HOMELAND ENERGY SOLUTIONS LLC - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - HOMELAND ENERGY SOLUTIONS LLC	Financial_Report.xls
EX-31.1 - CERTIFICATION - HOMELAND ENERGY SOLUTIONS LLC	exhibit311-certification93.htm
EX-32.2 - CERTIFICATION - HOMELAND ENERGY SOLUTIONS LLC	exhibit322-certification93.htm
EX-10.1 - INDEPENDENT CONTRACTOR AGMT - HOMELAND ENERGY SOLUTIONS LLC	a101indendentcontractoragm.htm
EX-32.1 - CERTIFICATION - HOMELAND ENERGY SOLUTIONS LLC	exhibit321-certification93.htm
EX-31.2 - CERTIFICATION - HOMELAND ENERGY SOLUTIONS LLC	exhibit312-certification93.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the fiscal quarter ended September 30, 2014

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

Commission file number 000-53202



HOMELAND ENERGY SOLUTIONS, LLC
(Exact name of registrant as specified in its charter)

Iowa		20-3919356
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2779 Highway 24, Lawler, Iowa		52154
(Address of principal executive offices)		(Zip Code)

(563) 238-5555
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Membership Units

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 Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes o No

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



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

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

As of November 14, 2014, we had 90,445 membership units outstanding. On June 13, 2013, the Company entered into an agreement with Steve Retterath, the Company's largest equity holder, to repurchase and retire all of the units owned by Mr. Retterath. The Company agreed to repurchase and retire 25,860 membership units owned by Mr. Retterath in exchange for $30 million. The Company believes that it has a binding agreement with Mr. Retterath. Mr. Retterath contends he is not bound by the agreement. The Company's position is as of the closing date, Mr. Retterath is no longer the equitable owner of any membership units in the Company. As a result, the Company has recorded a $30 million short-term liability related to the amount the Company agreed to pay Mr. Retterath to repurchase his membership units and has correspondingly reduced members' equity on our balance sheet. The 90,445 membership units outstanding include the contested membership units the Company agreed to repurchase from Mr. Retterath.

INDEX



	Page No.
Part I. FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3. Quantitative and Qualitative Disclosures About Market Risk	22
Item 4. Controls and Procedures	23

Part II. OTHER INFORMATION	23
Item 1. Legal Proceedings	23
Item 1A. Risk Factors	24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3. Defaults Upon Senior Securities	25
Item 4. Mine Safety Disclosures	25
Item 5. Other Information	25
Item 6. Exhibits	25

Signatures	26

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Homeland Energy Solutions, LLC

Balance Sheets



	September 30, 2014		December 31, 2013
ASSETS	(Unaudited)		(Audited)

CURRENT ASSETS
Cash and cash equivalents	$	29,170,100	$	38,490,952
Trading securities	29,945,783		—
Accounts receivable	1,901,424		7,484,886
Inventory	9,124,854		7,397,733
Prepaid and other	1,601,307		1,901,710
Derivative instruments	609,807		1,180,775
Total current assets	72,353,275		56,456,056

PROPERTY AND EQUIPMENT
Land and improvements	22,533,935		22,533,935
Buildings	5,528,027		5,366,168
Equipment	139,639,543		139,453,228
Construction in progress	1,031,879		108,577
	168,733,384		167,461,908
Less accumulated depreciation	61,612,224		53,959,742
Total property and equipment	107,121,160		113,502,166

OTHER ASSETS
Loan fees, net of amortization of $1,249,652 and $1,145,047	—		27,925
Utility rights, net of amortization of $1,012,344 and $910,053	1,295,685		1,397,976
Other assets	3,143,525		2,694,003
Total other assets	4,439,210		4,119,904

TOTAL ASSETS	$	183,913,645	$	174,078,126

See Notes to Unaudited Financial Statements.

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Homeland Energy Solutions, LLC

Balance Sheets (continued)



	September 30, 2014		December 31, 2013
LIABILITIES AND MEMBERS' EQUITY	(Unaudited)		(Audited)

CURRENT LIABILITIES
Accounts payable	$	4,902,398	$	8,654,638
Due to former member	30,000,000		30,000,000
Interest payable	—		1,361
Property tax payable	396,923		464,524
Payroll payable	172,910		507,187
Total current liabilities	35,472,231		39,627,710

COMMITMENTS AND CONTINGENCIES

LONG-TERM LIABILITIES
Term revolving loan	—		15,000,000
Other liabilities	202,992		303,526
Total long-term liabilities	202,992		15,303,526

MEMBERS' EQUITY (64,585 units issued and outstanding as of September 30, 2014 and December 31, 2013)	148,238,422		119,146,890

TOTAL LIABILITIES AND MEMBERS' EQUITY	$	183,913,645	$	174,078,126

See Notes to Unaudited Financial Statements.

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Homeland Energy Solutions, LLC

Statements of Operations

(Unaudited)



	Three Months Ended		Three Months Ended			Nine Months Ended			Nine Months Ended
	September 30, 2014		September 30, 2013			September 30, 2014			September 30, 2013

Revenue	$	83,212,628	$	98,342,436		$	252,788,883		$	308,561,247

Costs of goods sold	62,819,026		92,728,251			193,919,399			291,183,853

Gross profit	20,393,602		5,614,185			58,869,484			17,377,394

Selling, general and administrative expenses	1,194,202		674,895			3,188,502			2,053,461

Operating income	19,199,400		4,939,290			55,680,982			15,323,933

Other income (expense)
Interest (expense)	—		(2,610		)	(129,480		)	(50,760		)
Interest income	5,548		2,799			19,735			3,176
Other income	42,249		122,839			516,825			302,324
Total other income	47,797		123,028			407,080			254,740

Net income	$	19,247,197	$	5,062,318		$	56,088,062		$	15,578,673

Basic & diluted net income per capital unit	$	298.01	$	73.28		$	868.44		$	187.14

Weighted average number of units outstanding for the calculation of basic & diluted net income per capital unit	64,585		69,082			64,585			83,246

See Notes to Unaudited Financial Statements.

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Homeland Energy Solutions, LLC

Statements of Cash Flows

(Unaudited)



	Nine Months Ended			Nine Months Ended
	September 30, 2014			September 30, 2013

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	56,088,062		$	15,578,673
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	7,876,433			7,832,225
Unrealized (gain) loss on risk management activities	570,968			(2,642		)
Unrealized loss on trading securities activities	54,217			—
Change in working capital components:
Accounts receivable	5,583,462			(1,430,895		)
Inventory	(1,727,121		)	(3,492,588		)
Prepaid expenses and other	300,403			332,577
Accounts payable and other accrued expenses	(4,256,013		)	(4,581,658		)
Net cash provided by operating activities	64,490,411			14,235,692

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of trading securities	(30,000,000		)	—
Payments for equipment and construction in progress	(1,288,530		)	(2,282,434		)
Increase in other assets	(449,522		)	(973,955		)
Net cash (used in) investing activities	(31,738,052		)	(3,256,389		)

CASH FLOWS FROM FINANCING ACTIVITIES
Distribution to members	(26,996,530		)	—
Payments for debt issuance costs	(76,681		)	—
Proceeds from long-term borrowings	30,000,000			95,350,000
Payments on long-term borrowings	(45,000,000		)	(96,350,000		)
Net cash (used in) financing activities	(42,073,211		)	(1,000,000		)

Net increase (decrease) in cash	(9,320,852		)	9,979,303

Cash and Cash Equivalents - Beginning	38,490,952			2,081,779
Cash and Cash Equivalents - Ending	$	29,170,100		$	12,061,082

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	$	130,841		$	53,272
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Commitment to redeem membership units	$	30,000,000		$	30,000,000

See Notes to Unaudited Financial Statements.

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Homeland Energy Solutions, LLC

Notes to Unaudited Financial Statements


1.	Nature of Business and Significant Accounting Policies

The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company's audited financial statements for the year ended December 31, 2013, contained in the Company's annual report on Form 10-K for 2013.

In the opinion of management, the interim condensed financial statements reflect all adjustments considered necessary for fair presentation. The adjustments made to these statements consist only of normal recurring adjustments.

Nature of Business

Homeland Energy Solutions, LLC (an Iowa Limited Liability Company) is located near Lawler, Iowa and was organized to pool investors for a 100 million gallon ethanol plant with distribution throughout the United States. The Company has capacity to produce in excess of 133 million gallons annually and sells distillers dried grains and corn oil as byproducts of ethanol production.

