CORN STORAGE AGREEMENT

Exhibit 10.51

CORN STORAGE AGREEMENT

This Corn Storage Agreement (this “Agreement”) is dated and made effective as of September 1, 2011, by and among Lakefield Farmers Elevator, LLC, a Minnesota limited liability company (“Contractor”), Heron Lake BioEnergy, LLC, a Minnesota limited liability company (“Producer”), and Gavilon, LLC, a Delaware limited liability company (“Gavilon”) (each of Contractor, Producer and Gavilon is a “Party” and together they are collectively referred to as the “Parties”).

R E C I T A L S :

WHEREAS, Contractor is a wholly-owned subsidiary of Producer;

WHEREAS, Gavilon and Producer have entered into certain agreements, including (i) a “Corn Supply Agreement”, (ii) an “Ethanol and Distiller’s Grains Marketing Agreement” and (iii) a “Master Netting, Setoff, Credit and Security Agreement” (collectively, the “Ethanol Plant Agreements”), whereby Gavilon provides Producer with corn for use in Producer’s ethanol plant, and Producer then sells the bi-product consisting of ethanol, dry distiller’s grains and wet distiller’s grains to Gavilon, all in accordance with the terms of such agreements;

WHEREAS, as a condition to Gavilon providing corn to Producer under the terms of the Corn Supply Agreement, Contractor and Producer agreed to provide Gavilon with certain storage space and personnel necessary for the storage and delivery of corn, all as set forth in this Agreement; and

WHEREAS, Contractor and Producer each desire to store corn for Gavilon, and Gavilon desires to store corn in certain elevators or storage facilities owned by Contractor and Producer, all upon the terms set forth in this Agreement.

NOW, THEREFORE, in consideration of the above premises and the mutual covenants, conditions and agreements contained herein, the Parties agree as follows:

1.             Elevator Facilities; Contractor and Producer Responsibilities.  Contractor owns and operates (i) a grain elevator located in Lakefield, Minnesota, which holds up to 1,872,000 bushels, and (ii) a grain elevator located in Wilder, Minnesota, which holds up to 920,000 bushels (“Contractor’s Elevators”).  Producer owns and operates a storage facility located in Heron Lake, Minnesota, which holds up to 550,000 bushels and is utilized for temporary grain storage prior to use at Producer’s ethanol plant (“Producer’s Elevator”) (each of the Contractor’s Elevators and Producer’s Elevator shall sometimes be referred to individually as an “Elevator” and collectively the “Elevators”).  As consideration for Gavilon entering into the Ethanol Plant Agreements with Producer, Contractor and Producer agree that the Elevators shall hereafter be used exclusively for the storing and handling of corn purchased by Gavilon (the “Grain”) for purposes of fulfilling Producer’s requirements for corn under the Corn Supply Agreement.  Contractor and Producer shall maintain their respective Elevators for Gavilon’s sole use for storage of the Grain, and the Grain shall not be co-mingled at the Elevators with any other corn or other grain or products unless Gavilon, Contractor and Producer first agree in writing that the Grain may be co-mingled.  Contractor and Producer each represent and warrant that their respective Elevators are in good working order and repair, and Contractor and Producer each hereby covenant and agree to maintain all personnel, utilities and equipment necessary to operate and maintain the Elevators in a manner which allows for the Grain to be (i) unloaded from trucks or railcars and placed in the Elevators during each Party’s normal business hours, (ii) stored in a manner acceptable to industry standards with minimal spoilage, (iii) with regard to Contractor, unloaded from the Elevators into trucks or railcars for purposes of delivery to Producer or other third parties when and as directed by Gavilon or pursuant to a Limited Sale, and (iv) with regard to Producer, unloaded from the Producer’s Elevator for use at the ethanol plant.

2.                                       Term.  The term of this Agreement shall be as of the date set forth above and shall continue until the later to occur of (i) the delivery of all Grain stored in the Elevators as directed by Gavilon and (ii) the termination of the Ethanol Plant Agreements.

