,235			$	—
Gross Profit (Loss)		$	(4,950,094	)		$	19,004,024			$	39,009,724			$	(251,235	)		$	—
Operating Expenses		$	2,916,170			$	2,807,130			$	2,894,018			$	492,353			$	381,562
Operating Income (Loss)		$	(7,866,264	)		$	16,196,894			$	36,115,706			$	(743,588	)		$	(381,562	)
Other Income (Expense)		$	188,004			$	(265,153	)		$	(1,370,038	)		$	(470,511	)		$	133,518
Net Income (Loss)		$	(7,678,259	)		$	15,931,741			$	34,745,668			$	(1,214,099	)		$	(248,044	)
Capital Units Outstanding			31,156				31,156				31,156				31,156				31,117
Net Income (Loss) Per Capital Unit		$	(246.45	)		$	511.35			$	1,115.22			$	(38.98	)		$	(28.12	)
Cash Distributions per Capital Unit		$	—			$	300.00			$	320.96			$	—			$	—
Balance Sheet Data:		2008				2007				2006				2005				2004
Current Assets		$	9,382,784			$	15,901,679			$	25,028,447			$	1,025,548			$	21,197,351
Net Property and Equipment		$	48,648,041			$	54,677,788			$	55,393,293			$	52,861,088			$	13,146,852
Other Assets		$	35,694			$	38,493			$	434,185			$	487,574			$	368,051
Total Assets		$	58,066,519			$	70,617,960			$	80,855,925			$	54,374,210			$	34,712,254
Current Liabilities		$	6,108,632			$	10,908,043			$	8,239,080			$	8,648,311			$	5,724,685
Long-Term Debt		$	445,097			$	518,868			$	20,010,737			$	17,287,043			$	—
Members’ Equity		$	51,512,790			$	59,191,049			$	52,606,108			$	27,812,470			$	28,987,569
Book Value Per Capital Unit		$	1,653.38			$	1,899.83			$	1,688.47			$	892.68			$	931.57

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

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

Results of Operations

Comparison of Fiscal Years Ended October 31, 2008 and 2007

		2008								2007
Income Statement Data		Amount				%				Amount				%
Revenues		$	99,393,373				100.0			$	94,776,725				100.0
Cost of Goods Sold (1)		$	104,343,467				105.0			$	75,772,701				79.9
Gross Profit (Loss)		$	(4,950,094	)			(5.0	)		$	19,004,024				20.0
Operating Expenses		$	2,916,170				2.9			$	2,807,130				3.0
Operating Income (Loss)		$	(7,866,264	)			(7.9	)		$	16,196,894				17.1
Other Income (Expense)		$	188,004				0.2			$	(265,153	)			(0.3	)
Net Income (Loss)		$	(7,678,259	)			(7.7	)		$	15,931,741				16.8

Revenues

Our total revenue increased slightly in our fiscal year ended October 31, 2008 as a result of increased ethanol and distillers grains prices.

The average price we received for our ethanol increased by approximately 6.6% during our 2008 fiscal year compared to our 2007 fiscal year. Management attributes this increase in the average price we received for our ethanol with increased commodity prices we experienced for most of our 2008 fiscal year. Management believes that the price of ethanol is positively impacted by high gasoline prices and high corn prices. We experienced a peak in corn prices during July 2008 which we believe led to increases in the price we received for our ethanol during these periods. Further, the price of gasoline peaked at approximately the same time as the corn price peak and later fell drastically.

The average price we received for our distillers grains increased by approximately 56.6% during our 2008 fiscal year compared to the same period of 2007. We attribute this increase in distillers grains prices with high corn prices we experienced for much of our 2008 fiscal year. Since distillers grains are commonly used as a feed substitute for corn, when the price of corn increases, it increases demand for distillers grains which leads to positive gains in the market price of distillers grains. We market our distillers grains in two forms, modified wet distillers grains (MWDG) and dried distillers grains with solubles (DDGS). We market approximately 97% of our total distillers grains in the form of DDGS and approximately 3% of our total distillers grains in the form of MWDG.

The price we received for ethanol has been decreasing in conjunction with recent decreases in the market price of gasoline and the market price of corn. Management anticipates that the price of gasoline will remain low into the near term, especially as a result of the weakening world economy. Management also anticipates that our results of operations for our 2009 fiscal year will continue to be affected by high corn prices, a surplus of ethenol, low ethanol prices, and volatility in the commodity markets. As a result of these factors, management anticipates that the ethanol plant will not operate profitably in the early part of 2009. If the price of ethanol remains low for an extended period of time, management anticipates that this could significantly impact our liquidity, especially if our raw material costs continue to increase. We anticipate that the price of distillers grains will continue to fluctuate in reaction to changes in the price of corn and therefore we expect lower distillers grains prices in the near term. The ethanol industry needs to continue to expand the market of distillers grains in order to maintain current distillers grains prices. Management anticipates stronger ethanol demand and higher ethanol prices during the summer months due to a seasonal increase in the demand for gasoline and ethanol.

We enter into hedging transactions with respect to the ethanol we produce. Realized gains and losses on hedging contracts impact the netback price we receive for our ethanol. Decreased ethanol netbacks will decrease our revenue. The effects of these hedging transactions can be volatile from period to period which influences our financial performance. Realized and unrealized gains and losses related to our ethanol derivative instruments resulted in a decrease in our revenue of $7,281,662 for the fiscal year ended October 31, 2008 compared to a decrease of approximately $726,375 for the same period of 2007.

Cost of Goods Sold and Gross Profit

Our two primary costs of producing ethanol and distillers grains are corn costs and natural gas costs. We experienced a significant increase in our cost of goods sold during our 2008 fiscal year as a result of significant increases in the price of corn and natural gas during our 2008 fiscal year compared to our 2007 fiscal year.