Organization

Homeland Energy Solutions, LLC is organized as an Iowa limited liability company. The members' liability is limited as specified in Homeland Energy Solutions' operating agreement and pursuant to the Iowa Revised Uniform Limited Liability Company Act.

Significant Accounting Policies:

Accounting Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with United States Generally Accepted Accounting Principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.

Cash & Cash Equivalents

The Company maintains its accounts primarily at one financial institution. At various times, the Company's cash balances may exceed amounts insured by the Federal Deposit Insurance Corporation. The Company has not experienced losses in such accounts.

Trading Securities

Investment bought and held principally for the purpose of selling them in the the near term are classified as trading securities. Trading securities are measured at fair value using prices obtained from pricing services. Any unrealized or realized gains and losses on the trading securities are recorded as part of other income (expense).

At September 30, 2014, trading securities consisted of short term bond mutual funds with an approximate cost of $30,000,000 and fair value of $29,946,000, respectively. For the three and nine months ended September 30, 2014 the Company recorded a net unrealized loss of approximately $54,000 from these investments as part of other income (expense). There were no trading securities held as of September 30, 2013.

The Board of Directors voted to set aside up to $30 million in trading securities that will be used by the Company for the repurchase of 25,860 membership units held by Steve Retterath per the terms of an agreement with Mr. Retterath entered into on June 13, 2013 by the Company.

Receivables

Credit sales are made primarily to one customer and no collateral is required. The Company carries these accounts receivable at face amount with no allowance for doubtful accounts due to the historical collection rates on these accounts.

Investments

The Company has a less than 20% investment interest in Renewable Products Marketing Group, LLC (RPMG). This investment is being accounted for under the equity method of accounting under which the Company's share of net income is recognized as income in the Company's net income statement and added to the investment account. The investment balance is included in other

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Homeland Energy Solutions, LLC

Notes to Unaudited Financial Statements

assets and the income recognized as other income. The investment is evaluated for indications of impairment on a regular basis. A loss would be recognized when the fair value is determined to be less than the carrying value.

Revenue and Cost Recognition

Revenue from the sale of the Company's products is recognized at the time title to the goods and all risks of ownership transfer to the customers. This generally occurs upon shipment, loading of the goods or when the customer picks up the goods. Interest income is recognized as earned. Shipping costs incurred by the Company in the sale of ethanol and distiller grains are not specifically identifiable and as a result, revenue from the sale of ethanol and distiller grains is recorded based on the net selling price reported to the Company from the marketer. Rail car lease costs incurred by the Company in the sale and shipment of distiller grain products are included in the cost of goods sold.

Inventories

Inventories are generally valued at the lower of cost (first-in, first-out) or market. In the valuation of inventories and purchase and sale commitments, market is based on current replacement values except that it does not exceed net realizable values and is not less than net realizable values reduced by allowances for approximate normal profit margin.

Property & Equipment

The Company reviews its property and equipment for impairment whenever events indicate that the carrying amount of the assets may not be recoverable. If circumstances require a long-lived asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

Derivative Instruments

The Company evaluates its contracts to determine whether the contracts are derivative instruments. 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 purchases or sales are documented as normal and exempted from the accounting and reporting requirements of derivative accounting.

The Company enters into short-term cash, option and futures contracts as a means of securing purchases of corn, natural gas and sales of ethanol for the plant and managing exposure to changes in commodity and energy prices. All of the Company's derivatives are designated as non-hedge derivatives for accounting purposes, with changes in fair value recognized in net income. Although the contracts are 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 through regulated commodity exchanges to manage its risk related to pricing of inventories. To reduce that risk, the Company generally takes positions using cash and futures contracts and options.

Realized and unrealized gains and losses related to derivative contracts related to corn and natural gas are included as a component of cost of goods sold and derivative contracts related to ethanol are included as a component of revenues in the accompanying financial statements. The fair values of contracts entered through commodity exchanges are presented on the accompanying balance sheet as derivative instruments.

Committed Shares to be Redeemed

On June 13, 2013, the Company entered into an agreement with Steve Retterath, the Company's largest member, to repurchase and retire all of the membership units owned by Mr. Retterath. The Company agreed to close on this repurchase on or before August 1, 2013. The Company agreed to repurchase and retire 25,860 membership units owned by Mr. Retterath in exchange for $30 million, to be paid in two equal installments payable at closing and on July 1, 2014. The transaction failed to close by the scheduled date due to objections by Mr. Retterath. Due to all conditions of the agreement being met prior to, or on, August 1, 2013, the Company believes that it has a binding agreement with Mr. Retterath; as such the commitment to repurchase and retire

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Homeland Energy Solutions, LLC

Notes to Unaudited Financial Statements

the membership units is reflected in the financial statements as if the transaction had closed on August 1, 2013. See Note 9 for additional information.

Net Income per Unit

Basic and 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 per unit are the same.

The Company believes it has a binding agreement with Steve Retterath prior to and following the scheduled closing date of August 1, 2013 to repurchase and retire all 25,860 membership units owned by Mr. Retterath. These membership units have thus been excluded in the determination of net income per unit as presented in the Statement of Operations. The Company is currently involved in litigation with Mr. Retterath, see Note 9. There is potential that Mr. Retterath will continue as a unit holder upon conclusion of the litigation and said membership units would not be redeemed under the repurchase agreement. If the membership units are not redeemed, basic and diluted net income per unit, including the 25,860 membership units, for the three and nine months ended September 30, 2014 would be $212.81 and $620.13 respectively.

Risks and Uncertainties

The Company has certain risks and uncertainties that it will experience during volatile market conditions, which can have a severe impact on operations. The Company's revenues are derived from the sale and distribution of ethanol, distiller grains and corn oil to customers primarily located in the United States. Corn for the production process is supplied to the plant primarily from local agricultural producers and from purchases on the open market. For the nine months ended September 30, 2014, ethanol sales averaged approximately 77% of total revenues, while approximately 20% of revenues were generated from the sale of distiller grains and 3% of revenues were generated from the sale of corn oil. For the nine months ended September 30, 2014, corn costs averaged approximately 80% of cost of goods sold.

The Company's operating and financial performance is largely driven by the prices at which ethanol is sold and the net expense of corn. The price of ethanol is influenced by factors such as supply and demand, weather, government policies and programs, and unleaded gasoline and the petroleum markets, although since 2005 the prices of ethanol and gasoline began a divergence with ethanol selling, in general, for less than gasoline at the wholesale level. Excess ethanol supply in the market, in particular, puts downward pressure on the price of ethanol. The Company's largest cost of production is corn. The cost of corn is generally impacted by factors such as supply and demand, weather, and government policies and programs. The Company's risk management program is used to protect against the price volatility of these commodities.

2. INVENTORY

Inventory consisted of the following as of September 30, 2014 and December 31, 2013.



	September 30, 2014		December 31, 2013
Raw Materials	$	4,248,133	$	4,617,404
Work in Process	1,387,576		1,600,041
Finished Goods	3,489,145		1,180,288
Totals	$	9,124,854	$	7,397,733

3. DEBT

Master Loan Agreement with Home Federal Savings Bank

On November 30, 2007, the Company entered into a Master Loan Agreement with Home Federal Savings Bank ("Home Federal") establishing a senior credit facility with Home Federal for the construction of a 100 million gallon per year natural gas powered dry mill ethanol plant. In return, the Company executed a mortgage in favor of Home Federal creating a senior lien on the real estate and plant and a security interest in all personal property located on Company property. The Company currently has a term revolving loan with Home Federal.

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Homeland Energy Solutions, LLC

Notes to Unaudited Financial Statements

Term Revolving Loan

Under the terms of the Master Loan Agreement, the Company has a $20 million term revolving loan which has a maturity date of August 1, 2018. Interest on the term revolving loan accrues at a rate equal to the one month LIBOR plus 310 basis points, 3.257% on September 30, 2014. The Company is required to make monthly payments of interest until the maturity date of the term revolving loan on August 1, 2018, on which date the unpaid principal balance of the term revolving loan becomes due. The balance outstanding on the term revolving loan as of September 30, 2014 and December 31, 2013 was $0 and $15,000,000 respectively.