3.                                       Rates and Charges; Demurrage.  As consideration for entering into this Agreement, Contractor and Producer each acknowledge that it shall receive a direct benefit from Producer’s use of the Grain at Producer’s ethanol plant.  Contractor and Producer each further acknowledge that Gavilon shall provide a discounted supply fee to Producer under the terms of the Ethanol Plant Agreements in exchange for Contractor and Producer providing the Elevators to Gavilon for storage of the Grain.  As a wholly-owned subsidiary of Producer, Contractor hereby acknowledges and agrees that it shall receive adequate consideration from Gavilon under the terms of the Ethanol Plant Agreements and Contractor shall not charge any additional consideration to Gavilon for Contractor’s services at, and Gavilon’s use of, the Contractor’s Elevators to store Grain as set forth in this Agreement.  Additionally, Producer hereby acknowledges and agrees that it shall receive adequate consideration from Gavilon under the terms of the Ethanol Plant Agreements and Producer shall not charge any additional consideration to Gavilon for Producer’s services at, and Gavilon’s use of, the Producer’s Elevator to store Grain as set forth in this Agreement.  Contractor shall be responsible for any demurrage charges incurred by Gavilon due to Contractor’s failure to timely unload or load Grain from (or into) trucks or rail cars in accordance with the contracts received from Gavilon and approved by Producer.

4.                                       Setoff.  Contractor agrees that it shall have no right of setoff against Gavilon with regard to any failure by Gavilon to perform its obligations under this Agreement or under the terms of the Ethanol Plant Agreements.  To the extent any setoff rights may be claimed against Gavilon arising under the terms of this Agreement, Contractor agrees that such setoff rights shall belong to Producer and shall be handled in accordance with the terms set forth in the Ethanol Plant Agreements.

5.                                       Services to Be Performed; Direction Given.

a.                                       Contractor shall receive, store and ship the Grain at and from the Contractor’s Elevators in accordance with the terms of any corn contracts entered into by Gavilon or Producer under the terms of the Corn Supply Agreement.  Contractor shall be responsible for selecting the area within the Contractor’s Elevators for storing the Grain and may, without notice, move the Grain between or within the Contractor’s Elevators, but shall not, without Gavilon’s prior consent, move the Grain to any other location.  Contractor shall at all times maintain functional scales at the Contractor’s Elevators and shall weigh all incoming and outgoing Grain within industry tolerances and maintain accurate records of the same.  Contractor’s scales shall be certified on an annual basis in accordance with the then-current NGFA Grain Trade Rules, whereupon Contractor shall provide the certification certificate to Gavilon.  In the event that either Contractor or Gavilon reasonably believes that Contractor’s scales are not working properly, either Party may request that such scales be tested and re-certified.  Gavilon shall have the right to inspect the Contractor’s Elevators and Contractor’s records at any time during normal business hours or, if outside of normal business hours, after giving written notice at least 24 hours in advance.  Contractor shall comply with all regulatory requirements mandated by federal, state or local municipalities for owning and operating the Contractor’s Elevators.  Contractor acknowledges that all Grain received at the Contractor’s Elevators under corn contracts arising under the Corn Supply Agreement shall be stored, shipped or otherwise disposed of in accordance with directions received from Gavilon, and Producer shall have no right or authority to direct Contractor with regard to the storage, shipment or other disposition of the Grain.  In the event that Contractor receives directions from Producer with regard to taking any actions (or not taking actions) related to the Grain, Contractor shall notify Gavilon of such directions and

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Gavilon shall direct Contractor on how to proceed with the same.  In no event shall Contractor sell or ship or otherwise dispose of any Grain based upon directions received by Producer.

