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EX-31 - EX-31 - NORTHERN GROWERS LLC	a10-5804_1ex31.htm
EX-32 - EX-32 - NORTHERN GROWERS LLC	a10-5804_1ex32.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

COMMISSION FILE NO. 0-50711

NORTHERN GROWERS, LLC

(Exact name of registrant as specified in its charter)

SOUTH DAKOTA		77-0589881
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

48416 144th Street, PO Box 356, Big Stone City, SD 57216

(Address of principal executive offices)

605-862-7902

(Registrant’s telephone number)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every

Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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 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.

o Large Accelerated Filer		o Accelerated Filer

o Non-Accelerated Filer		x Smaller Reporting Company
(do not check if a smaller reporting company)

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes o No o

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: On May 1, 2010, the issuer had 50,628,000 Class A capital units outstanding.

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NORTHERN GROWERS, LLC

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	Page

CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets (Unaudited)	3
Statements of Operations and Comprehensive Income (Unaudited)	5
Statements of Changes in Members’ Equity (Unaudited)	6
Statements of Cash Flows (Unaudited)	7
Notes to Unaudited Consolidated Financial Statements	8

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1.

NORTHERN GROWERS, LLC

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	March 31,			December 31,
	2010			2009 *

ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	15,428,637		$	16,121,530
Accounts receivable
Trade - related party	6,265,605			6,883,902
Trade	589,612			950,397
Other	97,790			352,274
Inventory	10,836,977			12,489,540
Prepaid expenses	209,369			84,513
Due from broker	—			4,182,016

Total current assets	33,427,990			41,064,172

PROPERTY AND EQUIPMENT
Land improvements	7,141,267			7,141,267
Equipment	71,071,842			71,032,475
Buildings	15,379,448			15,379,448
	93,592,557			93,553,190
Less accumulated depreciation	(26,643,805		)	(25,365,188		)

Net property and equipment	66,948,752			68,188,002

OTHER ASSETS
Financing costs, net of amortization of $193,165 and $177,404 as of March 31, 2010 and December 31, 2009	177,872			193,633

Total other assets	177,872			193,633

	$	100,554,614		$	109,445,807

* Derived from audited financial statements

See Notes to Unaudited Consolidated Financial Statements

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NORTHERN GROWERS, LLC

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	March 31,			December 31,
	2010			2009 *

LIABILITIES AND EQUITY

CURRENT LIABILITIES
Accounts payable - trade	$	1,935,098		$	1,853,276
Accounts payable - corn	3,043,793			6,873,524
Accounts payable - related party	363,057			642,503
Other accrued liabilities	774,575			712,609
Accrued interest	7,674			7,500
Due to broker	11,651			—
Accrued liability for commodities contracts	1,003,365			3,132,408
Notes payable - due upon demand	5,000			5,000
Current portion of notes payable	5,906,169			5,881,047

Total current liabilities	13,050,382			19,107,867

LONG-TERM LIABILITIES
Derivative financial instruments	1,702,403			1,623,620
Long-term notes payable	32,764,020			34,250,108

Total long-term liabilities	34,466,423			35,873,728

COMMITMENTS AND CONTINGENCIES (NOTE 7)

EQUITY
Capital units, $0.25 stated value, 50,628,000 units issued and outstanding	12,657,000			12,657,000
Additional paid-in capital	64,900			64,900
Accumulated other comprehensive (loss)	(1,313,573		)	(1,252,784		)
Retained earnings	29,678,712			30,540,538

Total Northern Growers, LLC equity	41,087,039			42,009,654

Noncontrolling interest	11,950,770			12,454,558

Total equity	53,037,809			54,464,212


	$	100,554,614		$	109,445,807

* Derived from audited financial statements

See Notes to Unaudited Consolidated Financial Statements

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NORTHERN GROWERS, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended March 31,
	2010			2009

REVENUES
Sales related party	$	29,511,617		$	23,031,678
Sales	7,343,786			7,099,248
Incentive	83,333			83,333
Total revenues	36,938,736			30,214,259

COST OF REVENUES	32,898,015			28,917,373

GROSS PROFIT	4,040,721			1,296,886

EXPENSES
General and administrative	1,193,498			897,932
Total operating expenses	1,193,498			897,932

INCOME FROM OPERATIONS	2,847,223			398,954

OTHER INCOME (EXPENSES)
Interest income	7,660			7,720
Interest expense	(629,382		)	(715,913		)
Other	(13,921		)	1,882
Total other income (expenses)	(635,643		)	(706,311		)

NET INCOME (LOSS)	2,211,580			(307,357		)

LESS: NET (INCOME) LOSS ATTRIBUTABLE TO THE NONCONTROLLING INTEREST	(542,006		)	45,796

NET INCOME (LOSS) ATTRIBUTABLE TO NORTHERN GROWERS, LLC	1,669,574			(261,561		)

OTHER COMPREHENSIVE INCOME (LOSS)
Cash flow hedge income (loss) attributable to Northern Growers, LLC	(60,789		)	141,214

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NORTHERN GROWERS, LLC	$	1,608,785		$	(120,347	)

BASIC AND DILUTED EARNINGS (LOSS) PER CAPITAL UNIT	$	0.033		$	(0.005	)

BASIC AND DILUTED WEIGHTED AVERAGE CAPITAL UNITS OUTSTANDING	50,628,000			50,628,000

DISTRIBUTIONS PER CAPITAL UNIT DECLARED	$	0.050		$	—

DISTRIBUTIONS PER CAPITAL UNIT PAID	$	0.050		$	—

See Notes to Unaudited Consolidated Financial Statements

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NORTHERN GROWERS, LLC

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY (UNAUDITED)

						Accumulated						Total
				Additional		Other						Northern			Noncontrolling
	Capital			Paid-In		Comprehensive			Retained			Growers, LLC			Interest
	Units	Amount		Capital		Income (Loss)			Earnings			Equity			Equity

BALANCE, JANUARY 1, 2009	50,628,000	$	12,657,000	$	64,900	$	(1,926,632	)	$	23,625,025		$	34,420,293		$	10,111,948

Net income (loss)	—	—		—		—			6,915,513			6,915,513			2,143,145
Cash flow hedge income (loss)	—	—		—		673,848			—			673,848			199,465
Distributions payable	—	—		—		—			—			—			—
Distributions paid	—	—		—		—			—			—			—