2014 Term Loan

Under the terms of the Fourth Supplement to the Master Loan Agreement, dated February 28, 2014, the Company had a $15 million term loan which had a maturity date of March 1, 2019. Interest on the term loan accrued at a rate equal to the one month LIBOR plus 310 basis points, 3.257% on September 30, 2014. The Company was required to make equal monthly payments of principal and accrued interest in an amount equal to $271,614 per month, or such greater or lesser amount determined by the lender to fully amortize the principal balance of the term loan over the period of five years. The 2014 term loan was paid in full by the Company on June 18, 2014 and the outstanding principal balance on the term loan as of September 30, 2014 was $0.

Covenants

During the term of the Loans, the Company is subject to certain financial covenants at various times calculated monthly, quarterly or annually, including restriction of the payment of dividends and capital expenditures and maintenance of certain financial ratios including the minimum working capital, tangible net worth, and a fixed charge ratio as defined by the Master Loan Agreement. Failure to comply with the protective loan covenants or maintain the required financial ratios may cause acceleration of the outstanding principal balances on the loans and/or the imposition of fees, charges or penalties.

4. RELATED PARTY TRANSACTIONS

Due to member

On June 13, 2013, we entered into an agreement with Steve Retterath, the Company's largest member, to repurchase and retire all of the units owned by Mr. Retterath. The Company agreed to close on this repurchase on or before August 1, 2013. The Company agreed to repurchase and retire 25,860 membership units owned by Mr. Retterath in exchange for $30 million, to be paid in two equal installments payable at closing and on July 1, 2014. The transaction failed to close by the scheduled date due to objections by Mr. Retterath. The Company believes that it has a binding agreement with Mr. Retterath. On August 14, 2013, the Company filed a lawsuit against Mr. Retterath in Iowa state court to enforce the terms of the repurchase agreement. The Company is asking the Iowa state court to require Mr. Retterath to complete the repurchase agreement pursuant to its terms.

Mr. Retterath contends he is not bound by the agreement. The Company's position is as of the closing date, Mr. Retterath is no longer the equitable owner of any membership units in the Company. As a result, the Company has recorded a $30 million short-term liability related to the amount the Company agreed to pay Mr. Retterath to repurchase his membership units and has correspondingly reduced members' equity on the balance sheet. If the Company is ultimately unsuccessful in its lawsuit against Mr. Retterath, the Company will reevaluate the accounting considerations made during the period of time that the lawsuit is pending.

Other matters

The Company has purchased corn and materials from members of its Bord of Directors who own or manage elevators or are local producers of corn. Purchases during the three and nine months ended September 30, 2014 totaled approximately $538,000 and $603,000 respectively, and during the three and nine months ended September, 2013 totaled approximately $1,395,000 and $4,347,000, respectively. Amounts due to these members was $0 as September 30, 2014 and December 31, 2013.

Previously, the Company had an agreement with Golden Grain Energy, LLC (Golden Grain), a member of the Company, for management services. Pursuant to the agreement, Homeland Energy and Golden Grain agreed to share management services in an effort to reduce the costs of administrative overhead. Homeland Energy and Golden Grain agreed to split the compensation costs associated with each of the employees covered by the agreement. This agreement was terminated on May 16, 2014. For the three and nine months ending September 30, 2014 the Company incurred costs of approximately $0 and $47,200, respectively. The cost for the same periods of 2013 related to this agreement were approximately $34,600 and $105,100, respectively.

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Homeland Energy Solutions, LLC

Notes to Unaudited Financial Statements

5. COMMITMENTS, CONTINGENCIES AND AGREEMENTS

Ethanol, corn oil, and distiller grains marketing agreements and major customers

The Company has entered into a marketing agreement with RPMG, a related party, to sell all ethanol produced at the plant at a mutually agreed on price, less commission and transportation charges. As of September 30, 2014, the Company had commitments to sell approximately 40% of its produced gallons of ethanol at various fixed prices and 60% of its produced gallons of ethanol at basis price levels indexed against exchanges for delivery through October 31, 2014.

The Company has entered into a marketing agreement with RPMG to sell all corn oil produced at the plant at a mutually agreed on price, less marketing fees and transportation charges. As of September 30, 2014, the Company had commitments to sell approximately 2,000,000 pounds of corn oil at various fixed and basis price levels indexed against exchanges for delivery through October 31, 2014.

The Company also has an investment in RPMG, included in other assets, totaling approximately $2,544,000 as of September 30, 2014.

The Company has entered into a marketing agreement to sell all distiller grains produced at the plant to CHS, an unrelated party, at a mutually agreed on price, less commission and transportation charges. The agreement was renewed for another one year term on April 1, 2014. The agreement calls for automatic renewal for successive one-year terms unless 120-day prior written notice is given before the current term expires. As of September 30, 2014, the Company had approximately 45,000 tons of distiller grains commitments for delivery through December 2014 at various fixed prices.

Sales and marketing fees related to the agreements in place for the three and nine months ended September 30, 2014 and 2013 were approximately as follows:



	Three Months Ended		Nine Months Ended		Three Months Ended		Nine Months Ended
	September 30, 2014		September 30, 2014		September 30, 2013		September 30, 2013
Sales ethanol - RPMG	$	65,788,000	$	196,654,000	$	73,940,000	$	233,954,000
Sales distiller grains	14,996,000		49,605,000		19,978,000		63,278,000
Sales corn oil - RPMG	2,428,000		6,813,000		3,382,000		10,038,000

Marketing fees ethanol - RPMG	$	33,000	$	99,000	$	64,000	$	192,000
Marketing fees distiller grains	196,000		530,000		188,000		557,000
Marketing fees corn oil - RPMG	19,000		53,000		23,000		69,000

	As of September 30, 2014		As of December 31, 2013
Amount due from RPMG	$	77,000	$	5,245,000
Amount due from CHS	1,771,000		2,147,000

At September 30, 2014, the Company had approximately $9,252,000 in outstanding priced corn purchase commitments for bushels at various prices and approximately 3,299,000 bushels of unpriced corn through June 2015 accounted for under the normal purchase exclusion.

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Homeland Energy Solutions, LLC

Notes to Unaudited Financial Statements

The Company has commitments for minimum purchases of various utilities such as natural gas and electricity over the next 5 years, accounted for under the normal purchase exclusion, which are anticipated to approximate the following for the twelve month periods ending September 30:



2015	$	5,287,000
2016	3,787,000
2017	3,787,000
2018	3,787,000
Thereafter	1,894,000
Total anticipated commitments	$	18,542,000

6. LEASE OBLIGATIONS

The Company leases rail cars and rail moving equipment with original terms up to 5 years. The Company is obligated to pay costs of insurance, taxes, repairs and maintenance pursuant to terms of the leases. Rent expense incurred for the operating leases during the three and nine months ended September 30, 2014, was approximately $416,000 and $1,247,000 and for the same periods in 2013 was approximately $416,000 and $1,250,000, respectively.

At September 30, 2014, the Company had the following approximate minimum rental commitments under non-cancelable operating leases for the twelve month periods ended September 30:



2015	$	1,663,000
2016	1,663,000
2017	1,148,000
Thereafter	284,000
Total lease commitments	$	4,758,000

7. DERIVATIVE INSTRUMENTS

The Company's activities expose it to a variety of market risks, including the effects of changes in commodity prices. These financial exposures are monitored and managed by the Company as an integral part of its overall risk-management program. The Company's risk management program focuses on the unpredictability of financial and commodities markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on its operating results.

To reduce price risk caused by market fluctuations, the Company generally follows a policy of using exchange traded futures and options contracts to reduce its net position of merchandisable agricultural commodity inventories and forward cash purchase and sales contracts and uses exchange traded futures and options contracts to reduce price risk. Exchange-traded futures contracts are valued at market price. Changes in market price of exchange traded futures and options contracts related to corn and natural gas are recorded in costs of goods sold and changes in market prices of contracts related to the sale of ethanol, if applicable, are recorded in revenues.

The Company uses futures or options contracts to fix the purchase price of anticipated volumes of corn to be purchased and processed in a future month. The Company's plant will grind approximately 45 million bushels of corn per year. During the previous period and over the next 12 months, the Company has hedged and anticipates hedging between 5% and 60% of its anticipated monthly grind. At September 30, 2014, the Company has hedged portions of its anticipated monthly purchases for corn averaging approximately 5% of its anticipated monthly grind over the next twelve months.

