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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

Commission file number 0-50711

Northern Growers, LLC

(Exact name of registrant as specified in its charter)

48416 144th Street
P.O. Box 356
Big Stone City SD 57216
605-862-7902

(Address of Principal Executive Offices) (Zip Code)

(605) 862-7902

(Issuer’s Telephone Number, Including Area Code)

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

None

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

Class A Capital Units

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

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    x No

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes o No o

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 in this form, and no disclosure will 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     x

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

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

The aggregate market value of the registrant’s common stock held by non-affiliates at June 30, 2009 was approximately $43,543,200. The aggregate market value was computed by reference to the last sales price during the registrant’s most recently completed second fiscal quarter.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. As of the date of this filing, there were 50,628,000 Class A capital units of the registrant outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K and other reports issued by Northern Growers, LLC (including reports filed with the Securities and Exchange Commission (the “SEC” or “Commission”), contain “forward-looking statements” that deal with future results, expectations, plans and performance.  Forward-looking statements may include statements which use words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “predict,” “hope,” “will,” “should,” “could,” “may,” “future,” “potential,” or the negatives of these words, and all similar expressions. These forward-looking statements are made based on our expectations and beliefs concerning future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements. We do not undertake any responsibility to release publicly any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this report. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by the forward-looking statements contained in this report.  Important factors that could cause actual results to differ materially from our expectations are disclosed under “Risk Factors” and elsewhere in this report.  As stated elsewhere in this report such factors include, among others:

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We are not under any duty to update the forward-looking statements contained in this report, nor do we guarantee future results or performance of what future business conditions will be like. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report.

PART I

Item 1.  Business.

Overview

Northern Growers, LLC (“Northern Growers”) is a South Dakota limited liability company, consisting of 960 members who principally reside in South Dakota and the upper Midwest. Northern Growers owns and manages a 77.16% interest in its subsidiary, POET® Biorefining - Big Stone (“Big Stone”), an ethanol and distillers grains plant (the “plant” or “our plant”) located near the city of Big Stone City, South Dakota. (Northern Growers and Big Stone are referred to collectively in this report as “we,” “our,” or “us”).

Our revenues are derived from the sale and distribution of ethanol and distillers grains to customers primarily located in the U.S.  Corn for our plant’s production process is supplied primarily from local agricultural producers and from purchases on the open market. After processing the corn into ethanol, ethanol is sold to POET® Ethanol Products, LLC, which subsequently markets and sells the ethanol to gasoline blenders and refineries located throughout the continental U.S.  All of our distillers grains are sold through our marketing agent, POET® Nutrition, Inc., which markets and sells the product to livestock feeders primarily located in the continental U.S. The day-to-day operations of our plant are managed by POET® Plant Management, LLC, of Sioux Falls, South Dakota.

Our operating results are largely driven by the prices at which we sell ethanol and distillers grains and the costs related to their production.  Historically, the price of ethanol tends to fluctuate in the same direction as the price of unleaded gasoline and other petroleum products.  The greatest effect on the price of ethanol is the supply and demand for ethanol in the U.S. markets. Our two largest costs of production are corn and natural gas, although our use of natural gas is offset by the use of steam supplied directly from the adjacent energy power plant called Big Stone Plant. The price of distillers grains is generally influenced by supply and demand, the price of substitute livestock feed, such as corn and soybean meal, and other animal feed proteins.

General Developments of Business

Northern Growers was originally organized in 2000 as a South Dakota cooperative for the purpose of owning and managing its interest in Big Stone and providing a major source of corn supply to the plant. Northern Growers was subsequently reorganized in 2003 as a South Dakota limited liability company at which time it became subject to the reporting requirements under the Securities Act of 1933 and Securities Exchange Act of 1934.  Northern Growers is taxed as a partnership for federal income tax purposes, meaning that all of its income is subject to single-level, pass through tax treatment at the member level rather than at the company level.

Construction of our plant was completed and operations commenced in July 2002.  Our plant was originally built with an annual name-plate production capacity of 40 million gallons of ethanol, but since that time we have made significant capital improvements.  In March 2006, we completed a rail expansion project, which provided our plant with additional capacity to store rail cars for the shipment of products.  In October 2006, we completed construction for the incorporation of BPX™ technology into the production process. In addition to reducing energy costs, BPX™ releases additional starch content, increases the protein content and quality of by-products and decreases plant emissions.  In May 2007, our plant expansion was completed, increasing its annual name-plate capacity from 40 million to 75 million

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gallons of ethanol.  In October 2007, we increased our grain storage capacity by adding two grain bins.  The design and construction of the BPX™, grain storage and expansion projects was completed by POET® Design and Construction, Inc., of Sioux Falls, South Dakota.

Since 2008, the ethanol industry has experienced significant change. In 2008, the industry was marked by volatility and unprofitability. An increase in production capacity caused by new and expanding plants drove ethanol prices lower and corn prices higher. Corn prices were significantly higher than in prior years which adversely affected costs of production. Similarly, ethanol prices were significantly lower than in prior years which adversely impacted revenues.  In addition, U.S. financial markets experienced a severe downturn in the latter part of 2008 and all of 2009. Businesses across many sectors experienced a lack of access to credit causing a series of liquidity crises.

In 2009, the ethanol industry began to stabilize and profitability returned to much of the industry. The decrease in ethanol prices in 2008 caused many plants in the U.S. to slow production or shut down which consequently decreased supply nationwide. The decrease in supply contributed to an increase in ethanol prices and revenues. At the same time, corn prices decreased due to a large carryout from 2008 and a favorable harvest forecast in 2009.  Energy prices, especially natural gas and steam prices, also decreased.  Whether the current trend continues into 2010 is uncertain due to the lasting effects of the financial crisis, potential excess capacity in the ethanol industry and lack of demand growth, and volatility historically associated with corn and ethanol prices.

Principal Products

The principal products produced at our plant are fuel grade ethanol and distillers grains.

Ethanol

Ethanol is ethyl alcohol.  Ethanol is produced from starch or sugar-based feed products such as corn, potatoes, wheat, and sorghum, as well as from agricultural waste products including sugar, rice straw, cheese whey, beverage wastes and forestry and paper wastes. Historically, corn has been the primary source of producing ethanol because of its relatively low cost, wide availability and ability to produce large quantities of carbohydrates that convert into glucose more easily than other products.  Today, approximately 90% of the ethanol produced in the U.S. is produced from corn.

Ethanol is used for three primary purposes: 1) as an oxygenated fuel additive; 2) as an octane enhancer in fuels; and 3) as a non-petroleum based gas substitute. Approximately 95% of all ethanol is used for blending with unleaded gasoline and other fuel products. Ethanol has been utilized as a fuel additive since the late 1970s when its value as a product extender for gasoline was discovered during the OPEC oil embargo crisis.  In the 1980s, ethanol began to see widespread use as an octane enhancer, replacing other environmentally harmful components in gasoline such as lead and benzene.  Ethanol’s use as an oxygenate continued to increase with the passage of the Clean Air Act Amendments of 1990, which required the addition of oxygenates to gasoline in the nation’s most polluted areas.  Because ethanol contains approximately 35% oxygen, its combination with gasoline increases the percentage of oxygen in gasoline.  As a result, the gasoline burns cleaner and releases less carbon monoxide and other exhaust emissions into the atmosphere.

Distillers Grains

A principal by-product of the ethanol production process is distillers grains.  Distillers grains are a high protein, high energy feed supplement marketed primarily to the dairy, beef, sheep, swine, and poultry industries. It is a popular animal feed supplement, with millions of tons produced in North America annually.  Most of the distillers grains produced in the U.S. are sold for use in animal feeds within the continental U.S., although a growing percentage is exported to countries such as Canada and Mexico and countries in Asia and Europe.

Dry mill ethanol processing produces, generally, three forms of distillers grains, all of which differ in moisture content and shelf life: 1) dried distillers grains with solubles, otherwise known as DDGS; 2) distillers wet grains or “wet cake”; and 3) modified distillers grains.  Distillers wet grains are processed corn mash that does not go through a drying process and contains approximately 70% moisture content.  Distillers wet grains have a short shelf life of approximately three days and can be sold only to livestock producers within the immediate vicinity of a plant.  Modified distillers grains

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are distillers wet grains that are dried to a 50% moisture content.  Modified distillers grains have a slightly longer shelf life and are often sold to nearby livestock producers. DDGS is distillers wet grains that are dried to an 8-10% moisture content. DDGS have an almost indefinite shelf life and may be sold and shipped to any market regardless of its vicinity to a plant.

Marketing and Distribution

Ethanol

The ethanol produced at our plant is sold to POET® Ethanol Products, LLC, the terms of which are governed by an ethanol marketing agreement. After purchasing the ethanol from us, POET® Ethanol Products markets and sells the ethanol to major, multi-national oil companies with blending and refinery facilities located throughout the continental U.S. The price that we receive from the sale to POET® Ethanol Products is based upon various contracts between POET® Ethanol Products and its customers, and is fixed upon the transfer of title to POET® Ethanol Products.

The ethanol produced at our plant is shipped by POET® Ethanol Products using rail cars operated by POET® Ethanol Products or trucks supplied by companies with which POET® Ethanol Products contracts.  Transfer of title and risk of loss shifts to POET® Ethanol Products upon the loading of ethanol onto railcars and trucks at the plant.  Our plant is served by rail facilities and connections to the Burlington Northern Santa Fe railroad system, which facilitates the transportation of ethanol to customers’ terminals, and by multiple South Dakota state highways and Interstate Highway 29, which provide transportation links in all directions.

The marketing agreement with POET®Ethanol Products is in effect until July 2012, renewing automatically for five-year terms unless either party provides at least ninety days written notice of termination prior to the end of the term.  POET® Ethanol Products charges us a marketing and service fee based upon each gallon of ethanol sold. POET® Ethanol Products also charges us a fee for each gallon of ethanol to which renewable identification numbers, or RINS, are assigned, which is necessary for complying with the federal renewable fuels standard and the U.S. Environmental Protection Agency’s enforcement of such standard.   Shipping costs relating to the transportation of ethanol are borne by us and are included in our gross revenues and cost of revenues.  In the event that the contractual relationship with POET®Ethanol Products is interrupted for any reason, we believe that another entity or entities to purchase or market the ethanol could be located.  Any interruption, however, could temporarily disrupt the sale of ethanol and adversely affect our business and operations.

Distillers Grains

The distillers grains produced at our plant are sold through POET® Nutrition, Inc., the terms of which are governed by a distillers grains marketing agreement. As our exclusive marketing agent, POET® Nutrition markets and sells the distillers grains to customers. By marketing through POET™ Nutrition, we are not dependent upon one or a limited number of customers. The price received from the sale of distillers grain is the price received from the customers with which POET® Nutrition has negotiated and entered into a contract for sale.