BALANCE, DECEMBER 31, 2009	50,628,000	$	12,657,000	$	64,900	$	(1,252,784	)	$	30,540,538		$	42,009,654		$	12,454,558

Net income (loss)	—	—		—		—			1,669,574			1,669,574			542,006
Cash flow hedge income (loss)	—	—		—		(60,789		)	—			(60,789		)	(17,994		)
Distributions payable	—	—		—		—			—			—			—
Distributions paid	—	—		—		—			(2,531,400		)	(2,531,400		)	(1,027,800		)

BALANCE, MARCH 31, 2010	50,628,000	$	12,657,000	$	64,900	$	(1,313,573	)	$	29,678,712		$	41,087,039		$	11,950,770

See Notes to Unaudited Consolidated Financial Statements

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NORTHERN GROWERS, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Three Months			Three Months
	Ended			Ended
	March 31,			March 31,
	2010			2009
OPERATING ACTIVITIES
Net income (loss)	$	1,669,574		$	(261,561	)
Changes to net income (loss) not affecting cash
Depreciation	1,278,617			1,288,923
Amortization of loan fees	15,761			14,659
Noncontrolling interest in subsidiary’s earnings (losses)	542,006			(45,796		)
Gain on sale/disposal of assets	(7,000		)	—
Decrease (increase) in current assets
Accounts receivable
Related party	618,297			1,390,764
Trade	360,785			(593,525		)
Other	254,484			165,531
Inventory	1,652,563			(1,958,094		)
Prepaid expenses	(124,856		)	(110,247		)
Due from broker	4,193,667			1,116,429
Increase (decrease) in current liabilities
Accounts payable
Trade	81,822			(466,279		)
Corn	(3,829,731		)	(1,214,186		)
Related party	(279,446		)	(129,834		)
Accrued liabilities	61,966			319,876
Accrued liability for commodities contracts	(2,129,043		)	(2,318,592		)
Accrued interest	174			—

NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES	4,359,640			(2,801,932		)

INVESTING ACTIVITIES
Purchase of property and equipment	(39,368		)	(5,631		)
Cash received on sale of assets	7,000			—
Tax refund on construction	—			163,674

NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES	(32,368		)	158,043

FINANCING ACTIVITIES
Principal paid on long-term notes payable	(1,460,965		)	(1,437,522		)
Distributions paid - Northern Growers	(2,531,400		)	—
Distributions paid - noncontrolling interest	(1,027,800		)	—

NET CASH (USED FOR) FINANCING ACTIVITIES	(5,020,165		)	(1,437,522		)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(692,893		)	(4,081,411		)

CASH AT BEGINNING OF PERIOD	16,121,530			12,712,987

CASH AT END OF PERIOD	$	15,428,637		$	8,631,576

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	$	629,209		$	715,913

See Notes to Unaudited Consolidated Financial Statements

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NORTHERN GROWERS, LLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF OPERATIONS

Principal Business Activity

Northern Growers, LLC or Northern Growers (formerly Northern Growers Cooperative or the “Cooperative”), is a South Dakota limited liability company that was organized to pool investors, provide a portion of the corn supply for an ethanol plant (the “plant”) owned by Northern Lights Ethanol, LLC (d/b/a POET® Biorefining — Big Stone) (“POET® Biorefining — Big Stone”), and own a 77.16% interest in POET® Biorefining — Big Stone. For purposes of the financial statements and notes, the “Company” refers to both Northern Growers and POET® Biorefining — Big Stone on a consolidated basis. On June 26, 2002, the Company began grinding corn and on July 5, 2002, the Company commenced its principal operations at a 40 million gallon nameplate capacity. On May 14, 2007, the Company completed an expansion to a 75 million gallon nameplate capacity. The Company sells ethanol and related products primarily in the United States.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The unaudited financial statements contained herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America.

In the opinion of management, all adjustments considered necessary for a fair presentation have been included in the accompanying financial statements. All such adjustments are of a normal, recurring nature. The results of operations for the three month periods ended March 31, 2010 and 2009 are not necessarily indicative of the results to be expected for a full year.

These financial statements and notes included in this Form 10-Q report should be read in conjunction with the Company’s 2009 Form 10-K report, as certain notes and other pertinent information have been abbreviated or omitted in this report.

Principles of Consolidation

The consolidated financial statements include the accounts of Northern Growers and its 77.16% owned subsidiary, POET® Biorefining - Big Stone. All significant inter-company transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.

Environmental Liabilities

The Company’s operations are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdiction in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its locations. Accordingly, the Company has adopted policies, practices and procedures in the areas of pollution control, occupational health, and the production, handling, storage and use of hazardous materials to prevent material environmental or other damage, and to limit the

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NORTHERN GROWERS, LLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

financial liability which could result from such events. Environmental liabilities are recorded when the liability is probable and the costs can be reasonably estimated.

Cost of Revenues

The primary components of cost of revenues from the production of ethanol and related products are corn expense, energy expense (steam, natural gas and electricity), raw materials expense (chemicals and denaturant), shipping costs on sales, depreciation on process equipment and direct labor costs.

Shipping costs incurred by the Company 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.

General and Administrative Expenses

The primary components of general and administrative expenses are management fees, administrative salaries and wages, insurance expense and professional fees (legal, audit and consulting).

Investment in Commodities Contracts, Derivative Instruments and Hedging Activities

Derivative accounting guidance requires a company to evaluate its contracts to determine whether the contracts are derivatives. Certain contracts that literally meet the definition of a derivative may be exempted from derivative accounting as normal purchases or normal sales. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that meet the requirements of normal are documented as normal and exempted from the derivative accounting and reporting requirements.

The Company enters into short-term cash, options and futures contracts and ethanol swaps as a means of securing corn and natural gas for the ethanol plant and managing exposure to changes in commodity prices. All derivatives are designated as non-hedge derivatives. Although the contracts are effective economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.

As part of its trading activity, the Company uses futures and option contracts and ethanol swaps offered through regulated commodity exchanges to reduce risk. The Company is exposed to risk of loss in the market value of inventories. To reduce that risk, the Company generally takes positions using cash and futures contracts, ethanol swaps and options.

During 2007 and 2006 the Company entered into derivative financial instruments to limit its exposure to changes in interest rates. The Company entered into two interest rate swap agreements as part of its interest rate risk management strategy and to effectively convert a portion of its variable rate debt to fixed rate debt. The swap agreements are accounted for as a cash flow hedge.

Interest Rate Swap Agreements

During 2007 and 2006 the Company entered into interest rate swap agreements as part of its interest rate risk management strategy and to effectively convert a portion of its variable rate debt to fixed rate debt. The swap agreements, which both expire August 31, 2014, are accounted for as cash flow hedges. Under the terms of the swap agreements, the Company’s net payment is a fixed interest rate on the notional amount in exchange for

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NORTHERN GROWERS, LLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

receiving a variable rate based on one month LIBOR. The swap transactions qualify for the shortcut method of recognition; therefore, no portion of the swap is treated as ineffective.