Unrealized gains and losses on non-exchange traded forward contracts are deemed "normal purchases or sales" under authoritative accounting guidance, as amended and, therefore, are not marked to market in the Company's financial statements. The following table represents the approximate amount of realized/unrealized gains (losses) and changes in fair value recognized in earnings on commodity contracts for the three and nine months ending September 30, 2014 and 2013 and the fair value of derivatives as of September 30, 2014 and December 31, 2013:

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Homeland Energy Solutions, LLC

Notes to Unaudited Financial Statements



	Income Statement Classification	Realized Gain (Loss)			Change In Unrealized Gain (Loss)			Total Gain (Loss)
Derivatives not designated as hedging instruments:
Commodity contracts for the	Cost of Goods Sold	$	5,055,000		$	(446,000	)	$	4,609,000
three months ended September 30, 2014

Commodity contracts for the	Cost of Goods Sold	$	2,138,000		$	264,000		$	2,402,000
three months ended September 30, 2013	Revenue	(15,000		)	1,054,000			1,039,000
	Total	$	2,123,000		$	1,318,000		$	3,441,000

Commodity contracts for the	Cost of Goods Sold	$	5,172,000		$	917,000		$	6,089,000
nine months ended September 30, 2014	Revenue	(283,000		)	283,000			—
	Total	$	4,889,000		$	1,200,000		$	6,089,000

Commodity contracts for the	Cost of Goods Sold	$	4,361,000		$	588,000		$	4,949,000
nine months ended September 30, 2013	Revenue	(15,000		)	1,302,000			1,287,000
	Total	$	4,346,000		$	1,890,000		$	6,236,000



	Balance Sheet Classification	September 30, 2014			December 31, 2013
Futures and option contracts through March 2015
In gain position		$	1,168,000		$	251,000
In loss position		—			(283,000		)
Cash held by (owed to) broker		(558,000		)	1,213,000
	Current Asset	$	610,000		$	1,181,000

8. FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1: Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.

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Homeland Energy Solutions, LLC

Notes to Unaudited Financial Statements

Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.

Level 3: Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

A description of the valuation methodologies used for instruments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy, is set forth below:

Trading securities: Trading securities consisting of short term bond mutual funds are reported at fair value utilizing Level 1 inputs. Trading securities are measured at fair value using prices obtained from pricing services.

Derivative financial instruments: Commodity futures and exchange-traded commodity options contracts are reported at fair value utilizing Level 1 inputs. For these contracts, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the CBOT and NYMEX markets.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:



	Total			Level 1			Level 2		Level 3
Trading securities
September 30, 2014
Assets	$	29,946,000		$	29,946,000		$	—	$	—
Derivative financial instruments
September 30, 2014
Assets	$	1,168,000		$	1,168,000		$	—	$	—
December 31, 2013
Assets	$	251,000		$	251,000		$	—	$	—
Liabilities	(283,000		)	(283,000		)	—		—

9. LITIGATION MATTERS

Retterath

In relation to the repurchase agreement discussed in Note 4, on August 1, 2013 Mr. Retterath filed a lawsuit against the Company along with several directors, the Company's CEO, CFO, Plant Manager, a former director and the Company's outside legal counsel in Florida state court. Mr. Retterath is claiming that certain actions taken by the Company violated fiduciary duties owed to him as a member or fraudulently induced him to take certain actions. Mr. Retterath is also claiming violations of state and federal securities laws and violations of Florida's deceptive and unfair trade practices statutes. On August 14, 2013, the Company filed a lawsuit in Iowa state court to enforce the repurchase agreement the Company entered into with Mr. Retterath.

GS Cleantech Corporation

On August 9, 2013, GS Cleantech Corporation (GS Cleantech), a subsidiary of Greenshift Corporation, filed a complaint against the Company alleging that the Company's operation of a corn oil extraction process licensed by the Company infringes patent rights claimed by GS Cleantech. GS Cleantech seeks royalties, damages and potentially triple damages associated with the alleged infringement, as well as attorney's fees from the Company. The Company has filed an answer and counterclaims claiming invalidity of the patents, noninfringement, and inequitable conduct. On October 23, 2014, the Court hearing similar cases found GS Cleantech's patents invalid which ruling benefits the Company.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains forward-looking statements that involve future events, our future performance and our expected future operations and actions. In some cases you can identify forward-looking statements by the use of words such as "may," "will," "should," "anticipate," "believe," "expect," "plan," "future," "intend," "could," "estimate," "predict," "hope," "potential," "continue," or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the reasons described in this report or in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013. We are not under any duty to update the forward-looking statements contained in this report. We cannot guarantee future results, levels of activity, performance or achievements. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits, completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.

Overview

Homeland Energy Solutions, LLC (referred to herein as "we," "us," the "Company," or "Homeland") is an Iowa limited liability company. Homeland was formed on December 7, 2005 for the purpose of pooling investors for the development, construction and operation of a 100 million gallon per year ethanol plant located near Lawler, Iowa. We began producing ethanol and distiller grains at the plant in April 2009. We completed installation of corn oil extraction equipment and commenced selling corn oil during our fourth quarter of 2011. The ethanol plant is capable of operating at a rate in excess of 133 million gallons of ethanol per year.

On August 9, 2013, GS Cleantech Corporation ("GS Cleantech"), a subsidiary of Greenshift Corporation, filed a complaint in the United States District for the Northern District of Iowa against the Company. The Company is one of more than twenty ethanol manufacturers which were sued by GS Cleantech. The complaint alleges that the Company's operation of a corn oil extraction process licensed by the Company infringes patent rights claimed by GS Cleantech. GS Cleantech seeks royalties, damages and potentially triple damages associated with the alleged infringement, as well as attorney's fees from the Company. The complaint has been transferred to the United States District Court for the Southern District of Indiana due to a finding that the action involves questions of fact common to several other lawsuits which were joined in a multi-district litigation ("MDL") and which is currently pending in that district. The MDL Court developed two tracks of defendants in this litigation, the first track includes defendants which were originally sued by GS Cleantech in 2010, and a second track of defendants sued in 2013 which includes Homeland. On October 23, 2014, the MDL Court granted summary judgment in favor of the first track defendants and found that the GS Cleantech patents which Homeland is alleged to have infringed are invalid. While the MDL Court's decision relates to the first track defendants, it is beneficial to Homeland and the other second track defendants. Based on the October 23, 2014 decision, Homeland may decide to file a motion to dismiss GS Cleantech's lawsuit on the grounds that the patents which Homeland is claimed to have infringed are invalid. GS Cleantech is likely to appeal the decision of the MDL Court.

On June 13, 2013, we entered into an agreement with Steve Retterath, our largest member, to repurchase and retire all of the units owned by Mr. Retterath. We agreed to repurchase and retire 25,860 membership units owned by Mr. Retterath in exchange for $30 million, to be paid in two equal installments payable at closing and on July 1, 2014. The transaction failed to close by August 1, 2013 due to objections by Mr. Retterath. The Company believes that it has a binding agreement with Mr. Retterath. On August 14, 2013, the Company filed a lawsuit against Mr. Retterath in Iowa state court to enforce the terms of the repurchase agreement. The Company is asking the Iowa state court to require Mr. Retterath to complete the repurchase agreement pursuant to its terms.

Mr. Retterath contends he is not bound by the agreement. The Company's position is as of the closing date, Mr. Retterath is no longer the equitable owner of any membership units in the Company. As a result, we have recorded a $30 million short-term liability related to the amount we agreed to pay Mr. Retterath to repurchase his membership units and have correspondingly reduced members' equity on our balance sheet. If we are ultimately unsuccessful in our lawsuit against Mr. Retterath, the Company will reevaluate the accounting considerations made during the period of time that the lawsuit is pending.

On the scheduled closing date for the repurchase agreement, Mr. Retterath sued the Company along with several directors, our CEO, CFO, Plant Manager, a former director and our outside legal counsel in Florida state court. This lawsuit was subsequently removed to federal court in the State of Florida and ultimately to federal court in the State of Iowa. Details of both the Company's lawsuit against Mr. Retterath and Mr. Retterath's lawsuit are provided below in the section entitled "PART II - Item 1. Legal Proceedings."