We produce three variations of distillers grains which are marketed through POET® Nutrition: 1) DDGS; 2) Dakota Gold™; and 3) distillers wet grains. Dakota Gold® is DDGS which POET® Nutrition certifies to as meeting certain quality standards and specifications.

POET® Nutrition markets distillers grains to local, regional, national and international markets.  We sell and ship a substantial majority of our distillers grains to customers in the southwestern and western parts of the U.S., the remainder of which is shipped to other areas of the U.S. and to Mexico. Shipments to national and international markets are primarily completed by the use of rail due to a longer shelf life, whereas shipments to local or regional markets are primarily completed by truck.  We also contract with POET® Nutrition for the use of railcars in the shipping of DDGS and Dakota Gold®, paying POET® Nutrition a flat fee per railcar in connection with each shipment.

The marketing agreement with POET®Nutrition is in effect until March 2012, renewing automatically for additional five-year terms unless discontinued by either party upon at least three months prior written notice.  POET®

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Nutrition charges us a marketing fee based upon a percentage of gross monthly sales of distillers grains less shipping costs. All shipping costs associated with the transportation of distillers grains are borne by us and are included in our gross revenues and cost of revenues, and POET® Nutrition is responsible for invoicing all loads and receiving payments from the customers, the payment of which is remitted to us.

Risk Management

Due to fluctuations in the price of corn and natural gas, we use a risk management program, including hedging strategies, to minimize our commodity risk.  Hedging is a means of protecting the price at which corn and natural gas is bought in the future.  All of the commodity risk management services relating to corn and natural gas are provided by POET® Risk Management in accordance with a corn and natural gas price risk management agreement.  Under the agreement, we pay POET® Risk Management an annual flat fee. The agreement is in effect until January 2012, renewing automatically for additional five-year terms unless discontinued by either party upon written notice prior to the expiration of the term.

Dependence Upon a Single or Few Customers

We, as discussed above, are substantially dependent upon POET® Ethanol Products for the purchase, marketing and distribution of ethanol. POET® Ethanol Products purchases 100% of the ethanol produced at our plant, all of which is marketed and distributed to its customers.

Sources and Availability of Raw Materials

Corn. Our major raw material for the production process is corn.  To operate our plant at full name-plate capacity, we require the supply of approximately 27 million bushels of corn annually.  We purchase a majority of our corn from producers in northeastern South Dakota and western Minnesota. We believe that corn producers in proximity to our plant will continue to provide a sufficient supply for the foreseeable future.

Steam. Our production process requires a constant supply of steam.  Steam is used for the cooking, evaporation, and distillation processes.  While the production of steam in the ethanol production process is generally received from an ethanol plant’s on-site boilers, our plant receives a substantial portion of its steam from Big Stone Plant, a coal fired, electrical generating facility located immediately adjacent to our plant. Big Stone Plant is co-owned by three utilities, namely, Otter Tail Corporation, Montana-Dakota Utilities and NorthWestern Corporation. The benefit of a steam supply from Big Stone Plant is that it reduces our dependence on natural gas for operations.  In 2009, for example, 37% of our natural gas requirements for operations were replaced directly with steam from Big Stone Plant, compared to 41% of our requirements in 2008.

Big Stone Plant generally provides us with a consistent supply of steam to meet our requirements except during its semi-annual maintenance shutdowns. When Big Stone Plant shuts down for any prolonged period of time, or if the transfer of steam is unexpectedly diminished or interrupted, we use two on-site boilers powered by natural gas to generate steam. However, as discussed below under “Natural Gas,” when we are required to rely on our on-site boilers to generate steam, our natural gas supply can prevent us from generating a sufficient volume of steam to operate at full name-plate production capacity.

The purchase of steam is governed by a steam sale agreement between us and Big Stone Plant.  The rate is set at a fixed rate based on specified volume used, above which it is set at a market rate as determined by Big Stone Plant. The agreement’s ten year term ends on June 1, 2012, but automatically renews for two additional five-year terms unless terminated by either party by providing 12 months advance notice.

Natural Gas. Our production process requires a constant supply of natural gas.  Natural gas is the primary energy source for the drying of distillers grains. It is primarily responsible for powering the two on-site boilers for the generation of steam in the event that additional steam is necessary or the supply of steam from Big Stone Plant is unexpectedly diminished or interrupted. We contract with CenterPoint Energy Services, Inc., of Houston, Texas, for the supply and distribution of natural gas to the plant.  The agreement with CenterPoint terminates in 2012.

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Prior to the completion of our expansion in May 2007, we did not experience any interruption or shortage of natural gas supply.  But since completion we have experienced a shortage of supply at times.  When our plant’s supply of steam from Big Stone Plant is interrupted for any prolonged period of time, such as during Big Stone Plant’s general maintenance shut downs, our plant’s natural gas capacity is insufficient to allow the plant to operate at its full 75 million gallon name-plate production capacity. In such instances, our plant is required to scale back production, typically based in proportion to the capacity of our natural gas supply. To avoid this problem in the future, we are currently exploring options to increase our natural gas supply.

Electricity. Our production process requires a constant supply of electricity.  Electricity is necessary to generate lighting and to power the machinery and equipment at the plant.  We contract with Otter Tail Power Company of Otter Tail, Minnesota, to provide us with all of our electric power requirements.  The agreement automatically renews for one year terms unless terminated by either party by providing 12 months advance written notice. Since operations were commenced, we have not had interruptions or shortages in the supply of electricity.

Water. The production process requires a constant supply of water.  Water is necessary for the slurry and cooking processes, cooling towers and boiler operations.  We contract with the city of Big Stone City and Big Stone Plant to supply our plant with water for the production process.  The agreement with the city of Big Stone City is in effect until 2012, and automatically renews for two, five-year terms unless terminated by either party with 12 months advance written notice.  Since operations were commenced, the city of Big Stone City and Big Stone Plant have provided us with an ample and consistent supply of water to meet operational requirements.

Research and Development

We do not conduct any research and development relating to the production of ethanol and distillers grains. Instead, we rely on POET® Research, Inc., of Sioux Falls, South Dakota, to research and develop new technologies in order to improve the production process and end products. POET® Research provides us this technology through a license agreement, where we pay POET® Research a licensing fee on a quarterly basis.  This agreement terminates on June 30, 2015.

Competition

We are in direct competition with numerous ethanol producers, many of whom have greater resources than we do. Following the significant growth in the ethanol industry during 2005 and 2006, the ethanol industry has grown at a much slower pace. The rapid growth during 2005 and 2006 is attributed to a favorable spread between the price of ethanol and the cost of the raw materials to produce ethanol. We believe that currently there is excessive ethanol supply capacity in the industry. This has resulted in some ethanol producers reducing production of ethanol or ceasing operations altogether. As a result of this overcapacity, the ethanol industry has become increasingly competitive. Since ethanol is a commodity product, competition in the industry is predominantly based on price. We anticipate that without an increase in the amount of ethanol that can be blended into gasoline for use in conventional automobiles, ethanol demand may not significantly increase which may result in ethanol supply capacity exceeding ethanol demand for the foreseeable future.

The U.S. Environmental Protection Agency is currently reviewing whether to allow the increase of ethanol that can be blended for use in conventional automobiles from 10% to 15%. The EPA, however, has delayed its decision on whether to allow a higher blend percentage until the middle of 2010. We believe that increasing ethanol blends to a higher blend percentage for use in conventional automobiles will increase demand for ethanol and would likely positively impact ethanol prices. Yet, this may result in companies building new ethanol plants or expanding their current ethanol plants, which could lead to further overcapacity in the ethanol industry.

Many of the current ethanol production incentives are designed to encourage the production of renewable fuels using raw materials other than corn. One type of ethanol production feedstock that is being explored is cellulose. Cellulose is the main component of plant cell walls and is the most common organic compound on earth. Cellulose is found in wood chips, corn stalks, rice, straw, amongst other common plants. Cellulosic ethanol is ethanol produced from cellulose. Currently, cellulosic ethanol production technology is not sufficiently advanced to produce cellulosic ethanol on

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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 are high. Cellulosic ethanol may also capture more government subsidies and assistance than corn based ethanol. This could decrease demand for our product or result in competitive disadvantages for our ethanol production process.

At the end of 2008, VeraSun Energy filed for Chapter 11 bankruptcy following significant losses. VeraSun’s ethanol plants were auctioned during the bankruptcy process and a significant number of these plants were purchased by Valero Energy Corporation, a major gasoline refining company. The purchase by Valero Energy represents the first major oil company that has taken a stake in ethanol production infrastructure. In addition, Valero Energy controls its own supply of ethanol that can be used to blend at its gasoline refineries. If other oil companies become involved in the ethanol industry, it may be increasingly difficult for us to compete.

According to the Renewable Fuels Association, as of March 2, 2010, the ethanol industry has grown to 201 production facilities in the U.S. There are ten new plants currently under construction along with four plant expansions. The Renewable Fuels Association currently estimates that the U.S. ethanol industry has capacity to produce more than 13.5 billion gallons of ethanol per year. The new ethanol plants under construction along with the plant expansions under construction could push U.S. production of fuel ethanol in the near future to more than 14.5 billion gallons per year. In South Dakota, excluding our plant, there are currently 14 plants in full production, all of which have a combined production capacity of approximately 960 million gallons.  The largest ethanol producers in the U.S. include Archer Daniels Midland, Green Plains Renewable Energy, Hawkeye Renewable and Valero Renewable Fuels, each of which is capable of producing more ethanol than we produce at our plant.

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 U.S. 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. In addition, despite the fact that there is a significant amount of ethanol produced in the U.S., 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 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, plug-in hybrids or clean burning gaseous fuels. Like ethanol, the emerging fuel cell industry offers a technological option to address worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns. Fuel cells have emerged as a potential alternative to certain existing power sources because of their higher efficiency, reduced noise and lower emissions. 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 industry continues to expand and gain broad acceptance and becomes readily available to consumers for motor vehicle use, we may not be able to compete effectively. This additional competition could reduce the demand for ethanol, which would negatively impact our profitability.

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 U.S. Department of Energy estimates, there are currently nearly 8 million flexible fuel vehicles capable of operating on E85 in the U.S. Further, the U.S. Department of Energy reports that there are currently more than 1,900 retail gasoline stations supplying E85. The number of retail E85 suppliers increases

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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, we anticipate some growth in demand for ethanol associated with increased E85 consumption.

Distillers Grains Competition

Ethanol plants in the Midwest produce the majority of distillers grains and primarily compete with other ethanol producers in the production and sales of distillers grains. According to the Renewable Fuels Association’s Ethanol Industry Outlook 2010, ethanol plants produced 30.5 million metric tons of distillers grains in 2008/2009 and estimates 33 million metric tons in 2009/2010. The amount of distillers grains produced is expected to increase significantly as the number of ethanol plants increase.