Other Comprehensive Income (Loss)

The Company’s comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss), consisting of an unrealized loss from our interest rate swap agreements designated as a cash flow hedge.

Net Income (Loss) per Unit

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

Geographical Information

Sales are attributed to countries based on location of customer. All of the Company’s sales are to customers in North America. For the quarter ending March 31, 2010, the Company had sales to Mexico of approximately $4,410,000, or 12% of total revenues. One customer in Mexico accounted for approximately $3,980,000 of these sales. All remaining sales were to customers within the United States. For the quarter ended March 31, 2009, no country other than the United States had sales in excess of 10% of total sales. All long-lived assets of the Company are located in the United States.

Recently Issued Accounting Pronouncements

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. The Company is currently assessing the impact of adoption on its financial position and results of operations.

Newly Adopted Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (FASB) issued authoritative guidance that expands the required disclosures about fair value measurements. This guidance provides for new disclosures requiring the Company to (i) disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers and (ii) present separately information about purchases, sales, issuances and settlements in the reconciliation of Level 3 fair value measurements. This guidance also provides clarification of existing disclosures requiring the Company to (i) determine each class of assets and liabilities based on the nature and risks of the investments rather than by major security type and (ii) for each class of assets and liabilities, disclose the valuation techniques and inputs used to measure fair value for both Level 2 and Level 3 fair value measurements. This guidance became effective for the Company on January 1, 2010, except for the presentation of purchases, sales, issuances and settlements in the reconciliation of Level 3 fair value measurements, which is effective for the Company on January 1, 2011, and did not have a material impact

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NORTHERN GROWERS, LLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

on the Company’s consolidated financial statements. The guidance pertaining to the presentation of purchases, sales, issuances and settlements in the reconciliation of Level 3 fair value measurements is not expected to have a material impact on the Company’s consolidated financial statements.

NOTE 3 - FAIR VALUE MEASUREMENTS

On January 1, 2008, the Company adopted new guidance on fair value measurements, which clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures of fair value measurements. In February 2008, the FASB deferred the effective date of the new guidance for one year for nonfinancial assets and liabilities recorded at fair value on a nonrecurring basis. The effect of adoption on January 1, 2009 of the new guidance for nonfinancial assets and liabilities recorded at fair value on a nonrecurring basis did not have a material impact on the Company’s financial position and results of operations or cash flows.

There are three levels of inputs that may be used to measure fair value:

Level 1 inputs include quoted market prices in an active market for identical assets or liabilities.

Level 2 inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data.

Level 3 inputs are unobservable and corroborated by little or no market data.

Except for those assets and liabilities which are required by accounting guidance to be recorded at fair value in the consolidated balance sheets, the Company has elected not to record any other assets or liabilities at fair value, as permitted by new guidance. No events occurred during the three months ended March 31, 2010 which would require adjustment to the recognized balances of assets or liabilities which are recorded at fair value on a nonrecurring basis.

The following table provides information on those assets and liabilities measured at fair value on a recurring basis.

	Carrying Amount
	In Consolidated
	Balance Sheets			Fair Value			Fair Value Measurement Using
	March 31, 2010			March 31, 2010			Level 1		Level 2			Level 3
Commodities contracts	$	3,962,089		$	3,962,089		$	3,962,089
Corn purchase contracts	$	(4,965,454	)	$	(4,965,454	)			$	(4,965,454	)
Derivative financial instruments	$	(1,702,403	)	$	(1,702,403	)			$	(1,702,403	)

Commodities contracts principally includes corn and natural gas futures and option contracts and ethanol swaps. The fair values for which are obtained from quoted market prices from the CBOT for identical assets or liabilities, and are designated as Level 1 within the valuation hierarchy. The Company’s corn purchase contracts consist of forward purchase commitments and are included in Commodities contracts if positive and in Accrued liability for commodity contracts if negative. The fair value for these agreements were determined using quoted market prices from the Chicago Board of Trade (CBOT) for similar assets, and are designated as Level 2 within the valuation hierarchy. Derivative financial instruments consists of interest rate swaps at fair value using the counterparty’s

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NORTHERN GROWERS, LLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

marked-to-market statement, which can be validated using modeling techniques that include market inputs such as publicly available interest rate yield curves, and are designated as Level 2 within the valuation hierarchy.

The Company considers the carrying amount of significant classes of financial instruments on the balance sheets, including cash, accounts receivable, inventories, other assets, accounts payable, accrued liabilities, and variable rate long-term debt to be reasonable estimates of fair value either due to their length of maturity or the existence of variable interest rates underlying such financial instruments that approximate prevailing market rates at March 31, 2010 and December 31, 2009.

Due to declining interest rates since the inception of certain long-term notes, the carrying amount of the fixed-rate, long-term note payable obligations were less than fair value at March 31, 2010 and December 31, 2009. As the following table presents, the carrying amount and the fair value of long-term note payable obligations at March 31, 2010 and December 31, 2009 are as follows:

	Carrying Amount		Fair Value

Long-term notes payable March 31, 2010	$	38,670,189	$	38,696,059
Long-term notes payable December 31, 2009	$	40,131,155	$	40,159,996

The Company believes the carrying amount of short-term notes payable approximates their value due to the short maturity of these instruments.

NOTE 4 - DERIVATIVE FINANCIAL INSTRUMENTS

From time to time the Company enters into derivative transactions to hedge its exposures to interest rate and commodity price fluctuations. The Company does not enter into derivative transactions for trading purposes.

As discussed in Note 2, on January 1, 2009, the Company adopted new guidance requiring holders of derivative instruments to provide qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses from derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.

As of March 31, 2010, the Company has entered into ethanol, natural gas and corn derivative instruments and interest rate swap agreements. The Company is required to record derivative financial instruments as either assets or liabilities at fair value in the statement of financial position. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the derivative instrument and the related change in value of the underlying hedged item. Furthermore, the Company must designate the hedging instruments based upon the exposure being hedged as a fair value hedge, a cash flow hedge or a hedge against foreign currency exposure. The Company formally documents, designates, and assesses the effectiveness of transactions that receive hedge accounting initially and on an on-going basis.