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On February 24, 2014, we executed amended loan agreements with our primary lender, Home Federal Savings Bank ("Home Federal"), pursuant to which Home Federal loaned us $15 million. The $15 million loan was structured as a term loan with a maturity date of March 1, 2019. The purpose of this term loan was to offset our liability associated with the Retterath repurchase agreement discussed above. The proceeds of this loan have been placed in a separate account which will be used to fund the payment due to Mr. Retterath pursuant to the repurchase agreement. Interest accrued on the term loan at an annual rate of 310 basis points in excess of the one month London Interbank Offered Rate (LIBOR), adjusted monthly. We agreed to make monthly payments pursuant to the term loan of approximately $271,600 including interest. During our second quarter of 2014 we repaid the entire principal balance of this loan.

Uncertainty exists regarding ethanol demand for 2014 and into the future as the EPA is in the process of establishing the 2014 renewable volume obligation (RVO) pursuant to the Federal Renewable Fuels Standard (RFS). The RFS requires that a certain amount of renewable fuels must be used each year in the United States, however, the EPA has authority to adjust the RVO in certain circumstances. It appears that the EPA plans to use this authority during 2014. If the RVO for corn-based ethanol for 2014 is significantly reduced, as has been proposed by the EPA, it could have a significant negative impact on ethanol demand. Despite repeated delays in releasing the 2014 RVO, management believes that the RVO for 2014 will be released during our fourth quarter. If the 2014 RVO is reduced, it may impact demand for ethanol more in 2015 than in 2014 since the announcement is being made so late in the year. The effect of a reduction in the 2014 RVO may be that additional renewable fuels credits may be carried over into future years by fuel blenders which could impact ethanol demand in the future.

Results of Operations

Comparison of Fiscal Quarters Ended September 30, 2014 and 2013



	2014			2013
Income Statement Data	Amount		%	Amount		%
Revenue	$	83,212,628	100.0	$	98,342,436	100.0

Costs of goods sold	62,819,026		75.5	92,728,251		94.3

Gross profit	20,393,602		24.5	5,614,185		5.7

Selling, general and administrative expenses	1,194,202		1.4	674,895		0.7

Operating income	19,199,400		23.1	4,939,290		5.0

Other income (expense)	47,797		0.1	123,028		0.1

Net income	$	19,247,197	23.1	$	5,062,318	5.1

Revenue

Our total revenue for our third quarter of 2014 was approximately 15% less than our total revenue for our third quarter of 2013. Management attributes this decrease in revenue with a decrease in the average price we received for our products during the 2014 period, partially offset by increased sales of ethanol and distillers grains during the 2014 period.

For our third quarter of 2014, our total ethanol revenue decreased by approximately 12% compared to our third quarter of 2013 due to decreased average ethanol prices during the 2014 period partially offset by increased ethanol sales. The average price we received for our ethanol during our third quarter of 2014 was approximately 16% lower than during our third quarter of 2013. This decrease in ethanol prices was primarily related to lower corn prices, which impact the market price of ethanol, along with decreased gasoline prices which also impact ethanol prices. During our third quarter of 2014, rail shipping delays were reduced which management believes resulted in lower ethanol prices. However, management expects that rail shipping delays may occur again once the winter starts due to anticipated poor weather conditions which typically impact rail shipping times. Management anticipates that ethanol prices will remain relatively steady unless the United States again experiences significant rail shipping delays which constrict ethanol supplies in the market and result in increased ethanol prices. In addition, ethanol exports from the United States have increased during 2014 compared to 2013 which has increased demand for ethanol and positively impacted ethanol prices in the United States. Management attributes this increase in ethanol exports to lower market ethanol prices in the United States along with increased world demand for ethanol. The main destinations for ethanol exports during 2014

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are Brazil, Canada, United Arab Emirates and various European Union countries. Without these ethanol exports, ethanol prices may have fallen more significantly during our 2014 fiscal year.

We sold approximately 5% more gallons of ethanol during our third quarter of 2014 compared to the same period of 2013. Management attributes this increase in ethanol sales with favorable operating margins and increased production during our third quarter of 2014 when compared to the same time period in 2013.

Our total distiller grains revenue was approximately 25% lower during our third quarter of 2014 compared to the same period of 2013, due primarily to decreased distiller grains prices partially offset by increased distiller grains sales. The average price we received for our dried distiller grains was approximately 29% less during our third quarter of 2014 compared to the same period of 2013. Further, the average price we received for our modified/wet distiller grains was approximately 54% less during our third quarter of 2014 compared to the same period of 2013. Management attributes these lower distiller grains prices to decreasing corn prices and uncertainty regarding distiller grains exports to China which recently effectively halted shipments of distiller grains. China has stated that distiller grains containing a certain corn hybrid trait which is not approved in China will be rejected. However, there is not a reliable method of testing for this corn trait in distiller grains and there is not a mechanism in the United States to meet other certification requirements China has imposed on imports of distillers grains that may contain this unapproved trait. Management believes that the Chinese position is more related to protecting its own corn farmers instead of concerns regarding this corn trait. Management anticipates that distiller grains prices will continue to trade lower and will continue to track corn prices and be affected by China's stance on distiller grains imports into the foreseeable future. We sold approximately 6% more total tons of distiller grains during our third quarter of 2014 compared to the same period of 2013. This increase in our distiller grains production is related to our increased ethanol production.

Our total corn oil revenue was approximately 28% lower for our third quarter of 2014 compared to the same period of 2013 due to decreased corn oil production at the ethanol plant and lower corn oil prices during the 2014 period. We sold approximately 17% less pounds of corn oil during our third quarter of 2014 compared to the same period of 2013 because of a decrease in the amount of corn oil we produced per bushel of corn used. The corn that we are using during our 2014 fiscal year contains less corn oil compared to the corn we were using during our 2013 fiscal year which has decreased our corn oil yield. In addition to the decrease in our corn oil production, the average price we received for our corn oil was approximately 11% less during our third quarter of 2014 compared to the same period of 2013. The biodiesel industry has been impacted by recent legislative changes, including the expiration of the biodiesel blenders' tax credit and uncertainty regarding the biodiesel use requirements for 2014 under the Federal Renewable Fuels Standard (RFS). The EPA has proposed reducing the renewable fuels requirements under the RFS for 2014 in a manner that would negatively impact demand for biodiesel. Since biodiesel production is a major source of corn oil demand, lower biodiesel demand has impacted corn oil prices. In addition, corn oil prices have been impacted by lower soybean oil prices as soybean oil is a product that typically competes with corn oil, particularly for biodiesel production. Management anticipates continued lower corn oil prices as additional corn oil supply enters the market with relatively stagnant corn oil demand.

Cost of Goods Sold

Our two primary costs of production are corn costs and natural gas costs. Our total cost of goods sold was approximately 30% less during our third quarter of 2014 compared to the same period of 2013. Our cost of goods sold related to corn, without taking into account derivative instruments, was approximately 39% lower during our third quarter of 2014 compared to our third quarter of 2013 due to decreased market prices for corn. The average price we paid per bushel of corn was approximately 41% less during our third quarter of 2014 compared to our third quarter of 2013. We processed approximately 4% more bushels of corn during our third quarter of 2014 compared to our third quarter of 2013 due to increased production at the ethanol plant. Management anticipates these lower corn prices will continue due to an improved balance between corn supply and demand as a result of the larger corn crops harvested in 2013 and 2014 and relatively stable corn demand.

We experienced increased natural gas prices during our third quarter of 2014 compared to the same period of 2013 due to a longer and colder winter which reduced natural gas supplies. The longer and colder winter resulted in increased natural gas demand which had a corresponding impact on basis levels. These higher natural gas prices have continued into the summer months. During our third quarter of 2014, the average delivered price we paid per MMBtu of natural gas was approximately 16% higher compared to the same period of 2013. Further, due to our increased production, our natural gas consumption during our third quarter of 2014 was approximately 2% greater compared to the same period of 2013. Natural gas supplies have recovered during the summer months but management anticipates that natural gas prices will increase again during the winter months in 2014/2015, particularly if we experience another long and cold winter. Management believes that the natural gas industry will increase production if natural gas prices increase significantly which may maintain natural gas prices in a reasonably fixed range into the foreseeable future. However, if a shortage of natural gas were to occur in the future it could result in significantly higher natural gas prices which could negatively impact our profitability.