The primary consumers of distillers grains are dairy and beef cattle, according to the Renewable Fuels Association’s Ethanol Industry Outlook 2010. In recent years, an increasing amount of distillers grains have been used in the swine and poultry markets. Numerous feeding trials show advantages in milk production, growth, rumen health, and palatability over other dairy cattle feeds. With the advancement of research into the feeding rations of poultry and swine, we expect these markets to expand and create additional demand for distillers grains; however, no assurance can be given that these markets will in fact expand, or if they do, that we will benefit from it. The market for distillers grains is generally confined to locations where freight costs allow it to be competitively priced against other feed ingredients. Distillers grains generally compete with corn, soybean meal and other feed formulations.

Federal and State Government Supports

Various federal and state laws, regulations, and programs have led to an increasing use of ethanol in fuel, including subsidies, tax credits, policies and other forms of financial incentives.  Some of these laws provide economic incentives to produce and blend ethanol and others mandate the use of ethanol.

The Renewable Fuels Standard

The Energy Policy Act enacted in 2005 established the first ever Renewable Fuel Standard, or RFS, in federal law which mandated certain levels of usage of biofuels in the domestic fuel supply beginning in 2006 and continuing through 2012.  In December 2007, the Energy Independence and Security Act of 2007 was enacted.  This legislation further increased the amount of mandated biofuel usage to a maximum of 36 billion gallons a year by 2022.  Pursuant to the Energy Policy Act and the Energy Independence and Security Act, the U.S. Environmental Protection Agency has promulgated rules requiring refineries, blenders, distributors and importers to introduce or sell volumes of biofuels, including corn-based ethanol and biodiesel fuel, into commerce in accordance with the annual RFS. The following table describes minimum biofuel use mandated for years 2010 through 2015:

Under the RFS as modified by Energy Independence and Security Act, the mandate for corn-based ethanol is capped at 15 billion gallons in 2015 and continues at that level through 2022.  The remaining amount of biofuel required by the RFS must be derived from non-corn-based ethanol such as biodiesel.

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The EPA is currently reviewing a request to allow for blending of up to 15% ethanol into gasoline for normal use.  A decision is expected in mid 2010. If granted, this waiver could have a positive impact upon demand as E15 may replace E10 as the base blend of ethanol in the nation’s fuel supply.

The Volumetric Ethanol Excise Tax Credit

The use of ethanol as an alternative fuel source has been aided by federal tax policy, which directly benefits gasoline refiners and blenders, and increases demand for ethanol. In 2004, the Volumetric Ethanol Excise Tax Credit (“VEETC”) was signed into law which amended the federal excise tax structure effective as of January 1, 2005. This law amended the federal gasoline excise tax structure effective January 1, 2005.  As amended, the law created a new volumetric ethanol excise tax credit of $0.51 per gallon of ethanol blended at 10% ($0.45 per gallon as of January 1, 2009).  The use of ethanol as a fuel additive is enhanced by the availability of a credit from the federal gasoline excise tax. The credit is scheduled to expire on December 31, 2010.

Small Ethanol Producer Tax Credit

The Energy Policy Act of 2005 expanded who qualifies for the small ethanol producer tax credit. Historically, small ethanol producers were allowed a 10-cents-per-gallon production income tax credit on up to 15 million gallons of production annually. The size of the plant eligible for the tax credit was limited to 30 million gallons. Under the Energy Policy Act, the size limitation on the production capacity for small ethanol producers increased from 30 million to 60 million gallons. The tax credit is capped at $1.5 million per year per producer. We are no longer eligible for this credit because of our plant produces in excess of 60 million gallons annually.

Imported Ethanol Tariffs and Quotas

Currently, there is a $0.54 per gallon tariff on imported ethanol, which is scheduled to expire in 2011.  In addition, ethanol imports from 19 countries in Central America and the Caribbean region are exempted from this tariff under the Caribbean Basin Initiative or CBI, which provides that specified nations may export annually to the U.S. an aggregate of 7.0% of U.S. ethanol production, with additional exemptions from ethanol produced from feedstock in the Caribbean region over the 7.0% limit.

State Legislation Banning or Limiting MTBE Use

As of February 2010, 25 states have banned or significantly limited the use of MTBE due to environmental and public health concerns. Ethanol has served as a replacement for much of the discontinued volumes of MTBE and is expected to continue to replace future volumes of MTBE that are removed from the fuel supply.

South Dakota

The state of South Dakota provides an incentive production payment to ethanol producers operating in South Dakota. The production incentive consists of a direct payment to South Dakota ethanol producers of up to $0.20 per gallon, which is divided among producers of fuel ethanol within South Dakota up to a maximum of $1 million per year per plant and a maximum of $10 million over the life of a plant.  The program caps the payments that can be distributed to all plants based in South Dakota in a program year to no more than $7 million in payments each year (program year ends on June 30). The payments are distributed to each plant in proportion to the total number of gallons of ethanol produced and marketed annually by all the plants in South Dakota.  If additional plants commence production, or existing plants increase production, each plant receives a lower proportionate share of the maximum payment under the program. Conversely, if existing plants terminate operations, or decrease production, each plant receives a higher proportionate share of the maximum payment under the program.

Environmental Regulation and Costs

We are subject to extensive environmental regulation at the federal and state levels.  The federal environmental regulations with which our plant must comply are promulgated by the U.S. Environmental Protection Agency pursuant to

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the Clean Air Act.  The state environmental regulations with which our plant must comply are promulgated by the South Dakota Department of Environment and Natural Resources, or DENR. The EPA and the DENR regulate air quality, particularly our plant’s emissions into the air.  The DENR also regulates water collection and discharge. In addition to its own enforcement authority under this law, the EPA has delegated permitting and enforcement authority to the DENR.  To conduct operations, we are required to have the following permits from these and other agencies:

· Title Five Operating Permit from the DENR.  In South Dakota, the Title Five Operating Permit serves as the air quality and operation permit for our plant. We must conduct ongoing emissions testing to verify compliance with the Title Five Operating permit. This permit is subject to a renewal in 2011.

· Bureau of Alcohol, Tobacco, Firearms and Explosives and Fuel Permit from the U.S. Department of Treasury. We are required to have this permit because of the alcohol content of ethanol. The permit is subject to renewal annually.

· General Permit for Storm Water Discharge.  This permit is required for the runoff of storm water from our plant and is subject to renewal every five years.

We maintain an on-going compliance program to ensure compliance with all applicable laws, regulations and permits.  Maintaining compliance can require us to incur expenditures for such things as new or upgraded equipment or processes, some of which can be material and costly at times. For example, as a result of U.S. Environmental Protection Agency’s issuance of a Notice of Violation (see Part I, Item 3, “Legal Proceedings” below), we plan to make improvements to our plant’s dryer and thermal oxidizer, the cost of which is expected to be approximately $1 million.

In addition, federal and state 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 plant’s future operating costs and expenses. It also is possible that federal or state environmental rules or regulations could be adopted that could have an adverse effect on the use of ethanol. For example, on September 30, 2009, the U.S. Environmental Protection Agency proposed a rule requiring large industrial facilities that emit at least 25,000 tons of greenhouse gases a year to be subject to additional compliance restrictions.  If these regulations are adopted and our plant were to become subject to these new regulations, we may have to invest or spend considerable resources to comply with the new requirements, including possibly investing in additional pollution control equipment or making operation changes.  Furthermore, our plant’s operations are governed by the Occupational Safety and Health Administration (“OSHA”). OSHA regulations may change such that the future costs of the operation of our plant may increase. Any of these regulatory factors may result in higher costs or other materially adverse conditions effecting our operations, cash flows and financial performance.

Management and Employees

POET® Plant Management, LLC manages the day-to-day operations of our plant under a management agreement. Under the agreement, which is in effect until June 2015, POET® Plant Management receives a fixed annual fee, adjusted annually for inflation, and an incentive bonus based on our profitability.  We also pay certain expenses incurred with respect to the operation of the plant while other expenses, including, but not limited to, the provision of a full-time technical manager and general manager, are included as part of POET® Plant Management’s fees.  Mr. Blaine Gomer, our plant’s general manager, is an employee of POET® Plant Management, and is responsible for operations and production at the plant on a day-to-day basis.

As of the date of this filing, our plant employs 48 employees, including a commodities manager, a commodities supervisor, an operations manager, a maintenance manager, a microbiologist, a chief mechanical operator, a controller, plant operators, maintenance technicians, grains assistants, accountants, and a membership coordinator.  This does not include Mr. Gomer and the technical manager, both of whom are employees of POET® Plant Management.

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Available Information

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to the Securities Exchange Act of 1934, as amended, are filed with the SEC.  Such reports and other information filed by us with the SEC are available on the SEC website (www.sec.gov). The public may read and copy any materials filed by us with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy, and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of these websites are not incorporated into this filing.  Our website is found at www.poet.com, then clicking on “Meet POET,” “Plants,” “Big Stone, SD,” and “Becoming an Investor.”

Item 1A. Risk Factors.

Risks Related to Our Business

Our financial performance is significantly dependent on corn and ethanol prices and generally we will not be able to pass on increases in these prices to our customers. Our results of operations and financial condition are significantly affected by the cost and supply of corn and the market price of ethanol. Changes in the relative prices of corn and ethanol are subject to and determined by market forces over which we have no control.

The spread between ethanol and corn prices can vary significantly. Our gross margins depend principally on the spread between ethanol prices and corn prices. The spread between the price of a gallon of ethanol and the cost of corn required to produce a gallon of ethanol will likely continue to fluctuate. A protracted reduction in the spread between ethanol and corn prices, whether a result of an increase in corn prices or a reduction in ethanol prices, would adversely affect our results of operations and financial condition.

Corn, as with most other crops, is affected by weather, disease and other environmental conditions.  The price of corn is also influenced by general economic, market and government factors.  These factors include weather conditions, farmer planting decisions, domestic and foreign government farm programs and policies, global demand and supply and quality.  If a period of high corn prices is sustained for some time, such pricing may reduce our ability to generate profits because of the higher cost of operating and may make ethanol uneconomical to use in fuel markets.  We cannot offer any assurance that we will 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 results of operations and financial condition may be materially and adversely affected and our plant may be forced to curtail production.

The price of distillers grains is affected by the price of other commodity products, and decreases in the price of these commodities could decrease the price of distillers grains.  Distillers grains compete with other protein-based animal feed products such as soybean meal. The price of distillers grains may decrease when the price of competing feed products decrease. The prices of competing animal feed products are based in part on the prices of the commodities from which they are derived. Downward pressure on commodity prices, such as soybeans, will generally cause the price of competing animal feed products to decline, resulting in downward pressure on the price of distillers grains. As a result, we may experience lower revenue and income.