Commodity Contracts

The Company enters into ethanol and corn commodity-based derivatives in order to protect cash flows from fluctuations caused by volatility in commodity prices for periods up to twelve months in order to protect gross profit margins from potentially adverse effects of market and price volatility on ethanol sales and corn purchase

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NORTHERN GROWERS, LLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

commitments where the prices are set at a future date. In addition, the Company hedges anticipated sales of ethanol to minimize its exposure to the potentially adverse effect of price volatility. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Derivative fair market value gains or losses are included in the results of operations and are included in cost of revenues. All commodity contracts do not qualify for hedge accounting.

Interest Rate Contracts

The Company manages its floating rate debt using interest rate swaps. The Company will enter into fixed rate swaps to alter its exposure to the impact of changing interest rates on its consolidated results of operations and future cash outflows for interest. Fixed rate swaps are used to reduce the Company’s risk of the possibility of increased interest costs. Interest rate swap contracts are therefore used by the Company to separate interest rate risk management from the debt funding decision.

At March 31, 2010, the Company had $18,562,500 of notional amount outstanding in swap agreements that exchange variable interest rates (one-month LIBOR plus 2.75%) for fixed interest rates over the terms of the agreements and are designated as cash flow hedges of the interest rate risk attributable to forecasted variable interest payments. The effective portion of the fair value gains or losses on these swaps is included as a component of accumulated other comprehensive income (“AOCI”).

All interest rate swaps held by the Company as of March 31, 2010 qualified as cash flow hedges. For these qualifying hedges, the effective portion of the change in fair value is recognized through earnings when the underlying transaction being hedged affects earnings, allowing a derivative’s gains and losses to offset related results from the hedged item on the income statement.

The following tables provide details regarding the Company’s derivative financial instruments at March 31, 2010:

	Asset Derivatives			Liability Derivatives
	2010			2010
	Balance Sheet	Fair		Balance Sheet	Fair
As of March 31,	Location	Value		Location	Value

Derivatives designated as hedging instruments

Interest rate swap		$	—	Long-term liabilities	$	1,702,403

Total derivatives designated as hedging instruments		$	—		$	1,702,403

Derivative not designated as hedging instruments

Commodities contracts		$	—	Current liabilities	$	1,003,365

Total derivatives not designated as hedging instruments		$	—		$	1,003,365

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	Three Months Ended
	March 31, 2010			March 31, 2009

Derivative Cash Flow Hedging Relationship - Interest rate swaps

Amount of gain (loss) recognized in OCI on derivative	$	(60,789	)	$	141,214

Amount of gain (loss) reclassified from accumulated OCI into income on derivative	$	—		$	—

Location of gain (loss) reclassified from accumulated OCI into income	—			—

Amount of gain (loss) recognized in income on derivative	$	(229,854	)	$	(247,598	)

Location of gain (loss) recognized in income	Interest Expense			Interest Expense

	Three Months Ended
	March 31, 2010		March 31, 2009

Derivatives not designated as hedging intruments - Commodities contracts

Amount of gain (loss) recognized in income on derivative	$	4,285,238	$	2,313,603

Location of gain (loss) recognized in income	Cost of revenues		Cost of revenues

NOTE 5 - NOTES PAYABLE

Northern Growers received advances of $5,000 from various entities to help establish the Company. This short-term note payable is due on demand and does not bear interest. The balance of this non-interest bearing note was $5,000 at March 31, 2010 and December 31, 2009.

On August 28, 2006, POET® Biorefining - Big Stone and U.S. Bank National Association, Sioux Falls, South Dakota (Bank) entered into an amended and restated loan agreement for the purpose of financing the plant’s expansion and restructuring the $3,000,000 and $5,000,000 revolving notes into one note. On September 21, 2007, an amendment to the loan agreement became effective. The purpose of the amendment was to finance the purchase and construction of additional grain storage bins and equipment ($4,300,000) and obtain a $9,000,000 short-term revolving loan. Under the amended and restated loan agreement and the September 21, 2007 amendment, POET® Biorefining — Big Stone is subject to six notes: Note #174, a $3,900,000 variable-rate, non-

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

revolving note; Note #158, a $15,800,000 fixed-rate note; Note #91, an $8,000,000 variable-rate, revolving long term note; Note #190, a $33,000,000 construction note; Note #232, a $4,300,000 variable-rate note; and Note #216, a $9,000,000 variable-rate, revolving short-term note.

Note #174, the $3,900,000 variable-rate, non-revolving note, bears interest at the Bank’s prime rate, or 3.25% at March 31, 2010. This note requires quarterly payments of interest and amortized principal on the basis of a ten-year term, the first payment being made on June 30, 2005. The note matures on March 31, 2012.

Note #158, the $15,800,000 million fixed-rate note, bears an interest rate of 6.38%. This note requires quarterly payments of interest and amortized principal on the basis of a ten-year term and is subject to maturity on March 31, 2012. The first payment was made on June 30, 2005.

Note #117, the $1,200,000 fixed rate note, was retired on April 30, 2007.

Note #91, the $8,000,000 variable rate, revolving note, permits POET® Biorefining - Big Stone to borrow, on a revolving basis, the difference between the unpaid principal balance and $8,000,000. The revolving note bears a variable-interest rate equal to the prime rate announced by the Bank from time to time, adjusted each time the Prime Rate changes (3.25% at March 31, 2010). Quarterly payments of interest on any unpaid balance are due March 31, June 30, September 30, and December 31 of each year. The total unpaid principal balance is due at maturity, or August 31, 2014. The loan is subject to a quarterly unused commitment fee of 0.0375% and prepayment is without penalty. At March 31, 2010 and December 31, 2009 there were no outstanding borrowings against the long-term variable rate revolving note and the balance available on this note was $8,000,000.

Note #190, the construction note of $33,000,000, was converted to a term note on August 31, 2007. The notional amount ($18,562,500 as of March 31, 2010) is subject to the interest rate swap agreements discussed in Note 2 under “Interest Rate Swap Agreements”. The note is amortized over a ten-year period and is subject to a maturity of August 31, 2014. Payments of principal are due quarterly and began on November 30, 2007. Payments of interest are due monthly, subject to a variable rate of one-month LIBOR plus 2.75%, adjusted monthly (2.997% at March 31, 2010).

Note #232, the $4,300,000 note, is subject to a variable rate of LIBOR plus 3.00% (3.228% at March 31, 2010), adjusted and due monthly. A principal payment of $154,000 is due quarterly, which began on October 31, 2007.