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We engage in risk management activities that are intended to fix the purchase price of the corn we require to produce ethanol, distiller grains and corn oil. We also periodically engage in risk management activities that are intended to mitigate risk related to sales of ethanol. During our third quarter of 2014, we had a realized gain of approximately $5,055,000 and an unrealized loss of approximately $446,000 related to our corn derivative instruments. We had no gain or loss on ethanol or natural gas related derivative instruments. During our third quarter of 2013, we had a realized gain of approximately $2,123,000 and an unrealized gain of approximately $1,318,000 related to our corn and ethanol derivative instruments. We recognize the gains or losses that result from changes in the value of our corn and natural gas derivative instruments in cost of goods sold as the changes occur and we recognize the gains or losses that result from changes in the value of our ethanol derivative instruments in revenue as the changes occur. Our plant is expected to use approximately 45 million bushels of corn per year. As of September 30, 2014, the Company has hedged portions of its anticipated monthly purchases for corn averaging approximately 5% of its anticipated monthly grind over the next twelve months.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses were greater during our third quarter of 2014 compared to our third quarter of 2013 primarily due to increased legal fees related to our pending lawsuits.

Other Income (Expense)

Our interest expense was lower during our third quarter of 2014 compared to the same period of 2013 because we had no amounts outstanding on our loans during the 2014 period. We also had more interest income during our third quarter of 2014 compared to the same period of 2013, primarily due to having more cash on hand during the 2014 period. Our other income was lower during our third quarter of 2014 compared to the same period of 2013 due to decreased investment income from our marketer RPMG.

Comparison of Nine Months Ended September 30, 2014 and 2013



	2014			2013
Income Statement Data	Amount		%	Amount		%
Revenue	$	252,788,883	100.0	$	308,561,247	100.0

Costs of goods sold	193,919,399		76.7	291,183,853		94.4

Gross profit	58,869,484		23.3	17,377,394		5.6

Selling, general and administrative expenses	3,188,502		1.3	2,053,461		0.7

Operating income	55,680,982		22.0	15,323,933		5.0

Other income (expense)	407,080		0.2	254,740		0.1

Net income	$	56,088,062	22.2	$	15,578,673	5.0

Revenue

Our total revenue for the first nine months of 2014 was approximately 18% less than the same period of 2013, due primarily to decreased total production and lower average prices for our products during the 2014 period.

The average price we received for our ethanol during our first nine months of 2014 was approximately 13% less than during the same period of 2013. In addition, we sold approximately 4% less gallons of ethanol during our first nine months of 2014 compared to the same period of 2013 due to decreased ethanol production which resulted from shipping logistics issues which impacted our ability to operate the ethanol plant at full capacity.

For our first nine months of 2014, our total distiller grains revenue decreased by approximately 22% compared to the same period of 2013, primarily due to significantly lower distiller grains prices due to lower corn prices. The average price we received for our dried distiller grains was approximately 20% less for our first nine months of 2014 compared to the same period

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of 2013. The average price we received for our modified/wet distiller grains was approximately 38% less for our first nine months of 2014 compared to the same period of 2013.

Our total corn oil revenue was approximately 32% less for our first nine months of 2014 compared to the same period of 2013 due to decreased corn oil sales and prices. We sold approximately 23% less pounds of corn oil during our first nine months of 2014 compared to the same period of 2013 because of reduced ethanol production and less corn oil in the corn which we used during the 2014 period. In addition, the average price we received per pound of corn oil sold was approximately 14% less during our first nine months of 2014 compared to the same period of 2013.

Cost of Goods Sold

Our total cost of goods sold was approximately 33% less during our first nine months of 2014 compared to the same period of 2013. Our cost of goods sold related to corn, without taking into account derivative instruments, was approximately 40% less during our first nine months of 2014 compared to the same period of 2013. The average price we paid per bushel of corn was approximately 37% less during our first nine months of 2014 compared to the same period of 2013. We ground approximately 3% fewer bushels of corn during our first nine months of 2014 compared to the same period of 2013.

We experienced increased natural gas prices during our first nine months of 2014 compared to the same period of 2013. During our first nine months of 2014, the average price we paid per MMBtu of natural gas was approximately 56% greater than during the same period of 2013. Our natural gas consumption during our first nine months of 2014 was approximately 3% less than during the same period of 2013.

During our first nine months of 2014, we had a realized gain of approximately $4,889,000 and an unrealized gain of approximately$1,200,000 related to our corn and ethanol derivative instruments. During our first nine months of 2013, we had a realized gain of approximately $4,346,000 and an unrealized gain of approximately $1,890,000 related to our corn and ethanol derivative instruments.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses were greater during our first nine months of 2014 compared to the same period of 2013 primarily due to increased legal fees related to our pending lawsuits.

Other Income (Expense)

Our interest expense was higher during our first nine months of 2014 compared to the same period of 2013 due to the long-term debt we had outstanding related to the Retterath repurchase. Offsetting the increased interest expense, we also had more investment income during our first nine months of 2014 compared to the same period of 2013, primarily due to our investment in our ethanol and corn oil marketer, RPMG. In addition, we had more interest income during the 2014 period related to additional cash we had on hand.

Changes in Financial Condition for the Nine Months Ended September 30, 2014.



Balance Sheet Data	September 30, 2014		December 31, 2013
Total current assets	$	72,353,275	$	56,456,056
Total property and equipment	107,121,160		113,502,166
Total other assets	4,439,210		4,119,904
Total Assets	$	183,913,645	$	174,078,126

Total current liabilities	$	35,472,231	$	39,627,710
Total long-term liabilities	202,992		15,303,526
Total members' equity	148,238,422		119,146,890
Total Liabilities and Members' Equity	$	183,913,645	$	174,078,126

As of September 30, 2014 we purchased $30 million in trading securities related to the Retterath repurchase agreement which reduce the amount of cash we had on our balance sheet compared to December 31, 2013. Our accounts receivable was

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lower at September 30, 2014 compared to December 31, 2013 due to the timing of our quarter end with respect to shipments of our ethanol along with lower prices for our products which reduces the value of our accounts receivable. We shipped a unit train after the end of our third quarter of 2014 which increased our finished goods inventory and reduced our accounts receivable. We had significantly more inventory on hand at September 30, 2014 compared to December 31, 2013 due to having additional finished goods inventory at September 30, 2014. Our derivative instruments represented a smaller asset on our balance sheet at September 30, 2014 compared to December 31, 2013 due to less unrealized gains on our risk management positions at September 30, 2014 due to dropping corn prices along with cash we owed to our commodities broker.

Our net property and equipment was lower at September 30, 2014 compared to December 31, 2013 due to depreciation, partially offset by capital expenses related to the installation of refurbished grain milling equipment and several other smaller capital projects which we were working on during our 2014 fiscal year.

Our other assets were higher at September 30, 2014 compared to December 31, 2013 due to our investment in RPMG, our ethanol and corn oil marketer. We wrote off our loan fees with Home Federal during our 2014 fiscal year when we repaid the term loan. We continue to amortize certain utility rights associated with our construction of the ethanol plant which reduced the value of our other assets.

Our current liabilities were lower at September 30, 2014 compared to December 31, 2013, primarily due to a reduction in our accounts payable. We typically experience an increase in our accounts payable at the end of our fiscal year as our corn suppliers seek to defer income into a later tax year by deferring corn payments. We typically make these deferred corn payments early in January of each year.

Our long-term liabilities were lower at September 30, 2014 compared to December 31, 2013 primarily because we repaid the outstanding balance on term revolving loan during our first quarter of 2014.

Liquidity and Capital Resources

Our primary sources of liquidity during our quarter ended September 30, 2014 were cash from our operations and our $20 million long-term revolving loan. Our credit facilities are described in greater detail below under "Short-Term and Long-Term Debt Sources." As of September 30, 2014, we had $20.0 million available pursuant to our revolving loan and approximately $29.2 million in cash. We also had approximately $30 million at September 30, 2014 of trading securities for the Retterath repurchase agreement. Based on financial forecasts performed by our management, we anticipate that we will have sufficient cash from our revolving loan and cash from our operations to continue to operate the ethanol plant at capacity for the next 12 months and beyond. We do not anticipate seeking additional equity or debt financing in the next 12 months. However, should we experience unfavorable operating conditions in the future, we may have to secure additional debt or equity financing for working capital or other purposes.