b.                                      Producer shall receive, store and ship the Grain at and from the Producer’s Elevator in accordance with the terms of any corn contracts entered into by Gavilon or Producer under the terms of the Corn Supply Agreement.  Producer shall be responsible for selecting the area within the Producer’s Elevator for storing the Grain, but shall not, without Gavilon’s prior consent, move the Grain to any other location except for Producer’s use of such Grain in the ordinary course of business to produce ethanol.  Producer shall at all times maintain functional scales at the Producer’s Elevator and shall weigh all incoming and outgoing Grain within industry tolerances and maintain accurate records of the same.  Producer’s scales shall be certified on an annual basis in accordance with the Trade Rules (as defined in Section 16), whereupon Producer shall provide the certification certificate to Gavilon.  In the event that either Producer or Gavilon reasonably believes that Producer’s scales are not working properly, either Party may request that such scales be tested and re-certified.  Gavilon shall have the right to inspect the Producer’s Elevator and Producer’s records at any time during normal business hours or, if outside of normal business hours, after giving written notice at least 24 hours in advance.  Producer shall comply with all regulatory requirements mandated by federal, state or local municipalities for owning and operating the Producer’s Elevator.  Unless otherwise agreed upon by Gavilon in accordance with the terms of the Corn Supply Agreement, Producer acknowledges that all Grain received at the Producer’s Elevator under corn contracts arising under the Corn Supply Agreement shall be stored, shipped or otherwise disposed of in accordance with directions received from Gavilon in accordance with the Corn Supply Agreement, and Producer shall have no right or authority to otherwise direct shipment or other disposition of the Grain.

6.                                       Grain.  Gavilon represents and warrants that Gavilon shall lawfully possess any Grain shipped to the Elevators at Gavilon’s direction and Gavilon has the right and authority to store the Grain with Contractor or Producer, as applicable.  Each of Contractor and Producer shall provide Gavilon with daily reports showing the amount of Grain received at, or removed from, the Elevators.  Additionally, Contractor and Producer, as applicable, each agrees to provide Gavilon with a calculation of the Grain remaining in the Elevators as of the last day of each month.  Additionally, each of Contractor and Producer shall work in good faith to true-up such amounts and account for the same on a monthly basis based upon measurements taken at the Elevators to determine the amount of Grain remaining at the end of each month.  In the event that there is a discrepancy between the estimated amount of Grain remaining in each Elevator at the end of each month based upon shipments of Grain received or shipped when compared with the estimated amount of Grain remaining at each Elevator based upon measurements taken at the Elevators, Contractor and Producer shall work in good faith to resolve such issues with Gavilon with the actual estimated measurements to be determinative unless otherwise agreed upon by the Parties.  Each of Contractor and Producer shall notify Gavilon immediately of any errors, problems or complaints relating to the Grain, including any matters related to Grain contracts (i.e., specification issues or delivery issues) or related to storage of the Grain (i.e., any damage or spoilage).

7.                                       Liability.

a.                                       Contractor and Producer shall each be liable for loss of or injury to the Grain while under its care, custody and control when caused by its failure to exercise such care in regard to the Grain as a reasonably careful man would exercise under like circumstances.  Except as otherwise set forth in the Corn Supply Agreement, Contractor and Producer shall not be liable for damages which could not have been avoided by the exercise of such care.

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b.                                      Contractor and Producer shall each be liable for any loss or injury suffered by Gavilon due to Contractor’s or Producer’s breach of the terms of this Agreement.

c.                                       Contractor and Producer shall not be liable for any loss of profit or special, indirect or consequential damages of any kind.

d.                                      Contractor and Producer acknowledge that any risk of loss for the Grain as between Gavilon and Producer shall be as set forth in the Ethanol Plant Agreements, and at no time shall Contractor or Producer have title to the Grain while it is stored in the Elevators.

8.                                       Insurance.  Contractor shall provide policies and limits of insurance as set forth on Exhibit “A”.  The policies shall be with carriers who are “A” rated by Best’s Insurance Reports.  Contractor shall provide Gavilon with insurance certificates reflecting such coverage, which certificates shall provide that the carrier will not terminate or reduce the coverage without first giving Gavilon 30 days’ prior written notice.  Contractor shall provide Gavilon with the policies for inspection upon Gavilon’s request.  Producer shall provide policies and limits of insurance as set forth in the Ethanol Plant Agreements, and such insurance shall also cover the Grain stored in Producer’s Elevator.