Note #216, the $9,000,000 short-term note, which was issued on September 21, 2007, permits us to borrow, on a revolving basis, the difference of the outstanding principal amount and the lesser of the borrowing base or $9,000,000. 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. The loan has been renewed, with revised terms, as of July 28, 2009. It bears a variable-interest rate equal to one-month LIBOR plus 3.00%, payable monthly when there is an outstanding balance (4.250% at March 31, 2010). The revolver is subject to a quarterly unused commitment fee of 0.500% per year, assessed quarterly in arrears (previously was 0.250%). The variable interest rate has been revised to one-month LIBOR plus 4.00%. The total unpaid principal balance is due at maturity, or July 26, 2010. The amount available on this note was $9,000,000 at March 31, 2010 and December 31, 2009.

POET® Biorefining - Big Stone is subject to certain restrictive covenants establishing minimum reporting requirements, ratios, working capital and net worth requirements and is in full compliance at March 31, 2010. The bank waived compliance of the fixed charge coverage ratio on May 14, 2009 for the March 31, 2009 compliance date. On May 14, 2009, the bank also adjusted the 2009 requirements of the fixed charge coverage ratio covenant for the second and third quarters of 2009 and the Company was in full compliance with the

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

covenants at June 30, September 30 and December 31, 2009. The Company believes it will be in compliance with all covenants for each of the remaining three quarters of 2010. Collateral for the notes is multiple mortgages and security agreements, multiple UCC filings on all business assets, and assignments of certain agreements related to the construction and operation of the plant.

The balance of the long-term notes payable as of March 31, 2010 and December 31, 2009 is as follows:

	March 31, 2010			December 31, 2009*
	(Unaudited)

Note #174	$	1,950,000		$	2,047,500
Note #158	9,210,189			9,594,655
Note #190	24,750,000			25,575,000
Note #232	2,760,000			2,914,000

	38,670,189			40,131,155
Less current portion	(5,906,169		)	(5,881,047		)

	$	32,764,020		$	34,250,108

Minimum principal payments, through the maturity of the notes, are estimated as follows:

Twelve Months Ending March 31,	Amount

2011	$	5,906,169
2012	13,086,020
2013	3,916,000
2014	3,916,000
April 1, 2014 to August 31, 2014	11,846,000

	$	38,670,189

NOTE 6 - INVENTORY

Inventory consisted of the following:

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NORTHERN GROWERS, LLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

	March 31, 2010		December 31, 2009*

Finished goods	$	2,159,009	$	2,340,779
Raw materials	6,606,068		8,050,117
Work-in-process	803,220		925,858
Spare parts inventory	1,268,680		1,172,786

	$	10,836,977	$	12,489,540

* Derived from audited financial statements

NOTE 7 - COMMITMENTS, CONTINGENCIES AND AGREEMENTS

Due to the name change of Broin Companies, LLC (“Broin”) to POET®, LLC in early 2007 and a corresponding change in the name of some Broin-related companies, the Company’s existing contractual arrangements and agreements for plant development, operations and marketing are now with newly named entities containing POET®. All of the newly named POET®-related entities are the same Broin-related entities that existed prior to the Broin to POET® name change. Broin Investments I, LLC, the minority member of POET® Biorefining — Big Stone, has not changed its name, yet is still a related party to all POET®-named companies listed here.

The Company has entered into contracts and agreements regarding the construction, operation and management of the ethanol plant. Agreements with the minority member, or parties related to the minority member through common ownership, are as follows:

Ethanol Marketing Agreement — On July 1, 2007, the Company renewed its agreement with Ethanol Products, LLC (d/b/a/ POET® Ethanol Products) for the sale, marketing, billing and receipt of payment and other administrative services for all ethanol produced by the plant. The new agreement terminates on July 1, 2012, automatically renewing for a five-year term unless a notice of termination is provided by either party prior to the end of the term, and increases marketing fees by $0.002 per gallon sold. The Company has sales commitments with POET® Ethanol Products of approximately 10.6 million gallons over the next nine months, of which, virtually all gallons are contracted at a variable price. The Company purchases all of its denaturant through POET® Ethanol Products.

Management Agreement — On April 20, 2005, the Company renewed its agreement with POET® Plant Management, LLC (formerly known as Broin Management, LLC) for the management and operation of the plant. The new agreement terminates on June 30, 2015. In exchange for management services, POET® Plant Management receives an annual fee of $450,000, payable in equal monthly installments, plus an incentive bonus based on a percentage of net income, payable quarterly. The annual fee is adjusted each year on March 1st for changes in the consumer price index. The fees and bonus paid to POET® Plant Management include the salary and benefits of the general manager and technical manager and certain other services related to operation of the plant.

Technology and Patent Rights License Agreement - On October 25, 2005, the Company entered into a Technology and Patent Rights License Agreement with POET® Research, Inc. (formerly known as Broin and Associates, Inc.). Under this agreement, POET® Research grants the Company a non-exclusive license to use certain technology and patents owned, developed, or obtained by POET® Research relating to the ethanol and

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related product production processes. The Company is required to pay an annual licensing fee for the right to use such technology and patents. The agreement terminates on June 30, 2015.

Risk Management Agreement — On April 1, 2007, the Company entered into a new corn and natural gas price risk management agreement with POET® Risk Management, LLC. The new risk management agreement became effective on July 1, 2007 and terminates on July 1, 2012, automatically renewing for a five-year term unless a notice of termination is provided by either party prior to the end of the term. In exchange for providing certain risk management services relating to corn and natural gas prices, including hedging and pooling services, the Company pays POET® Risk Management an annual fee, payable in quarterly installments, subject to modification in the case of plant expansions or increases in corn usage.

Distillers Grains Marketing Agreement — On March 8, 2002 the Company entered into an agreement with POET® Nutrition, Inc. (formerly known as Dakota Gold Marketing, Inc.), to provide marketing and administrative services for the sale of distillers grains. The agreement terminates March 8, 2012, but renews for a five year term unless either party provides the other party a 90 day notice of termination prior to the renewal date. The agreement provides for an agency relationship as POET® Nutrition does not take title to the distillers grains but acts as a broker on behalf of the Company. The Company entered into forward contracts to sell approximately 15,000 tons of various distiller grains at an average fixed price of approximately $138 per ton as of March 31, 2010.

Agreements with unrelated parties are as follows:

Property Lease — The Company has a 99 year property lease (an operating lease) with Big Stone-Grant Industrial Development and Transportation, LLC. In 2001, rent was $2,400 annually through May 1, 2006, after which it increased by 5% through 2011. Beginning on May 1, 2006, and every five years thereafter, rent is increased 5% over the immediately preceding five-year period.