Our total corn cost per bushel increased by approximately 42% during our 2008 fiscal year compared to the same period of 2007. We attribute this significant increase in corn costs with a significant peak in corn prices that occurred during July of 2008 as a result of poor weather and flooding conditions that we experienced in the Midwest. Corn prices subsequently dropped significantly after July 2008 as a result of favorable weather conditions for the remaining months of the 2008 growing season and a general decrease in commodities prices related to the slowing world economy. Further, our total cost of natural gas increased by approximately 10% during our 2008 fiscal year compared to our 2007 fiscal year. We attribute this increase in natural gas costs with increases in commodity prices in general that we experienced during the early part of our 2008 fiscal year, especially for oil, as well as hurricane activity in the Gulf Coast region of the United States during the late summer of 2008 which resulted in shutdowns of natural gas production from that region of the United States. However, natural gas supply levels continue to be above the five year average and natural gas prices have steadily declined since July 2008. We believe natural gas prices will continue to trend lower through the first half of 2009.

Despite strong demand for corn, the price of corn fell significantly following a peak during July 2008. Supply and demand factors have a significant effect on the market price of corn. The corn harvest in the fall of 2008 was the second largest on record. We also continue to see the demand for corn decrease as usage of corn for ethanol and livestock production tapers off. While we do not anticipate that we will have difficulty securing the corn that we require to continue to operate our ethanol plant during our 2009 fiscal year, if a shortage were to develop, we anticipate that our corn costs would increase significantly.

Realized and unrealized gains and losses related to our corn and natural gas derivative instruments resulted in a decrease of approximately $3,857,000 in our cost of goods sold for the fiscal year ended October 31, 2008 compared to an increase of approximately $6,218,000 for the same period of 2007. We recognize the gains or losses that result from the changes in the value of our derivative instruments from corn and natural gas in cost of goods sold as the changes occur. As corn and natural gas prices fluctuate, the value of our derivative instruments are impacted, which affects our financial performance. We anticipate continued volatility in our cost of goods sold due to the timing of the changes in value of the derivative instruments relative to the cost and use of the commodity being hedged.

We performed a lower of cost or market analysis on inventory and determined that the market values of certain inventories were less than their carrying value, attributable primarily to decreases in market prices of corn and ethanol. Based on the lower of cost or market analysis, we recorded a lower of cost or market charge on certain inventories of approximately $489,000 and $0 for the years ended October 31, 2008 and 2007. The total impairment charge was recorded in the lower of cost or market adjustment on the statement of operations.

We have a forward contract in place for corn purchases of approximately $5,434,000 for November 2009, which represents approximately 100% of our anticipated purchases for that month. Currently, the contract price for this contract is above current market prices for corn. Given declining corn and ethanol prices, upon taking delivery under these contracts, we would incur a loss. Accordingly, we have recorded a loss on these firm purchase commitments of approximately $1,438,000 at October 31, 2008, for deliveries in November 2008. The loss was recorded within the lower of cost or market adjustment on the statement of operations. The amount of the loss was determined by applying a methodology similar to that used in the lower of cost or market evaluation with respect to inventory.

Operating Expenses

Operating expenses for the fiscal year ended October 31, 2008 totaled approximately $2,916,000, an increase from approximately $2,807,000 for the same period of 2007. This increase in operating expenses is primarily attributable to the cost of negotiating a settlement of the dispute over the termination of the Operating and Management Agreement with Glacial Lakes Energy, LLC. Approximately $681,000 of the total settlement payment was realized during our fiscal year ended October 31, 2008.

Other Income (Expense)

We had total other income for the fiscal year ended October 31, 2008 of approximately $188,000 compared to other expense of approximately $265,000 for fiscal year 2007. We experienced an increase in other income for our 2008 fiscal year as a result of increased interest income, less interest expense and income from project management services provided to Highwater Ethanol, LLC.

Changes in Financial Condition for Fiscal Years Ended October 31, 2008 and 2007

Our current assets were 41.0% lower at October 31, 2008 compared to October 31, 2007. We had less cash on hand on October 31, 2008 compared to October 31, 2007. This decrease in cash on hand is due in part to the distribution we had accrued as a liability on October 31, 2007, which was subsequently paid out to our members during our fiscal year ended October 31, 2008. Our accounts receivable were approximately $1,185,000 lower at October 31, 2008 compared to October 31, 2007. We also had less restricted cash as a result of a reduction in required letters of credit.

The asset value of our property and equipment was slightly lower at October 31, 2008 compared to October 31, 2007 as a result of an increase in accumulated depreciation.

Our current liabilities were 44.0% lower at October 31, 2008 compared to October 31, 2007. This is primarily due to a reduction in accounts payable, including distributions payable.

Our long-term liabilities at October 31, 2008 were approximately $445,000 compared to approximately $519,000 at October 31, 2007, primarily as a result of our scheduled payments on these obligations.

Comparison of Fiscal Years Ended October 31, 2007 and 2006

		2007								2006
Income Statement Data		Amount				%				Amount				%
Revenues		$	94,776,725				100.0			$	93,549,478				100.0
Cost of Goods Sold		$	75,772,701				79.9			$	54,539,754				58.3
Gross Profit		$	19,004,024				20.0			$	39,009,724				41.7
Operating Expenses		$	2,807,130				3.0			$	2,894,018				3.1
Operating Income		$	16,196,894				17.1			$	36,115,706				38.6
Other Income (Expense)		$	(265,153	)			(0.3	)		$	(1,370,038	)			(1.5	)
Net Income		$	15,931,741				16.8			$	34,745,668				37.1