Our debt financing agreements contain, and our future debt financing agreements may contain, restrictive covenants that impose significant restrictions on the operation of our business. The terms of our existing loan agreements with U.S. Bank National Association, contain, and any future debt agreement we enter into may contain, financial, maintenance, cash distribution, operational and other restrictive covenants. Any violation of the covenants could have an adverse effect on operations. If we are unable to comply with these covenants or service our debt, or obtain necessary waivers of any covenant violation in the future, we may lose control of our business and be forced to reduce or delay planned capital expenditures, sell assets, restructure our indebtedness or submit to foreclosure proceedings, all of which could result in a material adverse effect upon our business.

Hedging transactions involve risks that could harm our profitability.  In an attempt to minimize the effects of the volatility of corn and natural gas on operating profits, we engage in hedging activities in the corn and natural gas futures markets.  The effectiveness of such hedging activities is dependent, among other things, upon the cost of corn and

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natural gas and our ability to sell sufficient products to utilize all of the corn and natural gas subject to the futures contracts.  There is no assurance that our hedging activities will reduce the risk caused by price fluctuation which may leave us vulnerable to high corn and natural gas prices.  In addition, we may choose not to take hedging positions in the future, which may adversely affect our financial condition if corn and natural gas prices increase. Our hedging activities also can result in increased costs because price movements in corn and natural gas are highly volatile and are influenced by many factors that are beyond our control.

Our business is subject to seasonal fluctuations. Our operating results are influenced by seasonal fluctuations in the price of our primary production inputs, namely corn, and the price of our primary product, ethanol. In recent years, the spot price of corn tends to rise during the spring planting season in May and June and tends to decrease during the fall harvest in October and November. The price for natural gas, however, tends to move opposite of corn and tends to be lower in the spring and summer and higher in the fall and winter. In addition, our ethanol prices are substantially correlated with the price of unleaded gasoline. As a result, because the price of unleaded gasoline tends to rise during the summer, the price of ethanol generally rises in the summer.

Our business is not diversified because it is limited to the fuel grade ethanol industry, which may limit our ability to adapt to changing business and market conditions.   Our sole business is the production and sale of fuel grade ethanol produced from corn and its by-product, distillers grains. Our plant does not have the capability of producing industrial or food and beverage grade ethanol, which is used in such products as cosmetics, perfume, paint thinner and vinegar. Our plant is also not equipped to capture carbon dioxide, another co-product of the ethanol production process. The lack of diversification of our business may limit our ability to adapt to changing business and market conditions.

We are heavily dependent upon POET®, LLC.  We have several agreements in place with companies owned and controlled by POET®, LLC, of Sioux Falls, South Dakota, including those related to the purchase or marketing of ethanol and distillers grains, management of the plant, design and construction, research and technology, and information technology.  If any of the agreements were to terminate, we might not be able to secure suitable and timely replacements for those services at a reasonable cost or at all, which would materially harm our business.

We are dependent upon POET® Ethanol Products, LLC to purchase and market all of the ethanol produced at our plant.   POET® Ethanol Products is the exclusive purchaser of all of the ethanol produced at our plant which, in turn, markets and transports the ethanol to refineries located throughout the U.S.  If POET® Ethanol Products breaches the ethanol marketing agreement or is not in the financial position to purchase all of the ethanol produced, we may not have any readily available means to sell the ethanol and our financial condition will be adversely and materially affected.  If the ethanol marketing agreement with POET® Ethanol Products were to terminate, we would be forced to seek other arrangements to sell the ethanol produced, but there are no assurances that these arrangements would achieve results comparable to those achieved by POET® Ethanol Products.

Interruptions in energy supplies could delay or halt production at our plant, which will reduce our profitability.  Ethanol production requires a constant and consistent supply of energy, including electricity, steam and natural gas.  If there is any interruption in our plant’s supply of energy for whatever reason, such as supply, delivery or mechanical problems, we may be required to halt production.  If production is halted for any extended period of time, it will reduce our profitability.  Our plant has agreements with various companies to provide it with necessary energy, but we cannot assure that these companies will continue to be able to supply reliably such energy.  If our plant were to suffer interruptions in energy supply, our business would be harmed.

We have limited natural gas available for operations and rely heavily on the adjacent Big Stone Plant. We rely on Big Stone Plant to supply approximately 50% of our energy needs for production.  When steam from Big Stone Plant is not operating or the transfer of steam to our plant is interrupted, we rely on our natural gas supply to power two on-site boilers in order to generate steam for the production process.  The natural gas supply to our plant, however, is limited as the supply itself cannot power our plant to operate at its full 75 million annual name-plate production capacity. Therefore, if Big Stone Plant shuts down for any prolonged period of time, our plant must reduce production based on the amount of natural gas that is supplied to the plant. Reducing production could have a material adverse effect on our revenues and profitability.

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Risks Related to the Industry

Demand for ethanol may not continue to grow unless ethanol can be blended into gasoline in higher percentage blends for conventional automobiles. Ethanol is blended with conventional gasoline for use in standard (non-flex fuel) vehicles to create a blend which is 10% ethanol and 90% conventional gasoline. Estimates indicate that approximately 135 billion gallons of gasoline are sold in the U.S. Assuming that all gasoline in the United States is blended at a rate of 10% ethanol and 90% gasoline, the maximum demand for ethanol is 13.5 billion gallons. This is commonly referred to as the “blending wall,” which represents a theoretical limit where more ethanol cannot be blended into the national gasoline pool. Many in the ethanol industry believe that the ethanol industry will reach this blending wall in 2010. In order to expand demand for ethanol, higher percentage blends of ethanol must be utilized in conventional automobiles. Such higher percentage blends of ethanol have recently become a contentious issue. Automobile manufacturers and environmental groups have fought against higher percentage ethanol blends. State and federal regulations prohibit the use of higher percentage ethanol blends in conventional automobiles and vehicle manufacturers have stated that using higher percentage ethanol blends in conventional vehicles would void the manufacturer’s warranty. Recently, the U.S. Environmental Protection Agency was expected to make a ruling on using higher percentage blends of ethanol such as E15, but it deferred making a decision until the middle of 2010. Without an increase in the allowable percentage blends of ethanol, demand for ethanol may not continue to increase which could decrease the selling price of ethanol and could result in our inability to operate profitably.

Overcapacity in the industry may result in further decreases in the price of ethanol and distillers grains. Excess capacity in the ethanol industry has had, and may continue to have, an adverse impact on our results of operations, cash flows and general financial condition. Excess capacity has resulted from increases in production capacity coupled with insufficient demand. As a result, the price of ethanol and our profit margins has declined over time. If excess capacity in the ethanol industry continues, the market price of ethanol may decline to a level that is inadequate to generate sufficient cash flow to cover our costs. In addition, because ethanol production produces distillers grains as a by-product, increased ethanol production could lead to excess supply of distillers grains. An increase in the supply of distillers grains, without corresponding increases in demand, could lead to lower prices or an inability to sell our distillers grains. Any decline in the price of distillers grain or the distillers grain market generally could have a material adverse effect on our business.

Decreasing gasoline prices may negatively impact the selling price of ethanol which could reduce our ability to operate profitably. The price of ethanol generally tends to change in relation to the price of gasoline. For most of 2009, for example, as a result of a number of factors including the current world economy, the price of gasoline decreased. In correlation to the decrease in the price of gasoline, the price of ethanol 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.

The global financial crisis may have impact on our business and financial condition that we currently cannot predict. The continued credit crisis and related instability in the global and national financial system may impact our business and our financial condition. The credit crisis, for instance, could have an impact on our senior lender under our loan agreement, causing it to take adverse action in the event we are unable to comply with the terms under our loan agreement.

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 U.S. We also face competition from outside of the U.S. The passage of the Energy Policy Act of 2005 included a renewable fuels mandate. The renewable fuels standard was increased in December 2007 to 36 billion gallons by 2022. Further, some states have passed renewable fuel mandates. All of these increases in ethanol demand have encouraged companies to enter the ethanol industry. The largest ethanol producers include Archer Daniels Midland, Green Plains Renewable Energy, Hawkeye Renewable, and Valero Renewable Fuels, 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.

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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 condition.

Competition from the advancement of technology may lessen the demand for ethanol and negatively impact our profitability.  Alternative fuels, gasoline oxygenates and ethanol production methods are continually under development. A number of automotive, industrial and power generation manufacturers are developing more efficient engines, hybrid engines and alternative clean power systems using fuel cells, or clean burning gaseous fuels or electricity. Vehicle manufacturers are working to develop vehicles that are more fuel efficient and have reduced emissions using conventional gasoline. Vehicle manufacturers have developed and continue to work to improve hybrid technology, which powers vehicles by engines that utilize both electric and conventional gasoline fuel sources. In the future, 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 financial condition.

Corn-based ethanol may compete with cellulose-based ethanol in the future, which could make it more difficult for us to produce ethanol on a cost-effective basis. Most ethanol is currently produced from corn and other raw grains, such as milo or sorghum-especially in the Midwest. 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. Although current technology is not sufficiently efficient to be competitive, new conversion technologies may be developed in the future.  By this year, the renewable fuels standard mandates that a specific volume of ethanol be derived from cellulosic feedstocks.   If an efficient method of producing ethanol from cellulose-based biomass is developed, we may not be able to compete effectively. If we are unable to produce ethanol as cost-effectively as cellulose-based producers, our ability to generate revenue will be negatively impacted.

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.  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.  Ethanol production has previously received favorable coverage by the news media, which may have increased demand for ethanol.  The negative perception of ethanol production may have a negative effect on demand for ethanol, which could 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 Governmental and Regulatory Action

A change in government policies favorable to ethanol may cause demand for ethanol to decline. Growth and demand for ethanol may be driven primarily by federal and state government policies, such as state laws banning MTBE and the national renewable fuels standard. The continuation of these policies is uncertain, which means that demand for ethanol may decline if these policies change or are discontinued. A decline in the demand for ethanol is likely to cause lower ethanol prices which in turn will negatively affect our business and financial condition.

Tariffs effectively limit imported ethanol into the U.S., and their reduction or elimination could undermine the ethanol industry in the U.S. Imported ethanol is generally subject to a $0.54 per gallon tariff that was designed to offset the $0.45 per gallon ethanol incentive available under the federal excise tax incentive program for refineries that blend ethanol in their fuel. There is, however, a special exemption from this tariff for ethanol imported from 19 countries in Central America and the Caribbean Islands, which is limited to a total of 7% of U.S. ethanol production per year. Imports from the exempted countries may increase as a result of new plants in development. Since production costs for ethanol in

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these countries are significantly less than what they are in the U.S., the duty-free import of ethanol through the countries exempted from the tariff may negatively affect the demand for domestic ethanol and the price at which we sell our ethanol.  We do not know the extent to which the volume of imports would increase or the effect on U.S. prices for ethanol if the tariff is not renewed beyond its current expiration date of January 2011. Any changes in the tariff or exemption from the tariff could have a material adverse effect on our business and financial condition.