Steam — The Company has an agreement with the co-owners of the Big Stone Plant- - Otter Tail Corporation, Montana-Dakota Utilities Co. and Northwestern Public Service- - for the use of steam in the ethanol production process. The rate for a minimum amount is set at a base rate, adjusted annually for changes in the cost of energy, and any amount over the base rate is set at a market rate. The agreement commenced on June 1, 2002 and has a term of ten years, renewable for two five-year periods, after which the agreement is renewable from year to year. Either party may terminate the agreement by providing notice one year prior to a renewal or expiration date.

Minimum payments related to the above agreements are summarized in the following table:

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					Unconditional
Twelve Months Ending	Lease		Management		Purchase
March 31,	Agreements		Agreements		Agreements		Total

2011	$	2,520	$	580,611	$	217,080	$	800,211
2012	2,635		580,611		217,080		800,326
2013	2,646		504,807		36,180		543,633
2014	2,646		504,807		—		507,453
2015	2,646		504,807		—		507,453
2016-2100	359,731		126,204		—		485,935
	$	372,824	$	2,801,847	$	470,340	$	3,645,011

Corn Delivery — On August 9, 2005, POET® Biorefining - Big Stone agreed to release Northern Growers and, accordingly, all of its members from delivering corn to the plant starting on January 1, 2006. Prior to January 1, 2006, Northern Growers’ members were obligated to deliver corn to the plant unless the plant released the member from the member’s corn delivery obligation. Effective January 1, 2006, however, Northern Growers’ members are no longer obligated to deliver corn to the plant. Instead, the plant purchases all of its corn from local corn producers and the open market.

Incentive Revenue - The Company receives an incentive payment from the State of South Dakota to produce ethanol. In accordance with the terms of this arrangement, revenue is recorded based on ethanol sold. The State of South Dakota has set a maximum of up to $1,000,000 per year for this program per qualifying producer. The Company has earned $666,667 for both program years ended June 30, 2010 and 2009. Incentive revenue of $83,333 was recorded for the three months ended March 31, 2010 and 2009, for this program.

Capital Unit Trading - On March 8, 2004, Northern Growers’ members and non-members began trading Northern Growers capital units on an alternative trading system operated by Alerus Securities Corporation of West Fargo, North Dakota.

Environmental Contingency - The Company’s operations are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdiction in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its locations. Accordingly, the Company has adopted policies, practices and procedures in the areas of pollution control, occupational health, and the production, handling, storage and use of hazardous materials to prevent material environmental or other damage, and to limit the financial liability which could result from such events.

The Company conducts an ongoing compliance program designed to meet these environmental laws and regulations. The Company believes that it is in substantial compliance with applicable environmental laws and regulations. From time to time, however, the Company may be involved in investigations or determinations regarding non-material matters that may arise.

In January 2003, the U.S. Environmental Protection Agency (U.S. EPA) issued formal information requests to, among others, plants designed, constructed, and/or managed by POET® Design and Construction and POET® Plant Management. The Company’s plant was a subject of these requests. The requests required that the plants provide the EPA with certain data regarding emissions.

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NORTHERN GROWERS, LLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

On January 14, 2009, the Company’s plant received from the U.S. EPA a written Notice of Violation (NOV). The NOV alleges that the Company’s plant violated the Clean Air Act by failing to adequately maintain a regulated level of air pollutants under the plant’s Title V air permit, and by conducting invalid testing for compliance with such limit. Since the issuance of the NOV, the plant has been negotiating a possible settlement with the EPA. The Company believes that any settlement into which it may enter will result in a fine, but that such fine will not be material.

The Company has taken corrective action relating to the NOV through planned capital improvements to the plant. On January 22, 2009, a capital improvement project for approximately $1 million was approved. This project, which will involve the construction of improvements to the dryer and thermal oxidizer, is expected to be capitalized and financed with cash from operations. A small amount of design work has been initiated on this project as of March 31, 2010.

NOTE 8 - DISTRIBUTIONS

POET - Big Stone Distribution Date	POET - Big Stone Approved Distribution		Northern Growers Amount Received		Noncontrolling Interest Amount Received		Northern Growers Distribution Date	Distributions paid to Northern Growers Members		Quarter - Year for Northern Growers Tax Purposes and Liability Recorded
1/29/2008	$	—	$	—	$	—	1/29/2008	$	1,518,840	4th Quarter 2007
2/16/2010	$	4,500,000	$	3,472,200	$	1,027,800	2/19/2010	$	2,531,400	1st Quarter 2010

NOTE 9 - CAPITAL UNITS

On June 20, 2005, Northern Growers approved a four-for-one (4-for-1) capital unit split of its Class A capital units, effective for September 1, 2005. Under the terms of the Class A capital units’ split, members of record as of September 1, 2005 received four capital units for each one capital unit held in Northern Growers.

On June 2, 2006, Northern Growers approved a two-for-one (2-for-1) capital unit split of its Class A capital units, effective for July 1, 2006. Under the terms of the Class A capital units’ split, members of record as of July 1, 2006 received two capital units for each one capital unit held in Northern Growers.

NOTE 10 - MARKET RISKS AND UNCERTAINTIES

The Company has certain risks and uncertainties that it experiences during volatile market conditions such as during the three months ended March 31, 2010. These uncertainties can have a significant impact on operations. The Company’s revenues are derived from the sale and distribution of ethanol and distillers grains to customers primarily located in the U.S. Corn for the production process is supplied to our plant primarily from local agricultural producers and from purchases on the open market. Ethanol sales, historically, average 80% of total revenues and corn costs historically average 50% to 70% of cost of revenues.

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

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NORTHERN GROWERS, LLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - SUBSEQUENT EVENTS

On April 26, 2010, we held a special meeting of members in Milbank, South Dakota. The purpose of the meeting was to consider and vote to approve the Sixth Amended and Restated Operating Agreement, which would result in the reclassification of our Class A capital units outstanding effective July 1, 2010. The affirmative vote of the majority of Class A Members voting on the matter was necessary to approve the Sixth Amended and Restated Operating Agreement and resulting reclassification. At the meeting, the members voted and approved the Sixth Amended and Restated Operating Agreement, by the following tally:

For — 98

Against — 45

Abstain - 1

As a result of the members’ approval, the Company’s Class A capital units outstanding will be reclassified into Class A capital units, Class B capital units and Class C capital units, effective July 1, 2010. Also on July 1, 2010, the Company will suspend its obligation to make periodic reports under Sections 12(g) and 15(d) of the Securities Exchange Act of 1934. The description of the matter voted on at the special meeting and the reclassification is described in detail in our definitive proxy statement for the special meeting filed with the Securities and Exchange Commission on March 31, 2010.