The following table shows cash flows for the nine months ended September 30, 2014 and 2013:



	2014			2013
Net cash provided by operating activities	$	64,490,411		$	14,235,692
Net cash (used in) investing activities	(31,738,052		)	(3,256,389		)
Net cash (used in) financing activities	(42,073,211		)	(1,000,000		)
Cash at beginning of period	38,490,952			2,081,779
Cash at end of period	$	29,170,100		$	12,061,082

Cash Flow From Operations

Our operations generated more cash during our first nine months of 2014 compared to the same period of 2013 primarily due to having significantly more net income during the 2014 period.

Cash Flow From Investing Activities

We used more cash for investing activities during our first nine months of 2014 compared to the first nine months of 2013. The major contributing factor causing this increase was the purchase of $30 million of trading securities. These trading securities have been designated by the Board of Directors for the repurchase of membership units held by Steve Retterath. During

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the 2014 period, our primary capital project was the installation of additional corn milling capacity. During the 2013 period, we were installing an additional grain storage bin which was our primary capital project during that time.

Cash Flow From Financing Activities

We used more cash for financing activities during our first nine months of 2014 compared to the same period of 2013 due to additional payments we made on our long-term debt and distributions we paid during the 2014 period.

Short-Term and Long-Term Debt Sources

Master Loan Agreement with Home Federal Savings Bank

On November 30, 2007, we entered into a Master Loan Agreement with Home Federal Savings Bank ("Home Federal") establishing a senior credit facility with Home Federal. In return, we executed a mortgage and a security agreement in favor of Home Federal creating a senior lien on substantially all of our assets. We currently have a $20 million term revolving loan with Home Federal.

Term Revolving Loan

We have a $20 million term revolving loan which has a maturity date of August 1, 2018. Interest on the term revolving loan accrues at a rate equal to the one month LIBOR plus 310 basis points. We are required to make monthly payments of interest until the maturity date of the term revolving loan on August 1, 2018, on which date the unpaid principal balance of the term revolving loan becomes due. As of September 30, 2014, we had $0 outstanding on our term revolving loan and $20,000,000 available to be drawn. Interest accrued on our term revolving loan as of September 30, 2014 at a rate of 3.257% per year.

2014 Term Loan

On February 24, 2014, we executed amended loan agreements with Home Federal pursuant to which Home Federal loaned us $15 million. The $15 million loan was structured as a term loan with a maturity date of March 1, 2019. The purpose of this term loan was to offset our liability associated with the Retterath repurchase agreement. The proceeds of this loan were placed in a separate account which will be used to fund the amounts due to Mr. Retterath pursuant to the repurchase agreement. Interest accrued on the term loan at an annual rate of 310 basis points in excess of LIBOR, adjusted monthly. We agreed to make equal monthly payments of principal and accrued interest of approximately $271,600. As of September 30, 2014, we had $0 outstanding on the term loan.

If we fail to make a payment of principal or interest on any loan within 10 days of the due date, there will be a late charge equal to 5% of the amount of the payment.

Covenants

In connection with the Master Loan Agreement, we are required to comply with certain debt covenants and financial ratios. As of September 30, 2014, we were in compliance with all of our debt covenants and financial ratios. During the term of this Agreement, we are required to achieve and maintain a tangible net worth of not less than 60% as measured at the end of each fiscal year. Tangible net worth is calculated as the excess of our total assets (with certain exclusions, such as intangible assets) over total liabilities (except subordinated debt if applicable). As of September 30, 2014, we had tangible net worth of approximately 81%

In addition to the tangible net worth covenant discussed above, we are subject to certain financial covenants at various times calculated monthly, quarterly or annually. We were required to have working capital of at least $12 million by May 1, 2010 and annually thereafter. As of September 30, 2014, we had working capital of approximately $60 million. Management anticipates that we will be in compliance with all of our debt covenants and financial ratios for at least the next 12 months.

Failure to comply with the loan covenants or to maintain the required financial ratios may cause acceleration of any future outstanding principal balances on the loans and/or the imposition of fees, charges or penalties. Any acceleration of the debt financing or imposition of the fees, charges or penalties may restrict or limit our access to the capital resources necessary to continue plant operations.

Should we default on any of our obligations pursuant to the Home Federal loans, Home Federal may terminate its commitment to provide us funds and declare any future unpaid principal balance of the loans, plus accrued interest, immediately

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due and payable. Events of default include the failure to make payments when due, our insolvency, any material adverse change in our financial condition or the breach of any of the covenants, representations or warranties we have made in the loan agreements.

Application of Critical Accounting Estimates

Management uses estimates and assumptions in preparing our financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Of the significant accounting policies described in the notes to our financial statements, we believe that the following are the most critical:

Derivative Instruments

The Company enters into derivative instruments to hedge our exposure to price risk related to forecasted corn and forward corn purchase contracts through our commodities accounts with ADM Investor Services, Inc. ("ADMIS"). We may also occasionally enter into derivative contracts to hedge our exposure to price risk as it relates to ethanol sales. We do not plan to enter into derivative instruments other than for hedging purposes. Changes in the fair value of our derivatives are recorded in current period earnings. Although certain derivative instruments are not designated as, and accounted for, as a cash flow hedge, we believe our derivative instruments will be effective economic hedges of specified risks.

Revenue recognition

Long-Lived Assets

Inventory Valuation

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to the impact of market fluctuations associated with commodity prices as discussed below. We have no exposure to foreign currency risk as all of our business is conducted in U.S. Dollars and we have no amounts outstanding on variable interest rate debt. We use derivative financial instruments as part of an overall strategy to manage market risk. We use cash, futures and option contracts to hedge changes to the commodity prices of corn, natural gas and ethanol. We do not enter into these derivative financial instruments for trading or speculative purposes, nor do we designate these contracts as hedges for accounting purposes.

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Commodity Price Risk

We seek to minimize the risks from fluctuations in the prices of raw material inputs, such as corn and natural gas, and finished products, such as ethanol and distiller grains, through the use of hedging instruments. In practice, as markets move, we actively manage our risk and adjust hedging strategies as appropriate. Although we believe our hedge positions accomplish an economic hedge against our future purchases and sales, management has chosen not to use hedge accounting, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged. We are using fair value accounting for our hedge positions, which means as the current market price of our hedge positions changes, the realized or unrealized gains and losses are immediately recognized in our cost of goods sold or as an offset to revenues. The immediate recognition of hedging gains and losses under fair value accounting can cause net income to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged.

As of September 30, 2014, we had price protection in place for approximately 5% of our anticipated corn needs for the next 12 months. A sensitivity analysis has been prepared to estimate our exposure to ethanol, corn and natural gas price risk. Market risk related to these factors is estimated as the potential change in income resulting from a hypothetical 10% adverse change in the average cost of our corn and natural gas prices and average ethanol price as of September 30, 2014, net of the forward and future contracts used to hedge our market risk for corn and natural gas usage requirements. The volumes are based on our expected use and sale of these commodities for a one year period from September 30, 2014. The results of this analysis, which may differ from actual results, are as follows:



	Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)	Unit of Measure	Hypothetical Adverse Change in Price	Approximate Adverse Change to income
Natural Gas	2,800,000	MMBTU	10%	$	(1,159,200	)
Ethanol	128,500,000	Gallons	10%	(19,018,000		)
Corn	45,000,000	Bushels	10%	(14,107,500		)

ITEM 4. CONTROLS AND PROCEDURES.

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

Our management, including our President and Chief Executive Officer (the principal executive officer),Walter Wendland, along with our Chief Financial Officer, (the principal financial officer), David Finke, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2014. Based on this review and evaluation, these officers believe that our disclosure controls and procedures are effective in ensuring that material information related to us is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission.

For the fiscal quarter ended September 30, 2014, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS.