9.                                       Independent Contractor.  Contractor and Producer shall each act as an independent contractor under this Agreement.  Each shall perform its obligations under this Agreement using its own employees or agents.  Each shall decide on the manner and means of accomplishing those obligations and shall direct, control and supervise its employees.  Each shall comply with all payroll tax, withholding, social security, unemployment and related employer obligations.  Neither Contractor nor Producer shall hold itself out as an agent of or joint venturer with Gavilon, and neither Contractor nor Producer shall have any authority to act on behalf of Gavilon except to the extent necessary to accomplish its obligations under this Agreement.

10.                                 Title; Subordination.  Contractor and Producer shall not permit any lien or other encumbrance to be placed against the Grain while it is in Contractor’s or Producer’s possession, as applicable.  Title to the Grain shall at all times remain in Gavilon, and at no time shall Contractor or Producer have any claim to title for the Grain.  Neither Contractor nor Producer shall have a general warehouseman’s lien on the Grain for any claims or unpaid charges arising under this Agreement or under the Ethanol Plant Agreements, and Contractor and Producer each hereby waive any and all rights to place a lien on the Grain arising from Contractor’s or Producer’s (as applicable) performance under the terms of this Agreement.  As a condition to entering into this Agreement, Contractor and Producer each acknowledge that any lender(s) it may have with regard to the Elevators or any equipment or operations related thereto, shall enter into a Lender’s Consent and Acknowledgement in the form attached hereto as Exhibit “B”.  Contractor hereby acknowledges and agrees that any fees or charges due to Contractor shall be paid by Producer, or received as a benefit from Producer based upon Contractor being a wholly-owned subsidiary of Producer, and Gavilon shall have no responsibility or liability for paying any such amounts to Contractor.

11.                                 Security Interests.  In the event that any mediation, arbitration or court proceeding shall determine that any Grain owned by Gavilon under the terms of the Corn Supply Agreement was instead owned by Producer, then Contractor and Producer each hereby acknowledge that Gavilon shall have a first priority lien in the Grain in accordance with the terms of the Ethanol Plant Agreements and Contractor and Producer shall follow the directions of Gavilon with regard to receiving, storing and shipping the Grain until such time as a court with proper jurisdiction determines (after all appeals are time barred or have otherwise been completed) to the contrary.

12.                                 Force Majeure.  No Party shall be liable to the other Parties for failure to perform its obligations under this Agreement if prevented from doing so because of an act of God, strikes, fire, flood, war, civil disturbance, interference by civil or military authority or other causes beyond the reasonable control of the Party.  Upon the occurrence of such an event the Party seeking to rely on this provision shall promptly give written notice to the other Parties of the nature and consequences

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of the cause.  If the cause is one which nevertheless requires Contractor or Producer to continue to protect the Grain, Contractor and Producer each agree that any expenditures made by Contractor or Producer to protect the Grain shall be paid by Producer as partial consideration for Gavilon entering into the Ethanol Plant Agreements.

13.           Indemnification.  Each Party (the “Indemnitor”) shall indemnify and hold the other Parties (the “Indemnitee) harmless from and against all liabilities, claims, suits, fines, damages, losses, costs and expenses (including reasonable attorneys’ fees) arising out of injury to or death of any person or damage to or loss or destruction of any property (except for the Grain where liability is covered in Section 7 above) caused by or performance resulting from any parties’ default, improper performance or nonperformance of obligations hereunder by the Indemnitor, its employees or agents. The Indemnitee shall provide prompt notice of any claim or liability, shall tender defense or settlement to the Indemnitor, and shall fully cooperate in defense of the claim.  Should the Indemnitor fail to honor a timely request for indemnification, then the Indemnitee shall be entitled to all costs (including reasonable attorney’s fees) incurred in the enforcement of the right of indemnification hereunder, which enforcement results in a legal judgment in its favor or an acknowledgement by the Indemnitor that the claimed indemnification is valid in a settlement of such claim.