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

Forward-Looking Statements

The information in this quarterly report on Form 10-Q for the three months ended March 31, 2010, (including reports filed with the Securities and Exchange Commission (the “SEC” or “Commission”), contains “forward-looking statements” that deal with future results, expectations, plans and performance, and should be read in conjunction with the consolidated financial statements and Annual Report on Form 10-K for the year ended December 31, 2009. 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. Forward-looking statements involve numerous assumptions, risks and uncertainties. Actual results or actual business or other conditions may differ materially from those contemplated by any forward-looking statements. Factors that could cause actual results to differ materially from the forward-looking statements are identified in our Form 10-K for the year ended December 31, 2009.

We are not under any duty to update the forward-looking statements contained in this report, nor do we guarantee future results or performance or 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.

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 distillers 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 $1.7 million for the three months ended March 31, 2010, compared to a net loss of $262,000 for the three months ended March 31, 2009. The change is primarily attributed to a 22% increase in revenues.

We will continue to face challenges for the remainder of 2010. Ethanol prices are expected to remain low by historical standards due to supply and demand issues. Excess

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supply is expected to continue as it did in 2009. 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. Approximately 1.2 billion gallons in capacity, from both new and expanding plants, are expected to come online in the next 12-18 months. In addition, while demand for ethanol grew in the first quarter of 2010, it is not likely to grow at the same pace as supply for the remainder of the year. 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 this summer. Meanwhile, we believe corn prices will remain favorable at least through the end of the second quarter, helping offset lagging ethanol prices. Corn prices are expected to be favorable because of a 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.

Results of Operations

Comparison of the three months ended March 31, 2010 and 2009

The following table presents, for the periods indicated, the relative composition of selected income data:

	Quarter Ended March 31,
	2010				2009
	$		% of Revenue		$		% of Revenue
Revenues:
Ethanol	29,511,617		80	%	23,031,678		76	%
Distillers Grains	7,343,786		20	%	7,099,248		23	%
Incentive	83,333		0	%	83,333		0	%
Total	36,938,736		100	%	30,214,259		100	%

Cost of Revenues	32,898,015		89	%	28,917,373		96	%

General and Administrative Expenses	1,193,498		3	%	897,932		3	%

Other Operating Income (Expense)	(635,643	)	(2	)%	(706,311	)	(2	)%

Minority Interest	(542,006	)	(1	)%	45,796		0	%

Net Income	1,669,574		5	%	(261,561	)	(1	)%

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Revenues — Revenues increased $6.7 million, or 22%, to $36.9 million for the three months ended March 31, 2010 from $30.2 million for the three months ended March 31, 2009. Revenues increased due to an increase in ethanol and distillers grains’ revenue.

Revenue from the sale of ethanol increased $6.5 million, or 28%, to $29.5 million for the three months ended March 31, 2010 from $23.0 million for the three months ended March 31, 2009. The increase is primarily driven by a 9% increase in the average sales price per gallon. While the average price increased between quarters, the price of ethanol during the first quarter of 2010 did commence a downward trend. The price was $0.37 higher at the start of the quarter compared to the end of the quarter, mostly due to an oversupply of ethanol and decreasing corn prices.

Revenue from the sale of distillers grains increased $245,000, or 3%, to $7.3 million for the three months ended March 31, 2010 from $7.1 million for the three months ended March 31, 2009. The increase is primarily driven by a 12% increase in volume sold, despite a decrease in the average sales price per ton.

Cost of Revenues — Cost of revenues, which includes production expenses, increased $4.0 million, or 14%, to $32.9 million for the three months March 31, 2010 from $28.9 million for the three months ended March 31, 2009. The primary reason for the increase is a 16% increase in the production of ethanol. During first quarter of 2009, we slowed production below name-plate capacity due to an increase in the cost of corn and tight margins. When the market price of corn began decreasing in the fall of 2009, we resumed production at name-plate capacity and have been operating at name-plate since this time.

General and Administrative Expenses — General and administrative expenses increased $295,566, or 33%, to $1.2 million for the three months March 31, 2010 from $898,000 for the three months ended March 31, 2009. The primary reason for the increase is an increase in management incentive fees and costs, which resulted from an increase in net income on which these fees and costs are based.

Interest Expense — Interest expense decreased $86,000, or 12%, to $630,000 for the three months ended March 31, 2010 from $716,000 for the three months ended March 31, 2009. Interest expense decreased because the interest rates on our variable loans decreased by an average of 0.23%.

Net Income — Net income increased $1.9 million, or 738%, to $1.67 million for the three months ended March 31, 2010 from a net loss of $261,561 for the three months ended March 31, 2009. This change is caused primarily by an increase in ethanol revenues, offset by an increase in cost of revenues.

Liquidity and Capital Resources

Our primary sources of liquidity are cash provided by operations and borrowings

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under our $8.0 million and $9.0 million revolving credit facilities which are discussed below under “Indebtedness.” Net working capital is $20.3 million as of March 31, 2010, compared to $13.1 million as of March 31, 2009. Working capital increased between periods principally due to an increase in profitability. We believe that, for the remainder of 2010, 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 three months ended March 31, 2009 and the three months ended March 31, 2009:

	Three Months Ended March 31,
	2010		2009
	$		$
Net cash provided by (used for) operating activities	4,359,640		(2,801,932	)
Net cash provided by (used for) investing activities	(32,368	)	158,043
Net cash provided by (used for) financing activities	(5,020,165	)	(1,437,522	)

Cash Flow From Operating Activities — Net cash flow from operating activities increased $7.2 million between periods due principally to an increase in cash provided by net income, inventory, and broker transactions. Net income increased primarily due to an increase in revenue from the sale of ethanol and distillers grains. Corn inventory decreased between periods because the value of corn inventory per bushel decreased 19% from March 31, 2009 to March 31, 2010. Due to a significantly greater decrease in corn prices during the three months ended March 31, 2010 compared to the three months ended March 31, 2009, we received cash from broker transactions of $6.2 million during the three months ended March 31, 2010 compared to receiving $1.2 million during the three months ended March 31, 2009.

Cash Flow From Investing Activities — Net cash flow used for investing activities increased $190,000 between periods due principally to the timing of refunds from the State of South Dakota for sales and excise tax paid.

Cash Flow From Financing Activities — Net cash flow used for financing activities increased $3.6 million between periods because we made distributions to our members during the first quarter of 2010, compared to making no distributions during first quarter 2009. In February 2010, we made distributions to the noncontrolling interest and to our members of $1.03 million and $2.53 million, respectively.

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.