Government incentives for ethanol production may be eliminated in the future. The ethanol industry and our business are assisted by various federal ethanol tax incentives, including those contained in The Energy Independence and Security Act of 2007. Under this law, the renewable fuels standard is increased to a mandate of 36 billion gallons by 2022. While we have no present indication that there are plans to revise the renewable fuels standard in the future, we have no assurance the renewable fuels standard will remain as presently drafted.  The renewable fuels standard helps support a market for ethanol that might disappear without this incentive.  If the federal incentives are eliminated or sharply curtailed, we believe that a decreased demand for ethanol will result, which could negatively affect our profitability and financial condition.

Changes in environmental regulations or violations of the regulations could 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. We do not assure you that we have been, are or will be at all times in complete compliance with these laws, regulations or permits or that we have had or have all permits required to operate our business. We do not assure you that we will not 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 invest or 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.

We may become subject to additional environmental regulation and permitting from the U.S. Environmental Protection Agency. On September 30, 2009, the EPA proposed a rule requiring large industrial facilities that emit at least 25,000 tons of greenhouse gases, like carbon dioxide, a year to be subject to additional compliance restrictions.  If these regulations are adopted and our plant were to become subject to these regulations, we may have to invest or spend considerable resources to comply with the new requirements, including possibly investing in additional pollution control equipment or making operation changes. The expense of compliance could be significant enough to reduce our profitability and negatively affect our financial condition.

Item 1B.  Unresolved Staff Comments.

None.

Item 2.  Properties.

Our plant is located immediately adjacent to Big Stone Plant in the city of Big Stone City, Grant County, South Dakota.  The land on which our plant is located is leased from Big Stone-Grant Industrial Development and Transportation, LLC, which is owned by Otter Tail Power Company, Montana-Dakota Utilities, and NorthWestern Corporation.  The term of the lease is for 99 years.  The rent is $2,520 per year until December 31, 2010, after which the rent is increased by 5.0%.  In addition, our plant has transportation facilities including a rail track, rail spur and paved access roads.

Our plant consists of the following main buildings or properties:

·                  An administrative building, which contains office equipment, computer systems, and furniture and fixtures.

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·                  A mechanical building, which contains boilers and water treatment equipment.

·                  A process building, which contains slurry and fermentation equipment, drums and a lab.

·                  An evaporation building, which contains evaporators and related equipment.

·                  A distillation building, which contains distillation columns and mole sieves.

·                  A ring dryer building, which contains a dryer and a fluid bed.

All of our tangible and intangible property, including our leasehold interest, easement rights, improvements, equipment, personal property, and contracts, serve as the collateral for the debt financing with U.S. Bank National Association, of Sioux Falls, South Dakota, which is described below under “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Indebtedness.”

Item 3.  Legal Proceedings.

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

On January 14, 2009, our plant received from the U.S. Environmental Protection Agency a written Notice of Violation (NOV). The NOV alleges that our plant violated the Clean Air Act by failing to adequately maintain a required level of air pollutants as established under the plant’s Title V air permit and by conducting invalid testing for compliance under such permit. Since the issuance of the NOV, our plant has been negotiating with the EPA a possible settlement. We believe that any settlement into which we enter will result in a fine, but that such a fine will not be material. Meanwhile, we have taken corrective actions to address the principal cause of the NOV, principally approving a $1 million capital improvement project for our plant’s dryer and thermal oxidizer.

Item 4.  Submission of Matters to a Vote of Security Holders.

We did not submit any matter to a vote of our security holders through the solicitation of proxies or otherwise during the fourth quarter of 2009.

PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchaser of Equity Securities.

As of March 1, 2010, Northern Growers had 960 members.

Trading Activity and Restrictions

Northern Growers’ capital units are not traded on an exchange or The NASDAQ Stock Market.  Rather, the capital units are traded on a “qualified matching service” as defined by the publicly traded partnership rules of the federal tax code. Under the qualified matching service, bids for capital units from interested buyers and sellers are matched and capital units traded on the basis of a set of rules and conditions set forth under the federal tax code and by Northern Growers, all trades being subject to board of managers’ approval. Northern Growers’ qualified matching service is operated through Alerus Securities Corporation, a registered broker-dealer based in Grand Forks, North Dakota, which operates a registered alternative trading system as defined and regulated by the SEC The following table contains historical information by quarter for the past two years regarding the trading of capital units under the qualified matching service:

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(1)  The qualified matching service does not permit firm bids per the rules established under the federal tax code. As a result, the prices reflect actual sale prices of the capital units.

There were no issuer purchases of equity securities during the fourth quarter ended December 31, 2009.

As a limited liability company being taxed as a partnership, Northern Growers is required to restrict the transfer of its capital units in order to preserve its preferential single-level tax status. Such restrictions are set forth in Northern Growers’ Operating Agreement and Capital Units Transfer System. Under the Capital Units Transfer System, transfers are limited to those through a qualified matching service, transfers made to qualified family members, or transfers by gift, block, upon death, and like transfers, all of which are subject to final board of managers’ approval.

Pursuant to the Operating Agreement, a minimum of 2,500 capital units is required to become and remain a member. In addition to the transfer restrictions described above, the board of managers retains the right to redeem the capital units at $0.20 per capital unit in the event a member breaches the Operating Agreement or upon a member’s failure to fulfill the membership requirements with respect to other matters. Under the qualified matching service, the number of capital units traded annually cannot exceed 10% of Northern Growers’ total issued and outstanding capital units.

Distributions

Under the terms of Northern Growers’ Amended and Restated Operating Agreement dated July 31, 2009, the board of managers is required to make annual (or more frequent) distributions to its members and may not retain more than $200,000 of net cash from operations, unless (i) a super-majority of the board of managers (75%) decides otherwise, (ii) it would violate or cause a default under the terms of any debt financing or other credit facilities, or (iii) it is otherwise prohibited by law.  For further details of the restrictions under our debt facilities, please see “Item 7, Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Indebtedness.” Distributions are required to be issued to members of record as of the last day of the quarter immediately prior to the quarter in which the distribution was approved by the board of managers.

In 2008, Big Stone made no cash distributions to Northern Growers.  However, Northern Growers paid cash distributions to its members of approximately $1.52 million, or $0.030 per capital unit, from a previously made distribution by Big Stone in 2007. In 2009, neither Big Stone nor Northern Growers made any cash distributions to its members.

In February 2010, Big Stone made a cash distribution of $3.47 million to Northern Growers and $1.03 million to the noncontrolling interest member. Northern Growers, in turn, made a cash distributions to its members of approximately $2.53 million, or $0.05 per capital unit.

Our ability to issue distributions is substantially dependent upon profitability, the discretion of our board of managers subject to the provisions of the Operating Agreement, the restrictions under our loan agreement and the approval from our lender, U.S. Bank. In 2010, the issuances of any distribution to members will be substantially dependent upon the state of the ethanol market and continued profitability.

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Item 6.  Selected Financial Data.

The following table sets forth our selected financial data for the periods indicated. The audited financial statements included in Item 8 of this report have been audited by our independent auditors, Eide Bailly LLP.

(1) Adjusted for a four-for-one capital unit split made effective September 1, 2005 and a two-for-one split effective July 1, 2006.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operation.

You should read the following discussion along with our financial statements and the notes to our financial statements included elsewhere in this report. The following discussion contains forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results, performance and achievements may differ materially from those expressed in, or implied by, such forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Information” at the beginning of this report.

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Overview

Northern Growers, LLC (“Northern Growers”) owns and manages a 77.16% interest in its subsidiary, POET® Biorefining - Big Stone (POET® Biorefining - Big Stone and Northern Growers are collectively referred to in this report as “we” “us” or “our”), an ethanol and distillers grains plant (the “plant” or “Big Stone”) located near the city of Big Stone City, South Dakota.

Our revenues are derived from the sale and distribution of ethanol and distillers grains to customers primarily located in the U.S. Corn for the production process is supplied to our plant primarily from local agricultural producers and from purchases on the open market. After processing the corn, ethanol is sold to POET® Ethanol Products, LLC, which subsequently markets and sells the ethanol to gasoline blenders and refineries located throughout the continental U.S.  All of our distillers grains are sold through POET® Nutrition, Inc., which markets and sells the product to livestock feeders primarily located in the continental U.S.

Our operating and financial performance is largely driven by the prices at which we sell ethanol and distillers grains and the costs related to production. The price of ethanol is influenced by factors such as prices of unleaded gasoline and the petroleum markets, supply and demand, weather, and government policies and programs. Excess ethanol supply in the market, generally puts downward pressure on the price of ethanol. The price of distillers grains is influenced by the price of corn, soybean meal and other protein-based feed products, and supply and demand. A low price of corn generally puts downward pressure on the price of distiller grains.

Our two largest costs of production are corn and natural gas, although our plant’s use of natural gas is offset by the use of steam supplied from the adjacent Big Stone Plant. The cost of natural gas and corn is generally impacted by factors such as supply and demand, weather, government policies and programs, and our risk management program used to protect against the price volatility of these commodities.

Executive Summary

We had a net income of $6.9 million and $4.5 million for the year and quarter ended December 31, 2009, respectively, compared to a net loss of $4.2 million and $1.8 million for the year and quarter ended December 31, 2008. The change between periods is primarily attributed to a decrease in corn and energy costs, offset by a decrease in ethanol revenues. For the year, our corn costs per bushel decreased 29% primarily due to a decrease in the market price of corn. The price of corn decreased between periods because of increases in supply, a large carryout from 2008 and favorable corn harvest forecasts in 2009.  Likewise, energy costs per gallon decreased 31% due principally to a decrease in natural gas costs. The decrease in corn and energy costs between periods, however, was offset by a decrease in ethanol revenues. Ethanol revenues decreased between periods because of a continuing surplus of ethanol in the market and low unleaded gasoline prices.

We will face challenges in the ethanol industry in 2010, but probably on a lesser scale than in 2008 and 2009. Ethanol prices are expected to remain low by historical standards due to supply and demand issues. Excess supply, a dominant factor in pushing ethanol prices lower in 2008 and most of 2009, is likely to continue in 2010. With economic factors recently improving in the industry, existing plants, which either shut down or scaled back production in 2009, are likely to return fully on online in 2010. In addition, new plants with approximately 1.04 billion gallons in capacity are expected to come online in 2010. While demand for ethanol grew in the fourth quarter of 2009, and has continued to grow slowly in the first quarter of 2010, it is not likely that demand will grow at the same pace as supply. As a result, ethanol prices and revenues are not likely to increase materially from their 2009 levels.  But this situation could change if the U.S. Environmental Protection Agency decides to permit an increase in the amount of ethanol blended for use in conventional automobiles from 10% to as high as 15%. A favorable decision by the EPA, we believe, will increase demand for ethanol and positively impact ethanol prices and revenues. EPA’s decision, however, is not expected until the summer of 2010. Meanwhile, we believe corn prices will remain favorable at least for the first two quarters of 2010, helping offset lagging ethanol prices. Corn prices are expected to be favorable because of record supply. On January 12, 2010, the U.S. Department of Agriculture forecast a record corn crop for 2009, estimating that U.S. farmers produced 13.2 billion bushels of corn, up 8.8% from 2008.