Retterath Florida Lawsuit

On August 1, 2013, Steve Retterath, the Company's largest investor and a former member of the Company's board of directors filed a lawsuit in the Florida Circuit Court located in Palm Beach County, Florida. The lawsuit was subsequently removed to federal court in Florida. In the lawsuit, Mr. Retterath sued Homeland Energy Solutions, LLC, Pat Boyle, Maurice Hyde, Christine Marchand, Mathew Driscoll, Leslie Hansen, and Chad Kuhlers, each members of the Company's board of directors, Walter Wendland, the Company's Chief Executive Officer, David Finke, the Company's Chief Financial Officer and Kevin Howes, the Company's Plant Manager. Mr. Retterath also sued James Boeding, a former director and the Company's outside legal counsel, Joseph Leo and the BrownWinick Law Firm. Mr. Retterath is claiming that certain actions taken by the Company violated fiduciary

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duties owed to him as a member or fraudulently induced him to take certain actions. Mr. Retterath is also claiming violations of state and federal securities laws and violations of Florida's deceptive and unfair trade practices statutes. Mr. Retterath claims an unspecified damage in excess of $30 million in monetary damages. The Florida court ruled in favor of the Company's motion to transfer the case to Iowa. Each of the defendants has filed a motion to dismiss the lawsuit and Mr. Retterath has filed a motion for partial summary judgment in the case. A hearing was held regarding these motions on November 7, 2014 and the Company is awaiting a ruling from the Court with respect to these motions.

On August 21, 2014, Jason Retterath and Annie Retterath, the son and daughter-in-law of Steve Retterath, filed a motion to intervene in the lawsuit to protect their interests as members of the Company. The Company filed a motion to dismiss the intervenor petition. The Company's motion to dismiss the intervenor petition was also held on November 7, 2014 and the Company is awaiting a ruling from the Court with respect to this motion.

Retterath Iowa Lawsuit

On August 14, 2013, Homeland Energy Solutions, LLC filed a lawsuit against Steve Retterath in the Iowa state court located in Polk County, Iowa. The purpose of the lawsuit is to enforce the terms of the repurchase agreement we executed with Mr. Retterath on June 13, 2013. We are asking the Iowa state court to require Mr. Retterath to perform his obligations under the Retterath Repurchase Agreement pursuant to its terms. Mr. Retterath removed the case to federal court in the Federal District Court for the Southern District of Iowa in December 2013. We believed that this removal was improper and as a result we moved to remand the case back to the Iowa state court in Polk County which was granted. Mr. Retterath answered the lawsuit in August 2014, denying the validity of the repurchase agreement.

GS Cleantech Patent Litigation

On August 9, 2013, GS Cleantech Corporation ("GS Cleantech"), a subsidiary of Greenshift Corporation, filed a complaint in the United States District for the Northern District of Iowa against the Company. The Company is one of more than twenty ethanol manufacturers which were sued by GS Cleantech. The complaint alleges that the Company's operation of a corn oil extraction process licensed by the Company infringes patent rights claimed by GS Cleantech. GS Cleantech seeks royalties, damages and potentially triple damages associated with the alleged infringement, as well as attorney's fees from the Company. The complaint has been transferred to the United States District Court for the Southern District of Indiana due to a finding that the action involves questions of fact common to several other lawsuits which were joined in a multi-district litigation ("MDL") and which is currently pending in that district. The MDL Court developed two tracks of defendants in this litigation, the first track includes defendants which were originally sued by GS Cleantech in 2010, and a second track of defendants sued in 2013 which includes Homeland. On October 23, 2014, the MDL Court granted summary judgment in favor of the first track defendants and found that the GS Cleantech patents which Homeland is alleged to have infringed are invalid. While the MDL Court's decision relates to the first track defendants, it is beneficial to Homeland and the other second track defendants. Based on the October 23, 2014 decision, Homeland may file a motion to dismiss GS Cleantech's lawsuit on the grounds that the patents which Homeland is claimed to have infringed are invalid. GS Cleantech is likely to appeal the decision of the MDL Court.

ITEM 1A. RISK FACTORS.

The following risk factors are provided due to material changes from the risk factors previously disclosed in our annual report on Form 10-K. The risk factors set forth below should be read in conjunction with the risk factors section and the Management's Discussion and Analysis section for the fiscal year ended December 31, 2013, included in our annual report on Form 10-K.

Government incentives for ethanol production may be reduced or eliminated in the future, which could hinder our ability to operate at a profit. The ethanol industry is assisted by various federal incentives, most importantly the RFS set forth in the Energy Policy Act of 2005. The RFS helps support a market for ethanol that might disappear without this incentive. Recently, there have been proposals in Congress to reduce or eliminate the RFS. In addition, on November 15, 2013, the EPA announced a proposal to significantly reduce the RFS levels for 2014 from the statutory volume requirement of 18.15 billion gallons to 15.21 billion gallons and reduce the renewable volume obligations that can be satisfied by corn based ethanol from 14.4 billion gallons to 13 billion gallons. This proposal would also result in a lowering of the 2014 numbers below the 2013 level of 13.8 billion gallons. The EPA is also seeking comments on several petitions it has received for partial waiver of the statutory volumes for 2014. According to the RFS, the EPA only has authority to waive the requirements of the RFS, in whole or in part, provided one of two conditions are met. The conditions are: (1) there is inadequate domestic renewable fuel supply; or (2) implementation of the requirement would severely harm the economy or environment of a state, region or the United States. Many in the ethanol industry believe that neither of these two conditions have been met. Any challenge to a reduction in the RFS may take time to work through the courts and the waiver may be implemented despite the legal challenges. If the EPA's proposal becomes a final rule which

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significantly reduces the RFS or if the RFS were to be otherwise reduced or eliminated, it may lead to a significant decrease in ethanol demand which could negatively impact our results of operations.

Lack of rail transportation infrastructure and delayed rail shipments could negatively impact our financial performance. The ethanol industry has recently been experiencing difficulty transporting the ethanol which is produced. This difficulty has impacted our operations. Ethanol is typically transported by rail. During the winter months of our 2014 fiscal year, we were required to reduce production due to shipping delays. Further, our ethanol inventory increased due to the difficulty we experienced shipping our ethanol which impacted our financial performance. The slower rail shipments have been due to a combination of factors including increased shipments of corn, coal and oil by rail, decreased shipment capacity by the railroads due to fewer railroad crews, and poor weather conditions which have slowed rail travel and loading times. Management anticipates that these slower railcar shipments will continue for some period of time until the rail transportation capacity in the United States increases. These delays in shipping our products have resulted in decreased revenue and reduced the amount of ethanol we produced which has a negative impact on our financial performance. If these rail shipment challenges continue, they may negatively impact our ability to operate the ethanol plant profitably which could reduce the value of our units.

If China's effective ban on imports of U.S. distillers grains continues, exports of distillers grains could be dramatically reduced which could have a negative effect on the price of distillers grains in the U.S. and affect our profitability. China, the largest buyer of distillers grains in the world, announced on June 9, 2014 that it would stop issuing import permits for U.S. distillers grains due to the presence of a genetically modified trait not approved by China for import. It is unknown how long this effective ban on U.S. distillers grains will continue. Even if China agrees to accept U.S. distillers grains in the future, it is expected that additional restrictions will be placed on such imports which may be difficult to satisfy. If export demand of distillers grains is significantly reduced, the price of distillers grains in the U.S. would likely decline which would have a negative effect on our revenue and could impact our ability to profitably operate which could in turn reduce the value of our units.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION.

None.

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ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

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



Exhibit No.	Exhibit
31.1	Certificate Pursuant to 17 CFR 240.13a-14(a)*
31.2	Certificate Pursuant to 17 CFR 240.13a-14(a)*
32.1	Certificate Pursuant to 18 U.S.C. Section 1350*
32.2	Certificate Pursuant to 18 U.S.C. Section 1350*
101	The following financial information from Homeland Energy Solutions, LLC's Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Balance Sheets as of September 30, 2014 and December 31, 2013, (ii) Statements of Operations for the three and nine months ended September 30, 2014 and 2013, (iii) Statements of Cash Flows for the nine months ended September 30, 2014 and 2013, and (iv) the Notes to Unaudited Financial Statements.**

________________________________

(*) Filed herewith.

(**) Furnished herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		HOMELAND ENERGY SOLUTIONS, LLC

Date:	November 14, 2014	/s/ Walter Wendland
		Walter Wendland
		President and Chief Executive Officer (Principal Executive Officer)

Date:	November 14, 2014	/s/ David A. Finke
		David A. Finke
		Treasurer/Chief Financial Officer (Principal Financial Officer)

HOMELAND ENERGY SOLUTIONS LLC - FORM 10-Q - November 14, 2014

Attached files

HOMELAND ENERGY SOLUTIONS LLC Reports