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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 March 31, 2010, allowing us to borrow up to $8 million as of March 31, 2010 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 March 31, 2010, allowing us to borrow up to $9 million as of March 31, 2010 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 ($12.37 million and $6.19 million as of March 31, 2010) 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 (2.997% at March 31, 2010). 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 $9.21 million as of March 31, 2010. Principal payments of $384,465 were made for the quarter ended March 31, 2010.

The principal balance outstanding on the $3.9 million variable rate (3.25% as of March 31, 2010) non-revolving loan is $1.95 million as of March 31, 2010. Principal payments of $97,500 were made for the quarter ended March 31, 2010.

The principal balance outstanding on the $4.3 million variable rate loan (3.228% at March 31, 2010) is $2.76 million. Principal payments of $154,000 were made for the quarter ended March 31, 2010.

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. A table representing the material covenants

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and conditions under Big Stone’s loan agreement is disclosed in our Form 10-K for the year ended December 31, 2009. We are in compliance with all conditions and covenants under our loan agreement with U.S. Bank as of March 31, 2010 and the date of this filing.

Off-Balance Sheet Arrangements

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

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements

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 our financial position and results of operations.

Newly Adopted Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (FASB) issued authoritative guidance that expands the required disclosures about fair value measurements. This guidance provides for new disclosures requiring us to (i) disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers and (ii) present separately information about purchases, sales, issuances and settlements in the reconciliation of Level 3 fair value measurements. This guidance also provides clarification of existing disclosures requiring us to (i) determine each class of assets and liabilities based on the nature and risks of the investments rather than by major security type and (ii) for each class of assets and liabilities, disclose the valuation techniques and inputs used to measure fair value for both Level 2 and Level 3 fair value measurements. This guidance became effective for us on January 1, 2010, except for the presentation of purchases, sales, issuances and settlements in the reconciliation of Level 3 fair value measurements, which is effective for us on January 1, 2011, and did not have a material impact on our consolidated financial statements. The guidance pertaining to the presentation of purchases, sales, issuances and settlements in the reconciliation of Level 3 fair value measurements is not expected to have a material impact on our consolidated financial statements.

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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:

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 United States, we accrue an expense when it is probable that a liability has been incurred and the amount can be reasonably estimated.

Inventory Valuation. We account for corn inventory at estimated net realizable market value. Corn is an agricultural commodity that is freely traded, has quoted market prices, may be sold without significant further processing, and has predictable and insignificant costs of disposal. We derive our estimates from local market prices determined by grain terminals in our area. Changes in the market value of corn inventory are recognized as a component of cost of revenues. Ethanol and distillers grains are stated at net realizable value. Work-in-process, chemical and parts inventory are stated at an average cost method.

Revenue Recognition. Revenue from the production of ethanol and related products is recorded when title transfers to customers, net of allowances for estimated returns. Interest income is recognized when earned.

Revenue from state incentive programs is recorded when we have produced or sold the ethanol and satisfied the reporting requirements under the program.

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.

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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 March 31, 2010 and December 31, 2009 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 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 3. Quantitative and Qualitative Disclosures 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, nor do we designate these contracts as hedges for accounting purposes pursuant to the requirements of SFAS 133, Accounting for Derivative Instruments and Hedging Activities.

Commodity Price Risk

We produce ethanol and its co-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

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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 31th) seasons. The price of distillers grains is principally influenced by the price of corn and soybean meal, 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 net realizable 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 corn inventory, forward purchase contracts and open futures and option positions for corn and natural gas as of March 31, 2010 and March 31, 2009 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

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prices as of the applicable date. The results of this analysis, which may differ from actual results, are as follows:

Year Ended	Fair Value		Effect of Hypothetical Adverse Change— Market Risk
March 31, 2010	$	6,683,040	$	668,304
March 31, 2009	$	631,761	$	63,176

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 $10.90 million in variable rate, long-term debt outstanding as of March 31, 2010, or approximately 28% of our total long-term indebtedness. The interest rate on $1.95 million of the variable rate, long-term debt is U.S. Bank’s prime rate, which was 3.25% as of March 31, 2010. The interest rate on $2.76 million of the variable rate debt is subject to an interest rate of 3.228% as of March 31, 2010. The variable rate on the $6.19 million portion of the term note is 2.997% (One-Month LIBOR plus 2.75%) as of March 31, 2010.

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 ($12.37 million and $6.19 million, respectively as of March 31, 2010). The remaining amount, $6.19 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 0.271% from March 31, 2009 to March 31, 2010, which required us to pay more in interest to U.S. Bank on the two swap transactions.

Item 4T. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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Our chief executive officer and chief financial officer and management, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report, have concluded that the disclosure controls and procedures are effective in ensuring that material information required to be disclosed is included in the reports that it files with the Securities and Exchange Commission.

Changes in Internal Controls

There have been no changes in our internal controls over financial reporting that occurred during the three months ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time in the ordinary course of business, we may be named as a defendant in legal proceedings related to various issues, including without limitation, workers’ compensation claims, tort claims, or contractual disputes. We are not currently involved in any material legal proceedings, 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 1A. Risk Factors.

None.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

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

None

Item 5. Other Information.

For – 98

Against – 45

Abstain - 1

Item 6. Exhibits.

See Exhibit Index following the signature page to this report.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	NORTHERN GROWERS, LLC
Dated: May 17, 2010
	By	/s/ Robert Narem
		Robert Narem
		Chief Executive Officer and Chief Financial Officer

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EXHIBIT INDEX
TO
FORM 10-Q
OF
NORTHERN GROWERS, LLC

Exhibit Number		Description
2.1		Plan of Reorganization (1)
3.1		Articles of Organization (2)
3.2		Fifth Amended and Restated Operating Agreement dated July 31, 2009 (3)
3.3		Sixth Amended and Restated Operating Agreement (4)
4.1		Form of Class A Unit Certificate(5)
31		Rule 13a-14(a)/15d-14(a) Certification
32		Section 1350 Certification

(1)		Appendix A to registrant’s prospectus filed with the Commission on March 17, 2003.
(2)		Appendix B to registrant’s prospectus filed with the Commission on March 17, 2003.
(3)		Exhibit 3(ii)(a) to the registrant’s Form 8-K filed with the Commission on August 6, 2009. This agreement is in effect until July 1, 2010.
(4)		Appendix B to the registrant’s Schedule 14A filed with the Commission on March 31, 2010. This agreement will become effective July 1, 2010.
(5)		Exhibit 4.1 to the registrant’s Form S-4 filed with the Commission on July 26, 2002.