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Results of Operations

Comparison of years ended December 31, 2009 and December 31, 2008

Revenues – Revenue decreased $29.4 million, or 17%, to $142.0 million for the year ended December 31, 2009 from $171.4 million for the year ended December 31, 2008.  Revenues decreased due to a decrease in ethanol and distillers grains’ revenue.

Revenue from the sale of ethanol decreased $24.1 million, or 18%, to $113.0 million for the year ended December 31, 2009 from $137.1 million for the year ended December 31, 2008.  The decrease is primarily due to an 18% decrease in the average sales price per gallon.  Ethanol prices decreased between periods because of an oversupply of ethanol in the industry and a decrease in the price of unleaded gasoline and corn.

Revenue from the sale of distillers grains decreased $5.2 million, or 16%, to $28.4 million for the year ended December 31, 2009 from $33.6 million for the year ended December 31, 2008.  The decrease is primarily due to an 18% decrease in the average sales price per ton.  The price of distillers grains decreased due to a decrease in demand as livestock producers increased their use of corn for feed purposes due to declining corn prices.

Cost of Revenues – Cost of revenues, which includes production expenses, decreased $43.8 million, or 26%, to $125.8 million for the year ended December 31, 2009 from $169.6 million for the year ended December 31, 2008.  The primary reason for the decrease is a decrease in corn and energy costs.

Corn costs per bushel decreased 29% between periods.  This decrease is primarily due to a 23% decrease in the market price of corn.  The market price decreased due to favorable crop reports and weather conditions, a decrease in demand from the ethanol industry and a decrease in commodity speculation.  Likewise, energy costs per gallon decreased

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31% due primarily to a decrease in natural gas costs.  Natural gas costs per unit decreased 52% due to an increase in natural gas reserves and decreases in demand nationwide.

General and Administrative Expenses – General and administrative expenses increased $730,000, or 20%, to $4.41 million for the year ended December 31, 2009 from $3.68 million for the year ended December 31, 2008.  The primary reason for the increase is management incentive fees which increase if our net income (before net income attributable to the non-controlling interest) increase and decrease if our net income decreases.

Interest Expense - Interest expense decreased $770,000, or 22%, to $2.77 million for the year ended December 31, 2009 from $3.54 million for the year ended December 31, 2008.  Interest expense decreased because we drew down on revolving loans during the first months of 2008, compared to not drawing down on the revolving loans in 2009.  Interest rates on our variable loans also decreased by an average of 0.45%.

Net Income – Net income increased $11.1 million, or 267%, to $6.9 million for the year ended December 31, 2009 from a net loss of $4.2 million for the year ended December 31, 2008.  This change is caused primarily by a decrease in corn and energy costs, offset by a decrease in ethanol revenues.

Comparison of years ended December 31, 2008 and December 31, 2007

Revenues — Revenue increased $33.2 million, or 24%, to $171.4 million for the year ended December 31, 2008 from $138.2 million for the year ended December 31, 2007.  Revenues increased due to an increase in sales of ethanol and distillers grains.

Revenue from the sale of ethanol increased $21.0 million, or 18%, to $137.1 million for the year ended December 31, 2008 from $116.1 million for the year ended December 31, 2007.  The increase is primarily due to an increase in sales volume, due principally to a 17% increase in production volume and a 2% increase in price between periods. From the end of the third quarter 2008 through the end of 2008, however, the price of ethanol decreased by approximately 30% because of an oversupply in the industry.

Revenue from the sale of distillers grains increased $12.2 million, or 57%, to $33.6 million for the year ended December 31, 2008 from $21.4 million for the year ended December 31, 2007.  The increase is primarily due to a 44% increase in the sales price per ton.  The increase in price per ton is attributed to an increase in the value of distillers grains

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relative to the price of corn as livestock producers increasingly switched to distillers grains as a source of feed due to the high price of corn.

Cost of Revenues — Cost of revenues, which includes production expenses, increased $56.9 million, or 50%, to $169.6 million for the year ended December 31, 2008 from $112.7 million for the year ended December 31, 2007.  An increase in corn costs between periods is the largest contributing factor, followed by an increase in energy production costs.

Corn costs rose 41% per bushel between periods.  This increase is primarily due to a 42% increase in the market price of corn, due to an increase in demand and decrease in supply of grains globally, an increase in commodity speculation including corn and oil, and increased demand for corn from the ethanol industry.

Energy costs per gallon of ethanol rose 20% between periods primarily due to an increase in natural gas costs.  Natural gas costs per unit increased 32% between periods due to a rise in crude oil prices.  Our steam costs per unit from the adjacent Big Stone Plant also increased by 25% due to a new pricing arrangement with Big Stone Plant which became effective on January 1, 2008.

General and Administrative Expenses — General and administrative expenses decreased $1.1 million, or 23%, to $3.7 million for the year ended December 31, 2008 from $4.8 million for the year ended December 31, 2007.  The decrease is primarily due to a decrease in management incentive fees and costs, which resulted from a decrease in net income on which these fees and costs are directly based.

Interest Expense — Interest expense increased $660,000 to $3.54 million for the year ended December 31, 2008 from $2.88 million for the year ended December 31, 2007.  Despite a decrease in interest rates from 2007 to 2008, interest expense increased because, in contrast to capitalizing our interest payment in 2007 during construction of our plant’s expansion, we expensed all interest payments in 2008.

Net Income — Net income decreased $18.3 million, or 129%, to a net loss of $4.2 million for the year ended December 31, 2008 from a net income of $14.1 million for the year ended December 31, 2007.  This change is caused primarily by a significant increase in the cost of revenues from rising corn costs, offset by an increase in revenues from the sale of ethanol and distillers grains.

Liquidity and Capital Resources

Our primary sources of liquidity are cash provided by operations and borrowings under our $8.0 million and $9.0 million revolving credit facilities which are discussed below under “Indebtedness.”  Net working capital is $22 million as of December 31, 2009, compared to $13.6 million as of December 31, 2008.   Working capital increased between periods principally due to an increase in profitability.  We believe that, for the next 12 months, working capital will remain adequate and our cash flows from operations and revolving debt will be sufficient to meet our expected capital and liquidity requirements.

The following table shows the cash flows between the year ended December 31, 2009 and the year ended December 31, 2008:

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Cash Flow From Operating Activities – Net cash flow provided by operating activities decreased $1.1 million between periods due principally to a decrease in cash provided by inventory, commodities contracts and broker transactions, offset by an increase in cash provided by net income between periods.  Total ethanol inventory increased 36% between period ends, due to a 25% increase in the ethanol inventory value per gallon.  Total corn inventory was relatively flat between period ends, despite a 48% increase in bushels of corn in inventory.  However, we had significantly more cash tied up in commodities contracts and broker transactions between periods due to a 23% decrease in the market value of corn inventory per bushel.  This was offset by a $5.8 million gain on commodities contracts and broker transactions at December 31, 2009, compared to a $3.2 million loss on commodities contracts and broker transactions at December 31, 2008.

Cash Flow (Used For) From Investing Activities –  Net cash flow used for investing activities increased $455,000 between periods due to a decrease in purchases of property and equipment and a decrease in refunds from the State of South Dakota for sales and excise tax paid.  Since completing construction of our plant’s expansion in May 2007, we have purchased less in property and equipment because material capital improvements on the plant have been less necessary.  In addition, we received more in tax refunds from the State of South Dakota in 2008 than in 2009, because construction of our plant’s expansion was completed in 2007 and due to the timing of refund payments from the State of South Dakota.

Cash Flow (Used For) Financing Activities- Net cash used for financing activities decreased $1.4 million between periods, because we paid to our members a distribution of $1.5 million in 2008, compared to paying no distributions to members in 2009.

The following table shows the cash flows between the year ended December 31, 2008 and the year ended December 31, 2007:

Cash Flow From Operating Activities - Net cash flow from operating activities decreased $15.8 million between periods due principally to a decrease in cash provided by net income between periods, offset by an increase in cash provided by inventory.  Total ethanol inventory was relatively flat between period ends, despite a 20% reduction in the ethanol inventory value per gallon.  However, we had significantly less cash tied up in corn inventory between periods due to a 17% decrease in the market value of corn inventory per bushel and a $2.7 million loss on forward corn contracts at December 31, 2008 (compared to a $5.1 million gain on forward corn contracts at December 31, 2007).

Cash Flow From Investing Activities - Net cash flow from investing activities increased $19.7 million between periods due to a decrease in 2008 in purchases of property and equipment and the receipt of a sales and excise tax refund from the State of South Dakota.  In contrast to 2007, we purchased in 2008 significantly less in property and equipment after completing the construction of our plant’s expansion in May 2007.  In addition, we received in 2008 from the State of South Dakota a series of tax refunds totaling $1,016,697 for sales and excise taxes paid in 2007 and 2006 relating to the construction of our plant’s expansion.

Cash Flow From Financing Activities - Net cash used for financing activities decreased $430,000 between periods due to a $21.5 million decrease in distributions paid to members and the minority interest member from 2007 to 2008.  The decrease is offset by a decrease in advances on long-term debt as we no longer drew down on the $33 million construction note following our plant’s expansion and an increase of $2.9 million in principal paid on long-term notes payable between periods.

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Indebtedness

We have six notes and loans outstanding under our loan agreement with our lender, U.S. Bank: 1) a $33.0 million term note; 2) a $15.8 million fixed-rate note; 3) a $3.9 million variable-rate, non-revolving note; 4) an $8 million variable rate, revolving note; 5) a $9 million variable rate, revolving note; and 6) a $4.3 million variable rate note.

The $8 million note permits us to borrow, on a revolving basis, the difference between the unpaid principal balance and $8 million.  The principal purpose of this revolver is to cover the cost of any non-corn related items at the plant at any time.  The principal balance outstanding is $0 as of December 31, 2009, allowing us to borrow up to $8 million as of December 31, 2009 and the date of this filing.

The $9 million note permits us to borrow, on a revolving basis, the difference of the outstanding principal amount and the lesser of the borrowing base or $9.0 million. The borrowing base is defined as 75% of the total of the fair market value of the outstanding inventory, eligible accounts receivable, and hedging accounts at fair market value. The principal purpose of this revolver is to cover the cost of purchasing corn during a period of tight margins.  The principal balance outstanding is $0 as of December 31, 2009, allowing us to borrow up to $9 million as of December 31, 2009 and the date of this filing.

The $33 million term note, which had been converted from a construction note on August 31, 2007, is subject to two interest rate arrangements. The notional amounts ($12.79 million and $6.39 million as of December 31, 2009) are subject to an interest rate swap agreement with U.S. Bank. (see also Item 7A below-”Quantitative and Qualitative Disclosures About Market Risk”). Under the agreement, the notional amounts are subject to a fixed rate of 7.98% and 7.52% respectively, which is payable monthly until maturity on August 30, 2014. The remaining portion of the note is subject to a variable rate of one-month LIBOR plus 2.75%, adjusted and due monthly (2.980% at December 31, 2009). A principal payment of $825,000 is due quarterly on the note.

The principal balance outstanding on the $15.8 million fixed-rate note (6.38%) is $9.59 million as of December 31, 2009. Principal payments of $1.47 million were made for the year ended December 31, 2009.

The principal balance outstanding on the $3.9 million variable rate (3.25% as of December 31, 2009) non-revolving loan is $2.05 million as of December 31, 2009.  Principal payments of $390,000 were made for the year ended December 31, 2009.

The principal balance outstanding on the $4.3 million variable rate loan (3.235% at December 31, 2009) is $2.91million. Principal payments of $616,000 were made for the year ended December 31, 2009.

All of the loans and notes outstanding are secured by Big Stone’s tangible and intangible property, including a leasehold interest, easement rights, improvements, equipment, personal property, accounts receivable, inventory and contracts. In addition to standard covenants and conditions in the amended and restated loan agreement, Big Stone is subject to material conditions and covenants, including 1) an annual capital expenditure limitation, 2) a cash distribution limitation to members, 3) a tangible net worth minimum, 4) a minimum working capital requirement, 5) a fixed charge coverage ratio, and 6) a minimum balance sheet equity. The following table represents the material covenant and condition requirements under Big Stone’s loan agreement and its actual results in terms of compliance as of December 31, 2009:

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(1)  Compliance is based on the financial statements of our subsidiary, Big Stone, as opposed to on a consolidated basis.

(2)  U.S. Bank’s covenants permit the inclusion of the $8 million revolver if not drawn down.

We are in compliance with all conditions and covenants under our loan agreement with U.S. Bank as of December 31, 2009 and the date of this filing.

The following table summarizes our consolidated contractual obligations as of December 31, 2009:

(1)          Long-term debt obligations reflect payment obligations, including interest, arising under the amended Loan Agreement with U.S. Bank.

(2)          Purchase obligations include payment for minimum steam purchases, and services for plant management and risk management.

Off-Balance Sheet Arrangements

We do not use or have any off-balance sheet financial arrangements.

Recent Accounting Pronouncements

In June 2009, the FASB amended the existing accounting and disclosure guidance for the consolidation of variable interest entities, which is effective January 1, 2010.  The amended guidance requires enhanced disclosures intended to provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity.  We are currently assessing the impact of adoption on its financial position and results of operations.

In October 2009, the FASB issued new guidance for revenue recognition with multiple deliverables, which is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, although early adoption is permitted.  This guidance eliminates the residual method under the current guidance and replaces it with the “relative selling price” method with allocating revenue in a multiple deliverable arrangement.  The selling price for each deliverable shall be determined using vendor specific objective evidence of selling price, if it exists, otherwise third-party evidence of selling price shall be used.  If neither exists for a deliverable, the vendor shall use its best estimate of the selling price for that deliverable.  After adoption, this guidance will also require expanded qualitative and quantitative disclosures. We are currently assessing the impact of adoption on its financial position and results of operations.

Newly Adopted Accounting Pronouncements

Noncontrolling Interests in Consolidated Financial Statements.  On January 1, 2009, we adopted new guidance for the accounting, reporting and disclosure of noncontrolling interests, which improves the relevance, comparability and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.  The impact of adopting this guidance on the consolidated financial statements was the presentation of

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noncontrolling interest within equity in the consolidated balance sheets and in the consolidated statements of changes in equity.

Business Combinations. On January 1, 2009, we adopted new guidance on business combinations which expands the scope of acquisition accounting to all transactions under which control of a business is obtained. This guidance requires an acquirer to recognize the assets acquired and liabilities assumed at the acquisition date fair values with limited exceptions. Additionally, the guidance requires that contingent consideration be recorded at fair value on the acquisition date, that acquired in-process research and development be capitalized and recorded as intangible assets at the acquisition date, and also requires transaction costs and costs to restructure the acquired company be expensed. On April 1, 2009, additional guidance was issued further amending the accounting for business combinations to require that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can reasonably be estimated. If the acquisition date fair value of an asset acquired or liability assumed that arises from a contingency cannot be determined, the asset or liability would be recognized if probable and reasonably estimable; if these criteria are not met, no asset or liability would be recognized.  We have not had any business combinations since adopting this guidance.

Disclosures about Derivative Instruments and Hedging Activities. On April 1, 2009, we adopted  new guidance related to derivative disclosure and hedging activities. This guidance requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. The guidance  also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements and the impact that hedges have on an entity’s operating results, financial position or cash flows. See Note 4 — Derivative Financial Instruments for additional disclosures.

Codification.  In June 2009, the FASB issued the FASB Accounting Standards Codification (“Codification”). The Codification became the single source for all authoritative GAAP recognized by the FASB and has been applied to financial statements issued for periods ending after September 15, 2009. The only impact of adopting this provision was to update and remove certain references in our consolidated financial statements to technical accounting literature.

Critical Accounting Policies and Estimates

Preparation of our financial statements require estimates and judgments to be made that affect the amounts of assets, liabilities, revenues and expenses reported.  Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates.  We continually evaluate these estimates based on historical experience and other assumptions we believe to be reasonable under the circumstances.

The difficulty in applying these policies arises from the assumptions, estimates and judgments that have to be made currently about matters that are inherently uncertain, such as future economic conditions, operating results and valuations as well as management intentions.  As the difficulty increases, the level of precision decreases, meaning that actual results can and probably will be different from those currently estimated.

Of the significant accounting policies described in the notes to the financial statements, we believe that the following may involve a higher degree of estimates, judgments, and complexity.

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Commitments and Contingencies.  Contingencies, by their nature, relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred, as well as in estimating the amount of the potential expense.  In conformity with accounting principles generally accepted in the U.S., we accrue an expense when it is probable that a liability has been incurred and the amount can be reasonably estimated.

Inventory Valuation.  Ethanol and related product inventory is stated at net realizable value. Corn inventory is stated at market value, which approximates net realizable value (local market prices less cost of disposal), based on local market prices determined by grain terminals in the area of the plant. Other raw materials, spare parts and work-in-process inventory are stated at the lower of cost or market on an average cost method.

Revenue Recognition.  Revenue from the sale of ethanol and related products is recorded when title transfers to customers. Generally, ethanol is shipped FOB shipping point and related products are shipped FOB destination point. In accordance with our agreement for the marketing and sale of ethanol, shipping costs arranged by the marketer are deducted from the gross sales price reported to us by the marketer; thus no shipping costs are incurred relate to sales of ethanol. For distiller grains, shipping costs incurred by us are included as a component of cost of revenues. Interest income is recognized as earned.

Revenue from federal and state incentive programs is recorded when we have produced or sold the ethanol and satisfied the reporting requirements under each applicable program. When it is uncertain that we will receive full allocation and payment due under the incentive programs, we derive an estimate of the incentive revenue for the relevant period based on various factors. The estimate is subject to change as we become aware of increases or decreases in the amount of funding available under the incentive programs or other factors that affect funding or allocation of funds under such programs.

Cost of Revenues.  The primary components of cost of revenues from the production of ethanol and related products are corn expense, energy expense (electricity, natural gas and steam), raw materials expense (chemicals and denaturant), shipping costs on sales, depreciation on process equipment and direct labor costs. Shipping costs incurred by us are recorded as a component of cost of revenues. Shipping costs in cost of revenues includes inbound freight charges on inventory, outbound freight charges on related product and purchasing and receiving costs.

Long-Lived Assets.  Depreciation and amortization of our property, plant, and equipment is provided on the straight-line method by charges to operations at rates based upon the expected useful lives of individual or groups of assets.  Economic circumstances or other factors may cause management’s estimates of expected useful lives to differ from actual.

Long-lived assets, including property, plant and equipment, and investments are evaluated for impairment on the basis of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  An impaired asset is written down to our estimated fair market value based on the best information available.  Considerable management judgment is necessary to estimate discounted future cash flows and may differ from actual cash flows.

Accounting for Derivative Instruments and Hedging Activities.  We enter into derivative instruments to hedge our exposure to price risk related to forecasted corn and natural gas purchases, forward corn purchase contracts and forecasted ethanol sales.  We do not typically enter into derivative instruments other than for hedging purposes.  All derivative contracts are recognized on the December 31, 2009 and 2008 balance sheets at their fair market value.

On the date the derivative instrument is entered into, we designate the derivative as either (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge), (2) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge) or (3) will not designate the derivative as a hedge.  Changes in the fair value of a derivative that is designated as and meets all the required criteria for a fair value hedge, along with the gain or loss on the hedged asset or liability that is attributable to the hedged risk, are recorded in current period earnings.  Changes in the fair value of a derivative that is designated as and meets all the required criteria for a cash flow hedge are recorded in accumulated other

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comprehensive income and reclassified into earnings as the underlying hedged item affects earnings.  Changes in the fair value of a derivative that is not designated as a hedge are recorded in current period earnings.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk.

We are exposed to the impact of market fluctuations associated with commodity prices and interest rates as discussed below. We have no exposure to foreign currency risk as all of our business is conducted in U.S. Dollars. We use derivative financial instruments as part of an overall strategy to manage market risk. Specifically, we use forward, futures and option contracts to hedge changes to the commodity prices of corn and natural gas, as well as interest rate swaps to hedge against changes in interest rates. However, we do not enter into these derivative financial instruments for trading or speculative purposes. The interest rate swap agreement is accounted for as a cash flow hedge pursuant to the requirements of SFAS 133, as amended, Accounting for Derivative Instruments and Hedging Activities.

Commodity Price Risk

We produce ethanol and its by-product, distillers grains, from corn, and, as such, we are sensitive to changes in the price of corn. The price of corn is subject to fluctuations due to unpredictable factors such as weather, total corn planted and harvested acreage, changes in national and global supply and demand, and government programs and policies. We also use natural gas in the production process, and as such are sensitive to changes in the price of natural gas. The price of natural gas is influenced by such weather factors as heat or cold in the summer and winter, in addition to the threat of hurricanes in the spring, summer and fall. Other natural gas price factors include the domestic onshore and offshore rig count, and the amount of natural gas in underground storage during both the injection (April 1st - November 7th) and withdrawal (November 14th - March 31st) seasons. The price of distillers grains is principally influenced by the price of corn and soybean meal, and competing protein feed products.

We attempt to reduce the market risk associated with fluctuations in the price of corn and natural gas by employing a variety of risk management strategies. Strategies include the use of derivative financial instruments such as futures and options initiated on the Chicago Board of Trade and/or the New York Mercantile Exchange, as well as the daily cash management of our total corn and natural gas ownership relative to our monthly demand for each commodity, which may incorporate the use of forward cash contracts or basis contracts.

Corn is hedged with derivative instruments including futures and options contracts offered through the Chicago Board of Trade. Forward cash corn and basis contracts are also utilized to minimize future price risk. Likewise, natural gas is hedged with futures and options contracts offered through the New York Mercantile Exchange. Basis contracts are also utilized to minimize future price risk.

Gains and losses on futures and options contracts used as economic hedges of corn inventory, as well as on forward cash corn and basis contracts, are recognized as a component of cost of revenues for financial reporting on a monthly basis using month-end settlement prices for corn futures on the Chicago Board of Trade. Corn inventories are marked to fair value using market based prices so that gains or losses on the derivative contracts, as well as forward cash corn and basis contracts, are offset by gains or losses on inventories during the same accounting period.

Gains and losses on futures and options contracts used as economic hedges of natural gas, as well as basis contracts, are recognized as a component of cost of revenues for financial reporting on a monthly basis using month-end settlement prices for natural gas futures on the New York Mercantile Exchange. The natural gas inventories hedged with these derivatives or basis contracts are valued at the spot price of natural gas, plus or minus the gain or loss on the futures or options positions relative to the month-end settlement price on the New York Mercantile Exchange.

A sensitivity analysis has been prepared to estimate our exposure to commodity price risk. The table presents the fair value of open futures and option positions for corn and natural gas as of December 31, 2009 and December 31, 2008 and the potential loss in fair value resulting from a hypothetical 10% adverse change in corn and natural gas prices. The fair value of the positions is a summation of the fair values calculated by valuing each net position at quoted market prices as of the applicable date. The results of this analysis, which may differ from actual results, are as follows:

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Interest Rate Risk

We manage our interest rate risk by monitoring the effects of market changes on the interest rates and using fixed-rate debt whenever possible. We also enter into interest rate swap agreements.

Our interest rate risk exposure pertains primarily to our variable rate, long-term debt. Specifically, we had $11.36 million in variable rate, long-term debt outstanding as of December 31, 2009, or approximately 28% of our total long-term indebtedness. The interest rate on $2.05 million of the variable rate, long-term debt is U.S. Bank’s prime rate, which was 3.25% as of December 31, 2009.  The interest rate on $2.91 million of the variable rate debt is subject to an interest rate of 3.235% as of December 31, 2009.  The variable rate on the $6.39 million portion of the term note is 2.980% (One-Month LIBOR plus 2.75%) as of December 31, 2009.

In order to achieve a fixed interest rate on a portion of our $33.0 million term note, we are a party to an interest rate swap agreement with U.S. Bank.  The swap agreement covers a seven-year term financing period through August 30, 2014. This agreement assists us in protecting against exposure to increases in interest rates and fixes the interest rate at 7.98% and 7.52% on the notional amounts ($12.79 million and $6.39 million, respectively as of December 31, 2009). The remaining amount, $6.39 million, is subject to a variable rate of One-Month LIBOR plus 2.75%. While our exposure is now reduced, there is no assurance that the interest rate swap will provide us with protection in all scenarios. For example, under the swap agreement, when One-Month LIBOR plus 2.75% exceeds 7.98% or 7.52%, we receive payments from U.S. Bank for the difference between the market rate and the swap rate.  Conversely, when the One-Month LIBOR plus 2.75% falls below 7.98% or 7.52%, we make payments to U.S. Bank for the difference.  The interest rate on the variable portion of our $33.0 million term note decreased 0.231% from December 31, 2008 to December 31, 2009, which required us to pay more in interest to U.S. Bank on the two swap transactions.

Item 8.  Financial Statements and Supplementary Data.

Reference is made to the “Table of Contents” of Northern Growers, LLC located on the page prior to page F-1 of this report, and financial statements for the year ended December 31, 2009 referenced therein, which are hereby incorporated by reference.

Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A(T).  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.  Our management, including the participation of our Chief Executive Officer/Chief Financial Officer, has concluded that, based on management’s evaluation as of the end of the period covered by this Annual Report on Form 10-K,  the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.  Additionally, based on management’s evaluation, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in our Exchange Act reports is accumulated and communicated to our management, including our Chief Executive Officer/Chief Financial Officer, to allow timely decisions regarding required disclosures.

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Management’s report on internal control over financial reporting.  Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934.  Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use, or disposition of our assets that could have a material effect on the financial statements.

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

Management has assessed our internal control over financial reporting in relation to criteria described in Internal Control- Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on this assessment using those criteria, we concluded that, as of December 31, 2009, our internal control over financial reporting was effective.

Changes in Internal Control over Financial Reporting.  There was no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.  Other Information.

On October 23, 2009, we announced an intent to undertake a reclassification of our Class A capital units. The proposed transaction, which is subject to approval by our members, will result in the reclassification of our Class A capital units outstanding into three distinct classes.  In the proposed reclassification, we expect that: (a) record holders of between 40,000 and 69,999 of our Class A capital units will receive newly-created Class B capital units, on the basis of one Class B capital unit for each Class A capital unit; (b) record holders of less than 40,000 of our Class A capital units will receive newly-created Class C capital units, on the basis of one Class C capital unit for each Class A member unit; and (c) all other Class A capital units will remain outstanding.  Capital unit holders receiving Class B or Class C capital units will receive no additional consideration for their Class A capital units.

The reclassification transaction can only be effected by the adoption by our members of amendments to our Fifth Amended and Restated Operating Agreement, which amendments will be included in a Sixth Amended and Restated Operating Agreement. The members will vote on the adoption of the proposed amendment at a special meeting of members on April 26, 2010, in Milbank, South Dakota.  The Sixth Amended and Restated Operating Agreement will include details about the rights, privileges, obligations and restrictions associated with the Class A, B and C capital units.  If our members approve the Sixth Amended and Restated Operating Agreement and the reclassification is implemented, we anticipate having fewer than 300 Class A members of record, which would enable us to terminate voluntarily the registration of our Class A units under the Securities Exchange Act of 1934.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Directors and Officers

The following table provides certain information about Northern Growers’ board of managers and sole officer.  None of our managers or officer has served as a director of another company which is required to file reports under the Exchange Act.

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Director Qualifications

Each person was elected because of his involvement in and support of the agriculture industry in northeastern South Dakota, including the ethanol industry. In particular, each person is or was an agriculture producer or owns a business involved in the agriculture industry. In addition, seven persons - Ron Anderson, Mark Lounsbery, Robert Metz, Robert Narem, Delton Strasser, Steve Street, and Bill Whipple - were chosen because they are the original founders of Northern Growers. As original founders, they are viewed as having invaluable experience and knowledge in representing the board of managers and our operations.

Audit Committee

We have a separately designated standing Audit Committee established in accordance with section 3(a)(58)(A) of the Exchange Act, whose members include Messrs. Ron Anderson, Robert Metz, Bill Whipple and  Robert Wittnebel. Because our board of managers are mostly farmers, as is common for producer-based agricultural entities, we do not have an audit committee financial expert serving on our Audit Committee as that term is defined under SEC rules.

Code of Ethics

All of the board of managers, officers and employees, are required to comply with Northern Growers’ Code of Ethics. A copy of the Code of Ethics can be obtained, without charge, by writing to the following address:

Membership Coordinator

Northern Growers, LLC

c/o POET® Biorefining - Big Stone

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48416 144th Street.

Big Stone City, South Dakota 57216

Amendments and modifications to, and waivers of, the Code of Ethics will be promptly disclosed, to the extent required under the Exchange Act, on a current report on Form 8-K.

Director Nominations

There are no material changes to the procedures by which members may recommend nominees to our board of managers where those changes were implemented after our last provided disclosure in 2009. Therefore, members will be allowed to recommend candidates to the board of managers prior to the election at the 2010 Annual Meeting of Members.

Section 16(A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and managers of our Board, and persons who directly or indirectly own more than ten percent of a class of our Class A capital units, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the “SEC”).  Executive officers and greater than ten-percent beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such reports furnished to us and written representations from our executive officer and managers of the Board, all Section 16(a) filing requirements were complied with during the fiscal year ended December 31, 2009 except a Form 3 for Mr. Charles Walters which was filed with the SEC on a Form 5 on February 3, 2010.

Item  11.  Executive Compensation

Executive Compensation

Summary Compensation Table

The tables below summarize the total compensation paid or earned by our chief executive and financial officer, Mr. Robert Narem. Mr. Narem has served in this position since September 11, 2003.  He does not receive a salary or bonus for his services as officer. He also does not receive any stock or incentive awards, health-care, retirement or other benefits, or compensation for a termination or change in control. His compensation is strictly based on services he performs on behalf of Northern Growers’ which is a fee of $250 for most services performed, including reviewing financial reports, preparing and reviewing SEC reports and compliance matters, communicating with our board of managers and the plant’s general manger, and anything relating to the oversight of the management of POET® Biorefining - Big Stone. The amounts reported in the Summary Compensation Tables reflect actual amount paid during the year.

SUMMARY COMPENSATION TABLE

(1)           Robert Narem is the chief executive and chief financial officer of Northern Growers.

(2)           The amount shown in this column represents Northern Growers’ total aggregate payment to Mr. Narem in 2009 and 2008 for services performed on behalf of Northern Growers, at $250 per service item and for mileage reimbursement

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Managers’ Compensation

For their services on Northern Growers’ board of managers, an individual receives compensation shown in the following table and explained in the accompanying notes.

(1)           The board of managers receives a per diem fee for services performed on our behalf in the amount of $250 for each regular board or committee meeting.  The board also receives the same membership benefits as other members receive in proportion to their ownership of capital units in the company.

(2)           The board of managers is reimbursed at current IRS rates for travel incurred for each board and committee meeting or function and when attending other events on behalf of the company.

(3)           Mr. Narem serves as Chief Executive Officer and Cheif Financial Officer of Northern Growers.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

We have not authorized the issuance of any equity securities for purposes of any equity compensation plan.  The following table sets forth certain information as of February 1, 2010, with respect to the capital unit ownership of: (i) each our board of managers, (ii) all officers and managers of Northern Growers, 15 in number, as a group; and any person or group (as that term is used in Section 13(d)(3) of the Exchange Act) who beneficially own more than 5% of Northern Growers’ capital units.   Mr. Robert Narem serves in the capacity of executive officers.  Except as noted below, the persons listed below possess sole voting and investment power over their respective capital units

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